The industrial problem; being the William Levi Bull lectures for the year 1905

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Preface

From 1870, when I took up my residence in Cornwall-on-the-Hudson, to 1887, when I assumed the pastorate of Plymouth Church, Brooklyn, I was engaged in two courses of study : one in the New Testament in preparation for a Commentary on that Book ; the other on our industrial and sociological problems, impelled thereto by the journalistic duty of reporting and interpreting the incidents in our current American history. The result of that study was an early conviction that the principles of the Manchester School of Political Economy, which had dominated academic instruction in my college days, as they were commonly understood and practically applied, could not be reconciled with either the principles or the spirit inculcated by Jesus Christ. To apply those principles to the solution of our industrial problems became my endeavor, which has now been

6 Preface

pursued as a life purpose for upwards of a quarter of a century. In an appendix to this volume is given a list of some of the principal books which have entered into this course of study ; but more important has been the study of that problem at first hand, — in the investigation of specific incidents and events in our industrial development, in visits to mines, factories, and other organized industries, and in conferences with both labor leaders and captains of industry. When in 1904 I was invited to give this course of Lectures on the conditions expressed in the letter establishing this Lectureship, the invitation was gladly accepted because it furnished an opportunity to put into a compact form some of the conclusions which had been reached as a result of my faith " in the moral teachings and principles of the Christian religion as the true solvent of our Social, Industrial and Economic problems/ ' The American community is slowly coming to the conclusion that universal suffrage is no solvent of

Preface 7

our political problems unless it is accompanied by a universal education which must be moral as well as intellectual. It is also slowly coming to the conclusion that industrial liberty is no solvent of our economic problems unless it is accompanied by a recognition of economic duties and obligations. This too tardy rediscovery of the essential teaching of Jesus Christ makes this beginning of the twentieth century far more full of hope for industrial peace and prosperity than was the beginning of the nineteenth, with its calm assurance that educated self-interest would prove a panacea for all industrial evils.

This brief statement sufficiently explains the genesis of this volume, the object of which is to indicate certain lessons which the industrial evolution of the last half century has to teach us in the light of the precepts and principles inculcated by Jesus Christ.

Lyman Abbott.

Contents

I. The Industrial Problem ... 11

II. The Political Solution — REGU- LATION . 57

III. The Economic Solution — Reor-

II II

In the preceding lecture I endeavored to show you that industrial organization, both of capitalists and of laborers, is a necessary result of human development ; that it characterizes a stage of development which is philosophically, economically, and ethically higher than that of the industrial individualism from which we are emerging, and that a return to industrial individualism is neither possible nor desirable.

If this be true, why should the existence of great organizations of laborers and capitalists give us any concern ? Why do they present any problem, or involve us in any perplexity ?

Because combination has a tendency to produce monopoly, and monopoly necessarily tends to despotism. This constitutes what we sometimes erroneously call the trust problem. What is a trust?

In 1882 a number of petroleum refiners in Pennsylvania formed an organization in which the separate refining corporations were united by a very simple expedient, without abandoning their corporate existence. A majority of the stock of each corporation was given to a body of trustees. This gave them the financial control of each of these corporations, and enabled them to secure a monopoly of the oil refining business. This method of combination of independent corporations has been from time to time since followed in other combinations. The combinations thus formed are called Trusts. In fact, however, the method by which a number of independent corporations are combined under a single control is a matter wholly immaterial to the public. It is not the form of the combination, but the object and result of the combination, which concerns the public. It is not, properly speaking, the Trust, but the Monopoly, to which the public object. Both the object and the effect of the Standard Oil Trust were to secure a monopoly of the oil refining business. The same thing may be said of the Sugar Trust, the Tobacco Trust, the Steel Trust, and others less famous because not organized and conducted on so large a scale. Some trusts are not, properly speaking, monopolies ; I believe the Paper Trust is not. Some of the more threatening monopolies are not trusts. The famous anthracite coal combine is not a trust; that is, the combination has not been effected by giving to trustees a majority of the stock of the companies which are combined in mining and carrying coal. But it is a monopoly ; for it is a combination of what were before competing corporations, and it was effected for the purpose of securing a monopoly in anthracite coal. So the United Mine Workers is not technically a trust, but it is, or is endeavoring to be, a monopoly. That is, it is an organization of local unions which were before more or less independent of one another, and it was effected for the purpose of controlling all the skilled labor that is engaged in mining anthracite coal.

