# Current Economic Affairs/Chapter 11

CHAPTER XI
ECONOMIC PRINCIPLES OF THE ENGINEERS
The advances of civilized people in their ability to contend successfully against the adversities of nature, and in the ability of an increasing population to enjoy a steadily improving scale of living up to the advent of the war, have been due to the work of scientists in discovering and interpreting the laws of nature; and to the engineers for putting their knowledge into practical effect. It has been such things as the invention of the steam engine, the electrical transmission of power, the development of the methods of mining and metallurgy and the arrangement of industrial organization that have conferred upon the world the comforts of the present age. Those have not been reserved by and for the class that has opened the way to them but have spread to everybody.
Capital and labor are equally useless and helpless without brains. This is, of course, incomprehensible to the moronic intellect and even to the illiterate. In the early days of the Russian bolshevik revolution the horny handed sons of toil appeared in the offices of mines and works telling the managers and engineers that it had come their turn to go out into the works and down into the mines to labor and sweat while the old hands would henceforth sit in comfort in the offices, sharpening lead pencils and smoking cigarettes, that being their idea of the work of the engineers. Even ​after the Russian communistic and Italian syndicalist experiences there are those who are still preaching in the United States: “Put the capitalists into overalls.”
It did not take the leaders of the workmen of Russia long to find that by themselves they did not know what to do and that they had to implore the engineers to come back. It took them much longer to learn that even if the engineers came back they could not function properly if they were subject to foolish economic and political restrictions. The great fabric of civilization that we have constructed is a fragile thing. Even with the greatest care in upkeep such an apparently solid thing as a railway wears out and has to be replaced every 20 years. A municipal office building becomes obsolescent in 30 years. The obligation that rests upon the engineers is not only to lead the way in further progress, but also to preserve that which we have gained. Dismiss management from its control of mines, factories and railways, the workers in them would promptly begin to starve to death, just as they did in Russia, for they would know not what to do. Engineers understand this best of all, and while the owners of capital may be timid and compromising toward the forces of ignorance, the engineers must of necessity stand firmly upon a platform of sound economic principles, substantially like the following.
The engineers of the United States feel it their duty to advise the American people respecting the present state of economic affairs in the nation, just as an individual engineer would his client. The people of the United States constitute a great corporation, whose business affairs are analogous to those of a commercial company multiplied many times. The engineers feel constrained ​to offer their opinion owing to the responsibility to do things which rests upon them. Confronted by the steady impoverishment of natural resources and the operation of the economic law of diminishing returns it devolves upon management, functioning through the engineering profession aided by scientists, to make such improvements leading to increased production and such elimination of wastes as to offset the increasing adversities of nature merely to hold our own; and to do more than offset them in order to improve the scale of living of the people. The engineers accept this responsibility, but in so doing they demand attention to their advice respecting fundamental economic matters, lest they be unduly hampered in the performance of the professional duties, which they acknowledge.
The welfare of any people depends upon production and saving, it being self-evident that people can live only by having goods and that there should be a surplus saved out of current production in order to provide for the needs of increasing population, especially in means for housing, for transportation and for fuel and clothing. Anything that tends to curtail production and saving is bound to react to the disadvantage of a people as a whole. Wages come out of production and from no other source.
Profits in business are not uneconomic or unsocial, being simply savings out of production. All of the capital in the world has been saved out of production. Wages can be paid only from the use of capital goods. Destruction of capital goods means also destruction of labor.
Previous to the war the American people found it necessary to save about 15 per cent of the national income in order to provide the railways, houses, ​factories and public improvements required by the growing population. Since the war the percentage of saving appears to have been less, which is reflected in shortage of houses and inadequacy of means for transportation. Even if physical production remains undiminished, in proportion to the population, failure to make adequate savings is bound to have adverse economic consequences to the people. There is reason to fear that physical production is falling behind the rate of increase in the population and that this is a potent factor in maintaining a high level of prices for commodities.
The labor of a human being is not a commodity nor an article of commerce, but labor, like any service and like any commodity, is subject to the economic law of supply and demand. If workmen fail to produce as much as they can, thereby diminishing the supply of commodities, they curtail the divisible supply and thereby raise prices and injure themselves.
No person has an inherent right to a living wage nor to an equal division of the national produce. Nobody has any right to more than he earns and nature has endowed men so differently that some are able to earn more than others. The maximum that can be divided is the amount of the national produce and if the division thereof does not afford a living wage there is no other source whence it may be obtained. If, in such a condition, one group of workers is successful in securing for itself a living wage, that must inevitably be at the expense of other groups of workers.
