1. Railroads enjoy peculiar public privileges through their charters, franchises, and the right of eminent domain. Railroads in our country are owned by private corporations and are managed by private citizens, not, as in some countries, by public officials. They have been built under the motive of private enterprise, in the interest of the investor, not as a charity or as a public benefaction. Railroad-building appears thus at first glance to be a case of free competition where public interests are served in the following of private interests. But, looked at more closely, it may be seen to be in many ways different from the ordinary competitive business. Competition would make the building of railroads a matter of bargain with proprietors along the line, and an obdurate farmer could compel a long detour or could block the whole undertaking. But the public says: a public enterprise is of more importance than the interests of a single farmer. By charter or by franchise the railroad is granted the power of eminent domain, whereby the property of private citizens may be taken from them at an appraised valuation. The manufacturer, enjoying no such privilege, can only by ordinary purchase obtain a site urgently needed for his business. Why may the railway exercise the sovereign power of government and invade other private property rights? Because the railway is peculiarly "affected with a public interest." The primary object is not to favor the railroads, but to benefit the community. These charters and franchises are granted sparingly in most European countries. In this country they have been granted recklessly, often in general laws, by states keen in their rivalry for railroad extension. When thus great public privileges had been granted without reserve to private corporations, it was realized, too late in many cases, that a mistake had been made and that an impossible situation had been created.
2. In America and in many other countries, large grants of lands and money have been made to railroads on the ground of their peculiar public nature. Railroads were granted not only peculiar powers and privileges, but also material aid. The railroad enterprise was uncertain, the possibilities of its growth could not be foreseen, and private capital would not invest without great inducements. In European countries where capitalists were less enterprising or venturesome than in America, railroad extension was very slow except where the state in some manner extended its aid to the enterprise. The American states abandoned the principle of non-interference most recklessly, and vied with each other in giving lands, money, and privileges, in loaning bonds, in subscribing for stock, and in releasing from taxation. These protective measures fostering a special enterprise were expected by increasing wealth to diffuse a greater welfare throughout the community. Many of the states were forced to the point of bankruptcy by their reckless generosity, and some of them repudiated the debts thus incurred. The national government then took up the same policy and granted lands to the states to be used for this purpose. The first example of this was the grant to the Illinois Central road, in 1850, of a great strip of land through the state from north to south. Grants were made in fourteen states, covering tens of millions of acres of land. Then the national government, between 1863 and 1869, aided the building of the Pacific railroads by granting outright twenty square miles of land for every mile of track and by loaning the credit of the government to the extent of fifty million dollars—a debt settled by compromise only after thirty years.
Counties, townships, cities, and villages along the line of projected roads then entered into keen competition to secure them. Bonds, bonuses, tax-exemptions, and many special privileges were granted. To obtain this new Aladdin's lamp, this great wealth-bringer, localities mortgaged their prosperity for years to come. The promoters bargained skilfully for these grants, playing off town against town, cultivating the speculative spirit, punishing the obdurate. Not the civil engineer, but the financial engineer platted the devious lines of many a railroad on the level prairies of America. The effects of these grants were in many cases disastrous, and since 1870 they have been forbidden in a number of states by legislation and by state constitutions. But before this era of generosity ended, probably the railroads had received more public aid than has ever been given to any other form of industry in private hands.
3. The railroads are now generally held to have peculiar public duties corresponding to their privileges. Do all these grants in the past make the railroads other than mere private enterprises? One answer, that of those financially interested in the railroads, is No. They say that the bargain was a fair one, and is now closed. The public gave because it expected benefit; the corporation fulfilled its agreement by building the road. The terms of the charter, as granted, determine the rights of the public; but no new terms can now be read into it, even though the public now sees the question in a new light. Similar grants, though not so large, have been made to other industries. Bounties have been given to sugar-factories; tariffs have favored iron-forges and woolen-mills; factories have been given, by competing cities, land and exemption from taxation; yet no attempt is made on that account to control these businesses in a peculiar way and to treat them as public enterprises. So, it is said, the railroad is still merely a private business.
