The man who would "succeed" must retain the favor of this group. He does so automatically, instinctively or semi-consciously—it is the common, accepted practice and he falls in line.

The masters need not bribe. They need not resort to illegal or unethical methods. The ordinary channels of advertising, of business acquaintance and patronage, of philanthropy and of social intercourse clinch their power over the channels of public opinion.

9. The Control of Political Machinery

The American government,—city, state and nation—is in almost the same position as the schools, newspapers and churches. It does not turn out tangible, economic products. It depends, for its support, upon taxes which are levied, in the first instance, upon property. Who are the owners of this property? The business interests. Who, therefore, pay the bills of the government? The business interests.

Nowhere has the issue been stated more clearly or more emphatically than by Woodrow Wilson in certain passages of his "New Freedom." As a student of politics and government—particularly the American Government—he sees the power which those who control economic life are able to exercise over public affairs, and realizes that their influence has grown, until it overtops that of the political world so completely that the machinery of politics is under the domination of the organizers and directors of industry.

"We know," writes Mr. Wilson in "The New Freedom," "that something intervenes between the people of the United States and the control of their own affairs at Washington. It is not the people who have been ruling there of late" (p. 28). "The masters of the government of the United States are the combined capitalists and manufacturers of the United States.... Suppose you go to Washington and try to get at your government. You will always find that while you are politely listened to, the men really consulted are the men who have the biggest stakes—the big bankers, the big manufacturers, the big masters of commerce, the heads of railroad corporations and of steamship corporations.... Every time it has come to a critical question, these gentlemen have been yielded to and their demands have been treated as the demands that should be followed as a matter of course. The government of the United States at present is a foster-child of the special interests" (p. 57-58). "The organization of business has become more centralized, vastly more centralized, than the political organization of the country itself" (p. 187). "An invisible empire has been set up above the forms of democracy" (p. 35). "We are all caught in a great economic system which is heartless" (p. 10).

This is the direct control exercised by the plutocracy over the machinery of government. Its indirect control is no less important, and is exercised in exactly the same way as in the case of the channels of public opinion.

Lawyers receive preferment and fees from business—there is no other large source of support for lawyers. Judges are chosen from among these same lawyers. Usually they are lawyers who have won preferment and emolument. Legislators are lawyers and business men, or the representatives of lawyers and business men. The result is as logical as it is inevitable.

The wealth owners control the machinery of government because they pay the taxes and provide the campaign funds. They control public officials because they have been, are, or hope to be, on the payrolls, or participants in the profits of industrial enterprises.

10. It is "Their United States"

The man fighting for bread has little time to "turn his eyes up to the eternal stars." The western cult of efficiency makes no allowances for philosophic propensities. Its object is product and it is satisfied with nothing short of that sordid goal.

The members of the wealth owning class are relieved from the food struggle. Their ownership of the social machinery guarantees them a secure income from which they need make no appeal. These privileges provide for them and theirs the leisure and the culture that are the only possible excuse for the existence of civilization.

The propertied class, because it owns the jobs, the industrial products, the social surplus, the channels of public opinion and the political machinery also enjoys the opportunity that goes with adequately assured income, leisure and culture.

The members of the dominant economic class hold a key—property ownership—which opens the structure of social wealth. Those who have access to this key are the blessed ones. Theirs are the things of this world.

The property owners enjoy the fleshpots. They hold the vantage points. The vital forces are in their hands. Economically, politically, socially, they are supreme.

If the control of material things can make a group secure, the wealth owners in the United States are secure. They hold property, prestige, power.

The phrase "our United States" as used by the great majority of the people is a misnomer. With the exception of a theoretically valuable but practically unimportant right called "freedom of contract," the majority of the wage earners in the United States have no more excuse for using the phrase "our United States" than the slaves in the South, before the war, for saying "our Southland."

The franchise is a potential power, making it theoretically possible for the electorate to take possession of the country. In practice, the franchise has had no such result. Quite the contrary, the masters of American life by a policy of chicanery and misrepresentation, advertise and support first one and then the other of the "Old Parties," both of which are led by the members of the propertied class or by their retainers. The people, deluded by the press, and ignorant of their real interests, go to the polls year after year and vote for representatives that represent, in all of their interests, the special privileged classes.

The economic and social reorganization of the United States during the past fifty years has gone fast and far. The system of perpetual (fee simple) private ownership of the resources has concentrated the control over the natural resources in a small group, not of individuals, but of corporations; has created a new form of social master, in the form of a land-tool-job owner; has thus made possible a type of absentee-landlordism more effective and less human than were any of its predecessors and has decreased the responsibility at the same time that it has augmented the power of the owning group. These changes have been an integral part of a general economic transformation that has occupied the chief energies of the ablest men of the community for the past two generations.

The country of many farms, villages and towns, and of a few cities, with opportunity free and easy of access, has become a country of highly organized concentrated wealth power, owned by a small fraction of the people and controlled by a tiny minority of the owners for their benefit and profit. The country which was rightfully called "our United States" in 1840, by 1920 was "their United States" in every important sense of the word.

FOOTNOTES:

[39] "Estimated Valuation of National Wealth, 1850-1912," Bureau of the Census, 1915, p. 15.

[40] "Addresses of President Wilson," House Doc. 803. Sixty-fourth Congress, 1st Session (1916), p. 13.



IX. THE DIVINE RIGHT OF PROPERTY

1. Land Ownership and Liberty

The owners of American wealth have been molded gradually into a ruling class. Years of brutal, competitive, economic struggle solidified their ranks,—distinguishing friend from enemy; clarifying economic laws, and demonstrating the importance of coordination in economic affairs. Economic control, once firmly established, opened before the wealth owning class an opportunity to dominate the entire field of public life.

Before the property owners could feel secure in their possessions, steps must be taken to transmute the popular ideas regarding "property rights" into a public opinion that would permit the concentration of important property in the hands of a small owning class, at the same time that it held to the conviction that society, without privately owned land and machinery, was unthinkable.

Many of the leading spirits among the colonists had come to America in the hope of realizing the ideal of "Every man a farm, and every farm a man." Upon this principle they believed that it would be possible to set up the free government which so many were seeking in those dark days of the divine right of kings.

For many years after the organization of the Federal Government men spoke of the public domain as if it were to last indefinitely. As late as 1832 Henry Clay, in a discussion of the public lands, could say, "We should rejoice that this bountiful resource possessed by our country, remains in almost undiminished quantity." Later in the same speech he referred to the public lands as being "liberally offered,—in exhaustless quantities, and at moderate prices, enriching individuals and tending to the rapid improvement of the country."[41]

The land rose in price as settlers came in greater numbers. Land booms developed. Speculation was rife. Efforts were made to secure additional concessions from the Government. It was in this debate, where the public land was referred to as "refuse land" that Henry Clay felt called upon to remind his fellow-legislators of the significance and growing value of the public land. He said, "A friend of mine in this city bought in Illinois last fall about two thousand acres of this refuse land at the minimum price, for which he has lately refused six dollars per acre.... It is a business, a very profitable business, at which fortunes are made in the new states, to purchase these refuse lands and without improving them to sell them at large advances."[42]

A century ago, while it was still almost a wilderness, Illinois began to feel the pressure of limited resources—a pressure which has increased to such a point that it has completely revolutionized the system of society that was known to the men who established the Government of the United States.

This early record of a mid-western land boom, with Illinois land at six dollars an acre, tells the story of everything that was to follow. Even in 1832 there was not enough of the good land to go around. Already the community was dividing itself into two classes—those who could get good land and those who could not. A wise man, understanding the part played by economic forces in determining the fate of a people, might have said to Henry Clay on that June day in 1832, "Friend, you have pronounced the obituary of American liberty."

Some wise man might have spoken thus, but how strange the utterance would have sounded! There was so much land, and all history seemed to guarantee the beneficial results that are derived from individual land ownership. The democracies of Greece and Rome were built upon such a foundation. The yeomanry of England had proved her pride and stay. In Europe the free workers in the towns had been the guardians of the rights of the people. Throughout historic times, liberty has taken root where there is an economic foundation for the freedom which each man feels he has a right to demand.

2. Security of "Acquisitions"

Feudal Europe depended for its living upon agriculture. The Feudal System had concentrated the ownership of practically all of the valuable agricultural land in the hands of the small group of persons which ruled because it controlled economic opportunity. The power of this class rested on its ownership of the resource upon which the majority of the people depended for a livelihood.

The Feudal System was transplanted to England, but it never took deep root there. When in 1215 A. D. (only a century and a half after the Great William had made his effort to feudalize England) King John signed the Magna Carta, Feudalism proper gave way to landlordism—the basis of English economic life from that time to this.

