# Popular Science Monthly/Volume 29/October 1886/The Distribution of Wealth

Layout 4
THE
POPULAR SCIENCE
MONTHLY.
OCTOBER, 1886.
* THE DISTRIBUTION OF WEALTH.
By CHARLES S. ASHLEY.
ON a railroad-train one afternoon my conversation with a fellow-traveler, a successful merchant, turned on the vast fortunes which have been accumulated and transmitted during the present generation. "Where is this thing going to end?" said he. "Cornelius Vanderbilt left his son William about $50,000,000; eight years later William dies, and leaves $300,000,000. In the lifetime of his sons this ought to increase to $600,000,000; and in the lifetime of their sons who can tell how much the Vanderbilt fortune will amount to? Legislation ought to put a stop to this business." He spoke very earnestly, his face assuming a tense, stern expression, as if he were confronting some personal enemy. Other persons in the car overheard and testified their interest in the subject by joining us, some of whom showed equal or greater vehemence in what was called the cause of labor; and the general sympathy seemed to be with the remarks I have quoted.
These persons, if I mistake not, may be said to represent a very general sentiment existing in this country—a sentiment almost completely pervading the laboring masses and certain other special classes, such as the clergy and the women, and prevailing less extensively among our professional and merchant classes and our scholars. Newspapers advocating progressively severe income-taxes, the compulsory division of property at the death of the owner in ways insuring diffusion, the assumption of state control of telegraph lines, and the regulation of other corporations in such a manner as to insure a ​minimum of profits, are too common to admit of mention. In high-class periodicals, too, like "The Century," we find plentiful manifestations of the same spirit. Sometimes, as in the article "Danger ahead," published in a late number of that magazine, the fear of violent revolution shows itself in the feverish manner of the argument, and may fairly be counted as the chief source of the opinions expressed; but, again, as in the recent papers of Washington Gladden, we find a calm discussion of socialism and conclusions favorable to it arrived at with no obvious bias. And in the pages of the most orthodox political economists we observe a kindred tendency. In Mill's "Political Economy" there is no exhaustive examination of the unequal distribution of wealth; but the tone of the whole work is, I think, expressive of regret that inequalities should be so great as they are. While considering inheritance he commends laws enforcing the division of accumulated wealth at death. Elsewhere he denies that the proportioning of remuneration to work done is really just, except so far as the amount of work is a matter of choice; it is only "highly expedient." This shows his feeling toward the existing system, and nearly all political economists exhibit a like feeling. And even in Mr. Fiske's "American Political Ideas," despite the magnificent paean on our "manifest destiny," which is in effect a eulogy of our comparatively free economic system, we read with sympathetic regret of the progress of a typical Massachusetts village from a state of comparatively equal prosperity and intelligence to that of a manufacturing town, where the distance between the highest and lowest becomes in nearly all ways so great. Our affections incline toward this primitive homogeneity; our ideas have been largely molded by it and by the great struggle against slavery, with which we naturally, though erroneously, associate definite class divisions, to which we are obviously tending. Our feeling for the past, or rather our adaptation to it, joins with apprehension of the future to make us fear any further departure from homogeneity, and we are impelled along rather by the action of blind economic forces than by any one's wish. A perception of our economic tendencies voices itself roughly in the very inaccurate saying that "the rich are getting richer and the poor poorer," which is the burden of the works of Henry George and most of the socialistic writers; and the united action of society is invoked to remedy the unfair operation of economic laws.
Such being the ideas more or less vaguely prevalent, it may be interesting to examine—1. What has made possible the acquirement of the great fortunes of the present generation? 2. Will the favoring circumstances continue? 3. How should we regard the holding of millions by a single man and its inheritance by his family—perchance by a single son who could never have gained such wealth for himself? ​Notwithstanding the interesting nature of these questions, they are seldom discussed, and Mr. Sidgwick is almost alone in a systematic examination of the third topic. Keeping in mind that no age has seen such vast accumulations of private wealth as the present, we take up the questions in order:
I. At first sight it is not clear why some few men apparently not much distinguished from the rest should gain such disproportionate rewards in wealth and power. Nearly all our great millionaires began as poor men, and in a few years they are possessed of incomes up among the millions. Many find this plainly unjust, and a condemnation of our entire economic system. Even though the laborer has also gained both in money-wages and in their purchasing power, as well as in decreased hours of labor, this is not sufficient; his share in the increase is unfair. The capitalist gets an increasing share of the produce, and grinds the faces of the poor.
