It is to be noted here that the socialists, who might be supposed to consider as paramount the interests of society or of the public, are the very people who are least inclined to do anything of the kind. [Footnote: This concept was suggested to me by Professor Thomas Nixon Carver of Harvard University.] Socialists look upon the state only as an agency for benefiting particular groups of individuals. The emphasis of political socialism upon class struggle, the frank admissions of the I.W.W. that they seek to suppress all but the laboring class, and the establishment by the bolshevists of a dictatorship of the proletariat, all these facts indicate that socialists seek the welfare of particular groups rather than the welfare of the general public.

But class legislation is repugnant to the principles of American democracy. We believe in government by the masses and for the masses; furthermore, we are committed to the ideal of as much individual freedom and as little governmental compulsion as is compatible with the good of both individual and community. The concept of a socialist bureaucracy, administered in the interests of particular groups, runs counter to our fundamental beliefs and ideals.

157. SOCIALISM WOULD DESTROY PERSONAL INITIATIVE.—One of the strongest arguments against socialism is that it would destroy personal initiative. Socialism runs counter to human nature by under- valuing the principle of self-interest. Economists are generally agreed that the abolition of the institution of private property would cause the ambition of the individual to slacken. In spite of its defects, it is the competitive system, with its promise of reward to the energetic and the capable, which is largely responsible for the miraculous prosperity of modern times. Men ordinarily will not undergo systematic training, perfect inventions, strive to introduce greater and greater economies into their business, or undertake the risk of initiating new enterprises, unless they are assured that they will be able to enjoy the fruits of their labor.

And not only would socialism discourage ambition by abolishing private enterprise, but it might encourage inefficiency and shiftlessness. Every man would be guaranteed a job, every individual would be protected against want. It is even likely that a socialist state would undertake to rear and provide for the offspring of its citizens. Human experience indicates that this degree of paternalism would encourage laziness and increase irresponsibility.

It is sometimes said that under socialism men would work as eagerly for social esteem as they now work for financial gain. This would be a highly desirable condition, but unfortunately there is nothing in human experience to justify the hope that such a state of affairs will speedily be realized. The spread of altruism in the modern world is heartening, but no sensible person will shut his eyes to the fact that, for the immediate future at least, self-interest promises to be much more widespread than altruism. The love of gain may not be the highest motive in life, but it is better than none, and for a long time to come it will probably be the one which appeals most strongly to the average man. Socialists and non-socialists alike deplore the domination which self-interest exercises over human affairs. But whereas the non-socialist wisely tries to adapt a program of industrial reform to this hard fact, many socialists appear to believe that because the principle of self-interest often works out badly, they ought to act as though that principle did not exist.

158. SOCIALIST THEORY OF DISTRIBUTION UNSOUND.—Both socialists and non-socialists admit that poverty is an undesirable condition. But over the method of improving the condition of the poor the socialist and the non-socialist disagree. The defender of capitalism begins by pointing out that, under competitive conditions, the unskilled laborer is poor primarily because his labor is not highly productive. The socialist ignores this fact, and insists that the laborer shall receive a share of wealth which shall be adequate to his needs. As we shall have occasion to point out in the next chapter, this attitude of the socialist indicates a fundamental defect in his theory. Socialism pays more attention to who shall eat and how much shall be eaten, than it does to the more fundamental question of how food is to be produced, and how much can actually be produced. Laws may oblige an employer to give his workmen twice as much as they add to the value of his product, but though this will benefit the workmen while it lasts, such a practice would, if widely adopted, lead to industrial bankruptcy. [Footnote: It is assumed, in this section, that the productivity of the laborer is determined from the point of view of the employer. This is in accordance with the productivity theory which was discussed in Chapter IX.]

159. SOCIALIST THEORY OF VALUE UNSOUND.—Many of the defects of the socialist doctrine are traceable to the fact that it rests upon false assumptions. One of these false assumptions is that commodities have value in proportion as labor has been expended upon them. This labor theory of value has been discarded by every authoritative economist of modern times. As has been pointed out in Chapter VIII, value depends upon scarcity and utility. The soundness of the scarcity-utility theory, as well as the unsoundness of the labor theory, may be brought out with reference to three classes of goods.

First, there are commodities which have value in spite of the fact that no labor has been expended upon them. Virgin land, the gift of Nature, is the most important example. Articles of this class have value because they satisfy men's wants, i.e. have utility, and because they are scarce. Labor has nothing to do with their original value.

Second, there are commodities which have no value, even though much labor has been expended upon them. A building erected in a desert or in a wilderness is an example. Unwanted books, or paintings by unknown artists are other examples. Commodities in this class may represent a great expenditure of labor, and still have no value, first because they do not satisfy anyone's wants, and second because they are not scarce, i.e. there are not fewer of them than are wanted.

Third, articles may have a value which is out of proportion to the amount of labor expended upon them. The value of diamonds, old coins, and rare paintings is disproportionate to the actual amount of labor involved in their production. A sudden change in fashion may cause the value of clothing and other commodities to rise or fall, with little or no regard for the amount of labor expended upon them. In each case it is not labor that determines value, but scarcity and utility.

160. LABOR NOT THE ONLY FACTOR IN PRODUCTION.—Labor is an important factor in production, but land, capital, cordination, and government are also of vital importance to any modern industrial community. The great error of the socialist is that he over-estimates the importance of the laborer, and minimizes or altogether denies the importance of the individuals with whom the laborer coperates in production. This error is explainable: the laborer does most of the visible and physical work of production, while the part played by the landowner, the capitalist, and the entrepreneur is less physical and often is apparently less direct. The complexity of the industrial mechanism very often prevents the laborer from appreciating the true relation existing between his own physical labor, and the apparently indirect and often non-physical efforts of those who coperate with him. It is in this connection that producers' coperation and bolshevism have performed a great service. They have demonstrated, by the out-and-out elimination of the managing employer, that the laborer alone cannot carry on modern industry. Such actual demonstrations of the value of factors of production other than labor are of far more service in correcting the viewpoint of the socialist than is any amount of theoretical argument.

161. THEORY OF CLASS STRUGGLE UNWARRANTED.—The theory of class struggle is based upon the claim that the laborer produces all wealth. But we have seen this claim to be unfounded; therefore the theory of class struggle is built upon an error. Ultimately, the theory of class struggle tends to injure the very class which seeks to gain by advocating it, for true and permanent prosperity for the laboring class (as well as for all other classes) can result only when all of the factors of production work together harmoniously. Fundamentally the quarrel between capital and labor [Footnote: The phrase "capital and labor" is loose and inaccurate, but is in common use. Used in this sense the word "capital" refers to the capitalist and employing classes, while the word "labor" refers to the workers. See Section 181, Chapter XVIII, for a fuller discussion.] is as suicidal as though the arms of a human body refused to coperate with the other members. There are, indeed, many antagonisms between capital and labor, but socialism seeks to foment, rather than to eliminate them. Socialism preaches social solidarity and prosperity for all, but by inciting the class struggle it makes for class hatred and a disharmony between capital and labor which decreases prosperity and threatens economic ruin.

162. HISTORY HAS DISPROVED SOCIALISM.—Karl Marx bases his theory of a future socialist state upon a number of predictions, none of which has come true. According to Marx, socialism was inevitable. He declared that the centralization of wealth in the hands of the capitalists, on the one hand, and the increasing misery of the workers on the other, would accentuate the class struggle and bring about the downfall of capitalism. As a matter of fact, laws are more and more restricting the undue concentration of wealth in the hands of a few. The middle classes, far from disappearing, as Marx predicted, are increasing in numbers and in wealth. The working classes are not becoming poorer and more miserable, but are securing a larger and larger share of the joint income of industry.

The socialist revolution came in 1917, not in the most enlightened country in the world, as Marx had predicted, but in Russia, one of the most backward of civilized countries. This revolution did not demonstrate the superiority of socialism over capitalism, but revealed the fundamental weaknesses of socialism, and led to a more widespread recognition of the merits of the capitalistic system.

In the progressive countries of western Europe and America, the likelihood of a socialist revolution has been greatly diminished by two developments. These developments, both of which were unforeseen by Marx, are as follows: first, the improving condition of the workers has rendered socialist doctrine less appealing; second, the increasing effectiveness of legislation designed to remedy the defects of capitalism has caused attention to be directed to legislative reform rather than to socialism. With many who were formerly socialists, the supreme question has become, not how to destroy the present order, but how to aid in perfecting it by means of appropriate legislation.

163. SOCIALISM CLAIMS TOO MUCH.—Socialism often appeals strongly to people who are unable to distinguish between plans which are realizable and promises which cannot be fulfilled. For example, socialism promises greatly to increase the productive power of the nation, to shorten the hours of labor, and to insure a just distribution of wealth. These reforms, it is claimed, would be accompanied by the elimination of unemployment, poverty, vice, and attendant evils. It is maintained that socialism would encourage a higher moral tone and a healthier and more vigorous social life than now exist.

Without doubt these are desirable aims, but we must face the hard fact that socialism is not likely to attain them.. Some of the ills which socialism claims to be able to cure are neither attributable to capitalism, nor open to remedy by socialism. For example, crises and unemployment are often due to the alternations of good and bad harvests, to the varying degrees of severity in successive winters, to new mechanical inventions, and to changes in fashion. These forces are beyond the effective control of any state. This being so, it is unfair for socialists to attribute their evil effects to capitalism. It is likewise unwarranted that socialism should claim to be able effectively to control these forces.