The system of English landlordism (which showed itself at its worst in the absentee landlordism of Ireland) differed from Feudalism in this essential respect,—Feudalism was based upon the idea of the divine right of kings. English landlordism was based on the idea of divine right of property. English landlordism is the immediate ancestor of the property concept that is universally accepted in the business world of to-day.

The evils of Feudalism and of landlordism were well known to the American colonists who were under the impression that they arose not from the fact of ownership, but from the concentration of ownership. The resources of the new world seemed limitless, and the possibility that landlordism might show its ugly head on this side of the Atlantic was too remote for serious consideration.

With the independence of the United States assured after the War of 1812; with the growth of industry, and the coming of tens of thousands of new settlers, the future of democracy seemed bright. Daniel Webster characterized the outlook in 1821 by saying, "A country of such vast extent, with such varieties of soil and climate, with so much public spirit and private enterprise, with a population increasing so much beyond former examples, ... so free in its institutions, so mild in its laws, so secure in the title it confers on every man to his own acquisitions,—needs nothing but time and peace to carry it forward to almost any point of advancement."[43]

"So free in its institutions, so mild in its laws, so secure in the title it confers on every man to his own acquisitions,"—the words were prophetic. At the moment when they were uttered the forces were busy that were destined to realize Webster's dream, on an imperial scale, at the expense of the freedom which he prized. Men were free to get what they could, and once having secured it, they were safeguarded in its possession. Property ownership was a virtue universally commended. Constitutions were drawn and laws were framed to guarantee to property owners the rights to their property, even in cases where this property consisted of the bodies of their fellow men.

The movement toward the protection of property rights has been progressive. Webster as a representative of the dominant interests of the country a hundred years ago rejoiced that every man had a secure title to "his own acquisitions," at a time when the property of the country was generally owned by those who had expended some personal effort in acquiring it. It was a long step from these personal acquisitions to the tens of billions of wealth in the hands of twentieth century American corporations. Daniel Webster helped to bridge the gap. He was responsible, at least in part, for the Dartmouth College Decision (1816) in which the Supreme Court ruled that a charter, granted by a state, is a contract that cannot be modified at will by the state. This decision made the corporation, once created and chartered, a free agent. Then came the Fourteenth Amendment with its provision that "no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty or property, without due process of law." The amendment was intended to benefit negroes. It has been used to place property ownership first among the American beatitudes.

Corporations are "persons" in the eyes of the law. When the state of California tried to tax the property of the Southern Pacific Railroad at a rate different from that which it imposed on persons, the Supreme Court declared the law unconstitutional. This decision, coupled with that in the Dartmouth College Case secured for a corporation "the same immunities as any other person; and since the charter creating a corporation is a contract, whose obligation cannot be impaired by the one-sided act of a legislature, its constitutional position, as property holder, is much stronger than anywhere in Europe." These decisions "have had the effect of placing the modern industrial corporation in an almost impregnable constitutional position."[44]

Surrounded by constitutional guarantees, armed with legal privileges and prerogatives and employing the language of liberty, the private property interests in the United States have gone forward from victory to victory, extending their power as they increased and concentrated their possessions.

3. Safeguarding Property Rights

The efforts of Daniel Webster and his contemporaries to protect "acquisitions" have been seconded, with extraordinary ability, by business organizers, accountants, lawyers and bankers, who have broadened the field of their endeavors until it includes not merely "acquisitions," but all "property rights." Daniel Webster lived before the era of corporations. He thought of "acquisitions" as property secured through the personal efforts of the human being who possessed it. To-day more than half of the total property and probably more than three-quarters of productive wealth is owned by corporations. It required ability and foresight to extend the right of "acquisitions" to the rights of corporate stocks and bonds. The leaders among the property owners possessed the necessary qualifications. They did their work masterfully, and to-day corporate property rights are more securely protected than were the rights of acquisitions a hundred years ago.

The safeguards that have been thrown about property are simple and effective. They arose quite naturally out of the rapidly developing structure of industrialism.

First—There was an immense increase in the amount of property and of surplus in the hands of the wealth-owning class. After the new industry was brought into being with the Industrial Revolution, economic life no longer depended so exclusively upon agricultural land. Coal, iron, copper, cement, and many other resources could now be utilized, making possible a wider field for property rights. Again, the amount of surplus that could be produced by one worker, with the assistance of a machine, was much greater than under the agricultural system.

Second—The new method of conducting economic affairs gave the property owners greater security of possession. Property holders always have been fearful that some fate might overtake their property, forcing them into the ranks of the non-possessors. When property was in the form of bullion or jewels, the danger of loss was comparatively great. The Feudal aristocracy, with its land-holdings, was more secure. Land-holdings were also more satisfactory. Jewels and plate do not pay any rent, but tenants do. Thus the owner of land had security plus a regular income.

The corporation facilitated possession by providing a means (stocks and bonds) whereby the property owner was under no obligation other than that of clipping coupons or cashing interest checks upon "securities" that are matters of public record; issued by corporations that make detailed financial reports, and that are subject to vigorous public inspection and, in the cases of banks and other financial organizations, to the most stringent regulation.

Third—Greater permanence has been secured for property advantages. Corporations have perpetual, uninterrupted life. The deaths of persons do not affect them. The corporation also overcame the danger of the dissipation of property in the process of "three generations from shirt sleeves to shirt sleeves." The worthless son of the thrifty parent may still be able to squander his inheritance, but that simply means a transfer of the title to his stocks and bonds. The property itself remains intact.

Fourth—Property has secured a claim on income that is, in the last analysis, prior to the claim of the worker.

When a man ran his own business, investing his capital, putting back part of his earnings, and taking from the business only what he needed for his personal expenses, "profits" were a matter of good fortune. There were "good years" and "bad years," when profits were high or low. Many years closed with no profit at all. The average farmer still handles his business in that way.

The incorporation of business, and the issuing of bonds and stocks has revolutionized this situation. It is no longer possible to "wait till things pick up." If the business has issued a million in bonds, at five per cent, there is an interest charge of $50,000 that must be met each year. There may be no money to lay out for repairs and needed improvements, but if the business is to remain solvent, it must pay the interest on its bonds.

Businesses that are issuing securities to the public face the same situation with regard to their stocks. Wise directors see to it that a regular rate, rather than a high rate of dividends, is paid. Regularity means greater certainty and stability, hence better consideration from the investing public.

Fifth—The practices of the modern economic world have gone far to increase the security of property rights.

Business men have worked ardently to "stabilize" business. They have insisted upon the importance of "business sanity;" of conservatism in finance; of the returns due a man who risks his wealth in a business venture; and of the fundamental necessity of maintaining business on a sound basis. After centuries of experiment they have evolved what they regard as a safe and sane method of financial business procedure. Every successful business man tried to live up to the following well-established formula.

First, he pays out of his total returns, or gross receipts, the ordinary costs of doing business—materials, labor, repairs and the like. These payments are known as running expenses or up-keep.

Second, after up-keep charges are paid he takes the remainder, called gross income, and pays out of it the fixed charges—taxes, insurance, interest and depreciation.

Third, the business man, having paid all of the necessary expenses of doing business (the running expenses and the fixed charges), has left a fund (net income) which, roughly speaking, is the profits of the business. Out of this net income, dividends are paid, improvements and extensions of the plant are provided for.

Fourth, the careful business man increases the stability of his business by adding something to his surplus or undivided profits.

The operating statistics of the United Steel Corporation for 1918 illustrate the principle:

1. Gross Receipts $1,744,312,163 Manufacturing and Operating expenses including ordinary repairs 1,178,032,665 ———————- 2. Gross Earnings $ 566,279,498 Other income 40,474,823 ———————- $ 606,754,321

General Expense, (including commission and selling expense, taxes, etc.) 337,077,986 Interest, depreciation, sinking fund, etc. 144,358,958 ——————— 3. Net Income $ 125,317,377 Dividends 96,382,027 ——————— 4. Surplus for the year $ 28,935,350 Total surplus 460,596,154

Like every carefully handled business, the Steel Corporation,—

1. Paid its running expenses, 2. Paid its fixed obligations, 3. Divided up its profits, 4. And kept a nest egg.

The effectiveness of such means of stabilizing property income is illustrated by a compilation (published in the Wall Street Journal for August 7th, 1919) of the business of 104 American corporations between December 31, 1914, and December 31, 1918. The inventories—value of property owned—had increased from 1,192 millions to 2,624 millions of dollars; the gain in surplus, during the four years, was 1,941 millions; the increase in "working capital" was 1,876 millions. These corporations, representing only a small fraction of the total business of the country, had added billions to their property values during the four years.