The same principles apply to a combination of capitalists and to a combination of laborers, though the term Trust is ordinarily used only to designate a combination of capitalists, not of laborers, and is, properly speaking, used to designate a particular kind of capitalistic combination.

Technically, then, a Trust is a particular form of capitalistic combination ; in popular parlance, a Trust is any combination of capitalists or laborers organized for the purpose or with the effect of securing a monopoly in any commodity or convenience by excluding competition, regulating if not limiting output, and determining if not enhancing prices.

The capitalistic organization has been made into a monopoly in various ways. Sometimes it has sold its goods in a particular locality below cost until its competing rival has been compelled to abandon its business. Sometimes it has refused to sell its goods to merchants who handled the goods of a competitor, or it has given especial rebates to merchants who handled only its own goods, or it has secured, generally by underhand means, special rebates from the railroads, enabling it to undersell its competitors, or it has obtained the absolute control of an article necessary to the welfare of the public, as the coal combine has secured the control of all the anthracite coal in the United States, and thus has been able to exclude all competition from the field. The laborers' organization has also endeavored to create a monopoly by various methods : sometimes by securing a law limiting or excluding free competition, like the Federal law forbidding the free importation of contract labor, or the Pennsylvania law forbidding the employment of skilled labor in the mines except by licensed miners who have had two years of apprenticeship in the state ; sometimes by creating a public opinion among laborers themselves which operates to exclude the individual laborer from any trade in which labor is already organized ; sometimes by combining to exclude from participation in a given industry all laborers who do not belong to the Union, that is, who do not cooperate with the monopoly, by maintaining what is called the closed shop ; sometimes by boycotting any concerns which, in the manufacture of their goods, employ any laborers who are not members of the Union, or by sympathetic strikes against any concerns which handle goods made by persons who are not members of the Union ; and, finally, by intimidation and open violence against individual labor when it has ventured to enter into competition with labor which is organized. That there are great ethical differences between these methods of excluding competition is evident ; but the object sought by all is the same — namely, the exclusion of all competition, and thus the establishment of a practical monopoly.

Monopolies, whether of labor or capital are not to be endured in a free commonwealth. It is intolerable that any man, or any body of men, should be permitted to control such necessaries to modern civilized life as oil, coal, beef, sugar, flour, steel, transportation, intercommunication, and the like, whether their control is justly or unjustly, wisely or unwisely, exercised.

There are many incidental evils in unregulated monopolies. They have corrupted government ; oppressed, sometimes financially ruined, sometimes literally destroyed, individual competitors ; they have been curt and overbearing in their treatment of rivals, of partners, of the public ; the capitalistic monopoly has demanded the disruption and destruction of the labor monopoly, that it may be able to control wages as well as prices ; the labor monopoly has demanded the disruption and destruction of capitalistic monopolies, under the delusion that it can thus get all the profits of monopoly itself, in other words, secure a monopoly of monopoly ; in some cases, two monopolies have engaged in a life-and-death struggle and left the public to suffer, while they have either expressly or tacitly denied the right of the public to interfere ; in other cases they have combined to make the monopoly more secure, and have divided the profits between themselves.

But these are only the incidental evils of monopolies. A monopoly controlled by men regardless alike of public welfare and public opinion may inflict a greater immediate injury on the people than a monopoly controlled by men who are either wise enough or just enough to see that they cannot permanently advance their own interests by a policy which sacrifices the interests of the public. But the real evil of monopoly is inherent, and exists whether the monopoly does well or does ill. It is the evil which inheres in all absolutism. Industrial absolutism is no better than ecclesiastical or political absolutism. It is no better and no worse when exercised by a labor organization than when exercised by a capitalistic organization. It is no more defensible when it employs the machinery of law than when it puts law at open defiance ; no better when it defies law by means of corrupting legislatures or courts than when it defies law by means of mob violence. Absolutism is bad alike to him who exercises it and to him who is subjected to it. The absolutism which determines the price of our food and our fuel is as fatal to freedom as the absolutism which determines the limits of our political liberty. A Czar in the coal fields is no more to be endured by a free people than a Czar in the palace. A Czar who determines under what conditions we may have the necessities of life is not to be tolerated because he prescribes just or even generous conditions ; and he is not tolerable whether he secures his power to prescribe the conditions by an organization of capital, or by an organization of labor, or by a combination of the two organizations working together.