Other industrial evils are due to the infirmities of human nature, and to the fact that we are a highly civilized people living more and more under urban conditions. Crime, vice, and disease are grave social problems which demand solution, but it is unfair for socialism to charge these evils against capitalism. Such defects are due partly to the fact that we are human, and partly to the fact that much of modern life is highly artificial. Unless socialism contemplates a return to small, primitive communities, there is nothing to indicate that it would be able materially to reduce crime, vice, nervous strain, or ill-health. Indeed, there is no evidence to show that socialism could make as effective headway against these evils as we are making under capitalism.

164. DEFECTS OF SOCIALISM OUTWEIGH ITS MERITS.—It is only after the advantages of a system or an institution have been carefully weighed against its disadvantages that its value appears. A socialist system would have some obvious merits. It might eliminate unemployment, since everyone would be an employee of the state, and, as such, would be guaranteed against discharge. Charitable aid would probably be extended to many people now left to their own resources.

But certainly socialism could not cure ills which are due either to natural causes, or to the infirmities of human nature. The abolition of private initiative and of private property would strike at the root of progress. Socialism would also probably give rise to a series of new problems, such as the evils arising out of a bureaucratic form of government. As its program now stands, it is probably fair to say that the defects of socialism greatly outweigh its merits.

165. SOCIALISM UNDER-RATES CAPITALISM.—The ardor of the socialist often causes him to underestimate the merits of capitalism, and to exaggerate its defects. The striking achievements of capitalism, so in contrast with the negative character of socialism, are not generally appreciated by the socialist. On the other hand, the socialist places an undue emphasis upon the defects of the present system. The radical agitator too often overlooks the millions of happy, prosperous homes in this and other countries; he too often sees capitalism in terms of poverty, crises, unemployment, vice, disease, and extravagance.

Our age is not to be despaired of. An age of progress is always an age of adaptation and of adjustment, and it is precisely because American democracy is both a progressive ideal and a living, growing institution that it is confronted with problems. The socialist indictment is not a prelude to chaos, for through the process of adjustment we are making steady progress in solving our problems. Capitalism has served us well, and though it has defects, these are clearly outweighed by its merits. So long as we know of no other system which would work better, we are justified in retaining capitalism.

166. NECESSITY OF A DEFINITE PROGRAM OF INDUSTRIAL REFORM.—Socialism appeals to certain types of people because it offers a confident program, even though it is a mistaken and probably a dangerous program. And it is the almost universal failure of non-socialists to advance a substitute program that is responsible for a large share of the resentment which industrial evils have aroused among non- socialists. If not socialism, what? is the cry. We are challenged to move, to do something, to present a reform program which will justify the rejection of socialism.

Lest our survey of industrial reform seem negative and devoid of constructive elements, therefore, the next chapter will be devoted to what may be called a democratic program of industrial reform. The basic idea of this program is that poverty is as unnecessary as malaria or yellow fever, and that we can abolish poverty without sacrificing private property, personal initiative, or any of the other institutions which we hold dear.

QUESTIONS ON THE TEXT

1. What are some of the administrative difficulties which would confront a socialist state?

2. Why would socialism tend to give rise to a bureaucratic government?

3. In what way does socialism run counter to human nature?

4. In what way does the socialist differ from the non-socialist in his attitude toward the principle of self-interest?

5. In what way is the socialist theory of distribution unsound?

6. Demonstrate the unsoundness of the labor theory of value, with reference to three classes of goods.

7. How may we explain the socialist's tendency to overestimate the importance of labor, and to underestimate the value of other factors of production?

8. Explain clearly the statement that "history has disproved socialism."

9. In what way does socialism claim too much?

10. Name some industrial evils which socialism probably could not cure.

11. What is meant by the statement that "socialism under-rates capitalism"?

12. Why is it necessary for non-socialists to advance a program of industrial reform?

REQUIRED READINGS

1. Williamson, Readings in American Democracy, chapter xvi.

Or all of the following:

2. Brasol, Socialism versus Civilization, chapter ii.

3. Bullock, Selected Readings in Economics, pages 681-705.

4. Ely, Outlines of Economics, chapter xxxi.

5. Le Rossignol, Orthodox Socialism, chapters viii and ix.

6. Skelton, Socialism, a Critical Analysis, chapter iii.

QUESTIONS ON THE REQUIRED READINGS

1. What is the "American conception of equality"? (Brasol, pages 75- 76.)

2. Why is the wage system a necessary feature of modern industrial life? (Brasol, page 93.)

3. What is the importance of the spirit of enterprise in increasing national wealth? (Brasol, page 99.)

4. What effect has the development of entrepreneur ability had upon the condition of the laboring classes? (Le Rossignol, pages 112-113.)

5. Could collective production be carried on in a democratic country? (Bullock, pages 682-683.)

6. Could socialism increase the productivity of the nation? (Bullock, pages 685-688.)

7. What are some of the difficulties which a socialist state would encounter in distributing wealth? (Bullock, pages 688-693.)

8. What difficulties would confront a socialist state in fixing wages? (Bullock, pages 696-705.)

9. What has been the effect of the Industrial Revolution upon the condition of the laboring classes? (Le Rossignol, pages 107-108.)

10. Explain why Marx's prediction of an increasing concentration of wealth in the hands of a few has not come true. (Le Rossignol, pages 128-130.)

11. To what extent is socialism too pessimistic about the present order? (Le Rossignol, page 138.)

12. To what extent does socialism overestimate industrial evils? (Skelton, page 53.)

13. What service has been rendered by socialism? (Ely, page 638.)

14. What, according to Skelton, is the fundamental error of socialism? (Skelton, pages 60-61.)

TOPICS FOR INVESTIGATION AND REPORT

I

1. Make a list of a number of familiar commodities, and divide them into three classes for the purpose of testing the error of the labor theory of value, and the truth of the scarcity-utility theory. (Consult Section 159.)

2. Make a study of unemployment in your locality, with particular reference to unemployment due to

(a) climatic changes,

(b) changes in fashion,

(c) accidents, such as fire, flood or earthquake.

3. Interview an elderly friend or relative, with the purpose of securing a definite idea of the condition of the working classes a half century ago. Contrast with the condition of the laborers to-day.

4. Make a list of the notable inventions of the nineteenth century. To what extent has each increased the productivity and well-being of the various occupational groups in your community?

II

5. History of socialism. (Consult an encyclopedia.)

6. Varieties of socialism. (Ely, Outlines of Economics, chapter xxx.)

7. The Iron Law of wages. (Le Rossignol, Orthodox Socialism, chapter iii.)

8. The socialist's attitude toward industrial crises. (Le Rossignol, Orthodox Socialism, chapter vi.)

9. Objections to the socialist's attitude toward production. (Ely, Strength and Weakness of Socialism, part iii, chapter vi.)

10. Objections to socialism as a scheme of distribution. (Ely, Strength, and Weakness of Socialism, part iii, chapter viii.)

11. Socialism and American ideals. (Myers, Socialism and American Ideals.)

12. Social justice without socialism. (Clark, Social Justice without Socialism.)



CHAPTER XVII

A DEMOCRATIC PROGRAM OF INDUSTRIAL REFORM

[Footnote: The title of this chapter, as well as the material in Sections 170-175, has been adapted, by permission, from the writings and lectures of Thomas Nixon Carver, Professor of Economics in Harvard University.]

167. THERE IS NO SIMPLE REMEDY FOR THE DEFECTS OF CAPITALISM.—The economic system of a modern civilized nation is a vast and complicated affair, and its defects are both numerous and deep-lying. No one really familiar with the problem would propose so simple a remedy as socialism for so complex a disease as industrial maladjustment. History affords many examples of schemes that were designed to eliminate poverty from the world suddenly and completely, but no such scheme has succeeded.

Let it be understood at the outset of this chapter, therefore, that really to eliminate the basic defects of our industrial system we must resort to a series of comprehensive reforms rather than to a single scheme or theory. These reforms must be so wisely planned and so carefully executed as to attack the evils of capitalism from a number of angles simultaneously. The attack must be partly by legislative, and partly by non-legislative methods.

The series of reforms referred to above must have three aims: first, to give every individual exactly what he earns; second, to make it possible for every individual to earn enough to support himself and his family at least decently; and third, to teach every individual to use wisely and economically the income which he receives.

A program embodying these three aims has the disadvantage of seeming commonplace and slow of fulfillment to those who prefer novel and sensational schemes, but it has the advantage of being both workable and safe.

168. THE NATURE OF JUSTICE.—Among the advocates of socialism the word "justice" is much used, but apparently little understood. Justice in industry implies that every individual shall receive precisely what he earns, no more, no less. If a monopolist secures unearned profits, there is injustice. If a laborer adds to the value of a product to the extent of five dollars, there is injustice if he receives less than five dollars in wages. Similarly, there is injustice if the laborer earns only four dollars, but receives five dollars. Wherever there is an unfair distribution of wealth, there is a double injustice: some individual gets a share of wealth which he did not earn and to which, therefore, he is not entitled; while the individual who did earn that wealth is deprived of it.

169. THE IMPORTANCE OF THIS.—All right-thinking reformers will agree with the socialist that much or all of the unearned wealth of the moneyed classes ought to be taken for the benefit of the community. But he who accepts the democratic program of industrial reform will not sanction the socialist's proposal to eliminate poverty primarily by decreeing higher wages.