It might dampen the ardor of these reformers to reflect on the well-known fact that the average remuneration of capital in this country is not more than five per cent, as we may see in the fact that money can be borrowed on unquestioned security for much less. Here, however, we have to account for the extraordinary cases. There is nothing particularly difficult about it. As in armies we find man set over man and grade over grade, despite apparent equality, so in an age of commercial militancy, of universal competition and rapid transition, we find that a similar inequality is created.
For though industrialism is in many ways to be sharply contrasted to militancy, they agree in this—that in each there is a struggle for existence. And when by improvement in the means of competition this struggle becomes more constant and severe, and division of labor arises through the necessity of each to rely on his special power, there arises the same need of management and direction, and the same high reward is necessarily paid for it. Thus, the democratic civilization of our early history, whose ideal was that every citizen should own at least "forty acres and a mule," has given way to the modern militant industrial system. The application of steam to transportation led to universal competition, in which the strong waxed stronger and the weak became still weaker, at least relatively, or else sought pastures new. Man was set against man, town against town, and State against State; for States are competitors for the hire and business of the great world as men are competitors for the service of employers or in commerce for the service of their communities. The men and towns and ​countries best prepared for the new conditions have taken the lead and reaped the reward. The nations best qualified by habits of labor and enterprise for this vast competition were England and the United States. Among cities New York and Chicago have outstripped Norfolk and New Orleans. Among individuals certain industrial princes have been evolved, and these are our millionaires. On the face of the matter it is not apparent why Turkey or Spain has not as much claim on the increased wealth of the world, so large a proportion of which has been gained by the United States, as an ordinary citizen has on the profits which Mr. Gould derives from his telegraph system. If there were forty or fifty such countries situated near each other and capable of combining, very likely they would resolve that we had more than we ought to have, and compel us to disgorge our ill-gotten gains.
It is now apparent that the position to be here taken is that in the normal and usual case wealth is gained by doing a corresponding share of the world's work; and it may further be said that the amount of individual gain is no adequate measure of the public gain. A vague idea prevails that the great millionaires have gained their wealth through some mysterious and illegitimate trickery. As very few are aware of the beneficial operation of speculation, which is really an insurance to the producer against undue fluctuation in the price of the product, operations in Wall Street lend some support to this idea. Then, too, the ordinary formula for profits given in books on political economy (profit = wages of superintendence + interest + recompense for risk) hardly aids us in understanding American fortune-getting as a normal process. This formula really means that profits have a tendency to fall or rise to the level stated. With actual profit, particularly when realized in a new commercial age, it has very little to do. The fact is that profit is based on the value of the service done the public, in the public estimation. For particular cases a more accurate formula is, profit equals the total money value of the service rendered, less expenses and the public profit therein. In small business enterprises the flow of capital into very profitable investments is very rapid, at least in all except new communities. But it has not been so with large enterprises. The immobility and mismanagement of capital have been so great that a high premium has been put upon unusual foresight and sagacity during the advent of the age of railways. The history of the Western Union Telegraph Company, and of the fortune of the first Cornelius Vanderbilt, furnish excellent illustrations: we choose the latter.
​When "Commodore" Vanderbilt began the railroad business in 1863, the railroads of the country had not emerged from the character in which they were originally conceived—they were improved turnpikes chiefly for local business. Rivalry with the canal for the transportation of heavy articles was hardly thought of. The shipment of freight for any great distance was a matter of no small expense, delay, and risk. In short, the present railroad system of the country, by which Dakota exchanges her wheat, produced at an expense of about thirty cents a bushel (instead of about sixty-five in New York), for Eastern manufactures, produced under equally advantageous circumstances, was yet embryonic. In the transformation of local lines into highly organized and efficient systems, which give the public much better service at much lest cost, two men were especially conspicuous—Cornelius Vanderbilt and Thomas A. Scott. More discerning than the rest, these men saw the need and the possibility of improvement, and organized the New York Central and Pennsylvania systems. The ultimate result is well known. Rates from Chicago to New York in 1868 were from five to ten time as high as at present, and the service given was in every way inferior to that now furnished. But this in itself is a comparatively trifling matter. Without the cheap transportation thus furnished, the world would be without the major part of the rich product now annually pouring from Texas, Kansas, Dakota, and the rest of our inland territory. The earnings of every man in the United States and England have thus been increased. Even the Eastern farmer has been benefited, paradoxical as it may seem; for Mr. Atkinson has shown that the value of the product of Massachusetts farms has been greatly increased by the fact that the farmer no longer has to raise his own cereals, but can devote his entire farm to perishable fruits, etc., which bring high prices. Large as were the gains to the great corporations thus organized, and to Mr. Vanderbilt and his compeers, they were almost infinitesimal when compared with the gains of the public.