These various items,—up-keep; depreciation; insurance; taxes; interest; dividends and surplus,—are recognized universally by legislatures and courts as "legitimate" outlays. They, therefore, are elements that are always present in the computation of a "fair" price. The cost to the consumer of coffee, shoes, meat, blankets, coal and transportation are all figured on such a basis. Hence, it will be seen that each time the consumer buys a pair of shoes or a pound of meat, he is paying, with part of his money, for the stabilizing of property.

Fifth. Property titles under this system are rendered immortal. A thousand dollars, invested in 1880 in 5 per cent. 40 year bonds, will pay to the owner $2,000 in interest by 1920, at which time the owner gets his original thousand back again to be re-invested so long as he and his descendants care to do so. The dollar, invested in the business of the steel corporation, by the technical processes of bookkeeping, is constantly renewed. Not only does it pay a return to the owner, but literally, it never dies.

The community is built upon labor. Its processes are continued and its wealth is re-created by labor. The men who work on the railroad keep the road operating; those who own the railroad owe to it no personal fealty, and perform upon it no personal service. If the worker dies, the train must stop until he is replaced; if the owner dies, the clerk records a change of name in the registry books.

The well-ordered society will encourage work. It will aim to develop enthusiasm, to stimulate activity. Nevertheless, in "practical America" a scheme of economic organization is being perfected under which the cream of life goes to the owners. They have the amplest opportunities. They enjoy the first fruits.

4. Property Rights and Civilization

Under these circumstances, it is easy to see how "the rights of property" soon comes to mean the same thing as "civilization," and how "the preservation of law and order" is always interpreted as the protection of property. With a community organized on a basis which renders property rights supreme in all essential particulars, it is but natural that the perpetuation of these rights should be regarded as the perpetuation of civilization itself.

The present organization of economic life in the United States permits the wealth owners through their ownership to live without doing any work upon the work done by their fellows. As recipients of property income (rent, interest and dividends) they have a return for which they need perform no service,—a return that allows them to "live on their income."

The man who fails to assist in productive activity gives nothing of himself in return for the food, clothing and shelter which he enjoys,—that is, he lives on the labor of others. Where some have sowed and reaped, hammered and drilled, he has regaled himself on the fruits of their toil, while never toiling himself.

The matter appears most clearly in the case of an heir to an estate. The father dies, leaving his son the title deeds to a piece of city land. If he has no confidence in his son's business ability or if his son is a minor, he may leave the land in trust, and have it administered in his son's interest by some well organized trust company. The father did not make the land, though he did buy it. The son neither made nor bought the land, it merely came to him; and yet each year he receives a rent-payment upon which he is able to live comfortably without doing any work. It must at once be apparent that this son of his father, economically speaking, performs no function in the community, but merely takes from the community an annual toll or rental based on his ownership of a part of the land upon, which his fellowmen depend for a living. Of what will this toll consist? Of bread, shoes, motor-cars, cigars, books and pictures,—the products of the labor of other men.

This son of his father is living on his income,—supported by the labor of other people. He performs no labor himself, and yet he is able to exist comfortably in a world where all of the things which are consumed are the direct or indirect product of the labor of some human being.

Living on one's income is not a new social experience, but it is relatively new in the United States. The practice found a reasonably effective expression in the feudalism of medieval Europe. It has been brought to extraordinary perfection under the industrialism of Twentieth Century America.

Imagine the feelings of the early inhabitants of the American colonies toward those few gentlemen who set themselves up as economically superior beings, and who insisted upon living without any labor, upon the labor performed by their fellows. It was against the suggestion of such a practice that Captain John Smith vociferated his famous "He that will not work, neither shall he eat." The suggestion that some should share in the proceeds of community life without participating in the hardships that were involved in making a living seemed preposterous in those early days.

To-day, living on one's income is accepted in every industrial center of the United States as one of the methods of gaining a livelihood. Some men and women work for a living. Other men and women own for a living.

Workers are in most cases the humble people of the community. They do not live in the finest homes, eat the best food, wear the most elaborate clothing, or read, travel and enjoy the most of life.

The owners as a rule are the well-to-do part of the community. They derive much of all of their income from investments. The return which they make to the community in services is small when compared with the income which they receive from their property holdings.

Living on one's income is becoming as much a part of American economic life as living by factory labor, or by mining, or by manufacturing, or by any other occupation upon which the community depends for its products. The difference between these occupations and living on one's income is that they are relatively menial, and it is relatively respectable, that is, they have won the disapprobation and it has won the approbation of American public opinion.

The best general picture of the economic situation that permits a few people to live on their incomes, while the masses of the people work for a living, is contained in the reports of the Federal Commissioner of Internal Revenue. The figures for 1917 ("Statistics of Income for 1917" published August 1919) show that 3,472,890 persons filed returns, making one for each six families in the United States. Almost one half of the total number of returns made in 1917 were from persons whose income was between $1000 and $2000. There were 1,832,132 returns showing incomes of $2000 or more, one for each twelve families in the country.

The number of persons receiving the higher incomes is comparatively small. There were 270,666 incomes between $5,000 and $10,000; 30,391 between $10,000 and $25,000; 12,439 between $25,000 and $50,000. There were 432,662 returns (22 for each 1000 families in the United States) showing incomes of $5,000 or over; there were 161,996 returns (8 returns for each 1000 families) showing incomes of $10,000 or over; 49,494 showing incomes of $25,000 and over; 19,103 showing incomes of $50,000 and more. Thus the number of moderate and large incomes, compared with the total population of the country, was minute.

The portion of the report that is of particular interest, in so far as the present study is concerned, is that which presents a division of the total net income of those reporting $2,000 or more, into three classes—income from personal service, income from business profits and income from the ownership of property.

PERSONAL INCOMES BY SOURCES—1917

Amount of Per Cent Income of Total Source Income 1. Income from personal service; salaries, wages; commission, bonuses, director's fees, etc $ 3,648,437,902 30.21

2. Income from business; business, trade, commerce, partnership, farming, and profits from sales of real estate, stocks, bonds, and other property 3,958,670,028 32.77

3. Income from property; rents and royalties 684,343,399 5.67 Interest on bonds, notes, etc. 936,715,456 7.76 Dividends 2,848,842,499 23.59 Total from Property 4,469,901,354 37.02

4. Total income 12,077,009,284 100.00

Those persons who have incomes of $2,000 or more receive 30 cents on the dollar in the form of wages and salaries; 33 cents in the form of business profits, and 37 cents in the form of incomes from the ownership of property. The dividend payments alone—to this group of property owners, are equal to three quarters of the total returns for personal service.

These figures refer, of course, to all those in receipt of $2,000 or more per year. Obviously, the smaller incomes are in the form of wages, salaries, and business profits, while the larger incomes take the form of rent, interest and dividends. This is made apparent by a study of the detailed tables published in connection with the "Income Statistics for 1916."

Among those of small incomes—$5,000 to $10,000—nearly half of the income was derived from personal services. The proportion of the income resulting from personal service diminished steadily as the incomes rose until, in the highest income group—those receiving $2,000,000 or more per year, less than one-half of one per cent. was the result of personal service while more than 99 per cent. of the incomes came from property ownership.

A small portion of the American people are in receipt of incomes that necessitate a report to the revenue officers. Among those persons, a small number are in receipt of incomes that might be termed large—incomes of $10,000 or over, for example. Among these persons with large incomes the majority of the income is secured in the form of rent, interest, dividends and profits. The higher the income group, the larger is the percentage of the income that comes from property holdings.

The economic system that exists at the present time in the United States places a premium on property ownership. The recipients of the large incomes are the holders of the large amounts of property.

Large incomes are property incomes. The rich are rich because they are property owners. Furthermore, the organization of present-day business makes the owner of property more secure—far more secure in his income, than is the worker who produces the wealth out of which the property income is paid.

5. Plutocracy

The owning class in the United States is established on an economic basis,—the private ownership of the earth. No more solid foundation for class integrity and class power has ever been discovered.

The owners of the United States are powerfully entrenched. Operating through the corporation, its members have secured possession of the bulk of the more useful resources, the important franchises and the productive capital. Where they do not own outright, they control. The earth, in America, is the landlords and the fullness thereof. They own the productive machinery, and because they own they are able to secure a vast annual income in return for their bare ownership.