In the first place, this proposal of the socialist is unjust. A man who earns three dollars a day may not be able to live on that amount, and it may be desirable for some agency to give him more than three dollars a day. But that would be charity, not justice. It would be, as we have just seen, a double injustice.

In the second place, such a practice would lead inevitably to national bankruptcy. Under the competitive system, wages tend to be determined by productivity. To attempt to eradicate poverty primarily by the raising of wages is futile, for employers cannot long pay out in wages more than the laborer adds to the product. Some employers might do so for a long time, and all employers might do so for a short time, but if the practice were nation-wide and long-continued, it would result in economic ruin. To put a premium upon propagation by guaranteeing every man a job, and to pay him, not according to productivity, but according to need, would be equivalent to building up a gigantic charitable institution. Charity is a necessary and laudable function, but the proper care of the dependent classes is possible only when the majority of the people are not only self-supporting, but actually produce a surplus out of which the unfortunate can be cared for. If applicants for charity too largely outnumber those producing a surplus, national bankruptcy results.

In the third place, an increase in wages might not benefit even those receiving higher wages unless they were able and willing to spend their income wisely and economically.

170. THE REDISTRIBUTION OF UNEARNED WEALTH.—The first step in our program is to apply the principle of justice to the problem of unearned wealth. The student should be careful at this point to distinguish between wealth which has been earned, however great, and wealth which has been acquired by unjust methods. American democracy will tolerate no interference with wealth which has been earned; on the other hand, it demands that unearned riches be redistributed in the form of services performed by the government for the people as a whole.

There are three chief methods of redistributing unearned wealth. The first is by means of increased taxes on land. As was pointed out in the chapter on single tax, that income from land which is due, not to the efforts of the owner, but either to natural fertility or to the growth of the community, may be considered as unearned. While the single tax is too drastic a reform, it is unquestioned that we need heavier taxes upon the unearned increment arising from land.

A second method of redistributing unearned wealth is through the application of inheritance taxes. Reserving the whole problem of taxation for later discussion, [Footnote: See Chapter XXXII.] it may be said here that in many cases large sums are willed to individuals who have done little or nothing to deserve them. In so far as this is true, and in so far as such a tax does not discourage the activities of fortune builders, the inheritance tax is a desirable means of redistributing unearned wealth.

The last method of redistributing unearned wealth is by a tax on those elements in profits which are due to the abuse of monopoly conditions. [Footnote: Monopoly will be treated more fully in Chapters XXVII and XXVIII.] Complete monopoly rarely exists, but in many businesses there is an element of monopoly which allows the capitalist or entrepreneur to secure a measure of unearned wealth. In the interest of justice, much or all of this ought to be taken for the use of the community.

171. SOMETHING MORE THAN JUSTICE IS NECESSARY.—It is an error to suppose that justice would necessarily eliminate either low wages or poverty. As we have seen, justice would require the redistribution of a large amount of unearned wealth. But much more important is the question of large numbers of laborers whose wages are undesirably low. If the rule of justice were applied to this latter class, that is, if they were given just what they earned, many would continue to be poor. Indeed, if justice were strictly administered, it is even possible that among a few groups poverty would increase, since some individuals are incapable of really earning the wages they now receive.

Something more than justice, therefore, is necessary. We must not only see that a man gets as much as he produces, no more, no less, but we must make it possible for every individual actually to produce or earn enough to support himself decently or comfortably. This, in essence, is the distinction between the socialist and the liberalist, i.e. he who accepts the democratic program of industrial reform: the socialist would practice injustice and invite economic ruin in a vain effort to eliminate poverty; the liberalist seeks the abolition of poverty without violating either justice or economic law.

172. WHY WAGES ARE LOW.—A little thought will show that directly or indirectly poverty is sometimes the result of low wages. It follows, thus, that the source of some poverty would be dried up if an increase in wages could be secured in an economical manner. To come to the heart of the problem, wages are low because productivity is low. That is to say, employers operating under conditions of free competition will pay laborers in proportion as the latter give promise of adding to the value of the product. When men are scarce, relatively to the supply of land and capital, the employer will be justified in offering high wages, because under those circumstances the productivity of each of his prospective employees will be high. He will actually offer high wages, because if he does not, the laborers will tend to hire out to his competitors. But if laborers are plentiful, relatively to the supply of the other factors of production, the employer will be forced to offer lower wages, because under the circumstances each of the prospective employees shows promise of being able to add relatively little to the value of the product. In such a case, the employer will actually offer low wages because he need not fear that his competitors will hire all of the laborers applying for jobs.

Thus when laborers are plentiful, relatively to the demand, the automatic functioning of the law of supply and demand will result in low wages. We need not waste time debating whether or not there ought to be such a thing as the law of supply and demand; a far more profitable exercise is to recognize that such a law exists, and to consider how our program of industrial reform may be adapted to it.

173. AN ECONOMICAL REMEDY FOR LOW WAGES.—Low wages are generally the result of low productivity, and low productivity is in turn the result of an oversupply of laborers relatively to the demand. Granting the truth of these premises, an economical remedy for low wages involves two steps: first, the demand for labor [Footnote: By "labor" is here meant those types of labor which are poorly paid, because oversupplied. Unskilled day labor is an example.] must be increased; and second, the supply of labor must be decreased. Any measure which will increase the demand for labor, relatively to the demand for the other factors of production, will increase the productivity of labor, and will justify the payment of higher wages. Competition between prospective employers will then actually force the payment of higher wages. Similarly, any measure which will decrease the supply of labor will strengthen the bargaining position of the laborer, and, other things remaining equal, will automatically increase wages.

174. INCREASING THE DEMAND FOR LABOR.—If we bear in mind that modern industry requires a combination of the various factors of production, it will be seen that the utilization of laborers depends upon the extent to which land, capital, and entrepreneur ability are present to combine with those laborers. Where there is a large supply of these factors, many laborers can be set to work. Thus one way of increasing the demand for labor is to increase the supply of land, capital, and entrepreneur ability.

The available supply of land can be increased by several methods. Irrigation, reclamation, and dry farming increase the available supply of farm land. The fertility of land may be retained and increased by manuring, rotation of crops, and careful husbandry. Improved agricultural machinery will also enable land to be used in larger quantities and in more productive ways. And while we do not think of man as actually creating land, the draining of swamps and the filling in of low places increases the available amount of both farm and urban land. By whatever means the amount of available land is increased, the effect is to open more avenues to the employment of laborers.

The supply of capital may be increased chiefly by the practice of thrift among all classes of the population. Capital arises most rapidly when individuals produce as much as possible, and spend as little as possible for consumers' goods. Any measure which will discourage the well-to-do from wasteful or luxurious ways of living, and at the same time encourage the poor to save systematically, even though they save only a trifle, will add to the supply of available capital. Every increase in the supply of capital will enable more and more laborers to be set to work.

Entrepreneur ability may be increased by a variety of methods. The training of men for business callings increases the supply of entrepreneurs. Taxes on inheritances, excess profits, and the unearned increment of land will tend to force into productive work many capable men who now either idle away their lives, or retire from business prematurely. It is also important that the well-to-do classes be encouraged to rear larger families, since it is these classes which can best afford to give their children the higher forms of training and education. Lastly, it is desirable to teach that leisure is disgraceful, and that whether one is rich or poor, the useful and productive life is the moral and patriotic life. "He who does less well than he can does ill."

175. DECREASING THE SUPPLY OF LABOR.—Hand in hand with measures deigned to increase the demand for labor should go consistent efforts to decrease the supply of unskilled and poorly paid labor. One of the most effective means of accomplishing this is to restrict by law the immigration to this country of masses of unskilled workers which glut the American labor market and force down the wages of unskilled workmen already here. The general problem of immigration will be discussed elsewhere; here it is only necessary to note that as an economic proposition unrestricted immigration is undesirable.

The supply of unskilled labor may be somewhat restricted by additional laws. It is clear that we ought to pass and enforce laws which would prevent the propagation of mental defectives. There ought also to be laws which would discourage the marriage of individuals who show no promise of being able to rear and support children who are physically fit. It might not be expedient to pass legislation requiring a certain minimum income of persons intending to marry, but from the purely economic point of view, such laws would certainly be advisable.

Much in this general field can be done by non-legislative methods. Young people can be taught the desirability of postponing marriage until their earnings justify the acceptance of such a responsibility. Just as the well-to-do should be encouraged to prefer family-building to social ambition, so the poorer classes ought to be encouraged to postpone marriage until, through education or training, the proper support of a family is assured. This end must be secured through moral and social education, rather than through legislation.

The encouragement of thrift among the poorer classes of the population is an important factor in decreasing the supply of unskilled labor. Thrift increases savings, and by making possible education or apprenticeship in a trade, it enables the children of the unskilled worker to pass from the ranks of the poorly paid to the ranks of the relatively well paid. Thus not only does the practice of thrift by the poor add to the amount of capital in existence, and thus indirectly increase the demand for labor, but it helps the poor directly and immediately.

Vocational education is of fundamental importance in decreasing the supply of unskilled labor. It renders higher wages economically justified by training individuals away from overcrowded and hence poorly paid jobs, and toward those positions in which men are scarce, and hence highly paid. If vocational education turns unskilled workmen into entrepreneurs, such education has the doubly beneficial effect of lessening the supply of unskilled labor, and of increasing the demand for labor. The importance of trade schools, continuation schools, and other agencies of vocational education can hardly be exaggerated.

