# Current Economic Affairs/Chapter 14

CHAPTER XIV
MISCELLANEOUS
Although the needs for more will to work, more will to save, and the removal of economic restrictions are clearly indicated, there is no reason to suppose that these will quickly become appreciated. Rather is it to be expected that we shall continue with the policies that we are now pursuing, trying to live within a wall of our own, disregardful of the rest of the world. Ours is a rich country, which affords out of its own products most of the things that are needful. Of raw materials we have to import but little outside of tea, coffee, rubber, tin, hemp, flax and sugar. We can maintain a high degree of activity among ourselves without giving great attention to our foreign trade, although such neglect will be irksome to our producers of copper, cotton, wheat, meat and petroleum, which we must export.
We can maintain high wages among ourselves, with a great deal of irregularity and consequently class discontent. Every now and then we shall lose an industry, while others may become crippled. Thus tin smelting has been abandoned during the last year for the reason that the high costs could no longer be economically withstood. Our great copper producing industry is switching to South America. It will be only another step for copper manufacturing to take root there, where labor conditions are more favorable ​than with us. Our farmers will more and more abandon agriculture and migrate to the towns. In short we shall be consigning ourselves to a destiny of dry rot.
The wall that we have erected around us will indeed serve for a while to support a high level of prices and wages in this country, but in the long run it can not do so; for as our business will constantly be diminishing while population will be increasing the internal competition will eventually afford the correctives. There can be no real and enduring prosperity for us until and unless the normal international trade relations, which express the great international division of labor, be reestablished. The competition of Europe should be welcomed, not feared.
Judge Gary in his address to the stockholders of the U.S. Steel Corporation at their annual meeting in 1923 blamed the present immigration law for much of the existing labor difficulty, and his words were taken under consideration in cabinet meetings in Washington. Secretary Davis in a report to the President expressed the opinion that opening the gates of immigration and flooding the country with new workers would “bring prosperity to an end.” Here we have one view of what makes “prosperity,” viz. general employment and rising wages. Superficially this is a meritorious idea, and fundamentally it would be sound if rising wages meant the general production of more goods. Under the existing conditions, however, this thought, no doubt innocently, includes a great deal that is cruel and shameless. The rising wages, of which so many are boastful, are at the direct expense of the farmers, ​who have no way of boosting their prices, and at the expense of the humbler among the town dwellers.
Judge Gary also stated that the U. S. Steel Corporation has added at least one billion dollars to the value of its property since it began business and expressed the hope that sooner or later the stockholders of the company would get some extra benefit as the result of this growth. The U. S. Steel Corporation is paying practically the same dividends as at the time of organization, although from 1902 to 1909, inclusive, the dividends on the common stock were smaller than at present and were omitted entirely in 1904 and 1905, but with the exception of 1914 and 1915, the company has not in any year paid less than 5 per cent on the common stock. It may be said that the stockholders are receiving practically the same return as at the time of organization, whereas the average wage per employee has increased from $717 in 1902 to $2,173 in 1920 and in 1922 was about $1500.
A consideration of these figures may inspire some thoughts respecting the share of labor in the produce of industry and also respecting the subject of corporate surpluses, which excites so much indignation in some quarters. It is time for someone to say a word in behalf of the corporations. The experience of the Steel Corporation is merely illustrative of the broad fact that during the whole period of war profits, so to speak, the dividends of the corporations of the country in the aggregate, were but little increased, surplus earnings having gone mainly into plant extensions, inventories, etc., which in large part accrued to the benefit of the workers and which in large part were subsequently lost during the deflation. Even where losses have not ​been actually written off, surpluses exist largely in the form of plant, for which there is no immediate use, and there is moreover the prospect that a great deal of it will become valueless.
In economics, politics and sociology, publicists use a good many words and compose a good many phrases that sound well and undoubtedly make an emotional impression, without anybody, including the enunciators themselves, giving any consideration to their meaning. There was recently discussion respecting the president of an old New England college, whose “radical views” aroused dissatisfaction. It was alleged among other things that this president had brought to this college “a group of young and brilliant professors whose views were regarded by many as being too radical.” Especially was this noticeable in the department of economics “where pressure is put upon the professors to be conservative and even to deny their proved knowledge.” I am quoting from a newspaper article which spoke about “proved knowledge.” How there can be knowledge that is not proved I do not know, although I am mindful of the saying of Josh Billings that the trouble with a good many persons is that they know so many things “that ain’t so.”