But the social answer is stronger than this. As to the precedent of tariff- and bounty-favored enterprises, most careful students would admit a close analogy in the two cases, but would maintain that the tariff policy also has been carried to an unjustifiable extreme, and that it could not be used to vindicate a still greater assault on public rights. But, further, privileges of railroads are greater in amount and more important in character than those granted to any ordinary private enterprise. The legislatures recognize constantly the peculiar public functions of the railroads. In other private enterprises, investors take all the risk; legislatures and courts recognize the duty of guarding, where possible, the investment of capital in railroads. Laws have been passed in several states to protect the railroads against ticket-scalping. Whenever the question comes before them, the courts maintain the right of the railroads to earn a fair dividend. Private enterprise has been invited to undertake a public work, yet public interests are paramount.
If an extremely abstract view is taken there is danger of losing sight of the real problem, which is that of harmonizing these two interests in thought and in public policy. Yet the extreme advocates of the private control of railroads have resented indignantly any public interference with railroad rates and with railroad management as an infringement of individual liberty. At the time of the passage of the Interstate Commerce Act this position was inconsistently taken by those in whose interests free competition had been violently set aside at the very outset of railroad construction, and for whom government interference had made possible great fortunes. The railroads cannot change from a public to a private character just as it suits their convenience. They cannot be allowed to play Dr. Jekyll and Mr. Hyde; smooth and affable in the character of public agents when public advantages are to be gained, and then as private enterprises ugly and scowling, flouting the public interests, charging all the traffic will bear, and resisting all reasonable regulation and conditions. Though railroads are private enterprises as regards the character of the investment, they are public enterprises as to their privileges, functions, and obligations.
§ II. POLITICAL AND ECONOMIC POWER OF RAILROAD MANAGERS
1. In various ways railroad managers exercise great political influence and power. Some writers maintain that the power to make rates on railroads is a power of taxation. They point out that if rates are not subject to fixed rules imposed by the state, the private managers of railroads wield the power of the lawmaker. By changing the rates on foreign exports or imports, the railroads frequently have made or nullified a protective tariff and have defeated the intention of the legislature. High rates on state-owned roads have openly been used in lieu of protective duties. These facts go to show that a change of railroad rates between two places within the country is similar in effect to the imposing or repeal of tariff duties between them.
The wealth and industrial importance of the railroads give them widespread political power in other ways. It is commonly charged in some states that the legislature and the courts are "owned" by the railroads. The railroads, in part because they are the victims at times of attempts at blackmail by dishonest public officials, are compelled in self-defense to maintain a lobby. The railroad lobby, defensive and offensive, is in many states the all-powerful "third house." Railroads even have their agents in the primaries, they enter political conventions, they dictate nominations from the lowest office up to that of governor, and they elect judges and legislators. The extent to which this is done differs according as the railroads have large or small interests within the state. How is this great political problem to be met except by an appreciation of its importance and by a growth of public integrity?
2. The economic power of the higher railroad officials enables them to exercise certain functions of an important public nature. When the railroad was a young industry, its essentially public nature was not recognized. It was at first thought to be simply an iron-track turnpike to which the old English law of common carriers would apply. As this and similar notions proved illusory, the railroad manager became invested with complex and often conflicting duties to the stockholders and to the public. He wore his conscience-burden lightly, and frequently made little attempt to meet the one and no attempt whatever to meet the other obligation. The new field offered for speculation gave opportunities for great private fortunes. There were no precedents, no ripened public opinion, no established code of ethics, to govern. It was a betrayal of the interests of the stockholders when directors formed "construction companies" and granted contracts to themselves at outrageously high prices. It was an injury not only to shippers, but also to the stockholders, when special rates were granted to friends and to industries in which the directors were interested.