Employment bureaus and labor exchanges are essential to the democratic program of industrial reform. Just as vocational education must move individuals from overcrowded to undercrowded occupations, so the employment bureau should move laborers from places where they are relatively little wanted, and hence poorly paid, to places where they are relatively much wanted, and hence better paid. A cordinated system of national, state, and municipal employment bureaus is a valuable part of our program of industrial reform.

176. IMPORTANCE OF PERSONAL EFFICIENCY.—We have seen that the bargaining position of the laborer may be strengthened by any and all measures which would increase the demand for his labor, relatively to the demand for the other factors of production. As a general proposition, this strengthened position would tend automatically to result in higher wages.

Along with these measures it should not be forgotten that the industrial position of the individual worker tends to improve in proportion as he increases his personal efficiency. It is of the greatest importance that the individual should strive to secure as thorough an education as possible, and that he safeguard himself against accident and disease. He should realize, also, that employers seek men who are not only competent, but whose personal habits are attractive and trust-inspiring. Regardless of the scarcity or oversupply of labor, personal efficiency will tend to enable the worker to receive larger wages than would otherwise be possible.

177. SOMETHING MORE THAN HIGH WAGES IS NECESSARY.—We have taken some time to point out how wages might be increased without violating economic law. But high wages do not necessarily mean the abolition of poverty, indeed, actual investigations have proved that often poverty exists regardless of whether wages are high or low. A family of four, for example, might be well fed, comfortably clothed, and otherwise cared for in a normal manner, on, say, three dollars a day, provided that sum were utilized wisely. A second family of equal size, however, might spend six dollars a day so carelessly that the children would be denied such vital necessities as medical attention and elementary education, while neither parents nor children would be adequately provided with food or clothing.

178. INCOME MUST BE UTILIZED WISELY.—Thus an indispensable factor in the abolition of poverty is the economical utilization of income. Aside from the fact that it increases the amount of capital in existence, thrift is imperative if a family is to get the full benefit of its income. In both the home and the school the child should be taught the proper care and utilization of money. He should receive, in addition, fundamental instruction in such matters as expense- accounting and budget-making. Of similarly great value is the training of boys and girls to a proper appreciation of the home-making ideal, to which subject we shall return later. [Footnote: See Chapter XXIII.]

It is fortunate that we are directing more and more attention to these and similar measures, for they strike at the heart of one of the great causes of poverty—the inability of the individual to make the proper use of his income. Unless our citizens are trained to spend money wisely, and to distinguish clearly between the relative values of services and commodities, an increase in wages will never eliminate malnutrition, illiteracy, and other elements of poverty.

179. SUMMARY.—For the sake of clearness, let us summarize the essential features of the democratic program of industrial reform.

The first aim of this program is to give every individual precisely what he earns, no more, no less. Applying the principle of justice would result in heavy taxes on unearned wealth secured through inheritance, or as rent from land, or as monopoly profits.

The second aim of our program arises from the fact that justice might not improve the condition of the laboring class, since some laborers manifestly could not earn enough to support themselves and their families decently.

In addition to administering justice, therefore, we must put the individual in a position to earn an amount adequate to his needs. This involves two lines of action: first, the bargaining position of the laborer must be strengthened by measures designed to increase the demand for his labor, relatively to the demand for the other factors of production; second, increasing the personal efficiency of the worker will render him more attractive to the employer.

The third aim of the democratic program of industrial reform is to teach the individual to use his income wisely and economically. Only after this has been done can we be assured that the raising of wages will materially improve the condition of the worker.

180. SOCIAL PROBLEMS.—There is an important word to be said here. The democratic program of industrial reform is economically sound, and ultimately it would eliminate poverty. But it is not an immediate cure for all of the social and economic ills of American democracy. There will long continue to be persons whom no amount of care can render capable of earning enough to support themselves. There are many other individuals who may ultimately become self-supporting, but who for some time to come will need special care and attention. There are, lastly, many other individuals who are partially or entirely self- supporting,—women and children, for example,—but whose social and economic interests need to be safeguarded by legislation. The democratic program of industrial reform could ultimately eliminate many of the basic social problems now confronting us; meantime we are under the necessity of grappling with such questions as labor disputes, the risks of industry, crime, and dependency. Indeed, no matter how vigorously and intelligently we attack the defects of capitalism, it is probable that we shall always have to face grave social problems. Part III of the text will accordingly be devoted to a consideration of American social problems.

QUESTIONS ON THE TEXT

1. Why is there no simple remedy for the defects of capitalism?

2. What are the three aims of the program advanced in this chapter?

3. What is the nature of justice?

4. In what sense is an unfair distribution of wealth a double injustice?

5. Under what conditions would the raising of wages tend to result in national bankruptcy?

6. What are the three chief methods of redistributing unearned wealth?

7. Why does the elimination of poverty demand something more than justice?

8. What is the fundamental cause of low wages? Explain clearly.

9. What is an economical remedy for low wages?

10. Why will higher wages result from an increase in the demand for labor?

11. By what three methods may the demand for labor be increased?

12. Name some of the methods whereby the supply of labor may be decreased.

13. What is the importance of personal efficiency in our program?

14. What is the relation of wages to poverty?

15. What is the importance of an economical utilization of income?

16. Summarize the argument in this chapter.

17. Why is the program outlined not an immediate panacea for all social and economic ills?

REQUIRED READINGS

1. Williamson, Readings in American Democracy, chapter xvii. Or all of the following:

2. Carver, Elementary Economics, chapters xiv, xxix, xxxi, and xivii.

3. Carver, Essays in Social Justice, chapter i.

QUESTIONS ON THE REQUIRED READINGS

1. Why does the need for justice arise? (Essays, page 3.)

2. What is the first duty of the state? (Essays, page 9.)

3. What is moral law? (Essays, page 23.)

4. What is the relation of meekness to national strength? (Essays, pages 33-34.)

5. What is meant by a "balanced nation"? (Elementary Economics, pages 118-119.)

6. What is the aim of balancing a population? (Elementary Economics, page 119.)

7. Name an important method of securing this balance. (Elementary Economics, pages 119-120.)

8. What classes of the population multiply the least rapidly? Why is this undesirable? (Elementary Economics, page 120.)

9. What is the object of the "geographical redistribution of population"? (Elementary Economics, page 120.)

10. Explain the working of the "law of variable proportions" in industry. (Elementary Economics, pages 258-260.)

11. Why are there differences of wages in different occupations? (Elementary Economics, page 268.)

12. What is the "law of population"? (Elementary Economics, page 273.)

13. What is the effect of immigration upon wages? (Elementary Economics, pages 273-274.)

14. What are the two ways of getting men to do what is necessary for the prosperity of the nation? Of these two ways, which is preferable? (Elementary Economics, pages 387-388.)

15. What are the dangers of freedom? (Elementary Economics, pages 389-390.)

TOPICS FOR INVESTIGATION AND REPORT

I

1. Make a study of the occupational groups in your locality for the purpose of discovering which of these groups receive the lowest wages. Can you connect the fact that they receive low wages with their numerical strength?

2. Is the supply of unskilled labor in your community affected by European immigration? If so, attempt to trace the relation of this immigration to low wages in your community.

3. What classes of workmen receive the highest wages in your locality? What is the relation of these high wages to the restricted number of this type of workman?

4. Study the methods by means of which land in your locality is utilized. In what ways, if in any, could various plots be made to employ more laborers?

5. By what means could the supply of capital in your locality be increased? In what ways might this increased supply of capital be utilized? To what extent would the utilization of this increased supply of capital justify the employment of additional laborers?

6. Do you believe that your community needs more entrepreneurs? What reason have you for believing that a training school for the technical professions would increase the productivity of your community?

7. Write to the Bureau of Education in your state for data relative to the status of vocational education in your commonwealth.

8. Interview one or more officials of a bank in your community for the purpose of learning of the ways in which banks encourage thrift.

9. Write to the Bureau of Labor Statistics in your state for information relative to the status of public employment bureaus in your commonwealth.

II

10. Causes of inequality. (Taussig, Principles of Economics, vol. ii, chapter liv.)

11. The Malthusian doctrine. (Malthus' Essay on Population. If this essay is not available, consult an encyclopedia under "Malthus.")

12. The principle of self-interest. (Carver, Essays in Social Justice, chapter iii.)

13. How much is a man worth? (Carver, Essays in Social Justice, chapter vii.)

14. Causes of the scarcity of labor. (Carver, Elementary Economics, pages 269-271.)

15. The importance of consumption. (Carver, Elementary Economics, chapters xxxviii and xxxix.)

16. Importance of thrift. (Annals, vol. lxxxvii, pages 4-8.)

17. Luxury. (Carver, Elementary Economics, chapter xl.)

18. Choosing a vocation. (Parsons, Choosing a Vocation.)



PART III—AMERICAN SOCIAL PROBLEMS

CHAPTER XVIII

INDUSTRIAL RELATIONS

181. LABOR AND CAPITAL.—Strictly speaking, five distinct factors are involved in production: land, labor, capital, cordination, and government. As a matter of fact, we are accustomed to speak of the immediate conduct of industry as involving only two factors: labor and capital. Used in this sense, the term labor refers to the masses of hired workmen, while the term capital is held to include not only the individual who has money to invest, i.e. the capitalist proper, but also the entrepreneur, or managing employer.

