Letters to Judd

An American Workingman

By

UPTON SINCLAIR

Published by the Author
PASADENA, CALIFORNIA

LETTERS TO JUDD

BY

Upton Sinclair

INTRODUCTION

Judd is an old carpenter who has done odd jobs on our place for the past ten years. Just how old he is I don’t know, but he’s pretty old; his hands are gnarled and calloused and his finger nails chewed up and broken by hammer blows; there are knotted veins in his forehead and his hair is grey and thin. But he works like a beaver, and don’t you ever hint that he should slow up—he will hoot at you, and say that he can lick any young feller with one hand. He will hitch his harness into place—he has a rupture, and wears some kind of truss—and will slide under the house to connect up a gas pipe, and come crawling out with his hair and eyes full of cobwebs, and my wife will say, “Come out of there, you old gopher.” He adores her when she talks to him like that, he would lift the side of the house to please her. The two of them engage in violent arguments as to how a door ought to be hung or a tree pruned. “Nobody ever did it like that,” Judd declares—and considers that sufficient reason. He does it her way, so long as she stands over him; but if she leaves, he is apt to finish it his way—for, after all, it is manifest that a man knows better than a woman.

Ten years ago our home was a row of vacant lots on a hillside, covered with weeds and rusty cans. Now it is an old-fashioned Southern house with a long veranda and a row of white columns, surrounded by rose gardens and grape arbors and fig trees and oranges. The house was made out of five old houses, bought for a little more than nothing, and moved onto the place and joined together; the gardens were made by my wife sticking baby plants into the ground, and holding a hose over them all day and part of the night. I helped a little; and two school boys helped after hours; but Judd was the Hercules who did most of this mighty labor. He would rout us out of bed in the morning, and many a time we have worked after dark, to get a roof over something before it rained, or finish a concrete job before it set. What is there we haven’t done together?—digging ditches and setting fence-posts, hoeing weeds and pruning trees, laying shingles and tacking down tarpaper, cleaning old furniture and painting an automobile, moving a garage and installing a sprinkler system. And always with a presiding female genius hovering over us, exhorting and appraising, mostly on the debit side! Never was there such a woman for saving, and for devising, and for utilizing. Once Judd in his digging came upon a rusty iron spike, and showed it secretly to me. “Better throw it over the hill quick,” he said. “If the missus sees that, she’ll start a railroad!”

When the house was done, there was a party. The living room is extra fancy, with high, peaked ceiling, and lights way up, dim and mysterious; in a million years you’d never guess that it was once an old tailor shop, bought for a hundred dollars, and moved over here, and the upper floor taken out! Well, our friends came, some of them rich people in limousines, creating a sensation in our neighborhood. The neighbors were invited—it is a working-class part of town, and a few people came, shy and a little distrustful, and picked out seats with backs to the wall, and sat stiff and silent, while George Sterling, great poet and genial soul, told us intimate recollections of Joachim Miller and Ambrose Bierce and Jack London, and other old-time California writers.

Judd wore his best clothes, and a stiff collar, and brought a lady friend in black satin. We were surprised by this, for we knew that Judd was a widower of many years’ standing; we teased him afterwards about this lady, and he blushed, but insisted there was “nothing to it”—and apparently there wasn’t, for he still lives alone in the house he has built, with a fire-place made of every kind of shiny colored stone you can find on the beaches of California. There is a porch to this house and a lot of fancy concrete work, that will last Judd’s life-time and longer. You must understand, this is no “hard-luck story,” quite the contrary; Judd has got to be a rich man in the course of ten years, with war-time wages of a dollar an hour. He put his savings into two lots, and his spare time into building three houses on them, and now he has two of them rented, and he goes trout-fishing every spring, and deer-hunting in the fall, and he took a trip to Texas just to have the fun of spending some of his money, instead of leaving it all to his nephews. When he comes now to do odd jobs for us, it is by way of a favor; and he says, “Well, you got a new book now?” Of course I always have, and he demands a copy, and insists it must be cloth, and autographed; and then we have our regular argument as to whether he shall pay for it, and we compromise on the basis of his paying the wholesale price. He tells me what he thinks about my writings, and just what is wrong with my ideas.

Judd, you understand, is not the least bit of a “radical.” “I got no use for these ‘reds,’” he says, being a simon pure, hundred per cent American; there are too many foreigners in the country, and if they don’t like it, let them get out. But at the same time Judd is nobody’s fool. For one thing, he is “onto” the politicians; they are a bunch of crooks, and he proves it, telling me things that are going on right in Pasadena—he knows from this friend or that who works for the city. Also, Judd is “onto” the politicians at Washington; of course you can’t get the facts, because the newspapers won’t print them, but look at this oil business, and look at the fellows that got a billion dollars from the government, pretending to make airplanes for the war, and they never got a single fighting-plane to France. Judd supported the war, and bought liberty bonds with his savings; but he says that if the truth was known, we could have kept out of that war, if it hadn’t been for the munition-makers, and the bankers and their loans to England and France.

So you see, we have plenty to talk about while nailing down shingles and screwing up water-pipe! Once, not so long ago, Judd said to me, “By golly, I never thought of that!” I answered, “You’d be surprised to know how many things you never thought of.” Said he: “Why don’t you write a book for fellows like me? A workingman is tired when he gets home, and don’t have time for big books, and he don’t know the long words. But you write something short and easy, and show us little fellows just how we get it in the neck.”

Well, there are lots of things one would like to write, and one doesn’t get around to them all. But every now and then I think about Judd, and the millions of other Judds there are, scattered over this great land. I think of things I’d like to say to them, if only I could get to them. Here it is, Thanksgiving morning of the year 1925; and just why this morning should have chosen itself, I can’t imagine, but I am sitting at my typewriter, on the very porch that Judd helped to build, and came crawling out from under with his hair and eyes full of cobwebs—the old gopher! I am beginning the book he asked me to write, for him and the other American workingmen.

LETTER I

My dear Judd:

There are some things which you and I and all Americans take for granted, and don’t have to argue about. For example, every man has a right to get to heaven in his own way, if he can; we are not going to meddle with any one’s religion. Also, we believe that all men should be equal before the law. We don’t mean they all have equal abilities—for that would be a foolish thing to say; but they all have equal rights “to life, liberty and the pursuit of happiness.” Also, every man has a right to what he has produced by his own labor; and it is the business of government to protect him in this right.

