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Modern Economic Problems by Frank Albert Fetter

Part 7 out of 9

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in America. Sec. 8. Standards for a compensation law. Sec. 9. Historical
roots of sick-insurance. Sec. 10. Need of sick-insurance in America.
Sec. 11. Old-age and invalidity pensions. Sec. 12. Unemployment insurance.
Sec. 13. Need of ideals in social insurance. Sec. 14. Insurance rather than
penalty. Sec. 15. The compulsory principle. Sec. 16. State insurance and
a unified system. Sec. 17. The contributory principle.

Sec. 1. #Purpose and meaning of social insurance.# In importance
surpassing at present any one of the various measures on behalf of
the wage-earning class that have thus far been considered is the
remarkable development now under way of plans and agencies to provide
insurance for "the common man." Insurance means making some kind
of provision out of present means, so as to reduce the injury and
suffering that would result from a future mishap. Usually, likewise,
it implies uniting with others to distribute the expense fairly over
all in the group. Social insurance is the term most frequently applied
to the various institutions and plans provided, more or less under
the regulation of law, for the protection of the lower-paid workers in
most modern countries. The terms industrial insurance and workingmen's
insurance are likewise used. The principal types of events for which
social insurance in its various branches provides, are (1) accident,
(2) sickness, (3) incapacitation (either by old age or by invalidity,
that is, permanent failure of health within the normal working years),
(4) death (generally called "life" or "survivor" insurance), and (5)

The direct aim of social insurance is not to prevent these mishaps
(tho that may be an indirect result), but it is to provide some
financial indemnity for the economic loss and expense involved in the
mishap. The principal kinds of losses are two. First, that occasioned
directly in caring for the sick or injured person, the expense of
medical attention, nursing, hospital care, drugs and special apparatus
such as crutches and glasses, and burial expenses. The second is the
loss of income because of inability to work as a result of injury,
of illness, or of permanent disability, or (in the case of life
insurance) of the death of the bread-winner, or of want of employment.

Sec. 2. #Increasing need of social insurance.# In various connections we
have observed how the changes that have been occurring in modern times
have increased the uncertainties of the industrial life and of the
earning power of the mass of the workers.[1] It should be further
observed that in city conditions, a working family does not have, as
in agricultural conditions, the supplementary sources of income from
garden, field, forest, and stream, and it is not so possible to use
the earning power of children, of old people, and of the partially
disabled. The faster working pace of factories, the rapid fluctuations
of employment with changing fashions, inventions, shifts of
population, and waves of industrial prosperity and depression, all
have introduced new risks and problems into the worker's life. The
increasing payment of wages in money, and the more temporary nature
of employment of men in many kinds of factory work, have added to
the problem. With these changes have come a growing interest in
the welfare of the mass of the workers and a growing sense of
responsibility on the part of the public.

There is an appalling mass of misfortune in the United States
requiring social insurance for its relief, altho satisfactory
statistics of the various types of misfortune are still lacking. On
the basis of the experience of private industrial insurance companies
it appears that there are not less than 25.000 fatal industrial
accidents yearly, and 700,000 injuries causing disability for more
than four weeks, to say nothing of the enormous number of slight
injuries--if injuries, many of them very painful, disabling for a
period from one day to four weeks, should be called slight. As to loss
of time due to illness, the experience of Germany shows an average of
eight or nine days a year per worker, which figure, applied to those
gainfully employed in America, would mean nearly 300,000,000 days of
illness, or 1,000,000 one-man working years, causing a loss estimated
to be $750,000,000 annually.

It is estimated that one on eighteen of American wage-workers attains
the age of sixty-five with no financial provision for old age, and
that about 1,250,000 persons above the age of sixty-five are dependent
on their families or on charity, public or private, receiving
$250,000,000 yearly.

The losses and suffering to dependents due to the death of the
bread-winner are very partially accounted for by accidents, but no
estimate of much value can now be made of the other cases. Some notion
of the losses from unemployment has been given in discussing that
subject in the preceding chapter.

Sec. 3. #The new era of social insurance.# Some not insignificant
attempts to deal with these problems were made throughout the
nineteenth century, but the new era of social insurance may be said to
date from the message of the Emperor William to the German Reichstag
in 1881, in which he said:

We consider it our imperial duty to impress upon the Reichstag the
necessity of furthering the welfare of the working people.... In order
to realize these views, a bill for the insurance of workmen against
industrial accidents will first of all be laid before you; after which a
supplementary measure will be submitted, providing for a general
organization of industrial sick-relief insurance. Likewise, those who are
disabled in consequence _of_ old age, or invalidity, possess a
well-founded claim to more relief on the part of the state than they have
hitherto enjoyed.