This is the outline of the history of the Vanderbilt fortune. The substance of it is, that his organizing and constructive ability enabled him to offer a great boon to the public, and he succeeded in securing a share of the result of his labor—a much smaller proportionate share than the laborer ordinarily receives. His reward was based on the value of his service and not on his expenses. Similarly with other branches of business. The manufacturer and merchant most prompt in meeting the new economic conditions outstripped competitors, and the public were benefited, notwithstanding the discomfiture of the less efficient.
Differences in practical ability to appreciate the new world should prepare us for corresponding differences in the theoretical ​understanding of it. And, indeed, the political economists, reckoning in all who write on economic topics, are so far apart that the authority of their science has greatly declined in the past twenty years, owing to the general doubt as to what the science really stands for. In the early part of this century our politicians were probably our best economists. Now the difference between the leading politicians who make our laws and the men who write is appalling or grotesque, as we may choose to look at it. Looking over the whole ground, a physicist would say that the inventions of the present century were forces falling on units already unlike, and they necessarily led to increased divergence in wealth and intelligence. Dissimilarity once initiated bred dissimilarity. Those successful under the new régime were able to combine their capital and undertake large and profitable enterprises. Here, again, appeared differences. Probably a majority of those who so invested have either lost money or have at least failed to make much, as we may be sure from the fact that the average return on capital actually invested in railroads in this country is less than four per cent; and, of course, the return to the original undertakers was even less. Others, however, like Mr. Vanderbilt, reaped a rich reward; and thus came increased divergence.
Enough has been said, I think, to make it clear—and indeed it is obvious at first thought—that the golden opportunities seized by our business chiefs have been offered principally because the past age has been one of enormously rapid transition. Very few men were adapted to the new circumstances, and those few necessarily reaped a large profit. Such violent and disorderly transitions are very uncomfortable; and it is to this fact, if the foregoing views are correct, that we must ascribe the manifestations of irritation even among those obviously benefited—manifestations which are to be found in our literature, our universal hurry, and our entire conduct of life.
II. The second question—Will the circumstances favoring the sudden aggregation of wealth continue—? is thus in large measure answered by the first. It now takes the form, How long will the period of active transition continue? This question naturally divides itself into two others, which may be separately discussed:
1. What is the prospect of new inventions which will have a power of disturbance similar to that already shown by steam and electricity? This is, of course, very hard to say, but we are not altogether without light. No great alteration in methods of business is possible except through improvement in the means of transportation, and through the removal of artificial obstructions to transportation, such as tariffs and other interferences of the government with the ​natural course of trade. When the circulatory system of the body politic is complete, the evolution of the body is complete. And, if the discovery of some Keely motor or of some practicable method of navigating the air is made, we shall probably enter on another period of transition as violent as the last. But there is very little expectation of anything of the kind. Unless a "negative gravity," like that in Mr. Stockton's clever story, is discovered, it is not easy to see how even the navigation of the air would effect much change in our system of transportation, for air-ships could hardly carry coal or heavy merchandise. The probability seems to be, therefore, that we have approximated our limit. Subsequent improvements will be matters of detail, such as the extension of existing lines or the perfecting of economical railroad operation. A system under which a piano can be shipped a thousand miles for less than the price charged by the drayman who takes it to the final destination, is hardly susceptible of revolutionary improvements. Producers at any one locality are already practical competitors with the rest in their line of business. No system of transportation, however perfect, can accomplish very much more.