Speaking generally, we think that men live better if they are let alone, to work out their own destinies. We don’t want any more government than there has to be; if the government will see that the other fellow keeps his hands out of our pockets, we’ll manage to build our own house, and live in it our own way. That is called individualism, and you are keen for it, Judd, and I am no less keen. The only time the government has been on our place in the past ten years has been when it came to inspect the foundations, the plumbing, and the fire-stops in the walls of the house; all of which concern the common welfare.

If a fellow won’t work, he has no right to anything—we agree to that, and we will shed no tears over shirkers and loafers. We are defending the real workers, and we say that such are entitled to the fruits of their own labor. Let us set that down for the corner-stone of our thinking; let us make it our test of a sensible and decent world. I ask you: Are the workers getting what they produce today? Or is some other fellow getting part of it? Put it the other way about, and ask: Are there any people in our country getting wealth without producing it, without doing any useful work? It is obvious that if any man gets a thing he hasn’t produced, some other man must have produced that thing and not got it.

I choose a case which lies nearest to your own heart, Judd—those three houses that are the security for your old age! You paid your good money for materials, and you put them together with your own hands, and you say those houses belong to you. If a fellow came with skids and a truck and tried to cart one of them off, you would surely stop him. If a fellow moved into one of them, and refused to move out, you would surely put him out. The law would back you—and so you believe in the law! But suppose I were to tell you, Judd, there are ways by which some fellow might take your houses away from you, and the law would not move a finger to help you, but on the contrary, would come and turn you out for the other fellow’s benefit?

Watch your step, now! Suppose that some man had the power to fix the prices of the things you have to buy day by day, your food and clothing and gasoline; and suppose he boosted the prices, so that you found yourself running short; then you’d have to put a mortgage on one of the houses; and when the mortgage fell due, if you were still short, your house would be sold by an auctioneer at a foreclosure sale, and the law would turn you out. Or let us suppose this man had the power to dilute the currency of the country, so that every dollar of yours became worth only half as much as it was before; don’t you see that he might deprive you of your three houses, one after another? There are a dozen different ways in which the trick might be worked; and strange and startling as the idea may seem to you, I assure you that it has been done many times, and will be done many times more. The world you live in is full of devices by which your pockets are emptied, without your ever feeling the touch of the thief’s fingers.

If a fellow comes along and tries to sell you a gold brick, you laugh at him; that’s an old one, and you are “on.” If he tries to sell you a gold mine in Kamchatka, or shares of stock in an oil well—come to think of it, Judd, I believe you told me you did take some shares in the Somebody-or-Other Oil Syndicate—twelve hundred dollars, you said it was! But you’ve learned your lesson now, and nobody can play you for a sucker again.

But, Judd, these things I am talking about here are not called swindling, they are entirely respectable things, with such beautiful names that you go to the polls and vote for them on election day, and for some of them you would give your life on the battlefield. For example, that thing called the “protective tariff”; such a lovely name, “protective,” it makes you think of a mother watching over an infant in a cradle! The economists call this tariff a form of “indirect taxation”; and what do these words mean? Exactly that thing which I said a minute ago—a device for emptying your pockets without your feeling the touch of the thief’s fingers!

Or take that thing called “inflation”; that is, the diluting of the currency, so that the money in your pocket is less money than it was before. The bankers all tell you that “inflation” is a most wicked thing, and you believe them, and are quite sure it couldn’t happen; while the plain fact is, the bankers have been doing it to you right along! They have deprived your money of about forty per cent of its value in the last ten years—and you, my good old friend, thought it was fine, because the value of your lots went up, and of your houses, too. It never occurred to you that the price of everything you bought was going up also; and that the value of your money in the savings-bank was going down; and also the value of your liberty bonds!

Judd, you get up by an alarm clock at dawn every morning, and boil yourself some coffee, and gulp down a couple of slices of bread, and maybe a fried egg, and give your chickens and rabbits their water and feed, and then you hustle off to work. For forty years that has been your rule, six days out of seven; you worked like an old mule, eight or nine hours of it, and then come home and worked till dark on your own place. There are forty-two million Americans doing much the same thing, and the total of what they produce is a thumping pile of wealth. And who is to get it, Judd? How shall it be divided? In the great cities, in many-storied office buildings, sit white-handed gentlemen at flat-topped mahogany desks, and these gentlemen have no idea of ever crawling around in the muck, or sweating in the heat, or freezing their fingers in the cold, or soiling their white collars and breaking the crease in their trousers—no, Judd, they have not an idea of it!

While you are working, these gentlemen have nothing to do but think; and the subject of their thoughts is one thing and one alone, how can they get away from you the largest possible share of that wealth which you are producing by your labor. They call themselves “great executives,” Judd; and what they execute is the American workingman. They have devised the most subtle and perfect machine of exploitation—that is, for getting you to produce wealth while they consume it—which has ever existed in the history of mankind. I am going to show that machine to you; I am going to take it apart, just as if it were an automobile, and let you see exactly how it is built. I will show you the thing called “stock-watering,” and how it takes away from you the greater part of your day-by-day earnings. I will show you the thing called “rigging the market,” and how that conjures the coins out of your purse—and mind you, old friend, not when you go to gamble in Wall Street, for you have never done that; but when you go round the corner to the store and buy a loaf that is made of wheat, or a shirt that is made of cotton, or any other article that is produced by machinery and shipped on a railroad.

Above all I am going to show you that most fascinating piece of wizardry, our banking system. You were a rancher in your youth; and some of your relatives are farmers back East. Well, Judd, we have a thing called the Federal Reserve Bank, and three years ago that bank reached down into the pockets of the farmers of America, and took out—how much, do you think? Just about four billions of dollars! And gave it to whom, do you think? Why, to the big bankers of Wall Street, and the manufacturers and trust magnates with whom they work hand in glove. Soon after that I traveled through the Northwest, and in state after state I found whole counties in which every single farm had been sold for taxes. Do you think I am claiming too much, Judd, when I tell you that you really ought to understand how such things can happen?

LETTER II

My dear Judd:

The Bible tells us that “man does not live by bread alone.” To hear some people talk, you would think the Bible said that “man does not live by bread.” You and I know that he does; and if he is to be decent and civilized, he needs many other things, a home with several rooms in it, and clean clothing, and books, and recreation. There is nothing more destructive of health and happiness than extreme poverty; the inability to get for yourself and your loved ones the common necessities of life.