Labor and capital coperate actively in production, while the other factors remain somewhat in the background. As we have seen, both labor and capital are essential to industry, and fundamentally their interests are reciprocal. But in spite of this basic harmony, there are many points of difference and antagonism between labor and capital. This chapter discusses the more important of these disagreements, and outlines some suggested methods of reducing or eliminating them.

182. THE FACTORY SYSTEM AND THE LABORER.—Wherever it has penetrated, the Industrial Revolution has concentrated large numbers of landless laborers in industrial establishments controlled by relatively few employers. Very early in the development of the factory system, the laborer saw that he was at a relative disadvantage in bargaining with employers. Not only does the average laborer lack funds to tide him over a long period of unemployment, but the fact that his labor is generally his sole reliance obliges him to secure work at all hazards. The anxiety and discontent of laborers have been increased by the realization that the factory system affords little opportunity for the average workman to rise to the position of an employer. Most laborers are unable to secure either the training or the capital necessary to set themselves up as independent business men.

183. RISE OF LABOR ORGANIZATIONS.—The risks and limitations which the factory system imposes upon the laboring classes have encouraged workmen to organize for the purpose of promoting their mutual interests. The individual gains, it has been found, when his interests are supported by a group of workmen acting as a unit, and bringing their united pressure to bear upon the employer. The labor organization has been the result of this discovery. A labor organization may be defined as a more or less permanent and continuous association of wage earners, entered into for the purpose of improving the conditions of their employment.

The first labor organizations in the United States were formed early in the nineteenth century, but it was not until about 1850 that the trade union assumed national importance. After 1850, however, and particularly after the Civil War, the trade union grew rapidly. In 1881 a number of national trade unions combined to form the American Federation of Labor. This body, while exercising no real authority over the trade unions comprising it, is nevertheless an important agency in cordinating trade union policies throughout the country. It is important, also, as a means of formulating and expressing the aims and ideals of the working classes. The Federation had a membership of 2,604,701 in 1914, and in 1920 included more than 4,500,000 members. With the exception of the railroad brotherhoods, nearly all of the important trade unions in the country are affiliated with the American Federation of Labor.

184. RISE OF EMPLOYERS' ASSOCIATIONS.—The growing power of the trade union after 1850 stimulated the growth of employers' associations. In 1886 the first national employers' association was organized under the name of the Stove Founders' National Defence Association. Later there was formed a number of other important associations, including the National Association of Manufacturers, the National Council for Industrial Defence, and the American Anti-Boycott Association.

The primary purpose of the employers' association is the protection of the employers' interests against trade union aggression. Some of the associations are frankly hostile to the trade union movement, while others take the stand that the organization of laborers is undesirable only if the power of the trade union is abused. The promotion of friendly relations between labor and capital is increasingly an important concern of the employers' association.

185. WHAT THE TRADE UNION WANTS.—One of the basic aims of the trade union is either to raise wages or to prevent their reduction. Because of the constant shiftings of supply and demand, the prices of commodities are rarely stationary for very long. Over any extended period of time prices are either rising or falling. During a period of rising prices the workmen are at a relative disadvantage, [Footnote: Rising prices affect all who purchase commodities, of course, but here we are intent upon the position of the laborer only.] because they have to pay for commodities higher prices than they had anticipated when they contracted to work for a definite wage. In such a case, the union attempts to secure higher wages for its members. When, on the other hand, prices are falling, the workmen gain, because they do not have to pay as high prices as they had anticipated. In this latter case, the laborers attempt to maintain their advantage by opposing any reduction in wages.

The desire of the trade unions to improve the general condition of the working classes has steadily widened the program of organized labor. Shorter hours and better conditions of work are important trade union demands. Unions quite generally approve the principle of a minimum wage, [Footnote: The principle of the minimum wage is discussed in the next chapter, Sections 205-207.] at least for women and child workers. Formerly, and to some extent even now, the unions have opposed the introduction of labor-saving machinery on the grounds that it displaces workmen and hence causes unemployment. Union members generally prefer to be paid by the hour or by the day, rather than so much per unit of product. The reason given for the preference is that strain and undue fatigue often result from piece-work, as the system of pay on the basis of units of product is called. Trade unions universally demand that employers recognize the principle of collective bargaining, by which is meant the privilege of workmen dealing with the employer collectively or through the union. Very often, also, the unions demand the closed shop, that is to say, a shop from which all non-union employees are excluded.

186. WHAT THE EMPLOYER WANTS.—Price movements likewise affect the employer. But whereas the laborer is at a relative disadvantage when prices are rising, the employer tends to gain, for the reason that he secures for his product higher prices than he had expected. [Footnote: In a period of rising prices, the employer's costs also tend to rise, but generally not so rapidly as do prices.] Suppose, for example that a shoe manufacturer can make a profit if a pair of shoes sells for $4.00. If later the price rises to $5.00 and his expenses remain stationary or very nearly so, he reaps an unusually large profit. And whereas in a period of falling prices the laborer tends to gain, the employer often loses heavily, for the reason that he must sell at a relatively low price goods produced at a relatively high cost. If, in the case given above, the price of the pair of shoes falls from $4.00 to $3.00, while the expenses of the manufacturer remain stationary, or very nearly so, he may make little or no profit. Thus while prices are rising the employer attempts to maintain his advantage by resisting an increase in wages, while in a period of falling prices he seeks to cut down his expenses by reducing wages. In either case the immediate interests of workmen and employer are antagonistic.

Just as the growing complexity of the industrial situation has enlarged the trade union program, so the aims of employers have steadily increased in number and in importance. On the grounds that it restricts the fullest utilization of his plant, the employer very often objects to a shortening of the working day, even where there is a corresponding decrease in the day-wage. Some employers are unwilling to provide sanitary workshops for their employees, or otherwise to improve the conditions of employment. The employer generally objects to the minimum wage, as constituting an interference with his "right" to offer workmen what wages he chooses. Collective bargaining is accepted by many employers, but many others insist upon the right to hire and discharge men as they see fit, without being forced to consider the wishes of the union. Employers often oppose the closed shop, and insist upon the open shop, an open shop being defined as one in which workmen are employed without regard to whether or not they are members of a union.

187. METHODS OF INDUSTRIAL WARFARE.—Both capital and labor back up their demands by a powerful organization using a variety of weapons. The trade union generally attempts to enforce its demands by threat of, or use of, the strike. A strike is a concerted stoppage of work initiated by the workmen as a group. Sometimes accompanying the strike is the boycott, which may be defined as a concerted avoidance of business relations with one or more employers, or with those who sympathize with those employers. The strike is generally accompanied by the practice of picketing, by which is meant the posting of union agents whose duty it is to attempt to persuade non-union workmen not to fill the places of the striking workmen. Pickets may also attempt to persuade customers not to patronize the employer against whom a strike has been launched. Sometimes picketing leads to intimidation and violence on the part of either strikers or representatives of the employers.

In turn, the employer may employ a variety of weapons against workmen with whom he cannot agree. An employer may make use of the lockout, that is, he may refuse to allow his labor force to continue at work. Many employers also use the blacklist, i.e. the circulation of information among employers for the purpose of forewarning one another against the employment of certain designated workmen. The employer may also attempt to end a strike by persuading non-union men to fill the places vacated by the strikers. Such men as accept are known as strike-breakers. On the plea that the strike may result in the destruction of his property, the employer may resort to the injunction. This is an order secured from a court, and restraining certain laborers in the employer's interest.

188. THE COST OF INDUSTRIAL WARFARE.—The struggles of labor against capital constitute a species of warfare which involves the general public. Regardless of whether a particular dispute ends in favor of the laborers or the employer, every strike, lockout, or other interference with industrial coperation lessens the amount of consumable goods in existence. Thus aside from the fact that industrial warfare encourages class antagonisms, it is an important cause of the relative scarcity of goods, and the resulting tendency of prices to rise. Often great injury results from a dispute which originally was of small proportions. In 1902, for example, the anthracite coal strike cost the country more than $100,000,000, though the strike had been initiated because of a local dispute over recognition of the union. In 1919, when we were suffering from a general scarcity of goods, there occurred in this country more than three thousand strikes, involving a loss of more than $2,000,000,000 in decreased production.

189. NECESSITY OF INDUSTRIAL PEACE.—Industrial warfare very often results in the correction of abuses, but in many cases it seems to bring little or no benefit to either labor or capital. In any case, it is a costly method, and one which constitutes a menace to the peace of the community. American democracy demands that in the settlement of disputes between labor and capital, industrial warfare be replaced by some method less costly, less violent, and more in harmony with the principles of justice and civilized behavior. Responsibility for the present extent of industrial warfare cannot definitely be placed upon either capital or labor, but at least both sides should be obliged to recognize that the public is a third party to every industrial dispute. We should insist upon fair play for both capital and labor, but we should likewise insist that the interests of the public be safeguarded.

190. SOME METHODS OF INDUSTRIAL PEACE.—As has already been pointed out, profit sharing is not of great importance in lessening industrial unrest. Various systems of bonuses and pensions have temporarily improved the position of some groups of workmen, but experience has proven both bonuses and pensions to be limited in scope. Employers are often unwilling to adopt such devices as these, while the laborers frequently regard them as paternalistic measures which at best are a poor substitute for the higher wages to which they consider themselves entitled. Existing evils are often lessened by welfare work, which includes such measures as the establishment of schools, libraries, and playgrounds for the laborers. But in many cases welfare work is initiated by the employer for the purpose of diverting the attention of the workmen from their fundamental grievances, and for this reason it is often opposed by the workmen. All of the measures enumerated in this section are of more or less value, but as methods of combating industrial warfare, they have proved to be palliative, rather than remedial or preventive.