There are many words and phrases that are bandied about in a careless way. Progressives and progressivism. Radicals and radicalism. Liberals and liberalism. Capitalism. Idealism. The dark forces of reaction. The New Freedom. Making the world safe for democracy. These are only a few.
Senator La Follette on July 2, 1923, outlined the program of the Progressive Group in the Sixty-eighth ​Congress as follows: “The progressives in the next Congress propose to reduce the ruinous existing freight rates; to reduce the burden of taxation on the common people—the consumers; to enact and enforce absolute publicity of all income tax returns and stop dishonest tax dodging by trusts and millionaires; to deal firmly with the monopolies in oil, coal, steel, lumber, sugar, meats, and other necessaries of life; to call the gambling organizations to account and insure fair prices in grain and other farm products; and to mete out merited punishment to the profiteers and grafters.”
The terms “progressive” and “progressivism” imply a forward movement for human betterment. Conversely the reactionary is understood to be one who does not want to have things improved, but desires to revert to the bad state of affairs formerly prevailing. Than such conceptions nothing could be more foolish. Neither of them may be what is commonly thought. Rather may they be very far from it.
I do not suppose that there is any intelligent person who does not want to improve everything from the general state of human welfare down to the organization of his own business. The greatest progress makers that I know have been men whom the “progressives” call “reactionaries.” If two men are travelling an unchartered road and in their ignorance have taken a course that soon proves to be dangerous, the nick-named reactionary says “Let us retrace our steps to the main road and then move on again,” but the soi-disant progressive says “Not so. Let us keep right on in the dark, through the quagmires and quicksands, and perhaps after a while we shall find good going again.”
​The program of the progressives as outlined by Senator La Follette promises a reduction in freight rates by skinning the owners of railway property; a reduction from the burden of taxation on the common people by soaking the rich some more. Nobody of economic intelligence knows of any monopolies in oil, coal, steel, lumber, sugar, meats and other necessaries of life. The idea of dealing firmly with supposititious monopolies implies further harassing of people who are trying to produce. The insurance of fair prices for grain and other farm products is reminiscent of price fixing in the days of the war and implies some kind of a defiance to the law of supply and demand. There is nothing progressive in any of these thoughts except progressiveness toward economic bedevilment.
There is much popular confusion on the subject of money, or funds, credit and capital. We say, sometimes, that money is dear, which means that it is not in abundant supply, and carelessly assume that therefore the nation is poor; or we may hear that money is easy, i.e., that it is in liberal supply, and infer therefrom that the nation is rich. The truth may be the opposite of each of these deductions. The immediate supply of loanable funds is indeed a matter of great importance, but before any economic interpretation of that condition be made it is essential to examine the sources of those funds.
Underlying everything is wealth, which in the economic sense is physical property, either in the form of land, buildings, railways, machinery, etc., and stocks of commodities. A relatively small element of wealth is the physical property that we know as gold. ​The definition of the wealth may be extended so as to include some non-physical, intangible things, such as organization, good-will, patent rights and even mere knowledge.
All wealth is not capital, which is only that part of wealth that is devoted to the production of more wealth. Thus, the parks of our cities are wealth, but are not capital. Railways are capital. Both municipal parks and railways are wealth, but neither of them is money, or funds. Gold is wealth, capital and money and is the only thing corresponding with those three descriptions. Although it is an enormously important factor in economics it constitutes but a small proportion of the world’s wealth. The physical wealth of the United States is about 275 billion dollars in terms of values of 1913, but it comprises only about three billions of gold, or a little more than one per cent. The total gold of the world is only a little more than 10 billion dollars.
Capital assumes two general forms, viz. fixed and liquid. The former comprises those creations that can be used only for the purpose intended, such as railways and factories. The latter comprises the stocks of goods, together with gold, which may be employed for any desired purpose in the production of new wealth. The liquid capital is always the smaller proportion of the total. In the United States, for example, I have estimated it to be in recent years no more than 10 per cent of the total wealth.
Credit is different from either capital or funds. It is based on wealth and may be considered as a translation of wealth into working capital. Theoretically it ought to bear a relation to wealth, or rather its extension should be limited by some relation to wealth. ​But the market value of wealth, or of real capital, expressed in current prices, may rise or fall so greatly within a short time that there may be extraordinary increases or decreases in credit facilities producing illusions and consequences that lead to painful corrections, particularly when there is the fictitious appearance of increased capital that is really only a development of over-expanded credit.