It is believed that a better code of business morality has developed, and that the officers' relation of trusteeship toward the shareholders is now more often recognized. But practical ethics need to be developed much farther than this. A railroad manager is engaged by the stockholders, is responsible to them, and looks to them for his promotion. Hence their interests are uppermost whenever the welfare of the public is not in harmony with the earning of liberal dividends. The manager feels bound to defend the principle of "charging what the traffic will bear" in the case of each individual, locality, and kind of goods. If this ruins some men and enriches others, if it destroys the prosperity of cities to increase the earnings of the road, at all events he feels he has done his full duty. Railroad directors do not yet recognize, and possibly never will, that their office is more than a private trusteeship, that it is a public trust.
3. The progress of consolidation among railroads is putting into fewer hands greater financial and economic power. The early railroads, many of which were built in sections of a few miles in length, have been slowly welded into continuous trunk lines with many branches. The New York Central between Albany and Buffalo was a consolidation, by Commodore Vanderbilt, of sixteen short lines. The Pennsylvania system was formed link by link from scores of small roads. The growth of consolidation recently has been more rapid than ever before. Sixty per cent. of the mileage of the United States is under the control of five interests; seventy-five per cent. is controlled by a group of men that can sit about one table. The country is being divided territorially into great railroad domains, within each of which one financial interest is dominant. Great financial alliances and "community of interests" still further unify the policy of the leading roads.
Toward this result strong economic forces are working. Consolidation has many technical advantages: it saves time, reduces the unit cost of administration and of handling goods, gives better use of the rolling stock and of the terminal facilities of the railroads, and insures continuous train service. It has the advantages of other large production and the possible economies of the trusts. Most important, however, from the point of view of the railroads, is the prevention of competition and the making possible of higher rates and larger dividends. The statement that competition is not an effective regulator of railroads often is misunderstood to mean that it in no way acts on rates. It is true that competition between roads does not prevent discrimination and excessive charges between stations on one line only; but competition usually has acted powerfully at well-recognized "competing points." The larger the area controlled by one management, the fewer are the competing points; the larger, therefore, is the power over the rate and the more completely the monopoly principle applies. It is a grim jest to say that consolidation does not change the railroad situation as regards the question of rates.
§ III. COMMISSIONS TO CONTROL RAILROADS
1. Most of the states have undertaken, through commissions, to regulate the railroads in the public interest. When it became evident that public and private interests in the railroads were so divergent, it still was not easy to determine how the public was to be safeguarded. At first, some general conditions such as maximum rates were inserted in the laws and charters; but these were not adaptable to changing conditions and, for lack of administrative agents, could not be enforced. The early efforts at state ownership were, as was noted above, futile and disastrous, the remedy of state ownership, as then applied, being worse than the disease. The old law of common carriers gave to individual shippers an uncertain redress in the courts for unreasonable rates; but the remedy was costly because the aggrieved shipper had to employ counsel, to gather evidence, and to risk the penalty of failure; it was slow, for while delay was death to the shipper's business, cases hung for months or years in the courts; it was ineffectual, for even when the case was won, the shipper was not repaid for all his losses, and the same discrimination could be immediately repeated against him and other shippers.
Attempting to remedy these evils, thirty-one of the states have appointed commissions and, as the most important states are included, this mode of regulation applies probably to four fifths of all traffic beginning and ending in a single state. These commissions differ in power, but in general they attempt to prevent excessive discrimination in rates and to check all railroad practices injurious to the public welfare. The commission principle, strongly opposed at first by the railroads, has been upheld by the courts and is now an established public policy. The state commissions, however, have fallen far short of a solution of the problem. Though they have done much to make the accounts of the railroads intelligible, something to make the rates reasonable and subject to rule, and much to educate public sentiment, on the whole their results have been disappointing. It has been difficult to get commissioners at once strong, able, and honest; the public does not yet know its own mind well enough to support the commissions properly; and—more fatal weakness still—the courts early decided that state commissions could regulate only the traffic originating and ending within the state, and this left untouched the much greater volume and more important class of interstate traffic.