191. THE TRADE AGREEMENT.—In some industries there is a growing tendency for employers not only to recognize the union, but also to make a collective contract, or trade agreement, with the unionized workmen. The trade agreement may lead to the formation of councils in which representatives of both workmen and employer attempt to reach a friendly agreement upon disputed matters. The trade agreement has been particularly successful in many industries in England. In this country it is best known in the soft coal mining industry in eastern United States, and in the needle trades of New York City. On the whole, the trade agreement has not been markedly successful in the United States. Although it smoothes out minor differences, the unions still prefer to back their more important demands by use of the strike.

192. VOLUNTARY ARBITRATION.—Since 1898 the several states have been giving an increasing amount of attention to the creation of boards of industrial conciliation, mediation, and arbitration. [Footnote: The words conciliation, mediation, and arbitration are variously used, but the following distinction may be of use. Mediation is an attempt to get the disputants to come together for the purpose of discussing their grievances. Conciliation is aid extended to the disputants in the actual settlement of the dispute. Arbitration implies that a third party settles the dispute and renders a decision.] Most states now have some provision for a board whose duty it is to attempt to eliminate industrial warfare. The powers and duties of these boards vary from state to state. In some states the board may investigate labor disputes on its own initiative, but it is not obliged to make an investigation. In other states the investigation of industrial disputes is compulsory.

Boards of the type discussed in this section have no power to compel the disputants to arbitrate their troubles, though they may persuade the parties involved to resort to arbitration. When the disputants agree to allow the state board to arbitrate the dispute, and when also they previously promise to abide by the decision of the board, the award of the state board is binding upon both sides. When the parties to the dispute have not previously agreed to abide by the award, the board cannot force an acceptance of its decision, but can only rely upon public sentiment to help effect a just settlement.

193. COMPULSORY ARBITRATION IN NEW ZEALAND AND AUSTRALIA.—The frequent refusal of labor and capital willingly to submit their differences to arbitration has led to the development of the principle of compulsory arbitration.

In New Zealand, compulsory arbitration was adopted as early as 1894. In that country the arbitrating body is known as the court of arbitration, the decisions of which are absolute and binding. At the discretion of the court, the awards handed down may be extended to embrace other employees or employers in the same trade, or in the same locality, or in the whole country. Violations of the award, either by labor or by capital, are punishable by heavy fines. An even more drastic form of compulsory arbitration has been adopted in Australia.

Due to the influence of many complicating factors, the status of compulsory arbitration in these two countries is uncertain. Many students of the question maintain that this form of arbitration has materially reduced industrial warfare; on the other hand, other authorities declare that compulsory arbitration in New Zealand and Australia has not markedly improved industrial relations.

194. COMPULSORY ARBITRATION IN THE UNITED STATES.—Although the principle of compulsory arbitration has been familiar to American students of labor problems for more than a quarter of a century, there is as yet very little sentiment in favor of its application to industrial disputes in this country. The explanation of this is not far to seek. Individualism is so strong in the United States that compulsory arbitration is regarded by many Americans as an unwarranted interference in private business. It is still generally true that both labor and capital prefer to settle their disputes in open struggle. Equally important, perhaps, is the feeling that compulsory arbitration laws would nullify the constitutional guarantee that no citizen shall be deprived of life, liberty, or property without due process of law. [Footnote: For an explanation of this point, see Chapter XIX, Section 214.]

However, a definite step toward compulsory arbitration was taken when in 1920 the State of Kansas established a Court of Industrial Relations "for the purpose of preserving the public peace, protecting the public health, preventing industrial strife, disorder, and waste, and securing regular and orderly conduct of the businesses directly affecting the living conditions of the people." The law of 1920 declared illegal the suspension of work in those industries which are designated as essential and necessary to the community life. Industrial disputes arising in such industries are subject to compulsory arbitration by the court. The merits of this court are still being debated. Some authorities declare that the court has already demonstrated its value, but other observers claim that so far this tribunal has not operated to reduce labor troubles in Kansas.

195. STATUS OF THE DEMANDS OF LABOR.—For a number of years the attitude of labor has been clearly aggressive, while the attitude of capital has tended to be one of resistance. In view of this fact, the simplest way of considering the merits of the industrial situation is to examine the demands of labor. The justice of these demands cannot be gone into here, but a few words of general application may be helpful.

The proper determination of wages depends, of course, upon the particular circumstances. No general rule can be laid down, except the very obvious one that wages cannot permanently go so high as to wipe out profits in an industry, nor yet so low as to render it impossible for the workmen to secure a decent living.

The steady improvement of living and working conditions is desirable, and is a challenge to any progressive society.

Shorter work hours are desirable, wherever the cutting down of the working day does not too greatly hamper production. Many economists feel that an eight-hour day will prove a social gain only if introduced gradually. They believe that it should be introduced in proportion as the industrial productivity of the country increases to compensate for the shortening of the working day.

Opposition to the introduction of labor-saving machinery is both useless and short-sighted. The officials of most unions now advise workmen not to oppose the adoption of machinery, but rather to fit themselves to operate the machines.

The question of a closed shop or an open shop is largely a matter of opinion. The problem will probably continue to be disputed for a long time to come. Many students of labor conditions feel that the closed shop is justifiable only when accompanied by the open union. By an open union is meant a union into which all laborers competent to do the work are admitted freely. Where the open union principle is adopted, Professor Taussig points out, the closed shop is no longer a monopolistic device to shut out competition and raise wages for a small group. It becomes, instead, a means of promoting mutual aid and collective bargaining.

Many employers still refuse to recognize the principle of collective bargaining, but from the social point of view collective bargaining is desirable. In many cases it so strengthens the position of the laborers that they are able to compete with the employer more nearly on terms of equality. Under such conditions competition in the labor market is in a healthy state. The difficulty is, of course, that some unions may take advantage of their strengthened position to enforce unduly severe conditions upon the employer.

196. THE OUTLOOK.—Although it is probable that industrial disagreements will long endure, we have a right to expect that continued progress will be made in settling these disputes peaceably. By many it is believed that compulsory arbitration is the most effective method of securing industrial peace, but for reasons already given, the extension of this form of arbitration will probably be slow in this country. English experience would indicate that we have not yet exhausted the possibilities of the trade agreement, but though this device is becoming better known in the United States, both the American laborer and the American employer are still disposed to settle their differences by means of the strike, the lockout, and similar weapons.

The present century is an age of industrial stress and change, and it is possible that the ultimate solution of the disputes between labor and capital has not yet been advanced. From the data now at hand, however, it is maintained by many that labor disputes must ultimately be eradicated through the development of industrial democracy. Industrial democracy implies the joint direction of industrial policies by employer and employees, working together harmoniously and in the spirit of equality. When industrial democracy is attained, according to this view, mutual trust and the spirit of friendly coperation will enable labor and capital to adjust their differences peaceably and economically, without dictation from any outside source.

QUESTIONS ON THE TEXT

1. Why are we accustomed to speak of labor and capital as the two chief factors in production?

2. Why have labor organizations arisen?

3. Name some employers' associations.

4. Contrast the aims of the union with the aims of the employers' association.

5. Discuss the methods of industrial warfare.

6. Why is industrial warfare undesirable?

7. What is the attitude of American democracy toward industrial warfare?

8. Name some minor methods of industrial peace.

9. Discuss the character of the trade agreement.

10. Distinguish between conciliation, mediation, and arbitration.

11. Discuss compulsory arbitration in New Zealand and Australia.

12. What is the significance of the Kansas Court of Industrial Relations?

13. What is the outlook for industrial peace in this country?

14. Define industrial democracy.

REQUIRED READINGS

1. Williamson, Readings in American Democracy, chapter xviii.

Or all of the following:

2. Bullock, Elements of Economics, chapter xiii.

3. Carlton, History and Problems of Organized Labor, chapter v.

4. Ely, Outlines of Economics, chapter xxii.

5. Fetter, Modern Economic Problems, chapter xx.

QUESTIONS ON THE REQUIRED READINGS

1. What are the three types of labor organizations? (Fetter, page 299.)

2. Who were the Knights of Labor? (Bullock, page 316.)

3. What is the economic justification of the trade union? (Ely, pages 445-446.)

4. Outline the history of the American Federation of Labor. (Carlton, pages 74-82.)

5. What are some of the secondary functions of the trade union? (Fetter, pages 298-299.)

6. Among what groups of workers is the trade union strong? Among what groups is it weak? (Fetter, page 300.)

7. What effect has unionism had upon wages? (Fetter, pages 306-307.)

8. What is meant by limitation of output? (Ely, pages 449-450.)

9. What is a standard wage? (Bullock, pages 320-321.)

10. What is the legal status of the strike? (Bullock, pages 328-329.)

11. What is scientific management? (Bullock, pages 339-340.)

12. What will probably be the future development of the trade union? (Ely, pages 468-469.)

TOPICS FOR INVESTIGATION AND REPORT

I

1. Origin and growth of the trade union movement in your section.

2. Select some one trade union for study. Obtain information on the following points, either by means of literature issued by the union, or by personal interview with union officials:

(a) Aims of the union.

(b) Insurance benefits.

(c) Political activities of the union.

(d) Strike procedure.

(e) Attitude toward arbitration.

3. Select for study an employers' association in your locality. Obtain information on the following points. (If no association is available, consult a friendly employer):

(a) Attitude of the employer toward the trade union movement.