There are parts of the world where poverty is an infliction of nature; but that is surely not true of the United States in the year 1925. We have a country of nearly four million square miles, with greater variety and wealth of natural resources than any similar area in the world. We have almost everything needed by modern industry; the bulk of our imports are luxuries—coffee and bananas and music and French fashions. We have forty-two millions of workers, all carefully trained to their jobs, and we have the most highly organized industrial system. We produce 40 per cent of the world’s iron and steel, 52 per cent of its coal, 60 per cent of its copper, 75 per cent of its corn, 85 per cent of its automobiles, and so on through a long list.

Twenty-seven years ago our government made a study of hand-power as compared with machine-power in some of the common industries; thus, making ten plows by hand took 1,180 hours, while making them by machinery took only 37½ hours; making one hundred pairs of cheap boots took by hand 1,436 hours, and by machinery only 154 hours. From these calculations it appeared that machinery had cut human labor, in some cases 80 per cent, in some cases as high as 95 per cent. That was in 1898; and since then, how much more has been done! We have the Ford factory, employing 165,000 men, and turning out 2,500,000 cars and trucks every year, one for twenty days’ labor of a man! In Chicago are great ovens, worked automatically by electricity, which turn out 14,400 perfect loaves of bread every day. I have a friend who owns a book-making machine which turns out 64-page books at the rate of 5,000 every hour. One might fill pages with miracles of this sort. We are now harnessing the rivers and water-falls, and in Maine the tides of the ocean, and engineers estimate that machine-power provides us with the equivalent of three billion hard-working slaves. Mr. Roger W. Babson, who runs a big statistical bureau, presents figures of machine-production from which it appears that 13 important industries now average 88 times as much production as by hand-labor.

Obviously, then, everybody in the country ought to be 88 times as well off; poverty for the willing worker ought to be one-eighty-eighth of what it was in 1825. But what is the matter, Judd? For some reason there is just as much poverty as there ever was, and possibly more! In the old days nobody starved—that is, unless he was a loafer or a drunkard. Our ancestors were well fed, and managed to raise families of ten, and sometimes even twenty sturdy children. How many of the workers in our mills and mines can afford such a luxury today?

I have before me a photograph of our national capital at Washington, with its high white marble dome; the picture is taken over the top of filthy slum tenements, falling into decay. And this is not a made-up picture, it is a photograph that you might take from many different spots in Washington. Or go to New York, the centre of our wealth and fashion; the school authorities there report that two-thirds of the children are physically defective, and one-fourth come to school suffering from hunger and malnutrition; two years ago the State Planning Commission reported two-thirds of a million people in the city “miserably housed.”

In New England are thousands of mill-workers now on strike against reduction in their starvation wages; here you find the “she-towns”—all the men have gone away, and you can buy a woman for the price of a sandwich. In Pennsylvania a hundred thousand miners are on strike to preserve their wretched livings; they dwell in hovels, and can barely keep their families. In Georgia and the Carolinas you find the mills run on the labor of little children; and nearby are palatial estates of the rich, a happy condition described by a woman poet:

The defenders of our industrial system will admit these facts, if you pin them down, but they say that things are getting better all the time. A professor of Harvard University has just published a book, in which he tells how our glorious system is rapidly solving all problems; very certainly and very soon there will be no poor. Well, now, I am going to make a statement, Judd, and you paste it in your hat, and look at it every now and then while you are sawing timbers or mixing cement:

The condition of the mass of workers in the United States has been getting slowly but steadily worse for the past thirty-five years.

Let us see now. We want to determine what are called “real wages”: that is to say, wages in relation to the cost of living. It is clear enough that if your wages rise from four dollars a day to eight, and at the same time the cost of living doubles, you are no richer than you were before. That is one way to fool the workingman; but we are not going to let ourselves be fooled!

The problem is not a simple one; you have to figure wage-rates in representative industries over a term of years; and then you have to figure the average cost of goods for the same period of time. It is easy to “load” your figures, by giving emphasis to those trades in which wages rose, or, on the other hand, by featuring those goods whose prices stayed low. For example, as I write, Secretary Hoover reports to the President, and the President gives out to the press, a set of figures showing how the American workers have made some gains in real wages during the last few years; and these glad tidings are featured upon the front page of all our great newspapers. And what is it? Simply a barefaced fraud! Mr. Hoover has figured wholesale prices! He knows that these prices have gone down, while retail prices have not gone down correspondingly; also, needless to say, he knows that American workingmen do not buy their food and clothing at wholesale!

Prof. Paul H. Douglas of the University of Chicago published in the Proceedings of the Academy of Political Science (Vol. XI, No. 2), a very elaborate study of real wages from 1890 to 1924. This is the best work I had seen, and the results may be summed up in one sentence: real wages in the United States from 1890 to 1924 suffered a decrease of five per cent. To phrase it another way: where a workingman could buy 20 pounds of necessaries in 1890, he could buy 19 pounds today.

These figures caused a sensation; for you can understand that there is nothing our masters try so hard to keep from their servants as this very fact. I used the figures throughout these letters; but just as I am through, and about to send the manuscript to the printer, the professor writes me a letter, saying that he has revised the work, and he now shows a gain in real wages during the past four years. The reason for the change is, he has decided that the earlier figures were “unduly weighted with pork and beef, which rose much more rapidly than other commodities.”

Here you see the very thing I explained. How much pork and beef shall be figured in the family budget of a workingman? Our fathers ate pork and beef, and grew to be full sized men; but of course there was no beef trust in those days. If, now, the cost of pork and beef rise too fast, the workingman can adjust himself to a coolie diet, those starchy foods which are cheap and relatively stable in price. But I, for my part, eat pork or beef once a day, and I claim the same right for you, Judd!

This much is certain: in many basic industries there has been a loss. The new figures which the professor sends me show losses for the clerical workers and the postal clerks; and the only large gainers are the teachers, who regard themselves as professional persons, not as workingmen. Surely those striking textile workers in Massachusetts have made no gains this year, nor the 158,000 striking miners! Ask the farmers of the Northwest about their case, and you will hear a loud shout of denial! Ex-governor Lowden of Illinois stated at a public banquet in New York that from 1920 to 1924 the American farmer’s return on his invested capital was three-tenths of one per cent!