2. The Interstate Commerce Commission is an agency by which it was hoped to secure a uniform national public control of railroads. Public hostility to private railroad management was greatest in the regions where the most rapid building of roads occurred from 1866 to 1873. One center of grievances was in "the granger states" of Illinois, Wisconsin, Kansas, Nebraska, Iowa, and Minnesota; another center was in the oil regions of Ohio and Pennsylvania. The Eastern states were not without their troubles, for the report of the Hepburn Committee of the New York legislature in 1879 shows that discrimination between shippers prevailed to an almost incredible degree in every portion of New York state. When the courts, in 1886, decided that the greater portion of the railroad rates could not be treated by state commissions, national control was loudly demanded. Scores of bills were presented to Congress between 1870 and 1886, and, despite the bitter opposition of the railroads, the Interstate Commerce Act was passed in 1887.
The act laid down some general rules: that rates should be just and reasonable; that railroads should not pool, or agree to divide, their earnings to avoid competition; that they should, unless expressly excused, fix rates in accordance with the long- and short-haul principle (to charge no more for a shorter distance than for a longer one on the same line and in the same direction, the shorter being included within the longer). The act provided for a commission of five men, to be appointed by the President, which might require uniform accounts from the railroads, and which should enforce the provisions of the act.
3. The object of the Interstate Commerce Act has been but imperfectly attained. This brief proposition sums up the story of years of efforts and defeated hopes. The powers of the commission have proved inadequate to attain the main purposes of the act—the prevention of discrimination and the securing of steady and equitable rates to all shippers. By the decisions of the federal courts, the commission's power has been reduced far below the intentions of the Congress that passed the law. The railroads have in many cases refused to obey the orders of the commission and have succeeded in maintaining their refusal. Admirable results have been secured in the way of uniform accounting, uniformity of rates has been somewhat furthered at times, and the public has been in many cases enlightened. But the greatest evils remain. Railroads still give secret rates in great numbers; many competent witnesses before the Industrial Commission in 1900 and 1901 testified that discrimination had never been worse. From time to time the recognition of the injury to dividends wrought by discriminating rates prompts some railroad to offer its coöperation to the commission, and this inspires new hopes of an effective administration of the act. The pressure of competition, however, soon forces the penitent road back into its old ways. On one thing the railroads and the commission are agreed: that pooling should be permitted, though the commission wishes to have this under strict supervision. To this point the public has not yet advanced.
Despite the general acceptance now of the principle that the railroads should be controlled in the public interest, despite the barren legal triumph of the commission principle, it is evident that the railroad is not yet under social control. The future must determine whether the solution is to be found in effective public regulation or in public ownership.
CHAPTER 56
PUBLIC POLICY AS TO CONTROL OF INDUSTRY
§ I. STATE REGULATION OF CORPORATE INDUSTRY
1. The great increase of late in the number of industries under corporate control has brought new problems of social regulation. Inventions, machinery, better transportation, better communication, widening markets, have united to favor large-scale production, and this in turn to multiply corporations. Corporate organization makes possible greater massing of capital, greater stability of policy, and (because not dependent on a single life) greater permanence than does individual ownership. With these advantages the corporation brings also new social problems. The relations in corporate business are more complex than those in individual enterprise. The ordinary stockholder cannot have personal knowledge of the business or exercise personal supervision over his investment. The corporate official controls chiefly not his own wealth, but the wealth of others. When men deal personally with each other their sympathies are more appealed to. But, as noted in the case of the railroad, the corporate official at best seeks to satisfy his employers, often to the detriment both of the employes and of the public. Corporations are "soulless" because they permit less of the close personal relation that makes for morality. At various points in these later chapters on the relation of the state to industry, mention has been made of the measures society has taken to regulate corporate industry. The purpose now is to survey the field more systematically and to see the extent of this regulation, the difficulties arising, and the principles involved.