The market value of the stock of a corporation may change greatly without there being any change in either the physical or the intangible wealth that it represents. Nevertheless in rising it may become the basis for more credit, while in falling it entails a contraction of credit. It is precisely such conditions that lead to pyramiding and liquidation in the stock market. The same conditions obtain with respect to commodities. In a bull market credit expands and in a bear market it contracts, without there being any corresponding expansion or contraction of wealth. Credit is therefore a different thing from wealth, although it is founded on wealth.
I do not suppose that any socialistic economists would deliberately propose reversion for the people to a lower scale of civilization. I am not so sure as to the unwillingness of the people themselves to decline. Dr. Lothrop Stoddard in his recently published “Revolt Against Civilization” draws attention to the mental strain that modern conditions have imposed upon masses of people who are incapable of living up to them, and indicates a willingness on their part to go backward as the easier way. This is not the idea of the intellectual socialists, however. To their fatuous minds the ​common-sense talk that is based on experience is simply evidence of the capitalistic desire to recapture the proletariat. They meet the arguments of engineers and administrators with the contention that they themselves would run the railways, factories and mines so much better than the old managements that perhaps it might not be necessary for the respective personnels to work any more than six hours per day. Of course, we know that such talk is foolish. We know what has. been the result of the Russian experiment. A great difference between engineers and socialists is that the former act upon the basis of accumulated experience, while the latter refuse to recognize that such is of any value.
Travellers, senatorial and others, return from Russia with words of quasi-wisdom. The Bolshevik government has found itself and is a wonderfully efficient thing. The people are becoming happy. They are going to export grain. Etc., etc. Others dissent. In truth nobody knows what they are talking about. The daily papers publish the interviews with them, for even the words of an ass may be news. The editors offer neither indorsement nor criticism. It’s all the same to thein.
We laugh at the foreigner who comes to America, makes a hasty transcontinental trip, and essays to size up our economic position. Egad! We have some trouble in doing that ourselves. What then of the casual traveller in Russia, who knows neither the language nor the mysteries of a strange people? The expert sitting in London or New York, getting many reports and studying data, knows far more.
​Russia is m ruins. Its railways are in deplorable condition. Its heavy industries are all but wrecked. There is some production in the light industries, which have passed back into private control. The peasants have things in about their own way. The Bolsheviks have taught them to pay taxes. That’s all. The harvest will be better this year than last. Probably there is no danger of famine. But Russia will not be an exporter of grain. Absurd to think it. Well, then, what is going to happen politically and economically? They are much the same thing.
Communism was admittedly a failure. Then was substituted the “new economic policy,” or state capitalism. That also is a failure. Even the virile Trotzky says pitifully that private enterprise used to operate industry profitably but the government can not do it. Back to straight capitalism is the next thing. The Bolshevik government is now close to the end of its rope. The reign of terror is ended. Already is the new revolution developing strongly and swiftly. It still lacks coherence, lacks leadership. It does not show on the surface. It is like the sap spreading up through a tree. Some day the new thought will bud over night, just as does a tree in spring. It will seem sudden, but will not be really so. The red government will simply step out and a moderate one will step in. This may be a year hence, may be two years. Who can time such things closely?
What after that? Russia is essentially an agricultural country. We know that such countries can recuperate quickly. Russia is rich in natural resources. It is not unreasonable to expect that within five years after the change of government, barring agricultural ​adversities, Russia may become the most prosperous country of continental Europe.
There are many confusing conditions entering into considerations. In the beginning the Bolsheviks stupidly set out to annihilate management, the intelligence of the country, which they associated with capitalism. After slaughtering hundreds of thousands they awoke to the realization that if they kept on with such extinction there would be nobody left to direct industries. It had by that time become appreciated by them that the proletariat and peasantry did not know how and could not learn. It will remain for time to show whether with the recovery from that madness they saved enough of the brains of Russia.
In a country like the United States such a loss would be fatal. It would spell the downfall of our civilization. In a backward, essentially agricultural country like Russia it may not be so serious. In our optimistic forecasts we give expression to that thought. There may be even an important offsetting thing in the knowledge gained by millions of peasants while they were prisoners of war in Germany, who were put mainly to work on the farms and thus had the opportunity to see that steel plows are better than a crooked stick and that iron shod wheels are an improvement upon those of wood alone. Such knowledge has now permeated all through Russia. Life in the army, too, created new desires, such as that for sugar with which the soldiers were supplied, and which they found to taste good. In rejuvenated Russia the people may want to work hard in order to get new things.