I know there is a great deal of apparent prosperity among our workers today. But that is due to a new factor—that the worker now spends his money for things that last, a home, and an auto, and clothing and radio sets, instead of spending it for beer and whiskey. That is a vast gain in civilization, but it is not the same thing as a gain in real wages, and don’t let anybody fool you by this argument.

To get a clear view of the real truth, ask this question: has the capitalist suffered a loss of purchasing power during the past thirty-five years? Merely to suggest such a thing is to raise a laugh! There are some, like Henry Ford, who are a million times richer today than they were thirty-five years ago. It is probable that the Rockefellers are twenty times as rich as in 1890. The total wealth of our country increased from 65 billions in 1890 to 320 billions in 1922; and as the workers didn’t get the difference, the rich must have. Here is what they admit having got, in their income tax statements, during four years 1921-1924. The number of fortunate ones who got more than $300,000 a year income increased from 246 to 773. The number of those with incomes between $100,000 and $300,000 increased from 2,106 to 4,921. The number with incomes between $25,000 and $100,000 increased from 37,663 to 62,158. Those are the real insiders—and remember, Judd, they didn’t have to admit any “stock dividends,” nor to pay anything on the billion or two they have invested in tax exempt securities.

There is a statement commonly made by Socialists, justifying their prophecy that our present system is on the way to a breakdown. The statement is that the rich are growing richer and the poor growing poorer. I know of no statement which causes more irritation to the capitalist press; I suppose I have read a thousand editorials in which the statement is ridiculed, or denounced, or waved aside as out-of-date and not applying to America. Nevertheless, it is the truth, Judd; all the workers are growing relatively poorer, and vast groups of them are growing absolutely poorer, in the terms of what they can buy with their wages. And this in the headquarters of prosperity, the richest of all nations, which houses in its treasure-vaults more than half the total gold-reserves of the world!

LETTER III

My dear Judd:

How does it happen that, in this our land of liberty and prosperity, the rich are growing richer and the poor poorer.

When you talk about the matter with an economist, he uses many long words, and tells you about natural processes, controlled by inexorable laws. Well, Judd, it all depends upon how you look at it, from the inside or the outside. If you look from the outside, you see economic processes; but if you look from the inside, you see the actions of men. Wealth is produced by the actions of men—you know that, because you do it every day; and wealth is distributed by the actions of men—you also do that every day. If men, in the course of their dealings, have made a hell on earth, it has been because they first had a hell in their hearts; and if they are to make a paradise on earth, they first have to change their hearts, and then no economic laws will stand in their way.

First among the “actions of men” which have made poverty in America, I list our banking system: that is to say, the way men have behaved and are behaving with regard to money. This banking system has been constructed, just as artificially as a house is constructed, and its plan can be summed up in one phrase: to enable those who already have money to get as much more as possible. Many things about the system may seem complicated, but if you understand that basic idea, you will never be fooled.

One man raises grain, and another saws lumber. It would be awkward to exchange a stick of timber for so many bushels of wheat, therefore men have invented money, which is a standard of value, enabling anything to be exchanged for anything else. The first point to be got clear is that money is not wealth, but only a symbol of wealth. You can see that clearly, if you imagine yourself stranded on a barren island with a million dollars in greenbacks. Would you be rich? You would not! And it is equally plain that nobody is made richer when the government prints a new lot of bank-notes. Of course, if you printed the notes yourself, and put them into circulation, you would be richer; but this wealth would be got by taking away from the owners of real wealth a certain percentage of what they owned; there would be a little more money in circulation, and so the existing stock of goods would have a slightly higher money-value.

That is what I refer to as “diluting the currency.” When it is done by governments, it is known as “inflation,” and it is a favorite trick of governments in trouble. They print paper money, and spend it for goods, and the more they print, the less is the value of each unit of money, the rouble, the mark, the franc, or whatever it is called. The bankers, of course, are greatly opposed to this method of robbing the owners of wealth; their objection to the process being based upon the fact that when the paper money is printed, the government owns it, whereas the bankers think that they, the bankers, should own it. In this country they have been able to have their way, and we live under a system which establishes the bankers as legalized counterfeiters.

You must understand, Judd, that only about one per cent of modern business is done upon a basis of cash—gold or silver or greenbacks; the rest is notes, or bills of exchange, or checks, or some other form of credit. And the banker is the man who creates this credit. He sells it to you, for whatever price he sees fit; and it is his royal privilege to grant or to withhold it. You may have ever so much real wealth to offer for security, and still meet with refusal; or you may have merely a pretense of security, and carry off the prize because you are the nephew of a director. The banker gives you a “pass-book” with a line of figures written in it, and you go out into the market, and discover that your banker-made money is just as real as any other money you find there—as real as the corn the farmer has raised, or the house the carpenter has built.

The theory is that the banker is lending the money which his bank-customers have deposited with him. But see! You take $350 in greenbacks and put it in the bank, and under our banking laws the banker can deposit those greenbacks with the Federal Reserve Bank, and receive a credit of $1,000; and then on the basis of that $1,000 he is legally permitted to lend out sums amounting to about $10,000 to other customers of the bank. In other words, $350 deposited by a customer becomes the basis of bank-loans, not merely of that $350, but of $9,650 additional, created by our legalized counterfeiter! The outstanding amount of greenbacks, about a third of billion dollars, thus becomes the basis of ten billions of dollars of banker-created money—and this for the national banks alone, without counting all the state banks and the private banks!

The headquarters of this greatest graft of all the ages is Wall Street. The money from all the little banks pours in here, and likewise the insurance money which our people put up to insure the safety of their wives and children. It is all at the service of the big banker-speculators, to be used in manipulating markets, driving prices up and down, so that the insiders can buy while securities are low and sell while they are high. Here is concentrated the collective greed of all America, and men become frenzied with visions of sudden gain; they sell the goods they hope to have, and buy with the profits they expect to make, and the fires of avarice are fanned white hot, until the whole thing bursts like a crucible in a steel mill.