Families which enjoy property income have one great common interest—that of perpetuating and continuing the property income; hence the "cohesion of wealth." "The cohesion of wealth" is a force that welds individuals and families who receive property income into a unified group or class.

The cohesion of wealth is a force of peculiar social significance. It might perhaps be referred to as the class consciousness of the wealthy except that it manifests itself among people who have recently acquired wealth, more violently, in some cases, than it appears among those whose families have possessed wealth for generations. Then, the cohesion of wealth is not always an intelligent force. In the case of some persons it is largely instinctive.

Originally, the cohesion of wealth expresses itself instinctively among a group of wealth owners. They may be competing fiercely as in the case of a group of local banks, department stores, or landlords, but let a common enemy appear, with a proposition for currency reform, labor legislation or land taxation and in a twinkling the conflicting interests are thrown to the winds and the property owners are welded into a coherent, unified group. This is the beginning of a wealth cohesion which develops rapidly into a wealth consciousness.

American business, a generation ago, was highly competitive. Each business man's hand was raised against his neighbor and the downfall of one was a matter of rejoicing for all. The bitter experience of the nineties drove home some lessons; the struggles with labor brought some more; the efforts at government regulations had their effect; but most of all, the experience of meeting with men in various lines of business and discussing the common problems through the city, state and national and business organizations led to a realization of the fact that those who owned and managed business had more in common than they had in antagonism. By knifing one another they made themselves an easy prey for the unions and the government. By pooling ideas and interests they presented a solid front to the demands of organized labor and the efforts of the public to enforce regulation.

"Plutocracy" means control by those who own wealth. The "plutocratic class" consists of that group of persons who control community affairs because they own property. This class, because of its property ownership, is compelled to devote time and infinite pains to the task of safeguarding the sacred rights of property. It is to that task that the leaders of the American plutocracy have committed themselves, and it is from the results of that accomplished work that they are turning to new labors.

FOOTNOTES:

[41] Speech in the Senate, June 20, 1832. Works Colvin Colton, ed. New York, Putnam's, 1904, vol. 7, p. 503.

[42] Ibid., p. 503.

[43] "Speeches," E. P. Whipple, ed. Little, Brown & Co., 1910, pp. 59-60.

[44] "The Constitutional Position of Property in America," Arthur T. Hadley, Independent, April 16, 1908.



X. INDUSTRIAL EMPIRES

1. They Cannot Pause!

The foundations of Empire have been laid in the United States. Territory has been conquered; peoples have been subjugated or annihilated; an imperial class has established itself. Here are all of the essential characteristics of empire.

The American people have been busy laying the political foundations of Empire for three centuries. A great domain, taken by force of arms from the people who were in possession of it has been either incorporated into the Union, or else held as dependent territory. The aborigines have disappeared as a race. The Negroes, kidnaped from their native land, enslaved and later liberated, are still treated as an inferior people who should be the hewers of wood and the drawers of water. A vast territory was taken from Mexico as a result of one war. A quarter million square miles were secured from Spain in another; on the Continent three and a half millions of square miles; in territorial possessions nearly a quarter of a million more—this is the result of little more than two hundred years of struggle; this is the geographic basis for the American Empire.

The structure of owning class power is practically complete in the United States. Through long years the business interests have evolved a form of organization that concentrates the essential power over the industrial and financial processes in a very few hands,—the hands of the investment bankers. During this contest for power the plutocracy learned the value of the control of public opinion, and brought the whole machinery for the direction of public affairs under its domination. Thus political and social institutions as well as the processes of economic life were made subject to plutocratic authority. A hundred years has sufficed to promulgate ideas of the sacredness of private property that place its preservation and protection among the chief duties of man. Economic organization; the control of all important branches of public affairs, and the elevation of property rights to a place among the beatitudes—by these three means was the authority of the plutocracy established and safeguarded.

Since economic political and social power cover the field of authority that one human being may exercise over another, it might be supposed that the members of the plutocratic class would pause at this point and cease their efforts to increase power. But the owners cannot pause! A force greater than their wills compels them to go on at an ever growing speed. Within the vitals of the economic system upon which it subsists the plutocracy has found a source of never-ending torment in the form of a constantly increasing surplus.

2. The Knotty Problem of Surplus

The present system of industry is so organized that the worker is always paid less in wages than he creates in product. A part of this difference between product and wages goes to the upkeep and expansion of the industry in which the worker is employed. Another part in the form of interest, dividends, rents, royalties and profits, goes to the owners of the land and productive machinery.

The values produced in industry and handed to the industrial worker or property owner in the form of income, may be used or "spent" either for "consumption goods"—things that are to be used in satisfying human wants, such as street car transportation, clothing, school books, and smoking tobacco; or for production goods—things that are to be used in the making of wealth, such as factory buildings, lathes, harvesting machinery, railroad equipment. Those who have small incomes necessarily spend the greater part for the consumption of goods upon which their existence depends. On the other hand, those who are in receipt of large incomes cannot use more than a limited amount of consumption goods. Therefore, they are in a position to turn part of their surplus into production goods. As a reward for this "saving" the system gives them title to an amount of wealth equal to the amount saved, and in addition, it grants an amount of "interest" so that the next year the recipient of surplus gets the regular share of surplus, and beside that an additional reward in the form of interest. His share of the surplus is thus increased. That is, surplus breeds surplus.

The workers are, for the most part, spenders. The great bulk of their income is turned at once into consumption goods. The owners in many instances are capitalists who hold property for the purpose of turning the income derived from it into additional investments.

Could the worker buy back dollar for dollar the values which he produces there would be no surplus in the form of rent, interest, dividends and profits. The present economic system is, however, built upon the principle that those who own the lands and the productive machinery should be recompensed for their mere ownership. It follows, of course, that the more land and machinery there is to own the greater will be the amount of surplus which will go to the owners. Since surplus breeds surplus the owners find that it pays them not to use all of their income in the form of consumption, but rather to invest all that they can, thereby increasing the share of surplus that is due them. The worker, on the other hand, finds that he must produce a constantly larger amount of wealth which he never gets, but which is destined for the payment of rent, interest, dividends and profits. Increased incomes yield increased investments. Increased investments necessitate the creation and payment of increased surplus. The payment of increased surplus means increased incomes. Thus the circle is continued—with the returns heaping up in the coffers of the plutocracy.

Originally the surplus was utilized to free the members of the owning class from the grinding drudgery of daily toil, by permitting them to enjoy the fruits of the labor of others. Then it was employed in the exercise of power over the economic and social machinery. But that was not the end—instead it proved only the beginning. As property titles were concentrated in fewer and fewer hands, and the amount of property owned by single individuals or groups of individuals becomes greater, their incomes (chiefly in the form of rent, interest, dividends and profits) rose until by 1917 there were 19,103 persons in the United States who declared incomes of $50,000 or more per year, which is the equivalent of $1,000 per week. Among these persons 141 declared annual incomes of over $1,000,000. Besides these personal incomes, each industry which paid these dividends and profits, through its depreciation, amortization, replacement, new construction, and surplus funds was reinvesting in the industries billions of wealth that would be used in the creation of more wealth. The normal processes of the growth of the modern economic system has forced upon the masters of life the problem of disposing of an ever increasing amount of surplus.

During prosperous periods, the investment funds of a community like England and the United States grow very rapidly. The more prosperous the nation, the greater is the demand from those who cannot spend their huge incomes for safe, paying investment opportunities.

The immense productivity of the present-day system of industry has added greatly to the amount of surplus seeking investment. Each invention, each labor saving device, each substitution of mechanical power that multiplies the productive capacity of industry at the same time increases the surplus at the disposal of the plutocracy.

The surplus must be disposed of. There is no other alternative. If hats, flour and gasoline are piled up in the warehouses or stored in tanks, no more of these commodities will be made until this surplus has been used. The whole economic system proceeds on the principle that for each commodity produced, a purchaser must be found before another unit of the commodity is ordered. Demand for commodities stimulates and regulates the machinery of production.

Those in control of the modern economic system have no choice but to produce surplus, and once having produced it, they have no choice except to dispose of it. An inexorable fate drives them onward—augmenting their burdens as it multiplies their labors.

Investment opportunities, of necessity, are eagerly sought by the plutocracy, since the law of their system is "Invest or perish"!

Invest? Where? Where there is some demand for surplus capital—that is in "undeveloped countries."

The necessity for disposing of surplus has imposed upon the business men of the world a classification of all countries as "developed" or "undeveloped." "Developed" countries are those in which the capitalist processes have gone far enough to produce a surplus that is sufficient to provide for the upkeep and for the normal expansion of industry. In "developed" countries mines are opened, factories are built, railroads are financed, as rapidly as needed, out of the domestic industrial surplus. "Undeveloped" countries are those which cannot produce sufficient capital for their own needs, and which must, therefore, depend for industrial expansion upon investments of capital from the countries that do produce a surplus.