2. Numerous laws and commissions recently have been established to provide public regulation of industry. The Interstate Commerce Commission is the most prominent of the agencies for regulating corporate industry, as the railroad problem is the most prominent of the corporation questions. But before the advent of the railroad, banks had been recognized as having an exceptional public character. Not only stockholders, investors, depositors, and note-holders, but a large part of the public suffers losses by the failure of banks. As investigation by the various interested persons is quite impossible, the state through its agents inspects the books of the bank in a manner not thought of in the case of ordinary private business. The bank commission is the eye of the public, safeguarding the public welfare. State inspection of insurance companies, a later kind of corporate enterprise, grew out of a similar need. Insurance to provide for sickness, old age, or death is socially desirable and is possible in an equitable way only by the association of a large number of policy-holders. But inspection of the business by each policy-holder being impossible, regulation and control through some public agency is needed. The tax commissions now found in a majority of the states have been created principally to deal with corporations. In California, a debris commission regulates the relations between the farmers and the miners using hydraulic processes. A number of states have mining commissions, harbor commissions, labor commissions, boards of arbitration, and other similar bodies. The increase of these public agencies to regulate corporate industry has lately been condemned by some as a useless multiplication of state machinery. Doubtless some commissions have, through improper influences, been needlessly created; others having important duties have been intrusted to incompetent political appointees. But most of these commissions are needed, though at first their work may be ineffective.
3. There is a strong and increasing demand for publicity in the business of the ordinary corporation, as a protection to investors. The law has looked upon corporations, with few exceptions, as private businesses, having the right to keep every detail of their management secret from their rivals. The inner management, therefore, has been closely hidden from most of the stockholders, who, in the economic analysis, are in the main the enterprisers. More and more the business and capital of the country has thus come into the control of the few. The ordinary investor in corporate stock "buys a pig in a poke" and trusts to the integrity of officers working behind closed doors, responsible to no one, too often speculating in the stock of their own companies. The unearned gains thus secured have tainted with dishonesty many a large fortune. No small part of the evil is the closing of the avenues of safe investment to the small capitalists, giving to a favored few a measure of monopoly in investments yielding large returns. Only recently has it been recognized that no large corporation can now be a private business in the old sense. The evolution of industry has left investors and shareholders without protection in advance of a wrong, and usually without legal redress when a wrong has been committed.
The demand for some remedy for a condition whose seriousness has been steadily increasing has not come so much from radical quarters as from business and financial circles. In England, some of the worst abuses have been corrected by legislation. In 1900, a bill was drafted at the suggestion of Theodore Roosevelt, then Governor of New York, which aimed eventually to make the corporation a quasi-public institution, open to inspection. The organizers of a company voluntarily accepting the act were to be personally responsible for the statements in its prospectus; its issue of stock was to be limited to actual investment and to be publicly made; its office and records were to be open to inspection. Though public opinion was not ready for this bill, and it failed of passage, the bureau of corporations of the new department of commerce of the federal government, established in 1903 under President Roosevelt, may be looked upon as a fruit of this initial attempt.
4. Greater publicity of corporation business is essential in the interest of the public. With the interests of the investor are usually united more general public interests; but in many cases the two groups of interests conflict. Some persons favor control of corporations only to the degree needed to protect investors, but others place the policy on broader social grounds. The ability of a manufacturing corporation, at times, by threats of removal, to coerce unfair terms from the community, from its employees, and from those who supply it with materials, has led to the proposal that factories shall be forbidden to change their location without the consent of the state.