The farmers and their families, who comprise nearly one-third of the American people, are under no illusion respecting their living wage being anything different ​from what they produce by their labor or being capable of any guarantee by a superior power. When transportation and manufacturing labor bring about conditions that increase the cost of the things the farmer has to buy they diminish his living wage by just so much.
Labor should not resist deflation, nor expect to preserve the rates of wages that were established in terms of inflated dollars. The great primary classes of labor are those who live in towns and work mainly in them; and those who live on farms and cultivate them. If deflation reduces the national income in terms of dollars and if town labor maintains previous income in terms of dollars; i.e., if it maintains its previous rates of wages and working time, by virtue of concerted action or otherwise, it is getting an undue share of the national produce at the expense of the farmers. In other words, the farmer, who is subject directly to the law of supply and demand, may get greatly diminished prices for what he has to sell and be required to pay undiminished prices for what he has to buy. Precisely this condition has existed during the last three years. Although town labor profits thus inequitably and uneconomically at the expense of the farmer it is found that classes of town labor profit at the expense of each other. The building mechanic who is able by virtue of close unions to command exorbitant wages for his labor, and who by reason thereof reduces his working hours and his performance per hour, increases the cost of houses and consequently the rental thereof to the men and women who work in the factories. Similarly do anthracite coal miners and men who are engaged in transportation prey upon the other classes of town workers.
​Impartial scientific investigations of the amount of the national income have demonstrated that if the whole of it were divided equally among the workers of the country the share of each would be less than what the average skilled worker now receives. Division of the whole income among the workers would be suicidal, for capital must have a suitable return, else it will cease to function, and superior service is bound to command a premium else it will not be given. The same impartial scientific investigations have demonstrated that under conditions existing before the war, excluding the farmers and their produce, out of the remainder labor received about 70 per cent and property and management about 30 per cent with a rising tendency in favor of labor.
There is reason to believe that the accrual to labor of an increased proportion of the produce of industry is contrary to the national welfare and to the real interest of labor itself in that by the discouragement of capital there are tendencies toward the impairment of national income and the promotion of profligacy in living, with the consequences of diminished production and even greater diminution in the surplus available for saving and reinvestment in national plant.
With present and prospective economic conditions in the United States there is no doubt about the ability of the population to obtain a living wage. The discussion touching upon that phrase is not so much a matter of a living wage as it is of the scale of living. Unless production be increased, wastes reduced, and more economy practised it is probable that the American people in general will suffer impairment in their scale of living.
While we believe that labor in the aggregate naturally obtains the whole of the produce of industry after the ​deduction of the fair shares of capital and management (which are limited by competition) and that the benefit of improvements effected by virtue of invention, engineering and organization inevitably accrue mainly to labor, there may be delay of the natural result through imperfection of competition and temporary opportunities for employers to take advantage of labor. Direct dealings should therefore be inspired with ideas of justice on both sides. A wise employer will consider how he can give the best possible wages. A wise employee will consider how he can give the best possible work.
Management in its dealings with labor should be imbued with the spirit of justice and fairness, and both out of ethical considerations and of economic, having in view the promotion of common interest, should pay great attention to the education and control of foremen, who are the agents coming in direct contact with the workmen and in general are the only officials whom the workman knows. Without any doubt a great deal of bad feeling of labor toward capital is an expression of resentment against bad treatment by foremen. It is the duty of management to create and maintain a proper spirit within its several organizations, and we hold that the spirit in any organization is that which trickles down from the top.
It is the duty of management to exercise its best efforts to establish equilibrium in industry and minimize the fluctuations in the conditions of employment. In its efforts to accomplish this it should not attempt to abate competition in production and distribution, but on the other hand it should not be hampered by political restrictions or the opposition of labor.
​We do not deny the right of labor to enter into unions, either company or industrial or of national scope, for the betterment of its condition; but we uphold the right and freedom of every man to work without any artificial restrictions. We do not deny the right of labor to strike, but we gainsay the right of labor performing indispensable and immediate public service to strike in a body and without notice, and we believe that there should be stringent legislation in the interest of the public to prevent such acts.
The right of every man and woman to work in any occupation for which fitted, free from coercion, intimidation or violence, should be upheld courageously and effectively by all executive officers of the governments —federal, state, county, and municipal—and adequate means to insure this right should be provided and used. There should be legislation penalizing severely any persons who individually or collectively attempt to curtail the inherent right to work and to enjoy liberty that is possessed by every citizen.
We condemn all policies of labor effecting restrictions upon production, such as limitation of allowable work, limitation of number of men in the trade, limitation of number of apprentices, jurisdictional allocation, the imposition of penalties and fines. Our objections to such restrictions are not only because of their promotion of class interests, but also and especially because they restrict production and therefore are contrary to the national welfare.