"Developed" countries are those in which the modern industrial system has been thoroughly established.

The contrast between developed and undeveloped countries is made clear by an examination of the investments of any investing nation, such as Great Britain. Great Britain in 1913 was surrounded by rich, prosperous neighbors—France, Germany, Holland, Belgium. Each year about a billion dollars in English capital was invested outside of the British Isles. Where did this wealth go? The chief objectives of British investment, aside from the British Dominions and the United States, were (stated in millions of pounds) Argentine 320; Brazil 148; Mexico 99; Russia 67; France 8 and Germany 6. The wealth of Germany or France is greater than that of Argentine, Brazil and Mexico combined, but Germany and France were developed countries, producing enough surplus for their own needs, and, therefore, the investable wealth of Great Britain went, not to her rich neighbors, but to the poorer lands across the sea.

Each nation that produces an investable surplus—and in the nature of the present economic system, every capitalist nation must some day reach the point where it can no longer absorb its own surplus wealth—must find some undeveloped country in which to invest its surplus. Otherwise the continuity of the capitalist world is unthinkable. Great Britain, Belgium, Holland, France, Germany and Japan all had reached this stage before the war. The United States was approaching it rapidly.

3. "Undeveloped Countries"

Capitalism is so new that the active struggle to secure investment opportunities in undeveloped countries is of the most recent origin. The voyages which resulted in the discovery, by modern Europeans, of the Americas, Australia, Japan, and an easy road to the Orient, were all made within 500 years. The actual processes of capitalism are products of the past 150 years in England, where they had their origin. In France, Germany, Italy and Japan they have existed for less than a century. The great burst of economic activity which has pushed the United States so rapidly to the fore as a producer of surplus wealth dates from the Civil War. Only in the last generation did there arise the financial imperialism that results from the necessity of finding a market for investable surplus.

The struggle for world trade had been waged for centuries before the advent of capitalism, but the struggle for investment opportunities in undeveloped countries is strictly modern. The matter is strikingly stated by Amos Pinchot in his "Peace or Armed Peace" (Nov. 11, 1918).

"If you will look at the maps following page 554 of Hazen's 'Europe since 1815,' or any other standard colored map showing Africa and Asia in 1884, you will see that, but for a few rare spots of coloration, the whole continent of Africa is pure white. Crossing the Red Sea into Arabia, Persia, Mesopotamia and Asia Minor, you will find the same or rather a more complete lack of color. This is merely the cartographer's way of showing, by tint and lack of tint, that at that time Africa and Western Asia were still in the hands of their native populations.

"Let us now turn to the same maps thirty years later, i.e., in 1914. We find them utterly changed. They are no longer white, but a patch work of variegated hues....

"From 1870 to 1900, Great Britain added to her possessions, to say nothing of her spheres of influence, nearly 5,000,000 square miles with an estimated population of 88,000,000. Within a few years after England's permanent occupation of Egypt, which was the signal for the renaissance of French colonialism, France increased hers by 3,500,000 square miles with a population of 37,000,000, not counting Morocco added in 1911. Germany, whose colonialism came later, because home and nearby markets longer absorbed the product of her machines, brought under her dominion from 1884 to 1899 1,000,000 square miles with an estimated population of 14,000,000."

This is a picture of the political effects that followed the economic causes summed up in the term "financial imperialism."

In the seventeenth and eighteenth centuries it was the trader, dealing in raw stuff; in the nineteenth century it was the manufacturer, producing at low cost to cut under his neighbor's price. During the past thirty years the investment banker has occupied the foreground with his efforts to find safe, paying opportunities for the disposal of the surplus committed to his care. British bankers, French bankers, German bankers, Belgian bankers, Dutch bankers—all intent upon the same mission—because behind all, and relentlessly driving, were the accumulating surpluses, demanding an outlet. European bankers found that outlet in Africa, Asia, Australia and the Americas. The stupendous strides in the development of the resources in these countries would have been impossible but for that surplus of European capital.

The undeveloped countries to-day have the same characteristics,—virgin resources, industrial and commercial possibilities, and in many cases cheap labor. This is true, for example, in China, Mexico and India. It is true to a less extent in South America and South Africa. The logical destination of capital is the point where the investment will "pay."

The investor who has used up the cream of the home investment market turns his eyes abroad. As a recent writer has suggested, "There is a glamor about the foreign investment" which does not hold for a domestic one. Foreign investments have yielded such huge returns in the past that there is always a seeming possibility of wonderful gains for the future. The risk is greater, of course, but this is more than offset by the increased rate of return. If it were not so, the wealth would be invested at home or held idle.

4. The Great Investing Nations

The great industrial nations are the great investing nations. An agriculture community produces little surplus wealth. Land values are low, franchises and special privileges are negligible factors. There can be relatively little speculation. Changes in method of production are infrequent. Changes in values and total wealth are gradual. The owning class in an agriculture civilization may live comfortably. If it is very small in proportion to the total population it may live luxuriously, but it cannot derive great revenues such as those secured by the owning classes of an industrial civilization.

Industrial civilization possesses all of the factors for augmenting surplus wealth which are lacking in agricultural civilizations. Changes in the forms of industrial production are rapid; special privilege yields rich returns and is the subject of wide speculative activity; land values increase; labor saving machinery multiplies man's capacity to turn out wealth. As much surplus wealth might be produced in a year of this industrial life as could have been turned out in a generation or a century of agricultural activity or of hand-craft industry.

England, France, Germany, Holland, Belgium, Japan and the United States, the great industrial nations, have become the great lending nations. Their search for "undeveloped territory" and "spheres of influence" is not a search for trade, but for an opportunity to invest and exploit. If these nations wished to exchange cotton for coffee, or machinery for wheat on even terms, they could exchange with one another, or with one of the undeveloped countries, but they demand an outlet for surplus wealth—an outlet that can only be utilized where the government of the developed country will guarantee the investment of its citizens in the undeveloped territory.

The investing nations either want to take the raw products of the undeveloped country, manufacture them and sell them back as finished material (the British policy in India), or else they desire to secure possession of the resources, franchises and other special privileges in the undeveloped country which they can exploit for their own profit (the British policy in South America).

The Indians, under the British policy, are thus in relatively the same position as the workers in one of the industrial countries. They are paid for their raw material a fraction of the value of the finished product. They are expected to buy back the finished product, which is a manifest impossibility. There is thus a drastic limitation on the exploitation of undeveloped countries, just as there is a limitation on the exploitation of domestic labor. In both cases the people as consumers can buy back less in value than the exploiters have to sell. Obviously the time must come when all the undeveloped sections of the world have been exploited to the limit. Then surplus will go a-begging.

Some of the investors in the great exploiting nations have abandoned the idea of making huge returns by way of the English policy in India. Instead the investors in every nation are buying up resources, franchises and concessions and other special privileges in the undeveloped countries and treating them in exactly the same way that they would treat a domestic investment. In this case the resources and labor of the undeveloped country are exploited for the profit of the foreign investor.

The Roman conquerors subjugated the people politically and then exacted an economic return in the form of tribute. The modern imperialists do not bother about the political machinery, so long as it remains in abeyance, but content themselves with securing possession of the economic resources of a region and exacting a return in interest and dividends on the investment. Political tribute is largely a thing of the past. In its place there is a new form—economic tribute—which is safer, cheaper, and on the whole far superior to the Roman method of exploiting undeveloped regions.

5. The American Home Field

A hundred years ago the United States was an undeveloped country. Its resources were virgin. Its wealth possibilities were immense. Both domestic and foreign capitalists invested large sums in the canals, the railroads and other American commercial and industrial enterprises. The rapid economic expansion of recent years has involved the outlay of huge sums of new capital.