2. When will the violence of the transition brought about by steam and electricity subside? When will the industrial population become adapted to the new environment? When will society cease to pay such high premiums on organizing ability? Clearly when the necessary organization is approximately complete. So long as wealth can be more advantageously employed in unaccustomed amounts or in unaccustomed ways, this premium will be paid and the present phenomena will continue, for owing to the inertia which possesses capital as well as everything else, the demand for it in the particular directions will be greater than the supply, and a rise of price will be the result. Now, it may be said with some confidence that the crisis is already past. In England the year 1845 may be taken as the highest point of the disturbance in departing from the old homogeneous system to the modern division-of-labor system; and in America, probably the year 1869, which witnessed the completion of the Union Pacific Railroad, is a corresponding period. The severity of the financial crises which overtook both countries near the years mentioned seems to indicate the substantial accuracy of this estimate. If this conjecture is valid, we are justified in saying that men are now running a more even race for business success. Differences between individuals in the common business qualities are, of course, quite great; but no one person and no hundred persons so far surpass all others as to cause such results as those seen in the past twenty years.
If, then, we may take the view that the great modern inventions have spent the greater part of their disturbing force, we may conclude that we are passing from a period where "multiplication of effects," or divergence, has been the rule, to one of segregation and ​equilibration; or, to express it in more common terms, from a time of disorderly and confused industrial action to one of harmonious orderly organization. The introduction of the new elements into the commercial world changed, as it were, the polarities of our industries. They are still adjusting themselves to the new basis, but the adjustment has now a much more regular and orderly manner than at first. Evidence of the steady progress toward harmonious organization is to be found in the decreasing violence of railroad traffic wars; in the greater caution of the speculating and investing publics; in the development of pools to regulate traffic and production in all industries; and in the slow but steady advance toward satisfactory relations between labor and capital. All these are parts of a process which we may best call economic segregation, and, rightly conceived, they may give us at least a general idea of the course of our economic evolution.
To attempt particular description of the operation of a given force is hazardous, even in comparatively simple sciences. Much more so is it in sociology. Still, we are forced to look forward as well as backward, and must form some idea of the future operation of what we see working about us every day. In this place, several agencies tending to the diffusion of wealth, or rather its segregation into the hands of comparatively large bodies of men capable of handling it, may be noted. First, and most important, perhaps, come corporations. No one, so far as I am aware, has yet treated of them with any approach to adequacy. Objects of general dislike, they exist rather by their own inherent efficiency than because they are held in any proper estimation. We have, indeed, but to look around us and notice the gigantic increase in their number and power, and in the number interested in or employed by them to see their vast import. A dispassionate view of the subject will, in my opinion, convince a competent person that the general economic function of a corporation is to perform steadily, cheaply, and permanently, a service which an individual can only perform briefly, and with comparative inefficiency. Where corporations can not do this, they are unable to exist; and, in consequence of their permanence, they are able to give lasting employment, and, therefore, more than any other mode of industrial organization, they are apt to give the right man the right place; as we may see in the history of most of our prominent railroad men. . And when this process of segregation is complete, corporations will undoubtedly be made up of those who actually perform their service. The immense saving ​and the superior efficiency to be thus gained are apparent; and in the struggle of corporation against corporation, it is evident that this form of organization will be evolved as soon as the honesty and intelligence of the laboring classes will admit of it. Next, we may specify organizations very like the foregoing in principle, but which are commonly regarded with as much favor as corporations with the reverse. We refer to co-operative associations. In communities where there is little change from year to year, these may assume considerable importance. Then come labor organizations. When trades-unions were first prominently introduced, the general feeling was one of fright; and in this country there is still some uneasiness as to the working of our great labor organizations. Here they can only be noticed as a part of that segregation everywhere going on. General considerations thus lead us to a belief in their beneficent results, in spite of the many mistakes which they have committed, and will continue to commit. Next, we may recall that all unequal distribution tends to die out, unless, as has been so conspicuously the case in the last twenty years, the aggregation of property in single hands gives a great advantage in its management. Inheritance is a perpetual force for equal distribution. It may, indeed, be counteracted by stronger forces, either political, as in the feudal system, or commercial. But the management of combinations of property is now so usual and easy, as we may see in the case of the Vanderbilt property, that the divisive principle has full sway. Lastly, it needs no prophet to predict that the passion for immense wealth characterizing "great, intelligent, avaricious, sensual America," will decline. In its extreme form it is a passing characteristic of a transitional age; it is like the feverish and senseless desires of youth. Like the passion for power, which "the generality of mankind love so much more than liberty," it must decline when no longer necessary; and it will never again, probably, be so necessary as in the present generation. In so far as passion for power, or show, or wealth entails discomforts, it is bound to die out, unless there are compensating advantages; for they hamper their devotees in the race for survival.