In 1623 the Statute of Monopolies was passed by the English Parliament, after half a century of agitation. It made all monopolies illegal except such as might be granted by Parliament or such as were involved in patents for new inventions. Since that time the question whether monopolies are allowable among a free people is not an open question in Anglo- Saxon communities. The fact that the monopoly is secured, not by governmental prohibitions, but by capitalistic or labor combinations, does not make it any more endurable. Whenever a monopoly is secured which gives to one man or to a small number of men the control of any article important to public comfort, the people object, and ought to object. It is a matter of no importance whether that monopoly is secured by a union of corporations, by a legal agreement between corporations, by an informal " understanding " between corporations, by one corporation, or by a single man : the monopoly is itself objectionable, and the method by which it is obtained is a matter of comparative indifference.

The people ought to object to monopoly, however it is maintained, because industrial servitude and political freedom cannot long coexist in the same community. Either the political freedom will find a way to destroy the monopoly and establish industrial freedom, or the monopoly will find a way to destroy the political freedom and establish a political plutocracy. If monopoly should be allowed to control the food, the lights, the fuel, and the transportation of the American people, the American people would cease to be free, whatever semblance of freedom their powerless political institutions might retain. The man who can determine for me the conditions on which I may eat, read, keep warm, and travel, is my master, whatever he may call himself or I may call him. The real issue involved in the so-called Trust Problem is industrial freedom, and that involves pojo The Political Solution — Regulation

litical freedom. The real questions which the American people are compelled by present conditions to consider are, Will they preserve their liberty ? and, How will they preserve their liberty ? The peril to those liberties is not political, but commercial ; it is not a peril of imperialism, but of plutocracy ; it comes not from a standing army, but from a monopolized industry. And the object of the people must be, not merely to punish private monopoly when it does ill, but to prevent private monopoly from existing. This is not equivalent to saying that they must prevent combinations of capital from existing. Our problem is not to destroy economic combinations, whether of capital or labor, but to make them the servants, not the masters, of the people.

There are three classes of remedies for the evils of monopoly ; political, industrial, and ethical. Political action may ameliorate economic conditions ; industrial reform may change economic conditions ;

but only the transfusion of the commodity by a right ethical spirit can really radically change the economic conditions and bring permanent peace. Political action will facilitate industrial reform ; industrial reform will facilitate ethical development ; but ethical development is necessary to the promotion both of political action and industrial reform. The three movements, — the political, the industrial and the ethical, — must be carried on together, and while the main work of the ministry lies in the inculcation of right ethical principles and the promotion of the right ethical spirit, the ministry must know enough of political and economic law to be able intelligently to apply ethical principles to economic conditions and make them efficacious in the social life of the community.

In further consideration of this subject I propose to give this evening to a consideration of possible political action.

Such political action may take one of three forms, and one of these three forms it must take or the Republic will pass either under the absolutism of plutocracy in city and state, or into a condition of perpetual and increasing war between capitalistic and labor organizations. Those three possible actions may be thus stated :

Whenever any private monopoly, whether of capitalists or laborers, controls any commodity or convenience important to the public welfare, the people must destroy this monopoly by restoring competition ; put the monopoly under governmental control ; or take possession of the monopoly and administer it for the benefit of the people.

To illustrate : At the present time the coal combine controls the entire output of anthracite coal in this country. It is immaterial to the public how that coal combine is maintained, whether by a union of corporations, a formal agreement between corporations, or an informal " understanding. " That the combination controls the fuel on which the Atlantic seaboard is accustomed to depend was made painfully evident two years ago. For such a condition there are three remedies :

The people may by legal proceedings break up the combine and compel competition — if they can. The people may bring the coal companies under government control, as by a law to compel the coal companies and their employees to submit their controversies to some appointed tribunal — a method infelicitously termed " compulsory arbitration.'' Or finally, the people may take possession of the coal-mines and operate them under governmental administration for the public benefit, as the post-office is operated in this country, the telegraph in England, and some of the railroads on the continent of Europe. This plan was advocated by the platform of the Democratic party in the State of New York a few years ago.

That there are serious objections to each one of these plans furnishes no conclusive reason why some one of them should not be tried. The conservative objector, if he would carry the American people with him, must be prepared to show, either that allowing a private monopoly to control the anthracite coal supply of the United States is not objectionable, or that there is some better way of preventing such monopoly than any of the three methods suggested. Before considering these remedies, attention must be paid to a fourth which is sometimes suggested by the sentence— leave all industrial organizations to the operation of natural law.