The total capital invested in manufactures was 8,975 millions in 1899 and 22,791 millions in 1914. The total of railway capital was 11,034 millions in 1899 and 20,247 millions in 1914. Manufacturing and railroading alone secured a capital outlay of over 20 billions in 15 years. Some idea of the increase in investments may be gained from the amount of new stocks and bonds listed annually on the New York Stock Exchange. The total amount of new stocks listed for the five years ending with 1914 was 1,420 millions; the total of new bonds was 2,226 million. (The Financial Review Annual, 1918, p. 67.) The total capital of new companies (with an authorized capital of at least $100,000) was in 1918, $2,599,753,600; in 1919, $12,677,229,600, and in the first 10 months of 1920, $12,242,577,700. (Bradstreets, Nov. 6, 1920, p. 731.) The figures showing the amount of stocks and bonds issued do not by any means exhaust the field of new capital. Reference has already been made to the fact that the United States Steel Corporation, between 1903 and 1918 increased its issues of stocks and bonds by only $31,600,000, while, in the same time its assets increased $987,000,000. The same fact is illustrated, on a larger scale, in a summary (Wall Street Journal, August 7, 1919) of the finances of 104 corporations covering the four years, December 31, 1914, to December 31, 1918. During this time, six of the leading steel companies of the United States increased their working capital by $461,965,000 and their surplus by $617,656,000. This billion was taken out of the earnings of the companies. Concerning the entire 104 corporations, the Journal notes that, "After heavy expenditures for new construction and acquisitions, and record breaking dividends, they added a total of nearly $2,000,000,000 to working capital." In addition, these corporations, in four years, showed a gain of $1,941,498,000 in surplus and a gain in inventories of $1,522,000,000.

Considerable amounts of capital are invested in private industry, by individuals and partnerships. No record of these investments ever appears. Farmers invest in animals, machinery and improved buildings—investments that are not represented by stocks or bonds. Again, the great corporations themselves are constantly adding to their assets without increasing their stock or bond issues. In these and other ways, billions of new capital are yearly absorbed by the home investment market.

Although most of the enterprises of the United States have been floated with American capital, the investors of Great Britain, Holland, France and other countries took a hand. In 1913 the capitalists of Great Britain had larger investments in the United States than in any other country, or than in any British Dominion. (The U. S., 754,617,000 pounds; Canada and Newfoundland, 514,870,000 pounds; India and Ceylon, 378,776,000 pounds; South Africa, 370,192,000 pounds and so on.) (Annals, 1916, Vol. 68, p. 28, Article by C. K. Hobson.) The aggregate amount of European capital invested in the United States was approximately $6,500,000,000 in 1910. Of this sum more than half was British. ("Trade Balance of the United States," George Paisch. National Monetary Commission, 1910, p. 175.)

By the beginning of the present century (the U. S. Steel Corporation was organized in 1901) the main work of organization inside of the United States was completed. The bankers had some incidental tasks before them, but the industrial leaders themselves had done their pioneer duty. There were corners to be smoothed off, and bearings to be rubbed down, but the great structural problems had been solved, and the foundations of world industrial empire had been laid.

6. Leaving the Home Field

The Spanish-American War marks the beginning of the new era in American business organization. This war found the American people isolated and provincial. It left them with a new feeling for their own importance.

The worlds at home had been conquered. The transcontinental railroads had been built; the steel industry, the oil industry, the coal industry, the leather industry, the woolen industry and a host of others had been organized by a whole generation of industrial organizers who had given their lives to this task.

Across the borders of the United States—almost within arm's reach of the eager, stirring, high-strung men of the new generation, there were tens of thousands of square miles of undeveloped territory—territory that was fabulously rich in ore, in timber, in oil, in fertility. On every side the lands stretched away—Mexico, the West Indies, Central America, Canada—with opportunity that was to be had for the taking.

Opportunity called. Capital, seeking new fields for investment, urged. Youth, enthusiasm and enterprise answered the challenge.

The foreign investments of the United States at the time of the Spanish-American War were negligible. By 1910 American business men had two billions invested abroad—$700,000,000 in Mexico; $500,000,000 in Canada; $350,000,000 in Europe, and smaller sums in the West Indies, the Philippines, China, Central and South America. In 1913 there was a billion invested in Mexico and an equal amount in Canada. ("Commercial Policy," W. S. Culbertson, New York, Appleton, 1919, p. 315.)

Capital flowed out of the United States in two directions:

1. Toward the resources which were so abundant in certain foreign countries.

2. Toward foreign markets.

7. Building on Foreign Resources

The Bethlehem Steel Corporation is a typical industry that has built up foreign connections as a means of exploiting foreign resources. The Corporation has a huge organization in the United States which includes 10 manufacturing plants, a coke producing company, 11 ship building plants, six mines and quarries, and extensive coal deposits in Pennsylvania and West Virginia. The Bethlehem Steel Corporation also controls ore properties near Santiago, Cuba, near Nipe Bay, Cuba, and extensive deposits along the northern coast of Cuba; large ore properties at Tofo, Chile, and the Ore Steamship Corporation, a carrying line for Chilean and Cuban ore.

The American Smelting and Refining Company is another illustration of expansion into a foreign country for the purpose of utilizing foreign resources. According to the record of the Company's properties, the Company was operating six refining plants, one located in New Jersey; one in Nebraska; one in California; one in Illinois; one in Maryland, and one in Washington. The Company owned 14 lead smelters and 11 copper smelters, located as follows: Colorado, 4; Utah, 2; Texas, 2; Arizona, 2; New Jersey, 2; Montana, 1; Washington, 1; Nebraska, 1; California, 1; Illinois, 1; Chile, 2; Mexico, 6. Among these 25 plants a third is located outside of the United States.

These are but two examples. The rubber, oil, tobacco and sugar interests have pursued a similar policy—extending their organization in such a way as to utilize foreign resources as a source for the raw materials that are destined to be manufactured in the United States.

8. Manufacturing and Marketing Abroad

The Bethlehem Steel Corporation and the American Smelting and Refining Company go outside of the United States for the resources upon which their industries depend. Their fabricating industries are carried on inside of the country. There are a number of the great industries of the country that have gone outside of the United States to do their manufacturing and to organize the marketing of their products.

The International Harvester Company has built a worldwide organization. It manufactures harvesting machinery, farm implements, gasoline engines, tractors, wagons and separators at Springfield, Ohio; Rock Falls, Ill.; Chicago, Ill.; Auburn, New York; Akron, Ohio; Milwaukee, Wisc., and West Pullman, Ill. It has iron mines, coal mines and steel plants operated by the Wisconsin Steel Company. It has three twine mills and four railways. Foreign plants and branches are listed as follows: Norrkoping, Sweden; Copenhagen, Denmark; Christiania, Norway; Paris, France; Croix, France; Berlin, Germany; Hamilton, Ontario, Canada; Zurich, Switzerland; Vienna, Austria; Lubertzy, Russia; Neuss, Germany; Melbourne, Australia; London, England; Christ Church, New Zealand.

One of the greatest industrial empires in the world is the Standard Oil Properties. It is not possible to go into detail with regard to their operations. Space will admit of a brief comment upon one of the constituent parts or "states" of the empire—The Standard Oil Company of New Jersey. With a capital stock of $100,000,000, this Company, from the dissolution of the Standard Oil Company, December 15, 1911, to June 15, 1918, a period of six and a half years, paid dividends of $174,058,932.

The company describes itself as "a manufacturing enterprise with a large foreign business. The company drills oil wells, pumps them, refines the crude oil into many forms and sells the product—mostly abroad." (The Lamp, May, 1918.) The properties of the Company are thus listed:

1. The Company has 13 refineries, seven of them in New Jersey, Maryland, Oklahoma, Louisiana and West Virginia. Four of the remaining refineries are located in Canada, one is in Mexico and one in Peru.

2. Pipeline properties in New York, New Jersey, Pennsylvania and Maryland.

3. A fleet of 54 ocean-going tank steamers with a capacity of 486,480 dead weight tons. (This is about two per cent of the total ocean-going tonnage of the world.)

4. Can and case factories, barrel factories, canning plants, glue factories and pipe shops.

5. Through its subsidiary corporations, the Company controls:

a. Oil wells in Pennsylvania, West Virginia, Ohio, Kentucky, Louisiana, Arkansas, Mississippi, Texas, California, Peru and Mexico. In connection with many of these properties refineries are operated.

b. One subsidiary has 550 marketing stations in Canada. Others market in various parts of the United States; in the West Indies; in Central and South America; in Germany, Austria, Roumania, the Netherlands, France, Denmark and Italy.

The Standard Oil Company of New Jersey comprises only one part—though a very successful part—of the Standard Oil Group of industries. It is one industrial state in a great industrial empire.

Foreign resources offer opportunities to the exploiter. Foreign markets beckon. Both calls have been heeded by the American business interests that are busy building the international machinery of business organization.

9. International Business and Finance

The steel, smelting, oil, sugar, tobacco, and harvester interests are confined to relatively narrow lines. In their wake have followed general business, and above all, financial activities.