Especially does it seem desirable, if it is possible, to preserve the benefits of competition, by forbidding rates and agreements in restraint of trade. The old English idea, inherited in our law, is that the highest price that can be got in an open market, under ordinary conditions, is in general a just price. The control of any line of industry by a few corporations makes secret agreement much more easy, and thus replaces a general market-price by a discriminating rate, the highest that each individual will bear. A trust's price might still be a reasonable one if the seller met competition in every market; but it is not reasonable when opposition is crushed by local and by individual discriminations. The methods by which this result is obtained shrink from the public gaze. They include secret agreements with railroad agents, a system of espionage on the business of competitors, secret special rates to the competitor's customers, to say nothing more of corrupt political influence. Publicity in corporation accounts is the first condition to a public and uniform price. The need thus to develop potential competition is especially strong where a monopoly in a natural product exists. A more general recognition of the public nature of corporations will lead to further legislation and to the appointment of corporation commissions, as has been done already in some states.
§ II. DIFFICULTIES OF PUBLIC CONTROL OF INDUSTRY
1. The progress of industry is compelling greater social contact and more use of the agencies of government. The numerous exemplifications of this general statement that have been met in the course of this study have a common cause. In simple conditions of industry, where most of the productive energies were given to securing the necessities of life, the struggle of men was with nature. Social relations then were simple and crude, such as those of chattel slavery. Now, most men get their livelihood from their bargains with other men. The relations of men with nature now are fewer, and less close; the relations of men with men are more numerous and complex. Efficient coöperation is a factor in production. Right social relations are more essential to industry than a fertile soil.
The social institutions of any community are its answer, expressed in human consciousness and in formal laws, to this difficult problem of living together. Laws and ways for regulating industry may be good or bad. The good laws are those in harmony with human nature, giving the best motives for work and the greatest happiness both in the effort and in its reward. The merit of laws, therefore, is relative to human nature; those good for one kind of citizens may be bad for another. Men cannot be legislated into honesty without limit. The best that is possible is to enact laws that encourage the best in men as they are. A dishonest community neither has, nor is capable of choosing, men honest enough to supervise the others. Society cannot, by any amount of tugging and pulling on legislative boot-straps, lift itself above its own moral plane. But though the change in formal law cannot far precede, it may lag behind and retard, social progress. Law tardily adjusted to social needs tempts and corrupts men. A time has never been when a higher wisdom could not have corrected some ancient grievance, have leveled some unmerited inequality, and, by making laws as good as men were capable of administering at the moment, have freed their energies for further advances. It is only a spirit of moderate expectation that will not be cast down by the results of legal "reforms." Hence it cannot be hoped that abuses will not appear in the attempts to regulate private industry. Fallible men make mistakes and commit injustice, sometimes greater than that which they are seeking to prevent.
2. Legislative interference with industry presents temptations to community selfishness to misuse social legislation. Community greed is not more lovely than individual greed. Many a citizen holds up a high standard for the public official and bewails the corruptions of politics when the legislator votes for his own interest instead of for his constituents' interests. Such a citizen rarely reflects that the responsibility for many legislative abuses comes back to the community and to the individual voter. Can the water rise higher than its source? Is it a high conception of a representative's duty that he should out-talk, outwit, and out-vote his fellow-representatives, to get "a graft" for the men who elect him? In many communities, the one public question of importance is tariff legislation in favor of the local industries. This selfish issue bribes the electorate, and blinds it and its legislator to every question of the general welfare. A great industrial commonwealth steeps its public life in corruption when its voters sell their political birthright for a duty on iron. Many congressmen are so burdened with the task of securing some public expenditure in their district to help their constituents that they have little thought and less interest to give to larger public questions. If a local improvement will furnish labor and increase the value of surrounding property, though it is most uneconomic for the general community, the representative is expected to labor hard to secure it. Many citizens see little harm in "log-rolling" by the legislator,—that is, in his voting for a law without merit in order to get another law that his constituents want. The guilt of this worst form of bribery comes back to the community that forces its representatives to such a course, sinking public morality to a lower level.