The program here outlined was carried out by the enactment between
1883 and 1889 of a series of laws, which taken together constituted
a pretty effective system of social insurance for the mass of
wage-workers in the German Empire. Later amendments have extended
and improved the various features of the plan, which has served as a
stimulative example to other countries. America has been the tardiest
among all the industrial nations to undertake this kind of social

Sec. 4. #Features of social insurance.# The plans of social insurance,
in force in various countries, present a great variety of features
combined in many ways. The main characteristics in which they may
differ relate to (1) the element of compulsion, (2) contributions by
the insured, (3) the nature of the insurance organization.

Insurance may be _voluntary_ or _compulsory_. It is voluntary when
the state simply encourages the formation of insurance agencies, and
perhaps contributes something to them, leaving it to the individuals
to insure themselves as they choose, in mutual societies, or in
privately managed companies. In the case of accident insurance,
however, there is often a semi-compulsion by which the employer is
requires to pay indemnity to his workers, according to fixed scales of
compensation, but is left free to insure himself against this risk
or not as he pleases, in which case it is still called voluntary
insurance. Compulsory insurance is that which the state requires to
be provided be means of some mutual organization of the insured, or of
the employers, or by the state.

Insurance may be _contributory_ or _noncontributory_. It is on the
contributory plan when the insured workers contribute something
toward the premiums that provide the funds for eventual payment. It is
noncontributory when the funds are provided either by the employers or
by the state without any payments from the insured.

Insurance may be (a) in _private_ companies, carrying on the business
for profit; or (b) in _mutual_ companies of workingmen, or of
employers insuring themselves against the cost of compensation in case
of accident to their employees; or (c) in a _state_ bureau, or fund,
organized and conducted by government.

Sec. 5. #Historical roots of accident insurance#. The different kinds
of social insurance had different origins, some knowledge of which is
necessary to an understanding of the present situation. These origins
still affect the nature of social insurance to-day, and have prevented
the development of a truly unified and logical system in accord with
present conceptions of needs and of justice.

Accident insurance had its beginnings in the liability of employers
for accidents that happened as a result of the employer's negligence,
a principle found to some degree in all countries. Thus the earlier
payments to workers in cases of accidents were not insurance indemnity
but merely damages collected in court for the fault of the employer.
In Great Britain and the United States, indeed, by judicial
interpretation the law grew more strict as against the claims of the
workers, until about 1880 in Great Britain and 1910 in the United
States. To collect damages it was not enough for the workman to prove
the employer's negligence, for collection was made more difficult by
(1) the doctrine of contributory negligence, (2) the doctrine of the
assumption of risk, and (3) the fellow-servant doctrine.

By the doctrine of contributory negligence, the workman's claim could
be defeated by showing that he had by his carelessness contributed
to the accident even when the employer had been negligent. By the
doctrine of assumption of risk the workman was presumed, in entering
upon employment, to have taken upon himself the risks usually incident
to the employment, including the chance of imperfections in the
machinery, of which he might by some care have known. By the
fellow-servant doctrine the employer was freed from responsibility for
accidents due to the negligence of other employees, "fellow servants,"
even when it was impossible for him to know their character and
reputation as in the case of a large factory or of a great railroad.

Sec. 6. #Development of compensation for accidents#. In some countries of
continental Europe, notably Germany and France, the law of employers'
liability was altered in favor of the worker early in the nineteenth
century, so as to make compensation more usual and adequate. Since
1885, especially, this liability has been much further extended in
many countries and in various directions, and yet the laws of accident
compensation still retain many features of the old liability laws and
remain in their legal character somewhat apart from the other branches
of social insurance. Even in the newer type of "compensation" laws the
indemnity paid by employers on account of accident is looked upon as
commuted damages, but the old employers' defenses, just named, are
abolished or made more difficult to plead. The new plan has the
advantages of granting compensation by a schedule fixed in the law,
insuring greater certainty, more adequate payments, greater ease of
securing redress, and abolishing the cost of law suits. Still, in most
countries and in most states in America, the worker has the option
of suing under the old law. In some forty countries the principle of
compensation by a prearranged schedule of rates has to some degree
replaced that of litigation, and determination by a jury of the
damages, in each separate case. The insurance spoken of in relation to
accidents is technically that which the employers may or must take to
protect themselves against loss, not that which the workman has.

The situation as to compensation in a few leading countries is as
follows, the dates given being those of important legislation.


_Voluntary_ (as to employers insuring, but compulsory compensation).

Great Britain, 1897, 1906, 1907.

France, 1898, 1907, (compulsory for seamen, 1898, 1905).

Denmark, 1898, 1908.

Belgium, 1903, (voluntary except for miners).

_Compulsory insurance of their risks, by employers_.

Belgium, for miners, 1868.

Germany, 1884, (in employers' associations), 1887, 1900,
1911 (voluntary for some classes).

Austria, 1887 (as in Germany), 1894 (voluntary for some

Norway, 1894 (in a state central insurance office), 1896.

Italy, 1898, 1904.

Holland, 1901 (in the Royal Bank or in private companies).

Sweden, 1901 (as in Norway).