The American International Corporation was described by its vice-president (Mr. Connick) before a Senate Committee on March 1, 1918. "Until the Russian situation became too acute, they had offices in Petrograd, London, Paris, Rome, Mexico City. They sent commissions and agents and business men to South America to promote trade.... They were negotiating contracts for a thousand miles of railroad in China. They were practically rebuilding, you might say, the Grand Canal in China. They had acquired the Pacific Mail.... They then bought the New York Shipbuilding Corporation to provide ships for their shipping interests."

By 1919 (New York Times, Oct. 31, 1919) the Company had acquired Carter Macy & Co., and the Rosin and Turpentine Export Co., and was interested in the International Mercantile Marine and the United Fruit Companies.

Another illustration of the same kind of general foreign business appeared in the form of an advertisement inserted on the financial page of the New York Times (July 10, 1919) by three leading financial firms, which called attention to a $3,000,000 note issue of the Haytian American Corporation "Incorporated under the laws of the State of New York, owning and operating sugar, railroad, wharf and public utility companies in the Republic of Hayti." Further, the advertisers note: "The diversity of the Company's operations assures stability of earnings."

American manufacturers, traders and industrial empire builders have not gone alone into the foreign field. The bankers have accompanied them.

Several of the great financial institutions of the country are advertising their foreign connections.

The Guaranty Trust Company (New York Times, Jan. 10, 1919) advertises under the caption "Direct Foreign Banking Facilities" offering "a direct and comprehensive banking service for trade with all countries." These connections include:

1. Branches in London and Paris, which are designated United States depositories. "They are American institutions conducted on American lines, and are especially well equipped to render banking service throughout Europe." There are additional branches in Liverpool and Brussels. The Company also has direct connections in Italy and Spain, and representatives in the Scandinavian countries.

2. "Direct connections with the leading financial institutions in Argentina, Uruguay, Chile, and Brazil." A special representative in Buenos Ayres. "Through our affiliation with the Mercantile Bank of the Americas and its connections, we cover Peru, Northern Brazil, Columbia, Ecuador, Venezuela, Nicaragua, Honduras, Guatemala, and other South and Central American countries."

3. "Through the American Mercantile Bank of Cuba, at Havana, we cover direct Cuba and the West Indies."

4. "Direct banking and merchant service throughout British India," together with correspondents in the East Indies and the Straits Settlements.

5. "Direct connections with the National Bank of South Africa, at Cape Town, and its many branches in the Transvaal, Rhodesia, Natal, Mozambique, etc."

6. Direct banking connections and a special representative in Australia and New Zealand.

7. "Through our affiliations with the Asia Banking Corporation we negotiate, direct, banking transactions of every nature in China, Manchuria, Southeastern Siberia, and throughout the Far East. The Asia Banking Corporation has its main office in New York and is establishing branches in these important trade centers: Shanghai, Pekin, Tientsin, Hankow, Harbin, Vladivostok. We are also official correspondents for leading Japanese banks."

The advertisement concludes with this statement: "Our Foreign Trade Bureau collects and makes available accurate and up-to-date information relating to foreign trade—export markets, foreign financial and economic conditions, shipping facilities, export technique, etc. It endeavors to bring into touch buyers and sellers here and abroad."

The same issue of the Times carries a statement of the Mercantile Bank of the Americas which "offers the services of a banking organization with branches and affiliated banks in important trade centers throughout Central and South America, France and Spain." The Bank describes itself as "an American Bank for Foreign trade." Among its eleven directors are the President and two Vice-Presidents of the Guaranty Trust Company.

The Asia Banking Corporation, upon which the Guaranty Trust Company relies for its Eastern connections, was organized in 1918 "to engage in international and foreign banking in China, in the dependencies and insular possessions of the United States, and, ultimately in Siberia" (Standard Corporation Service, May-August, 1918, p. 42). The officers elected in August 1918, were Charles H. Sabin, President of the Guaranty Trust Co., President; Albert Breton, Vice-President of the Guaranty Trust Co., and Ralph Dawson, Assistant Secretary of the Guaranty Trust Company, Vice-Presidents, and Robert A. Shaw, of the overseas division of the Guaranty Trust Company, Treasurer. Among the directors are representatives of the Bankers Trust Company and of the Mercantile Bank of the Americas.

10. The National City Bank

The National City Bank of New York—the first bank in the history of the Western Hemisphere to show resources exceeding one billion dollars—illustrates in its development the cyclonic changes that the past few years have brought into American business circles. The National City Bank, originally chartered in 1812, had resources of $16,750,929 in 1879 and of $18,214,823 in 1889. From that point its development has been electric. The resources of the Bank totaled 128 millions in 1899; 280 millions in 1909; $1,039,418,324 in 1919. Between 1889 and 1899 they increased 600 per cent; between 1899 and 1919 they increased 700 per cent; during the 40 years from 1889 and 1919 the increase in resources exceeded six thousand per cent.

The organization of the Bank is indicative of the organization of modern business. Among the twenty-one directors, all of whom are engaged in some form of business enterprise, there are the names of William Rockefeller, Percy A. Rockefeller, J. Ogden Armour, Cleveland H. Dodge of the Phelps-Dodge Corporation, Cyrus H. McCormick of the International Harvester Co., Philip A. S. Franklin, President of the International Mercantile Marine Co.; Earl D. Babst, President of the American Sugar Refining Co.; Edgar Palmer, President of the New Jersey Zinc Co.; Nathan C. Kingsbury, Vice-President of the Union Pacific Railroad Co., and Frank Krumball, Chairman of the Chesapeake & Ohio Railroad Co. Some of the most powerful mining, manufacturing, transportation and public utility interests in the United States are represented, directly or indirectly, in this list.

The domestic organization of the Bank consists of five divisions, each one under a vice-president. New York City constitutes the first division; the second division comprises New England and New York State outside of New York City; the three remaining divisions cover the other portions of the United States. Except for the size and the completeness of its organization, the National City Bank differs in no essential particulars from numerous other large banking institutions. It is a financial superstructure built upon a massive foundation of industrial enterprise.

The phase of the Bank's activity that is of peculiar significance at the present juncture is its foreign organization, all of which has been established since the outbreak of the European war.

The foreign business of the National City Bank is carried on by the National City Bank proper and the International Banking Corporation. The first foreign branch of the National City Bank was established at Buenos Aires on November 10th, 1914. On January 1st, 1919, the National City Bank had a total of 15 foreign branches; on December 31st, 1919, it had a total of 74 foreign branches.

The policy of the Bank in its establishment of foreign branches is described thus in its "Statement of Condition, December 31st, 1919": "The feature of branch development during the year was the expansion in Cuba, where twenty-two new branches were opened, making twenty-four in the island. Cuba is very prosperous, as a result of the expansion of the sugar industry, and as sugar is produced there under very favorable conditions economically, and the location is most convenient for supplying the United States, the industry is on a sound basis, and relations with the United States are likely to continue close and friendly. Cuba is a market of growing importance to the United States, and the system of branches established by the Bank is designed to serve the trade between the two countries." The trader and the Banker are to work hand in hand.

The National City Bank has branches in Argentina, Brazil, Belgium, Chile, Colombia, Cuba, Italy, Porto Rico, Russia, Siberia, Spain, Trinidad, Uruguay and Venezuela, all of which have been established since 1914.

A portion of the foreign business of the National City Bank is conducted by the International Banking Corporation which was established in 1902 and which became a part of the National City Bank organization in 1915. The International Banking Corporation has a total of twenty-eight branches located in California, China, England, France, India, Japan, Java, Dominican Republic, Philippine Islands, Republic of Panama and the Straits Settlements. Under this arrangement, the financial relations with America are made by the National City Bank proper; while those with Europe and Asia are in the hands of the International Banking Corporation and the combination provides the Bank with 75 branches in addition to its vast organization within the United States.

The National City Bank of 1889, with its resources of eighteen millions, was a small affair compared with the billion dollar resources of 1920. Thirty years sufficed for a growth from youth to robust adulthood. Within five years, the Bank built up a system of foreign branches that make it one of the most potent States in the federation of international financial institutions.

11. Onward

Exploiters of foreign resources, manufacturers, traders and bankers have moved, side by side, out of the United States into the foreign field. Step by step they have advanced, rearing the economic structure of empire as they went.

The business men of the United States had no choice. They could not pause when they had spanned the continent. Ambition called them, surplus compelled them, profits lured them, the will to power dominated their lives. As well expect the Old Guard to pause in the middle of a charge—even before the sunken road at Waterloo—as to expect the business interests of the United States to cease their efforts and lay down their tools of conquest simply because they had reached the ocean in one direction. While there were left other directions in which there was no ocean; while other undeveloped regions offered the possibility of development, an inexorable fate—the fate inherent in the economic and the human stuff with which they were working compelled them to cry "Onward!" and to turn to the tasks that lay ahead.