3. The power of the legislature to affect private fortunes presents strong temptations to public representatives. That the legislator is so often true to a high standard of public duty, goes to illustrate the familiar truth that the individual moral code is better than that of communities. That some individuals betray their trust is less surprising. The Credit-Mobilier scandal, in connection with legislation in aid of the Union Pacific Railroad, implicated many congressmen. A few years ago, in one of the greatest states, it was discovered that an innocent-looking bill, relating to the rights of property-owners on streams, practically involved the gift, to a ring of men, of a quarter of a billion dollars' worth of coal-lands, lying under the navigable streams, and belonging to the state. Such temptations for wealth-getting are too great for men selected solely for their ability to obtain offices and pensions for political supporters, and to secure class-legislation for reputable citizens. The power of the legislative bodies to grant franchises and to permit the use of public property to corporations, constantly gives opportunity for dishonesty and occasion for scandal in the larger cities. The histories of the granting of franchises in New York, Philadelphia, Pittsburg, St. Louis, and many other municipalities, are full of black pages. Public duties are too heavy for the public integrity. Industrial power has grown faster than the civic conscience, and somehow the balance must be made even.
4. The power of the courts and of executive officers in the interpreting and executing of laws governing business has become greater. With closer contact of men there is greater friction in social relations, and litigation increases. Fortunes turn on the result of a civil suit. While juries often are corrupt, yet it is remarkable how well the courts have kept their integrity in the midst of great temptations. Professional pride and the noble traditions of the English judiciary strengthen the individual's character on the bench, not infrequently transforming a dishonest lawyer into a just judge; but popular elections, selfish interests, and the social forces of wealth and ambition make the task at times too heavy.
The executive branch of government is necessarily intrusted with great power, increasing with the extent of social regulation. The Secretary of the Treasury has discretion as to the sale and purchase of bonds, and thus can affect the rate of discount and the selling price of securities. One man's decision, if known in advance, makes possible fortunes for private pockets. A recognition of the importance of these facts, which are typical of a great class of facts, must help to develop a higher sense of public duty. Patriotism has been thought of too narrowly. The enemies of early society were outside its borders, and the citizen who traitorously gave them aid was held in abhorrence. Now, independently, in many quarters is voiced the conviction that the greatest enemies of society are within its borders, and that political corruption is the modern form of treason. A higher conception of civic virtue is required to meet the added tasks of society. Public official control must be united with private industrial control in a way to present the fewest temptations to the betrayal of public trust. Now, as never before, must be felt the wisdom of Emerson's words: "The best political economy is the care and culture of men."
§ III. TREND OF POLICY AS TO PUBLIC INDUSTRIAL ACTIVITY
1. There has been a large increase of state socialism in recent years. The term state socialism, broadly understood, includes all the forms of public participation in industry that have been passed in review: ownership by towns, cities, state, or nation; laws regulating the freedom of contract; agencies to inspect conditions and to enforce the laws; commissions to supervise and control corporate industry. From every direction comes evidence of the increase of state socialism within the past twenty-five years. To those accustomed to think of the spirit of the Germanic races as that of individual liberty and enterprise, it seems remarkable that this increase has been greater among people of Teutonic origin (Germany, England, America, Australia) than among those of Latin race. The change seems to be a part of the movement of democracy, even the measures of Bismarck in Germany having been taken to ward off the demands of the radical party. The mere name of socialism no longer frightens the citizens of a free state, and when men of strong individualistic spirit even claim with pride that they are socialists, the meaning of that term is becoming very vague indeed.
2. State socialism must not be confused with collectivism, or radical socialism. The word socialism is so variously defined that the earnest student sometimes despairs of getting a clear understanding of it. The thought of socialism ranges from the simplest form of state interference, such as the support of public schools and public fire-departments, up to complete public ownership of all industry. It is well to describe as radical socialists those who would abolish private property, and would strike at the very root of the existing order of society. The modern form of radical socialism originated among German thinkers of the school of Karl Marx, but it has many supporters in other lands. The typical radical socialist claims to possess the only pure brand of social reform, disdains any interest in state socialism, and scoffs at state control as mere temporizing, as not even a single step toward radical socialism.