No doubt there is always a danger of unwise interference with natural laws ; of such an attempt to regulate as will be injurious, not beneficial, to the community ; of a control that may become despotic and so both unjust and disastrous. No doubt great wisdom and great care should be exercised in regulating trade and commerce ; no doubt individual liberty should be maintained as far as it can be made consistent with the public welfare ; no doubt the more we can make the private conscience, enforced by public opinion, efficacious, and the less we have to resort to governmental authority, the better. All this may be and is true. But the notion that the remedy for industrial ills can be found by a do-nothing policy, in the faith that natural law will bring about universal justice and will promote the common welfare, ignores the self-evident facts of modern industrial life.

A man on a higher level builds a dam across the stream which irrigates his neighbor's grounds, and diverts the water to his own uses. His neighbor complains of the water famine which destroys the fertility of his land. The dam-builder replies, " Law must not interfere. You must leave natural law to take its course." The reply is not far to seek. The dam-builder does not leave natural law to take its course. By building the dam he has himself interfered with the course of natural law. What he really means, whether he is conscious of it or not, is this : " I must have a right to interfere with natural law, and you, my neighbor, must not. You must not interfere with my interference/' And this is exactly what is meant by the plea that natural law must be left to take its course without legislative interference, when that plea is put forth by the advocates of trusts, monopolies, and combines.

When natural law ruled in this continent, the North American Indians blazed pathways through the forests, and when any one of them wished to travel, he put his goods upon his back, or upon his wife's back, and took what path he pleased, when he pleased, and traveled at what rate he pleased. When civilization took possession of the continent, one of the things it did was to create by law an artificial person called a railroad corporation ; to this artificial person it gave the right to take the real estate of A and B and C, — and so through the whole alphabet many times repeated, whether A and B and C wished to sell or not, and to pay them, not what price they asked, but whatever price a disinterested tribunal put upon the land.

And so, by a most direct and positive interference with natural law, a public highway was constructed by which individuals and goods could be more conveniently carried than in packs upon the back of the traveler along a blazed pathway through the forest. Society created this artificial person, and conferred upon this person this artificial power, because it rightly believed that thus the public interests would be promoted and the public welfare advanced. Now that it finds this power unjustly used, not for the equal service of all, but for enriching one and impoverishing another, and it proposes to require this artificial person to use this artificial power for the benefit of the public and not for its injury, what sense is there in crying out against the requirement on the ground that government should leave transportation to the operation of natural law ? It is not left to the operation of natural law. It is carried on by artificial organizations created by law and equipped with artificial power by law. And it is eminently right jS The Political Solution — Regulation

that society, which has created and empowered the corporations to serve the community, should require them to render the service for which they were created. Otherwise the corporation becomes the iron despot of the Frankenstein who has created it.

There are stored up in the hills of Pennsylvania great masses of coal. Under the operation of natural law any man might go to these hills, put in his pick, and dig out what coal he needed for his fuel, as the North American Indian cut down in the forest whatever wood he needed for his fuel. But civilization cannot go on under the operation of natural law. So, by a complicated artificial system, we have given the ownership of these lands to individuals ; we have given the ownership of the top of the soil to one set of individuals, and ownership of the underground mines to another set of individuals. Their right to the soil depends wholly upon the artificial arrangements which society has made. Society determines what they may own, how far down they may own, for how long a time they may own, under what conditions they may own. In England the owner may control the land for an indefinite period after his death. In America he can control it for only two lives. In France he must divide it in a certain fixed proportion among his children.

This individual proprietary right in land is wholly an artificial right, created by statute, controlled and regulated by statute. And it has been so created and regulated because society thinks that this is the best method for the promotion of the general interests of society. And now, when the owners of these coal lands combine and charge extortionate prices for the fuel which they did not create, and their right to control which is wholly an artificial right created by society, to aver that society's power to regulate and control has been exhausted, and that it cannot go on and compel the owners whose right in the coal it has created, to use these rights in subordination to the public right to fuel, is to affirm that society may create rights which it is powerless to regulate after it has created them; that it may interfere with natural laws just far enough to give to a dozen operators a monopoly in a fuel necessary to human well-being, if not to human life, but may not interfere when interference becomes necessary to prevent individual greed from inflicting untold disaster on the general public.