(b) Attitude toward the closed shop.

(c) What the employer does when a strike is launched against him.

(d) Use of the injunction.

(e) Attitude of the employer toward arbitration.

4. If possible, investigate an actual strike and report upon it.

5. The laws of your state with regard to mediation, conciliation, and arbitration. Do you think further legislation on this subject is advisable?

II

6. History of the trade union movement in the United States. (Consult any available text on labor problems. See also Carlton, Organized Labor in American History.)

7. The Knights of Labor. (Any standard text on labor problems, or an encyclopedia.)

8. Trade union policies. (Bullock, Selected Readings in Economics, pages 589-613.)

9. Program of the American Federation of Labor. (Any standard text on labor problems, or an encyclopedia.)

10. The theory of price changes. (Taussig, Principles of Economics, vol. i, chapter xxii.)

11. The problem of adjusting wages to prices. (Bloomfield, Selected Articles on Problems of Labor, pages 56-75.)

12. Reducing the labor turnover. (Annals, vol. ixxi, pages 1-81.)

13. Scientific management. (Any standard text on labor problems. See also Hoxie, Scientific Management and Labor.)

14. Incorporation of the trade union. (Bloomfield, Selected Articles on Problems of Labor, pages 262-267. Commons, Trade Unionism and Labor Problems, chapter vi.)

15. Employers' associations. (Any standard text on labor problems.)

16. Principles of industrial relations, as formulated by the Chamber of Commerce of the United States of America. (Write to the Chamber's headquarters, Washington, D. C., for copies. Also reprinted in Edie, Current Social and Industrial Forces, pages 346-381.)

FOR CLASSROOM DISCUSSION

17. Closed shop versus open shop.

18. Should trade unions be obliged to incorporate?

19. To what extent does compulsory arbitration constitute an unwarranted interference in private business?

20. The shortening of the working day.

21. Effect of the World War upon relations between labor and capital.



CHAPTER XIX

HEALTH IN INDUSTRY

197. INDUSTRY AND HEALTH.—Wherever the Industrial Revolution has progressed beyond the initial stages, there has been an enormous increase in wealth and prosperity. At the same time, serious evils have accompanied the transition from a relatively simple agricultural stage to a stage dominated by the factory system. The tendency toward overcrowding in rapidly growing cities, the difficulties of maintaining a normal family life where mother or children are employed in factories, and the danger of overstrain, accident and disease in industrial pursuits, all these factors render very important the problem of health in industry.

Though health in industry is only one phase of the general problem of health, it will be impossible here to exhaust even that one phase. We shall accordingly confine ourselves to the discussion of three questions: first, child labor; second, the employment of women in industrial pursuits; and third, the insurance of our industrial population against accident, sickness, old age and unemployment.

198. CHILD LABOR: EXTENT AND CAUSES.—There are in this country more than two million children between the ages of ten and fifteen, engaged in gainful occupations. In all sections of the country large numbers of children are found in agriculture, this industry generally being beyond the scope of child labor laws. The employment of children in factories, mines, quarries, mills, and shops, on the other hand, is now considerably restricted by law. This is true of all parts of the country. However, child labor is still of wide extent in the United States, due to the large number of children found in agriculture, domestic service, street trades, stores, messenger service, and tenement homework.

Of the immediate causes of child labor one of the most important is the poverty of the parents. Where the parents are themselves day laborers, it is often considered necessary or desirable to increase the family earnings by putting the children to work.

From the standpoint of the employer child labor is rendered possible and even desirable by the development of types of work easily performed by small children. In many cases the tendency of parents to put young children to work is encouraged by the lax administration of school attendance laws. This tendency has also been encouraged by the indifference of the public to the evil effects of child labor.

199. EFFECTS OF CHILD LABOR.—Students of the problem of child labor unanimously condemn the practice of habitually employing young children outside the home. Where poorly paid children compete with men and women, they serve either to displace adults, or, by competition, to lower the wages of adults.

The effects upon the children themselves are injurious. Stunted, crippled, and diseased bodies are the result of steady work at too tender an age. Schooling is interrupted, so that child workers generally develop into illiterate and inefficient adults. When children are forced into gainful occupations at an early age, the family life is disrupted, and proper home training is difficult, if not impossible. Still another factor is the greater temptation to vice and crime confronting the child outside the home.

200. CHILD LABOR LAWS.—Since 1870 the growing acuteness of the child labor problem, together with an aroused public opinion, has served to increase the number of laws restricting child labor. At the present time, forty-five states forbid the employment in certain industries of children under fourteen years of age.

A Federal child labor law was passed in 1916, but two years later the measure was declared unconstitutional by the Supreme Court. [Footnote: For an explanation of this point, see Section 214 of this chapter.] In 1919 a new Federal law was enacted. In order to avoid the charge of unconstitutionality, this measure attacks child labor indirectly. The law levies an excise tax of ten per cent on the entire net profits received from the sale of all the products of any mine, quarry, mill, cannery, workshop, factory, or manufacturing establishment, which employs children contrary to certain age and hour specifications. The effect of this ten per cent tax is so to reduce the profits of the employers affected, as virtually to prohibit child labor. By this means the act prohibits child labor in several important groups of industrial establishments.

The difficulty with the law is that it touches only about fifteen per cent of our two million child workers. It does not affect, for example, the large number of children employed in agriculture, domestic service, street trades, stores and restaurants, messenger service, and tenement homework.

201. MINIMUM PROVISIONS OF A GOOD CHILD LABOR LAW.—The passage of more comprehensive child labor laws is being advocated by a number of social agencies, notably by the National Child Labor Committee. The minimum provisions of a good child labor law have been set forth by the committee somewhat as follows:

As a general proposition, no child should be regularly employed in a gainful occupation who is under sixteen years of age. There should be an even higher age limit for child workers in quarries, mines, and other dangerous places. Children should not work more than eight hours a day. Nor should they be allowed to engage in night work until they have reached the age of, say, twenty years. All child applicants for industrial positions should first be required to pass educational tests and a physical examination. A good child labor law should provide for a corps of factory inspectors, as well as for other means of securing the efficient administration of the law. Lastly, it is important that there be close coperation between employers and the school authorities in the matter of child labor.

202. INCREASED NUMBER OF WOMEN IN INDUSTRY.—There have always been women in industry, but of recent years the proportion of women so engaged has increased so rapidly as to create a serious social problem. From needlework, domestic service, and teaching, women have spread rapidly into trade, commerce, and the professions. A few years ago transportation and police work were monopolized by men, but to-day women are entering these fields rapidly. Though they outnumber men only in domestic and personal service, women are numerous in practically every important calling except plumbing and street cleaning. Altogether more than 8,000,000 women are engaged in gainful occupations in the United States.

203. WHY WOMEN RECEIVE LOWER WAGES THAN MEN.—Women generally receive lower wages than men. One reason for this is the physical weakness of women, which renders them less desirable in many types of work. Social conventions, home attachments, and, often, the lack of the venturesome spirit, combine to keep women from moving about in search of improved working conditions to the same extent as men. The expectation of marriage causes many young women to neglect to increase their efficiency, and this at least prevents their wages from increasing as rapidly as those of young men who undergo consistent training. The trade union is still little developed among women workers, a factor which often prevents higher wages from being secured. Low wages are often traceable to the fact that there is an over supply of girls and women in the labor market. Large numbers of girls and women are partially supported at home, and are able and willing to work for "pin-money" only. Many employers take advantage of this fact to offer very low wages.

204. LEGISLATION REGULATING THE LABOR OF WOMEN.—Although it would seem desirable to keep young children out of industry altogether, there is a general agreement among students of the problem that the labor of women ought to be further regulated rather than actually prohibited. A number of states have already enacted laws designed to safeguard women in industry. In some states the number of working hours for women has been cut from eleven to nine, while in other states the maximum number of hours during which women may work is eight. Some states prohibit night work for women in industrial establishments. The great majority of the states now provide for proper rest periods, guarded machinery, the ventilation of workrooms, and, where practicable, seats for women employees. To the extent that women actually do the same amount and quality of work as men, there is a growing feeling that men and women ought to receive equal pay.

205. THE MINIMUM WAGE.—A minimum wage law is one which specifies that in certain occupations laborers may not be paid less than a stipulated wage. The aim of the minimum wage is to protect the laborer against employment which, under freely competitive conditions, does not pay wages high enough to guarantee a decent living.

The first minimum wage law in the United States was passed by Massachusetts in 1912. The movement grew rapidly, and by 1921 more than a dozen additional states had adopted minimum wage laws. In some states the law applies only to specified industries; in others it covers all occupations. In some states the law covers only the employment of women, but in most cases the principle of the minimum wage applies to women and minors under eighteen, or even twenty-one years of age. In some foreign countries the minimum wage is also extended to the labor of men, but in the United States men are everywhere exempted from the operation of such laws.

206. ARGUMENTS IN FAVOR OF THE MINIMUM WAGE.—The champions of the principle of the minimum wage advance a number of arguments in its favor. It is contended that no industry is socially desirable if it cannot pay a living wage, for when wages fall below a certain minimum, poverty, ill-health, and vice are natural results. When laborers are themselves unable to improve their economic position, it is said, it becomes the duty of the state to guarantee them a living wage. Another argument in favor of the minimum wage is that it not only eliminates considerable poverty, but it makes possible a healthier and more contented labor force. It is claimed that strikes and social unrest are partially eliminated by the minimum wage.