The financial history of America is the record of a series of great panics, coming at intervals of from seven to ten years. In these crises the bankers used to suffer as well as the rest of us; but this was intolerable to them, and so they put their experts to work. To save yourself in a panic you must have money—a great deal of money in a hurry; and where can such money be got? Where, but from our good old Uncle Sam? So the bankers devised a wonderful new scheme, the Federal Reserve System; a chain of twelve regional banks with a directing head, a banker-board, having for its function to watch over our money system in the interest of the bankers, to lend money freely when they want it to be cheap, and to call in loans when they are ready for a killing; above everything else, to watch out for panics, and when these come, to issue credit to the big insiders, so that they can keep afloat while the rest of us drown.

In the summer of 1920, there was a riot of speculation, and this bankers’ board decided that somebody had to be “deflated”; they picked out the farmers—who cares anything about the “hicks” out in the sticks? “Go home and slop the hogs,” was the word of a banker-legislator in North Dakota to a delegation of farmers. So the Federal Reserve Board “advised” the farmer banks to lend no more money to farmers; and one little hint was enough to bring farm prices crashing. Before the crisis was over, a total of 603,000 farmers had either lost their farms, or were keeping them on sufferance of their creditors; and those are government figures, Judd! You know how it was with produce that year—the farmers in the middle West burned their corn for fuel, and out here in Southern California it didn’t pay to gather the orange and lemon crops. But the prices of automobiles and hardware and lumber and cement did not share this harsh fate; the big Wall Street banks had all the credit they needed, and they “carried” their friends, the big manufacturers, whose stocks and bonds repose in their vaults. They were “sitting pretty,” and waited till the storm was over, and we were ready to buy their goods at the old fancy prices.

So you see what I mean, Judd, by my phrase, “legalized counterfeiters.” The power to issue new credit is the power to dilute the currency, and merely by the stroke of your pen. All the highwaymen and safe-breakers and world conquerors of history never carried off as much treasure as Wall Street has taken from the American people by the use of this power. In that summer of 1920, the Federal Reserve System took four billion dollars out of the pockets of our farmers! And now, Judd, I beg you, when next you hear people say that human ingenuity cannot cure poverty—remember how much human ingenuity has done to cause it!

LETTER IV

My dear Judd:

We are studying our money system, with the idea of understanding how it causes the rich to grow richer and the poor poorer.

Money, in its relation to the price of goods, is like a pair of scales in balance. If you add to the weight in the right-hand pan, it will go down; also, the same thing will happen if you take away the weight in the other pan. A bushel of wheat is worth, let us say, one dollar; and if anything should happen to double the quantity of wheat in the world, the price of wheat would go to half a dollar. On the other hand suppose that without changing the amount of wheat in the world, you were to cut in half the amount of money in the world; then the same thing would happen, the cost of a bushel of wheat would go to half a dollar. By reducing the money supply, you lower prices, and make “tight” money; by increasing the money supply, you raise prices, and make “soft” money.

Now, the people of our country are divided into two classes, those who own money, and those who owe it; the creditor class and the debtor class. It is evident that there is a conflict of interest between these two classes, as to how much money shall be put into circulation. If the money supply is increased, money is cheaper, and wages go up, so it is easier to get money and pay your debts. But the creditor loses correspondingly, because he cannot buy so much goods with the money he gets; thus, for the government to put more money into circulation, is to cancel a percentage of all debts. But on the other hand, if the amount of money in circulation should be reduced, money will be harder to get, and it will buy more goods; thus all creditors will be getting more than is really due them, and a great many debtors will be ruined, because they cannot pay this extra amount.

All through our history there has been a struggle between these two classes. Whichever side controls the government, will shift the currency supply to favor itself. And which side has controlled? The answer is, the rich; they have had the money to subsidize political parties and name candidates and carry elections. Here is a rule of politics, Judd, which I set down for you to paste in your hat and study while you are sawing timbers and mixing cement:

Out of fifteen presidential elections since the civil war, fourteen were carried by that party which had the biggest campaign fund.

The struggle has centered about what is called the “gold standard.” All money of our government is supposed to be exchangeable for gold. Prior to 1873, silver also counted as a standard; but in that year silver was “demonetized,” and of course that made money very “tight.” The “Crime of ’73,” this action of the creditor class was called; it produced a frightful panic, and tens of thousands of men were ruined, and hundreds driven to suicide. Since poverty breeds poverty, the great mass of the descendants of these people are still poor, and are told in the churches that it is the Will of God, and in the newspapers that it is Economic Law.

In 1893 we had another severe panic; I was a boy then, and remember it well. Millions of men were out of work and starving, and the mass of discontent piled up, and three years later we had the Bryan “free silver” campaign. I was just beginning to think about politics, and if today I can be patient with the mass of our deluded workingmen and farmers, voting for “Coolidge and Prosperity,” it is because I recollect exactly how I was bamboozled in 1896, so that I would have voted for “McKinley and Prosperity,” had I been of age. Mark Hanna, the millionaire corruptionist and banker-boss who paid McKinley’s personal debts and set him up for our puppet-president, raised a campaign fund of $16,750,000, and bought that election for his puppet, quite openly and obviously; so Bryan, who had only $675,000 for his campaign fund, did not succeed in his scheme of making silver money, and letting all the business men off with half payments to the bankers. So here again you see how the “actions of men” kept the rich rich and the poor poor; and God had nothing to do with it—unless you believe that God was buying votes for Mark Hanna!

The maintaining of the “gold standard” as in 1896 would by now have put the bankers in possession of the entire wealth of our country; and that was what the bankers intended. But an accident happened—the discovery of new gold, and the development of large-scale, commercial mining of low-grade ore. So we got the very thing Bryan had wanted—more money in circulation; and so the bankers have got only one third of our wealth, and a mortgage on another third. Also, they have their Federal Reserve System, whereby they manipulate the currency; they can make “free silver” today, and “gold standard” tomorrow, and when the next smash-up comes, they will sweep the board clean.