While we advocate the abolition of the 12-hour shift in continuous industries as a desirable thing to accomplish and appreciate that the substitute for two shifts of 12 hours each is necessarily three shifts of eight hours ​each, we consider it doubtful whether the people of the United States, disregarding the farmers, can as a whole produce enough by the labor of only eight hours per day to afford themselves the present scale of living and make such savings as are necessary for the extension of national facilities. We deprecate the increasing tendency to refrain from doing work on Saturday and to increase the number of other holidays. We do not believe that the credit balance between national income and national living expense permits such an. abstention from work in general, and hold that those classes of workers that have won such privileges have done so at the expense of all other classes of workers.
Reliable investigations show a steady increase in the cost of government, even after deducting the charges remaining on account of the war and after allowing for the increased cost of materials and wages for labor. This appears in increased taxation and implies a growing diversion of labor from the production of capital goods and consumers’ goods to service. While there is need for increased service in accordance with increase in population, undue diversion is bound to detract from the ability of the people to save even if the increase in total production be commensurate with the increase in population, and this detraction may be more than the people can well afford. We fear that something of this kind is happening now and we urge upon governments—federal, state, county, municipal and town—the need for strict economy and great care in planning extensions and improvements.
Closely allied with the subject of cost of government is that of taxation. Some of the service of government, as for example the post office and the supply of water ​to municipalities, is paid for directly, but in the mam the cost of government must be defrayed by taxation. Unwise methods of taxation may have serious economic consequences, and may be contrary to the common welfare. There can be no doubt that the present system of high surtaxes levied on income by the federal government diverts investment to tax-exempt securities, especially the bonds of states, and thereby subtracts from investment in capital goods, i.e., those things that produce more income. Equally without any doubt does the present system of levying income taxes lead to increased expenditures for plant maintenance and extension in times of prosperity, thus increasing the competition for labor and material and intensifying the peak of the business cycle at the very time when that should not be done. In the interest of labor, which more than any other demands equilibrium, the work of extending and improving plants should be reserved for the slumps in the business cycle.
During the last 30 years our national economic affairs have been extensively interwoven with economic restrictions, some of them possibly wise, many of them certainly unwise and all of them tending to delay or defeat the operation of natural laws. Some of these restrictions are legislative and some of them are the results of labor union policy. The uneconomic situation in the bituminous coal mining industry, which is greatly overmanned, to the direct expense of the public, is largely a consequence of artificial restrictions. Free play of the law of supply and demand would compel the surplus men of that industry to seek their livelihood in other occupations. Legislative enactments with respect to railway transportation result in men working ​for the railways receiving higher wages than other men get for the same work in the same vicinities. In some states competition for work is restricted by license requirements. In many states and industries the right to work is restricted by the terms of labor unions. Immigration is restricted by national legislation. Business is irritated by unnecessary federal and state supervision. The railways are harassed by multifarious regulations by both federal and state governments, which stifle their economic development, and while intended to be in the interest of the public are to a large extent contrary thereto in the broader conception.
We believe that experience has proved that governmental operation of public utilities and industries is inefficient and wasteful and consequently uneconomic. While we recognize the need for a certain degree of governmental supervision and regulation, especially in public services which are founded on franchises and by their nature are outside of the bounds of competition, we believe that such regulation should be reduced to the minimum. In all economic affairs that are open to competition we believe that the national welfare will be promoted by the removal of artificial restrictions that tend to counteract free competition and are in opposition to the, free play of the law of supply and demand. *** I believe that the engineers of the country will, in great majority, endorse the declaration of principles in the above statement and will agree that the direction of national economic and political affairs in conformity with them will promote the national welfare. I believe moreover that a majority of the workers of the ​country, in whom I have confidence, would also subscribe to them if they had the chance. I believe that the majority of the workers are just as patriotic and think just as much of the national welfare as do other people. If their aspirations appear to be at variance with those of other people and contrary to the general interest, I believe that it is because they do not understand whither they are being led. In this they are to a large extent the victims of selfish leaders—political and professional—and misguided sentimentalists. I do not believe that the American working man is socialistic or communistic or anything of that sort. I do not believe that he is jealous of the rich who have become rich fairly and I do not think that he wants or expects for himself anything more than a square deal. I think that he wants to be told the truth and to be given a chance to think about it. I think that the most misguided of all people are those who fear to tell him the truth, lest they offend him or hurt his feelings. Politicians will never tell him the truth, nor will those leaders who derive their own living out of the perpetual promotion of dissatisfaction. The engineer, on the other hand, has no axe to grind.