How far we have reached in this great process is a much-mooted question. Numerous instructive facts are, however, before our very eyes. The fabulous amounts spent by the laboring classes for amusements, liquor, tobacco, and various things regarded as luxuries; the amount of money the labor organizations are able to handle; the vast increase in national wealth out of all proportion to the increase in population—competing for the hire of labor; the great increase in savings-bank deposits and depositors; the proved increase in money wages, and in the purchasing power of wages; the decrease, still going on under our very eyes, of the hours of labor; the reduced fluctuations in prices; the increased average length of life, recognized by insurance companies; the increased consumption of necessaries per ​capita—all these seem to point to the fact that great progress has already been made.
The general view here taken of our recent economic evolution may be stated in mechanical terms. Mr. Spencer's words are somewhat abstract and difficult to fully comprehend, as a great many eminent persons have found out; but they must here be quoted for the perfection with which they cover the case:
"In the second order "(of equilibrations)," comprehending the various kinds of vibration or oscillation as usually witnessed, the motion is used up in generating a tension which, having become equal to it, or momentarily equilibrated with it, thereupon produces a motion in the opposite direction, that is subsequently equilibrated in like manner, thus causing a visible rhythm, that is, however, soon lost in invisible rhythms."
III. Having endeavored to view the phenomena of wealth-distribution from an evolutionary standpoint, let us now eliminate the element of time, and see if we may thus obtain additional light by altering our point of view. The question is, What is the most advantageous distribution of wealth at a given moment? In seeking a reply, the following considerations inevitably come before the mind:
1. "A more equal distribution of wealth tends prima facie to increase happiness"; since the amount of happiness given by wealth obviously increases, not directly as the wealth, but in a constantly decreasing ratio. But—
2. We have to allow for a decrease in the amount of wealth produced. This would result, first, from the increased idleness of large numbers engaged in productive employments. Probably there are persons that would deny that any such decrease would take place. A little observation of the advantage taken by the Indians of governmental interference with distribution in their favor would probably bring such persons a little nearer to the earth; especially if it were followed up by some study of the numerous ways in which most working-men get rid of their hard-won earnings. Another loss similar to the above would be through decreased saving. Increased idleness and increased non-productive expenditure, as for drink, amusements, etc., would lessen the total national capital. Still another loss would come through the lessened efficiency of capital in the management of enterprise—very much like the lessened efficiency of an army if each soldier were required to develop his views on the next movement of the campaign; for it must be assumed that interference with the ratios of distribution would tend to give the workmen power over the management of the capital. Here, again, there will very likely be ​some denial, and a great many expressions of doubt; but it seems sufficient to say that, if the more democratic form of industry were at present practicable, it would not have failed so often as it has in picked cases. Lastly, not only would there be less wealth to distribute, but the number among whom it would be divided would, from known biological laws, be increased in a startling ratio; only afterward to diminish with the same excessive speed when the penalty for waste fell upon the world.*
It thus becomes plain that it is difficult, not to say impossible, to tell where a more equal distribution of wealth will be for the public advantage; and particularly how equal the distribution should be. It is a matter far too delicate for the wisest assembly that ever sat. Even if this were not the case, there should still be no interference with the natural ratios of distribution, and for this reason, which lies at the heart of all our remarks: that the want of economic virtues in the mass is the exact measure of the advantage of the few. The few can not surpass the many except as their superiority permits, and any limitation of the free action of the superior is therefore certain to result in public economic damage; and hence the best adaptation of the ratios of distribution is natural, and not artificial or legislative. The result of our special examination is a confirmation of our general examination.