As a matter of fact, Judd, the “gold standard” has been nothing but a pious memory since the World War; the gambling game has run away with the players, and no sensible man believes that the world’s debts can ever be paid, in gold or in anything else. Our Federal Reserve notes, which make up most of our paper money, no longer carry the promise to pay in gold, or in anything—look at one and see. There are “silver certificates,” that promise you a silver dollar, but the others promise nothing. One sort of “paper” is pyramided on another sort of “paper”—stocks and bonds and promissory notes and bills of exchange and certificates of deposit and personal checks, all take the place of currency, and become the basis of new loans and credits and promises to pay at some future date. The outstanding greenbacks, about a third of a billion dollars, become the basis of ten billion dollars of imaginary money; and there are over three billions of Federal Reserve notes outstanding, and nearly a billion of national banknotes, all secured by nothing but paper; and there are 25 billions of government bonds, to say nothing of all state and county and municipal bonds, and some 19 billions owed to us by foreign nations, all of which paper the banks have put off on us; and we are adding to the foreign credit a billion a year, for the reason that we cannot keep our industries going otherwise. Moreover, we have worked out a system of selling automobiles and houses and furniture on instalment payments, and there are six or seven billions of such credits now outstanding, all backed by the banks.

Such is our “banking system,” Judd; and at every step of every process you find the banker paying low interest rates for what he borrows, and collecting high rates for what he lends; at every stage the government belongs to the banker, not merely to collect his money for him, but to fix the rates against you, and even against itself. Thus, after generations of agitation, we succeeded in getting postal savings banks, to protect the money of the very poor; the government pays the poor at the rate of 2% for this money—and accepts only $2,500, even at this low rate! The rest of the money it needs, the government borrows from the bankers at from 3½% to 5¼%! For those Federal Reserve notes which the government allows the big bankers to lend out to you, the banks pay the government about 2½%; and what do they charge for the money they lend to you? Well, I am paying seven, and have sometimes paid eight; God grant that you may never be really poor, Judd, and have to pay what the poor devils pay! It happened a few years ago, by some freak of chance, that we got an honest Comptroller of the Currency—the official who is supposed to control the banks; he found he couldn’t and they got rid of him in a hurry—but not before he issued a report, which would have given you the facts, had not the newspapers suppressed it. He said:

“Sworn reports, made by the banks themselves, show that on September 2, 1915, 2,743 national banks, out of a total of 7,613, were guilty of usury. This at a time when the Federal Reserve banks were offering money freely to national banks in every part of the country at rates varying from 3½ to 5%.”

In Oklahoma, where the legal rate of interest is 6% with 10% as the maximum under special contract, harassed farmers paid all the way from 12 to 2400%, with 40% as the average. In the case of one bank, the comptroller proved that not a single solitary loan had been made under 15%. He cited one particular case that he asked to be regarded as typical. In the spring the farmer went to the bank and arranged for a loan of $200. Out of his necessity he was compelled to pay 55% interest charge. Unable to meet the note at maturity, he had to agree to 100% interest in order to get the renewal. The next renewal forced him up to 125%. For four years the thing went on, and all the drudgery of the father and the mother and the six children could never keep down the terrible interest or wipe out the principal. As a finish, the bank swooped down and sold him out; the wretched man, barefoot and hungry, went to work clearing a swamp, caught pneumonia and died; the county buried him, and neighbors raised a purse to send the widow and children back to friends in Arkansas.

And what do the banks make out of such exploitation? Well, take one case; the great First National Bank of New York earned 140% on its capital in 1925; its stock has gone up to $2950 for a share having a par value of $100. According to the “Financial Age,” a Wall Street paper, 49 New York banks averaged 50% dividends in 1925.

All right, Judd; and now here are three sentences for you to paste in your hat and learn by heart.

First: Credit is the life blood of industry, and the control of credit is the control of all society.

Second: The private control of credit is the modern form of slavery.

And Third: The American banking system is the most perfect contrivance yet devised by the human brain for making the rich richer and the poor poorer.

LETTER V

My dear Judd:

The next thing we want to understand is the tariff, and how that works to take money out of the pockets of the poor and put it into the pockets of the rich.

The government has to have money, like any other business. We all desire government services, and should pay our proper share, honestly and openly calculated. But we haven’t an honest government, nor an honest social system; nobody wants to pay his share of anything, and taxes are unpopular; therefore the politicians put their wits to work and devise what are called “indirect taxes,” ways of getting your money without your knowing it. Among these ways is the “protective tariff.”

This was another great issue of the McKinley days, and well I remember the campaign slogans, devised for tricking the poor voters! “Protection and Prosperity; the Full Dinner Pail; the Foreigner Pays the Tax!” We liked the last one especially; we hated the foreigner, and were strong for making him pay—though just why we should have expected foreigners to put up the money to support the government of the United States, was something we might have been puzzled to explain!

A tariff is a tax imposed on all goods brought into the country. A protective tariff is a tax high enough to shut out foreign competition, by raising the cost of imported goods. Who pays the tax? The importer pays it, and he at once adds it to the price of the goods, so that the tax is passed on to the person who uses the goods, the ultimate consumer. He is the man who pays, always and everywhere; and the effect of the tariff is simply to boost prices in a whole line of commodities. If the government got all this boost, it wouldn’t be so bad; but the government gets only a small fraction, and the rest is a fat and juicy graft for the “protected” manufacturers.

But, say the newspapers and campaign orators of the “Grand Old Party,” it is the workingman as well as his boss who is “protected”; if it were not for the tariff, our wage scales would be dragged down to the levels of Europe; the labor-sweating foreigner would “dump” his goods on us! Well, Judd, for the workingman to try to improve his condition by a tariff, is as if a man should make himself rich by taking money out of his right-hand pocket and putting it into his left-hand pocket. If you look only at the left side of this man, you will think he is enjoying “prosperity”; and that is what the newspapers and the campaign orators did—and the poor workingman too, alas; for the subject is complicated, and the workingman does not have much time to think.

But you can see, Judd, that after the workingman has got his protected job and has collected his protected wages, he has to go to the stores and spend his money, and there he pays higher prices for everything he buys, because all these things have been “protected” from foreign competition, and the manufacturers of the things have been able to form trusts and fix the prices at higher levels. Just how much higher are the levels? The answer is easy; they are always a little higher than the wages! The whole story was told in the figures I gave you as to the movement of real wages in our country. Following the example of the “Grand Old Party,” let me give you a slogan:

The protective tariff in the past thirty-five years has reduced the real wages of the American workingman by five per cent!

And what about the farmer? The farmer does not get much protection on his products, but has to buy vast quantities of manufactured goods at “protected” prices. Take the United States Census Reports, and study the growth of farm mortgages from 1890 to 1920. This is the final test, you understand; for the farmer does not give the banker a mortgage on his land because he loves the banker, but solely and simply because the cost of running his farm is greater than the income derived from the farm. We find that in 1890 there were mortgages on 27.8% of our farms, and in 1920 on 37.2%. So here is a slogan for the farmers:

The protective tariff has increased the enslavement of the farmers to the bankers by thirty-three per cent in thirty years!