The fathers and grandfathers of these Twentieth Century American Plutocrats, working coatless in their tiny factories; managing their corner stores; serving their local banks, and holding their minor offices had never dreamed of the destiny that lay ahead. No matter. The necessity for expansion had come and with it came the opportunity. The economic pressure complemented the human desire for "more." The structure of business organization, which was erected to conquer one continent could not cease functioning when that one continent was subdued. Rather, high geared and speeded up as it was, it was in fine form to extend its conquests, like the well groomed army that has come scatheless through a great campaign, and that longs, throughout its tensely unified structure to be off on the next mission.

The business life of the United States came to the Pacific; touched the Canadian border; surged against the Rio Grande. The continent had been spanned; the objective had been attained. Still, the cry was "Onward!"

Onward? Whither?

Onward to the lands where resources are abundant and rich; onward where labor is plentiful, docile and cheap; onward where the opportunities for huge profits are met with on every hand; onward into the undeveloped countries of the world.

The capitalists of the European nations, faced by a similar necessity for expansion, had been compelled to go half round the earth to India, to South Africa, to the East Indies, to China, to Canada, to South America. Close at home there was no country except Russia that offered great possibilities of development.

The business interests of the United States were more fortunate. At their very doors lay the opportunities—in Canada, in Mexico, in the West Indies, in Central and South America. Here were countries with the amplest, richest resources; countries open for capitalist development. To be sure these investment fields had been invaded already by foreign capitalists—British, German, Belgian and Spanish. But at the same time they were surrounded by a tradition of great virility and power—the tradition of "America for the Americans."



XI. THE GREAT WAR

1. Daylight

The work of industrial empire building had continued for less than half a century when the United States entered the Great War, which was one in a sequence of events that bound America to the wheel of destiny as it bound England and France and Germany and Japan and every other country that had adopted the capitalist method of production.

The war-test revealed the United States to the world and to its own people as a great nation playing a mighty role in international affairs. Most Europeans had not suspected the extent of its power. Even the Americans did not realize it. Nevertheless, the processes of economic empire building had laid a foundation upon which the superstructure of political empire is reared as a matter of course. Henceforth, no one need ask whether the United States should or should not be an imperial nation. There remained only the task of determining what form American imperialism should take.

The Great War rounded out the imperial beginnings of the United States. It strengthened the plutocracy at home; it gave the United States immense prestige abroad.

The Era of Imperialism dawned upon the United States in 1898. Daylight broke in 1914, and the night of isolation and of international unimportance gave place to a new day of imperial power.

2. Plutocracy in the Saddle

The rapid sweep across a new continent had placed the resources of the United States in the hands of a powerful minority. Nature had been generous and private ownership of the inexhaustible wilderness seemed to be the natural—the obvious method of procedure.

The lightning march of the American people across the continent gave the plutocracy its grip on the natural resources. The revolutionary transformations in industry guaranteed its control of the productive machinery.

The wizards of industrial activity have changed the structure of business life even more rapidly than they have conquered the wilderness. True sons of their revolutionary ancestors, they have slashed and remodeled and built anew with little regard for the past.

Revolutions are the stalking grounds of predatory power. Napoleon built his empire on the French Revolution; Cromwell on the revolt against tyrannical royalty in England. Peaceful times give less opportunity to personal ambition. Institutions are well-rooted, customs and habits are firmly placed, life is regulated and held to earth by a fixed framework of habit and tradition.

Revolution comes—fiercely, impetuously—uprooting institutions, overthrowing traditions, tearing customs from their resting places. All is uncertainty—chaos, when, lo! a man on horseback gathers the loose strands together saying, "Good people, I know, follow me!"

He does know; but woe to the people who follow him! Yet, what shall they do? Whither shall they turn? How shall they act? Who can be relied upon in this uncertain hour?

The man on horseback rises in his stirrups—speaking in mighty accents his message of hope and cheer, reassuring, promising, encouraging, inspiring all who come within the sound of his voice. His is the one assurance in a wilderness of uncertainty. What wonder that the people follow where he leads and beckons!

The revolutionary changes in American economic life between the Civil War and the War of 1914 gave the plutocrat his chance. He was the man on horseback, quick, clever, shrewd, farseeing, persuasive, powerful. Through the courses of these revolutionary changes, the Hills, Goulds, Harrimans, Wideners, Weyerhausers, Guggenheims, Rockefellers, Carnegies, and Morgans did to the American economic organization exactly what Napoleon did to the French political organization—they took possession of it.

3. Making the Plutocracy Be Good

The American people were still thinking the thoughts of a competitive economic life when the cohorts of an organized plutocracy bore down upon them. High prices, trusts, millionaires, huge profits, corruption, betrayal of public office took the people by surprise, confused them, baffled them, enraged them. Their first thought was of politics, and during the years immediately preceding the war they were busy with the problem of legislating goodness into the plutocracy.

The plutocrats were in public disfavor, and their control of natural resources, banks, railroads, mines, factories, political parties, public offices, governmental machinery, the school system, the press, the pulpit, the movie business,—all of this power amounted to nothing unless it was backed by public opinion.

How could the plutocracy—the discredited, vilified plutocracy—get public opinion? How could the exploiters gain the confidence of the American people? There was only one way—they must line up with some cause that would command public attention and compel public support. The cause that it chose was the "defense of the United States."

4. "Preparedness"

The plutocracy, with a united front, "went in" for the "defense of the United States,"—attacking the people on the side of their greatest weakness; playing upon their primitive emotions of fear and hate. The campaign was intense and dramatic, featuring Japanese invasions, Mexican inroads, and a world conquest by Germany.

The preparedness campaign was a marvel of efficient business organization. Its promoters made use of every device known to the advertising profession; the best brains were employed, and the country was blanketed with preparedness propaganda.

Officers of the Army and Navy were frank in insisting that the defense of the United States was adequately provided for. (See testimony of General Nelson A. Miles. Congressional Record, February 3, 1916, p. 2265.) Still the preparedness campaign continued with vigor. Congressman Clyde H. Tavenner in his speech, "The Navy League Unmasked," showed why. He gave facts like those appearing in George R. Kirkpatrick's book, "War, What For"; in F. C. Howe's "Why War," and in J. A. Hobson's "Imperialism," showing that, in the words of an English authority, "patriotism at from 10 to 15 per cent is a temptation for the best of citizens."

Tavenner established the connection between the preparedness campaign and those who were making profits out of the powder business, the nickel business, the copper business, and the steel business, interlocked through interlocking directorates; then he established the connection between the Navy League and the firm of J. P. Morgan & Co., 23 Wall St., New York. Regarding this connection, Congressman Tavenner said, "The Navy League upon close examination would appear to be little more than a branch office of the house of J. P. Morgan & Co., and a general sales promotion bureau for the various armor and munition makers and the steel, nickel, copper and zinc interests."[45]

The preparedness movement came from the business interests. It was fostered and financed by the plutocrats. It was their first successful effort at winning public confidence, and so well was it managed that millions of Americans fell into line, fired by the love of the flag and the world-old devotion to family and fireside.

5. Patriots

From preparedness to patriotism was an easy step. The preparedness advocates had evoked the spirit of the founders of American democracy and worked upon the emotions of the people until it was generally understood that those who favored preparedness were patriots.

Plutocratic patriotism was accepted by the press, the pulpit, the college, and every other important channel of public information in the United States. Editors, ministers, professors and lawyers proclaimed it as though it were their own. Randolph Bourne, in a brilliant article (Seven Arts, July, 1917) reminds his readers of "the virtuous horror and stupefaction when they read the manifesto of their ninety-three German colleagues in defense of the war. To the American academic mind of 1914 defense of war was inconceivable. From Bernhardi it recoiled as from a blasphemy, little dreaming that two years later would find it creating its own cleanly reasons for imposing military service on the country and for talking of the rough rude currents of health and regeneration that war would send through the American body politic. They would have thought any one mad who talked of shipping American men by the hundreds of thousands—conscripts—to die on the fields of France...."

The American plutocracy was magnified, deified, and consecrated to the task of making the world safe for democracy. Exploiters had turned saviors and were conducting a campaign to raise $100,000,000 for the Red Cross.[46] The "malefactors of great wealth," the predatory business forces, the special privileged few who had exploited the American people for generations, became the prophets and the crusaders, the keepers of the ark of the covenant of American democracy.