The typical state socialist agrees that these measures do not logically force him toward the extremer view. He is at heart an individualist, believing that the motive forces of society are in human character, not in governmental machinery; but he seeks to prevent some kinds of competition, to put other kinds on a better basis; "to make the rules of the game fairer," but not to suppress it. According to this difference in ultimate plan, men and present measures can in general be classified. Yet one view sometimes shades into the other in the life-history of a single individual. Believers in moderate interference sometimes move toward the extreme, and the most radical thinkers, sometimes with no less honesty, become, with broadening experience, more and more moderate. It would be surprising if any one who is thinking and growing in social philosophy should succeed in so exactly adjusting to each other all his opinions, as to be absolutely consistent at a particular moment in his views on social policy.
3. It is not safe to predict from present evidence a continued trend toward extreme social control. Social prophecy is fascinating. Men like to answer out of their ignorance the question, Whither are we tending? A deeper study of social law should give this power, but it is not won by hasty generalization. Unripe social philosophers assume that because the theory of biological evolution is correct, the particular theory of social evolution which they choose to invent or accept is unimpeachable. Radical socialism is the exaggerated statement of a present social need. It is a bridging with hope, not with experience, of the chasm between reality and the dreams of the unsuccessful.
It is true that many evidences point to an increase in social control for some time to come. The laws, the institutions, the prevailing morality of society, have not kept pace with industrial growth in this period of sweeping change. What is seen, however, is a small arc of the curve of progress. Much of the social regulation in the Middle Ages was similar to that which is now increasing. Legislation by gilds and privileges of private corporations hedged industry about. A reaction against this in the seventeenth and eighteenth centuries brought on national and state control, and state interference of another kind rapidly increased until the time of Adam Smith. Then a strong reaction came, and the next period of fifty years saw far less of interference. The years from 1825 to 1840 were those of the greatest state socialism ever seen in America, but the results were so unfortunate that a violent reaction followed. The recent great increase of state activity is not likely to be continued indefinitely. The path of progress is a spiral. There are forces already at work creating a resistance to any great extension of this movement. Competition of the healthier sort cannot be suppressed without paralyzing results. Inequality and the opportunity for ability to realize itself cannot be destroyed. The social regulations must be of a sort to liberate the best energies of men, not to enchain them. If the evils of state regulation increasingly appear to outweigh the benefits, a limit must be put to the movement. While social control may aid in lifting production and competition to a higher and more moral plane, the ability of society will refuse to be ruled by the standards of the weak and inefficient.
CHAPTER 57
FUTURE TREND OF VALUES
§ I. PAST AND PRESENT OF ECONOMIC SOCIETY
1. The meaning and scope of economics can be better seen at the end than at the beginning of its study. The proposition with which this inquiry opened may well be recalled in the closing chapter. The words of the formal definition of economics should at this point convey a fuller meaning. In the wide range of subjects passed in review has been sought the answer to one question: What determines and affects the values of good?
Perhaps now also can be better appreciated what the influence of such a study might and should be on practical action. At times economic students have gained the ear of statesmen and rulers, and have exercised much influence upon practical politics. It is sometimes bemoaned that economists have to-day so small a direct part in the government of our republic. They certainly have a greater part to-day than they had twenty years ago, but if they had not, there would be small occasion for regret. The immediate influence of the specialist on those in authority is at most times less in a republic than it is in a monarchy, at those rare times when a ruler shows the students his favor. That influence in America is mostly indirect, but it is no less sure and lasting. The results of the earnest pursuit of economic inquiry in the universities and outside of them are already appearing, not in dramatic ways, but in the more subtle, surer form of an intelligent public opinion.