Civilization is not the product of natural laws operating without human intervention. It is the product of natural laws employed by man for man's benefit. Natural law does not make a locomotive or a dynamo. Man, understanding natural law, and using it for his purposes, makes the locomotive and the dynamo, and by means of them causes steam and electricity to do what he wishes them to do. He possesses power to use natural forces to accomplish predetermined ends. He possesses the same power to direct intellectual and moral forces to predetermined ends.

By this capacity he has built the locomotive, the dynamo, the stationary engine. By this capacity he has built up the State, the Church, the school, the various industrial organizations. This capacity distinguishes him from the beasts. To forego this capacity and leave natural law to work out its results unmodified by human volition would be to go back to barbarism, nay, to the pre-human conditions of the field and the forest. To stop in the use of this intelligence when it has gone far enough to serve the few who are well and strong, and not far enough to serve the many, would be simply to perpetuate in a new form that aristocracy against which democracy in government, education, and religion is a revolt.

In attempting to make natural law serve, not the favored few, but all the people, democracy will make mistakes : it will attempt unsuccessful experiments ; it will meet with failures ; and it will be obstructed by some who think that nothing can be but what has been, and by others who, having the larger share of the world's wealth and power, object to any further distribution of either. But this movement so to use natural laws, so to administer natural forces — both physical and moral — as to serve the welfare of the entire people, cannot be permanently either halted or diverted by the unspecious plea that natural law is not to be directed to wise and profitable ends by human intelligence and human wills.

When therefore the state is imperiled by monopoly whether of labor or capital, the law may attempt to destroy the monopoly by restoring competition ; it may suffer the monopoly to continue, but put it under governmental control ; or finally, it may take possession of the monopoly and administer it for the benefit of the people.

I. The first method is the one which has heretofore had the greatest favor with both our state and federal legislators. It is the method which seems to me least hopeful of permanent and valuable results, although there is no doubt that something can be done by legislation to restrain or prevent evils that are incidental to a period of great industrial organization. Two specific pieces of legislation have been urged by practical business men for this purpose.

In their greed for the quick acquisition of wealth men have put artificial valuations upon their property by the process known as stock watering. When this is done some one inevitably suffers.

A great railroad and coal company is capitalized at the rate of two hundred thousand dollars a mile when about one hundred thousand dollars a mile would be a fair estimate of the cost of construction. This is not an imaginary but a real case, one probably of many similar cases. The stocks and bonds representing the fictitious value are, in many cases, in the hands of innocent purchasers who bought them supposing that they represented a real value. They naturally expect dividends on their investment, and naturally desire as large dividends as they can get. The president and directors of the road are elected for the purpose of earning and paying these dividends. But if they are to pay dividends on property which has no existence, they must get the money out of some one. They can get it out of the public, by charging a higher price for coal than would be enough to give a fair compensation to all the workers and a fair rate of interest on the capital actually invested in and represented by the property ; or out of the wage-earners, by paying in salaries and wages less than they could pay if the public paid a fair price for ctal and the company had to pay dividends only on the actual value of the property owned by the corporation ; or the directors can get part of the money out of the public and part of the money out of the wage-earners ; or, finally, they can leave the stockholders without dividends and sell the coal at a fair price, and pay the coal miners fair wages. But it is impossible to pay dividends on property which has no existence, and pay fair wages to the wage-earners, and sell the coal at a fair price to the public. Law in America can correct this palpable abuse by not allowing any company to issue bonds and stock on property for more than its actual value, as that value has been estimated by some independent and impartial tribunal.

The greed to get rich quickly, characteristic of our commercial age, also tempts the managers of great corporations to various illicit transactions which will not bear the light of day, and in which they would not take part if the transactions could be known and public opinion could pass judgment upon them. Miss Tarbell, in her " History of the Standard Oil Company/ ' and Mr. Lawson, in his articles on " Frenzied Finance/' have given account of some transactions of this kind. And although the impartial historian has not yet sifted out these narratives and finally determined what measure of exaggeration or misinterpretation is intermingled with them, there is no doubt that by Mr. Lawson some truth has been told, and by Miss Tarbell the substantial truth has been told. The remedy for such transactions as those by which in some instances individuals have been ruined, in other instances the public has been mulcted by secret operations, is a law subjecting the books of all great corporations to government inspection, and requiring the operations of all great corporations, under proper limitations and regulations, to be made a matter of public record.