We have still to deal with the question of inheritance. The acquisition of large properties in this way is in conflict with the first principle of a free industrial system, which in general requires each person to earn what he gets, excepting children and the infirm or aged. Here too, however, there are opposing considerations. In the first place, there is no way to prevent the transmission of property—if wills were made legally null, their office could be practically occupied in various ways. Even overlooking this obstacle, we are confronted with the damage resulting from the embargo on the natural activities and affections of men. The economic damage thus resulting would be inestimable. Again, the management of property acquires, by means of inheritance and bequest, a stability very necessary for the best results. And here, too, as in the former case, it is impossible to be sure that the spontaneous desires of men do not in the long run lead to the public advantage. Probably the sentiments governing this matter are as much the offspring of social discipline as the sentiments called moral. We find that customs of inheritance change from age to age and conform to the temper of the time. In an age like the present the first
A certain increase of population has, as Mr. George says, the effect of increasing every man's share of the total production, through the increased division of labor allowed; but, obviously, that increase can outrun the capacity for profiting by it. If the entire population of China were landed in the United States at once, a great many—several hundred millions, probably—would starve before our industrial system could adapt itself to the vast increase of population. ​object generally in the mind of a rich man, aside from the care of his family, is the welfare of the property bequeathed. In this respect the will of the late Mr. Vanderbilt was conspicuous. The measures taken to secure the united management of the great fortune left by him may be highly commended simply as a piece of public policy. It is not too much to say that, if, in consequence of a contrary policy, the New York Central or Vanderbilt system of roads had gone to pieces, the whole northern part of the United States would have suffered substantial injury.
A sentiment regarding the disposition of property at death, noticed by J. S. Mill as existing in America, still retains its hold; we mean the sentiment favoring the settlement of great sums on charities, churches, and especially on educational institutions. A California millionaire has recently set aside an immense fortune, said to amount to $20,000,000, for a university in that State. From an economic point of view there is absolutely no defense of such an action. It simply means the perpetual expenditure—the economic waste—of the whole annual yield of the property donated. Of course, the defense can be made that as property is for life, and not life for property, we should not regard wealth spent on things so necessary as education as misapplied. And if it be taken for granted that future ages will not know enough, or will not have the means to pay for the education needful for them, this is a good defense. But if, as we must here maintain, it be thought that the wants of a time are best met by the spontaneous agency of the time—as we see in the superiority of our popularly-sustained churches over state-supported establishments—then, from a social as well as from an economic standpoint, we must decide against the advisability of such great gifts. The possibility that our mania for education may lead to as much loss and inconvenience as the former mania which resulted in state religious establishments seems to be forgotten. Leaving all this aside, however, it should still be borne in mind that such a withdrawal of capital as that instanced is a distinct injury to trade and to the working classes; and further that any perpetuity is almost certain to become unresponsive to the needs of a new age, and is likely to become as useless as are, according to Professor Huxley, the great endowments which maintain fellowships at the English universities. Wherever the line between benevolent and reproductive expenditure should be drawn, it seems highly probable that the public sentiment in favor of public legacies is unduly strong, at least among those whose views find their way into print; and that the private sentiment which we see in daily operation is really much more beneficial to the country.
If the views taken in this article have any basis in truth, the opinions commonly held are to a large extent wrong in nearly every way connected with the present subject. Public opinion is, indeed, a vague and indefinite quantity. But we may fairly say that it opposes the ​accumulation of large quantities of wealth in single hands; while such accumulation has not only been indispensable, as it still is, in developing our country, and an indispensable reward of enterprise, but, even leaving this out of account, is for the greatest good of the greatest number because it best preserves capital and employs labor most productively. We may say that public opinion favors interference with the natural ratios of distribution, as may be seen by usury laws, exemption laws, laws abridging freedom of contract, river and harbor bills, laws imposing heavy taxes on corporations, and so forth; while in general the natural ratios are the best for the public interest. Only the most immediate considerations are generally weighed; and unjust laws, like the Potter railroad law of Wisconsin, have to result in manifest public damage before they are repealed. It can hardly be doubted that before the late war, when the Jeffersonian maxims in regard to legislation still held sway, our political development was higher than it has been since; and the same may be said of our general ideas on public policy. But unceasing education in business methods of thinking are plainly forcing public opinion in the right direction, as was proved by the tone of the public press regarding the recent strike on the Missouri Pacific, and by the strong attacks lately made on the Blair education bill. Meanwhile there will be much of what might be called unnecessary blundering and suffering; but in reality this will be necessary to develop the needed habits and ideas.