207. ARGUMENTS AGAINST THE MINIMUM WAGE.—In spite of the rapid spread of minimum wage legislation in this country, the principle has met with considerable opposition. It is claimed by some that where poverty is due to bad personal habits, the mere payment of a higher wage will not abolish poverty. It is also urged that because of price changes, and because of differing concepts of a standard of living, it is difficult to determine what is really a living wage. Some employers maintain that the minimum wage is contrary to economic law, since it forces the payment of a wage which the laborer often does not earn. The compulsory nature of the minimum wage is also opposed on the grounds that it constitutes an undue interference with individual rights. [Footnote: Formerly an important argument against the minimum wage was this: There are large numbers of people who cannot earn the minimum wage, and because employers will tend not to employ them, such persons will have to be supported by charity. The force of this argument is reduced, however, by the fact that most minimum wage laws now make special provision for the part-time employment of such persons.]

208. THE RISKS OF INDUSTRY.—In spite of the fact that most States now have detailed laws providing for the guarding of machinery and the supervision of dangerous occupations, a half million persons are injured or killed annually in industrial employments in the United States. A considerable amount of ill-health is traceable to working with drugs and acids. Continued work in dusty mills and shops, as well as long exposure to the excessively dry or excessively moist atmosphere required by certain manufacturing processes, also give rise to "occupational" diseases. Old age frequently brings poverty and distress, in spite of a life of hard work. Lastly, the laborer runs the risk of unemployment.

209. THE PRINCIPLE OF SOCIAL INSURANCE.—As a general rule, laborers do not voluntarily insure themselves against illness, unemployment, accident, or old age. This is partly because they lack the necessary funds, and partly because they lack the foresight necessary for such action. If, therefore, the risks of industry are adequately to be insured against, the initiative must be taken by some one other than the laborer. As a result of this situation, there has developed the principle of social insurance. Social insurance, as distinguished from insurance by trade unions or private agencies, is compulsory, and is administered, or at least supervised, by the state or Federal authorities.

From the standpoint of the community, social insurance may be justified on four grounds. First, the risks of industry are largely beyond the control of the individual workman, and hence he ought not to be held wholly responsible for the penalties which industry may inflict upon him. Second, the community gets the benefit of the laborer's efforts, and thus ought to feel morally obligated to safeguard his employment. Third, an injury to the laborer restricts the productivity of the community by crippling or removing one of its productive agents. Fourth, compulsory insurance is a social necessity, for where nothing has been laid aside for a rainy day, the interruption of earnings subjects the laborer and his family to hardship and disaster. Wisely administered social insurance prevents a great deal of poverty and distress which would otherwise constitute an added burden upon charitable organizations.

210. INSURANCE AGAINST ACCIDENT.—Accident insurance has been a feature of social insurance programs in Germany, France, and Great Britain for almost a half century, but in this country it was not until 1910 that compulsory insurance against industrial accidents began to be effective. Since 1910, however, the movement has grown rapidly, and at the present time the majority of the states provide for compensation to workmen for accidents sustained in connection with their work. Formerly our courts quite generally held that when a workman could be shown to have suffered an accident because of "personal negligence," the injured person was not entitled to compensation. Under the accident insurance laws of most states it is now held, however, that the personal negligence of the injured workman does not forfeit his right to receive compensation.

In most states the cost of accident insurance is borne primarily by the employer.

211. INSURANCE AGAINST SICKNESS. [Footnote: Sometimes known as health insurance.]—Compulsory sickness insurance has been highly developed in several European countries, but so far we have left insurance of this type to private effort. The question is attracting considerable attention in this country, however, and it is believed that this form of social insurance will soon be provided for by state law. In 1914 the American Association for Labor Legislation outlined a model sickness insurance law. Such a law would provide a sickness benefit for a number of weeks, arrange for medical care, and, in case of death, pay a funeral benefit. The cost of such insurance would be divided equally between workmen and employer, while the state would bear the cost of administering the law. This cost would be considerable, because illness may be feigned, and hence there would have to be more careful supervision than in the case of accident insurance.

212. INSURANCE AGAINST OLD AGE.—Compulsory insurance against old age is an important feature of social insurance systems in European countries, but it is very little known in the United States. We are familiar with the Federal pensioning of military veterans, and with local pensions for firemen and policemen, as well as with state and local pensions for teachers. Such insurance does not, however, touch the question of aged employees in industrial pursuits. Trade unions sometimes provide a measure of old age insurance for their members, but the proportion of workmen affected by this practice is very small.

In 1920, a beginning toward compulsory old age insurance was made, when a Federal law provided for compulsory old age insurance for the civil service employees of the Federal government. The question of compulsory old age insurance is also being agitated in a number of states.

213. SHOULD SOCIAL INSURANCE EXTEND TO UNEMPLOYMENT?—It is contended by many that to insure workmen against the loss of their jobs would encourage shiftlessness, and that for this reason the principle of social insurance ought not to apply to unemployment.

It is obvious that a considerable share of unemployment is traceable to personal negligence, and it is probably true that insurance against unemployment would discourage thrift and foresight on the part of many workmen. On the other hand, it has been shown statistically that a large share of unemployment is due to crop failures, market fluctuations, and other conditions beyond the control of the workmen. In so far as this is true, there would be a great deal of unemployment whether it were insured against or not. Because, therefore, some unemployment is inevitable, and because unemployment is in many cases beyond the control of the individual, it becomes necessary, or at least desirable, for the state to insure workmen against this unavoidable risk.

Insurance against unemployment has never been tried out in this country, but it is likely that we shall some day follow the example of the leading European countries, and include this type of protection in our general program of social insurance.

214. OBSTACLES TO LABOR LEGISLATION.—Labor legislation of the type discussed in this chapter is making rapid headway in the United States. Nevertheless, it should be noted that in this field we are behind the more advanced countries of western Europe. The chief explanation of this relative backwardness is that the extension of labor legislation in this country has met with considerable opposition. The reasons for this opposition may be summed up as follows:

First, the spirit of individualism is so strong in this country as effectively to check legislation which appears paternalistic. The weak position of women and children in industry has somewhat lessened the force of this argument in the case of laws designed to safeguard these two groups, but labor legislation in behalf of men is still regarded suspiciously in many quarters.

Second, it is difficult to secure uniform laws among the several states. Labor legislation in this country has been primarily a state concern, but the attitude of the various states toward social insurance, the minimum wage, and other types of labor legislation, has been so divergent that the resulting laws have often been conflicting. In many cases states fear to enact laws which they believe will hamper local employers and encourage the migration of capital to states which are more lenient in this regard.

Third, an important obstacle to labor legislation in the United States has been the difficulty of enacting laws which the courts will not declare unconstitutional. The constitutional provision [Footnote: See the fifth amendment to the Federal Constitution, Appendix.] that no one shall be deprived of life, liberty, or property without due process of law has often been interpreted by the courts in such a way as to nullify laws designed to safeguard the interests of the working classes. For example, a law restricting the employment of women might be declared unconstitutional on the grounds that it interferes with the "liberty" of women to work as many hours, and for as small a wage, as they choose.

Within the last decade, however, the obstacle of constitutionality appears to have declined in importance. Our Supreme Courts often reverse their own decisions, as well as negative the decisions of the lower courts, and it is therefore difficult to ascertain what is truly the trend of judicial decision. Nevertheless, many authorities believe that we are on the verge of an era in which the courts will weigh labor legislation primarily in the light of its social benefit, and only secondarily with respect to how it squares with the technicalities of the Constitution.

QUESTIONS ON THE TEXT

1. What three questions are discussed in this chapter?

2. What is the extent of child labor in the United States?

3. What are some of the causes of child labor?

4. What are the chief results of child labor?

5. Discuss Federal legislation with respect to child labor.

6. Outline the minimum provisions of a good child labor law.

7. Why do women generally get lower wages than men?

8. What is meant by the minimum wage?

9. What are the chief arguments in favor of the minimum wage?

10. Give the chief arguments against it.

11. What is meant by social insurance?

12. Discuss the four forms of social insurance. Which have been applied in this country?

13. What are the three great obstacles to labor legislation in this country? Which of these appears to you to be the most important? Which appears to you to be the easiest to overcome?

REQUIRED READINGS

1. Williamson, Readings in American Democracy, chapter xix. Or all of the following:

2. Burch and Patterson, American Social Problems, chapter xiv.

3. Ely, Outlines of Economics, chapter xxviii.

4. Fetter, Modern Economic Problems, chapter xxiii.

5. Taussig, Principles of Economics, Vol. ii, chapter viii.

QUESTIONS ON THE REQUIRED READINGS

1. Why is child labor not always the cheapest labor? (Burch and Patterson, page 172.)

2. What is the sweat shop system? (Burch and Patterson, page 174.)

3. What are the chief occupations in which women are found? (Burch and Patterson, page 175.)

4. What is meant by the "dangerous trades"? (Burch and Patterson, pages 176-177.)

5. What is the extent of railway accidents in this country? (Burch and Patterson, pages 178-179.)

6. What are the main causes of irregular earnings? (Taussig, page 323.)

7. What form of social insurance was first developed in this country? (Ely, page 588.)

8. Outline the British Workmen's Compensation Act. (Taussig, page 325.)

9. What are the main features of the German system of old age insurance? (Taussig, page 331.)

10. What difficulties are encountered in insuring workmen against unemployment? (Taussig, pages 337-340.)