And what has been the effect of the protective tariff upon our politics? That also is easy to answer: it has made them a football to be kicked about by rival greedy interests; it has made our government a fat oyster to be opened and eaten at the banquets of trust magnates. The lobbyists of the big manufacturing interests have swarmed to Washington with their pockets full of bribes, and our congressmen and senators have been hogs at a swill-trough. Our political conventions have been bargain-counters, where candidates have met in secret hotel-rooms with the agents of the trusts, and have sold their honor and the welfare of the people. When the campaigns begin, the protected interests are frightened into putting up huge sums—“frying out the fat” is the phrase; and then we have red fire and torch-light processions and banners and a wild hurrah, and the voters are herded to the polls like sheep—at the standard price of two dollars per sheep.

I grant you, Judd, that it might have been a reasonable policy for the American people to tax themselves to build up their industries at the beginning, when the industries were young and needed help. But what are we to say when these carefully nourished “infant industries” grow up into highwaymen that knock us on the head? It happened that in 1917 our country went to war “to make the world safe for democracy”; and that was surely a time for patriotic sacrifices on the part of these beneficiaries of protection! From a report of the Secretary of the Treasury I take a few figures concerning the profits they made in that year. One woolen mill, hiding behind the carefully constructed tariff wall, made 1770% on its capital stock; and in case that Wall Street method of figuring should puzzle you, Judd, I put it into your kind of figures; you build a house for $1,000, and sell it for $18,700. Seventeen woolen mills reported profits of over 100% on their capital stock—that is, the stockholders got back in one year’s profit the total amount of their investment. The great American Woolen Company, with its capital stock of $60,000,000, made a net profit of $28,560,342. Canners of fruits and vegetables, tariff protected, made as high as 2032%. Clothing and dry goods stores, tariff protected, made a profit of 9826%. One steel mill, tariff protected, made as high as 290,999%. This, you will say, must be a joke; but I am quoting the figures of Secretary of the Treasury McAdoo: the capital stock of the concern was $5,000, and the net profits were $14,549,952. The great steel trust, our billion dollar infant, made in two years a net profit exceeding its capital stock.

These of course, are war-time profits; but I assure you, Judd, such things are being done right along, up to this hour. Take our textile industry, highly protected, and paying starvation wages to its horde of wretched slaves. The great Amoskeag Company, manufacturing many kinds of cotton goods, had in 1907 a capital of $4,000,000, which it has increased to $44,500,000, all out of profits. Last year it made a net profit of $2,851,131, which is 71% on the original investment. Or take the bread trust, which feeds—or feeds upon—the poor in our slum tenements. In 1922 the General Baking Company earned at the rate of 117% on each share of its original common stock. This stock rose from $2 in 1916 to $1,350 in 1925; and I assure you that is not a misprint—it is exactly as written! In this morning’s paper I read how the president of this company has just paid $200,000 for a box at the opera; the story tells how he rose from poverty, and we are expected to be proud of him!

Some understanding of the tariff robbery having begun to filter down to the people, our political masters promised us a reform. There was to be a “scientific” tariff; a commission was to study costs and prices, and provide exactly the right amount of protection. Well, last year this commission turned in a report, most “scientific,” showing how the sugar trust was exploiting the American people and advising the cutting of their tariff favors. And what did President Coolidge do with the report? He did his best to suppress the facts; and his action cost us a total of $53,000,000 in nine months!

Or again, take aluminum, used in making our kitchen utensils. This trust was organized in 1888, with a paid up capital of $20,000. Not one dollar more of real money has ever been put into it; but it has a tariff protection of 7 cents a pound, and in 1923 the concern paid a profit of 1000% on the original investment! The company’s circular now claims assets of $110,000,000, and last year a report of the Federal Trade Commission declared the company a monopoly which “threatened competitors with extermination unless obedient to the company’s will.” The United States Attorney-General declared, in February, 1925, that this company had violated provisions of the dissolution decree and had “shown itself indifferent to the provisions of the decree.”

And what did President Coolidge do about that? The answer is easy—he always does the same thing, which is nothing. And why? The Aluminum Company of America is another name for the Mellon family, and the head of this family, the third richest man in America, is President Coolidge’s Secretary of the Treasury, the man who determines the financial policy of our country. Since he took his high office he has had just one idea, which the entire propaganda department of Big Business has been hammering into the heads of our people—that the way to make prosperity for the poor is to reduce the taxes of the rich, so that the rich will start plenty of industries and pay big wages to the poor. You may see exactly how it works, when you learn that this rich law-breaker who sits in our cabinet pays his aluminum workers a wage of $3.36 per day! Figure the income of such a worker, on the basis of six days a week at full time, with no holidays whatever; and then consult last year’s income tax returns, and see what income is acknowledged by the Honorable Andrew W. Mellon; and so you get a perfect picture of the Coolidge idea of “prosperity.” It runs as follows:

For a wage-slave of the aluminum trust and his family, $88 a month; for a law-defying, whiskey-distilling Pittsburgh banker in the cabinet, $284,000 a month; and to help out the family, $178,000 a month for his brother!

LETTER VI

My dear Judd:

Figure to yourself a man pumping water from the ground, filling a tank to supply his house. There is an abundance of water, and the pump is big and powerful, and every time the man pushes the handle many gallons go rushing towards the tank. The man works all day, yet when he goes to the house in the evening, he discovers there are only a few drops of water in his tank. Some men have tapped the pipe, all along the way, and have diverted the water to their own tanks; so the man has to supply hundreds of gallons to others before he can get a few drops for himself. Would you not say that it was worth while for that man to find out about those tap-lines; how much they take off, how they got to be there, and by what right they remain?

Well, Judd, that is the position of the American laborer and the American farmer. The tap-lines are called rent, interest, dividends, profits, royalty, taxes, tariffs, speculation, manipulation, inflation, stock dividends, stock watering—a vast tangle of pipes. Let us pay one more visit to the jungle of Wall Street, and trace a few of these biggest tap-lines, which make it necessary for you to break your back all day pumping water for idlers and parasites, before you can get a mouthful to drink.

When they teach you about corporation finance in high school and college, this is how they picture it: Some men put their savings, earned by honest labor, into a company, and buy machinery, and manufacture goods, and sell them at a competitive price, and so of course the profits belong to them, and it all is fair and square, and a beautiful system, under which the public gets an abundant supply of cheap goods. Such a pretty picture these capitalists manufacturers of school text-books prepare—with money they get from Wall Street, and which they parcel out, in the form of commissions to school boards and school superintendents!

But what are the real facts? Well, the first thing the big corporation financier does is to seek out some form of special privilege, some opening through which he knows that he can make quick and certain profits. Understand, I am not talking about the fake schemes, got up by fellows whose purpose is to unload worthless stocks. The Department of Justice estimates that such operations have taken three billion dollars from the public since the war; but that is merely small change, compared with the gains of the real insiders, the perfectly legal and respectable gentlemen who finance our business affairs.

Perhaps it is a franchise or public privilege you are seeking; in that case you buy it from a legislature or city council. Or perhaps it is land; in that case you employ shrewd lawyers and commit wholesale evasions of public land laws. Or you buy tariff favors; or you get a patent from an inventor by giving him a few shares of stock; or you get secret favors from railroads or other corporations, by giving stock to the officials. There are so many ways and combinations of ways, that I should need a volume to tell about them. Whatever the “good thing” may be, you get it, and then you take it to your friend the big banker, and “let him in” on it. He gives you in return a supply of that life-blood of industry which he dispenses—not real money, of course, but credit, based upon the real money which other people have deposited in his bank. With this you can go out and order all kinds of real wealth—an office, a factory, raw materials, labor—everything will come to you, Aladdin’s magic was nothing compared to it. Carpenters will come, Judd, with their saws and hammers and toil for days and months and years; it is a “job!”

Profits are certain—you have seen to that; and on the basis of this certainty you have fixed your capital. Understand, you never put up a dollar of real money—the big insiders never do, they would laugh at the idea. You fix your capital as a function of your expected profits. That sounds complicated, but is really very simple. Wall Street profits average about 7%; therefore you fix your capital stock at fourteen times what your profits are going to be. After you get started, and your graft works, you may find you are making twice what you expected; if that happens, you call your capital twice as much. If you make $70,000 during the year, your capital is $1,000,000. If next year you make $700,000, you increase your capital to $10,000,000. If you make $7,000,000, your capital becomes $100,000,000. You, poor old laborer, will surely think I am joking in such a statement; you cannot conceive such things taking place outside of a dream. Yet, I pledge you my honor, this is the regular routine of Wall Street today, and I could fill pages of this book with a list of companies which have done this very thing, quite as a matter of course.

Take the Standard Oil Company of New York. I recall how, before the war, this concern’s stock was quoted on the market at $700 a share, or seven times its par value. What did that mean? It meant that the Rockefellers were old-fashioned, and afraid of the new corporation tricks; they kept their concern at its old capitalization of $15,000,000, while its profits were 70% on that amount. But the time came when the public clamor got so intense that the Rockefellers had to hide like the rest; and what did they do? Well, in 1913, the Standard Oil Company of New York declared a “stock dividend” of 400%; that is, it gave its stockholders four additional shares for each one they already had; so the company now had a capitalization of $75,000,000, where formerly it had $15,000,000. Naturally, then, its profits didn’t look so big; they had to be divided among five times as many shares. And then again, in 1922, the capital was multiplied by three, becoming $225,000,000. The company now pays 14% and that seems bad enough; but what would you say if you figured on the old capitalization and knew it was paying 210% every year!

This is the device known as “stock dividends”—paste it in your hat, Judd! And paste this also: Stock dividends are not profits, according to a decision of the United States Supreme Court! And when you have diluted down your capitalization like this, you are no longer making excess profits, and so you no longer have to pay the excess profits tax! And so, of course, all the corporations hasten to adjust their paper securities; in 1922, more than $2,328,000,000 dollars were distributed in the form of “stock dividends” to happy stockholders. The Standard Oil Company of Indiana paid 2,900% stock dividends in one year. The Brown & Sharpe Company, which makes tools for carpenters like you, Judd, paid stock dividends of 16,000% in 1922! Don’t you see how they’ve got you hog-tied?

Consider our mighty steel trust, Judge Gary’s pet, and the darling of our government. I knew intimately the lawyer who was paid a million dollars to form it, and he showed me a lot of “inside stuff”; for example, John W. Gates, Wall Street “plunger,” taking a private car load of steel magnates, prostitutes and champagne bottles on a three day orgy, riding about the country and buying steel plants for a joke, at any price the owners cared to ask! Well, when the joke was over, Morgan took the whole outfit away from him—he didn’t consider Gates a sufficiently sound man to carry such a great responsibility! So Morgan employed my friend, James B. Dill, to make the trust law-proof, and he put out the common stock of $500,000,000, all pure water and a swindle on the public. I knew an elderly widow who put all she owned into it, and it went to six cents on the dollar! But out of its monopoly of raw materials the trust made good in the end—in two years of the war its net profits were equal to the full amount of the original capitalization, something over $888,000,000!

Or take the beef trust. Armour and Company started with $160,000, and all the rest has come out of profits. In a single year they distributed stock dividends of $80,000,000! Or take that Aluminum Company of America, the family pet of the Mellons, that gets so many kinds of favors from our government; they once declared a stock dividend of 500%, and yet they can only pay their workers $3.36 per day! Or take the bread trust, Wall Street’s newest peace baby; the General Baking Company has increased the value of its investment 67,500% in nine years! And out of what? Well, if you are an insider, and can go to the right banks and get a sufficient “line” of credit, you can build huge electric ovens, which will bake bread so fast and so cheaply as to wipe the little hand bakers off the map; they will come to you as wage-slaves, and you will have a monopoly of fresh bread in a great city, and out of your profits you can pay lawyers and aldermen and editors and labor-sluggers, and be safe against every form of attack.

There is no use piling up examples, Judd. Suffice it to say, that every big business in America is owned and run under that system; and you pay for it. During the war you got your dollar an hour wages, and you thought it was next door to heaven; but you see, for every dollar you made, these Wall Street fellows were making tens of millions; and when it came to the spending of the money, each one of their tens of millions was just as powerful, just as legal and as sweet-smelling, as your pitiful one!