Sec. 7. #The compensation plan in America#. Under the practical operation
of the law of employers' liability in force in any American state
until 1911, a very small proportion of the workers injured while
at work were legally entitled to any indemnity, and a still smaller
proportion could succeed in recovering any substantial amount.
Employers, and the accident companies with which employers insured,
either compromised the claims for small amounts or fought bitterly
in the courts the claims of those who refused to compromise. When the
courts awarded damages, large or small, a large part of the proceeds
went for legal expenses. But a small proportion of the total costs to
employers came as benefits to the victims of accidents. It appeared
in an extensive investigation of the business of the large industrial
insurance companies that but 28 per cent of the premiums paid by
employers were paid to workmen as indemnity.

Between 1911 and 1916 the laws have been changed to some extent in
their application to selected occupations in at least 34 states and
territories of the United States, and covering nearly all but some of
the distinctly agricultural states. This remarkable development has
been largely actuated and guided by a comparatively small group
of socially minded nonworking class citizens rather than by either
employees or organized workers. It is an encouraging example of
what can be done by skilful methods, when conditions are ripe, in
furthering righteous social legislation without the use of money or of
corrupting influences.

Sec. 8. #Standards for a compensation law#. The standards which, in
detail, in one jurisdiction or another, have already been attained,
and which are the provisional ideals now sought by reformers, may
be briefly stated as follows.[2] All employments should be included,
altho, as yet, there are various exceptions, such as farm labor
and domestic service, employers with but few employees (the
number excepted being one to five), and nonhazardous employments.
Compensation should be granted for all injuries, suffered in the
course of employment, that cause disability beyond a definite waiting
period of three to seven days. Compensation should include medical
attendance for a limited period, and two-thirds of the estimated
loss of wages for disability, either total or partial, during its
continuance; and, in case of death, funeral expenses, and from one to
two-thirds of the estimated wages, to the widow (or dependent widower)
and children, or to other dependent relatives. To secure the full
benefit of the plan it must be made the exclusive remedy, replacing
entirely the old remedy of suits for negligence. The employer should
be required to insure his risk, and general sentiment is moving
rapidly toward the plan of a state insurance bureau as the exclusive
agency.[3] For the administration of the system an accident and
insurance board should be created in each jurisdiction. Experience
shows the importance of careful attention to numerous other details,
and many amendments will be made as the needs become manifest in

Sec. 9. #Historical roots of sick-insurance.# Sick-insurance had its
origin partly in trade unions and in fraternal societies voluntarily
organized by workers, and partly in the system of public poor
relief. The voluntary societies were first recognized, regulated, and
encouraged by law (in some cases being given state subsidies), and
later, in some cases, being made compulsory for some classes of
members (i.e., such as miners and seamen). On these institutions have
been built the later state systems of social sick-insurance. This
movement had made large headway by the end of the third quarter of the
nineteenth century in various European countries. The two systems that
are the most typical and influential examples are those of the German
Empire and of Great Britain, the former local and the latter national
in organization. The British plan of national health insurance
promises to be on the whole of the greatest influence upon American
opinion and policy. However, the best informed American students
favor in some features the more decentralized German rather than the
centralized British system. While it is impossible to describe the
various systems in detail, the situation in the leading industrial
countries of Europe may be indicated as follows.



France, 1850, 1898 (voluntary except for miners).
Belgium, 1851, 1894.
Italy, 1886.
Sweden, 1891.
Denmark, 1892.
Holland (authorized private societies and poor relief).


Germany, 1883, 1911 (voluntary for others with earnings
of $500).

Austria, 1888 (voluntary for some classes).

France, for miners, 1894.

Norway, 1909.

Great Britain, national system 1911 (was voluntary 1875-1911).

Sec. 10. #Need of sick-insurance in America#. Contrary to the usual
opinion in America, the sick-insurance in Germany is, both in amount
of contributions collected and in importance to the welfare of the
workers and their families, of more importance than is either accident
compensation or the system of invalidity pensions. Yet, thus far, our
interest and efforts in America have been directed almost entirely
toward the reform of accident compensation and almost everything
remains to be done in the matter of social insurance against sickness.
It is true that in recent years there has been a rapid development,
in some of the larger cities, of medical insurance clubs conducted by
private companies, with dues of ten cents weekly. They give medical
care in ordinary cases, but require extra payments for surgical
treatment and for medical supplies. They as yet touch only the
outer fringe of the problem, but they testify to the need and to the
increasing desire of the wage-workers for insurance of this kind. It
is believed that at least 4 per cent of the income of wage-workers
now is expended for the care of sickness and for burial insurance. The
losses of wages meantime remain unequalized by insurance indemnities.
A large proportion of the cases of temporary destitution in ordinarily
self-supporting families is due to sickness. The German experience
shows that 4 per cent of wages, collected in part from employers and
in part from wage-workers, is sufficient to give a far better medical
service than can be had through private effort, to give some indemnity
for loss of wages, and to carry on a very useful hygienic work for the
families and for the public health.

Sec. 11. #Old-age and invalidity pensions#. Insurance to provide pensions
for old-age and permanent (partial or total) disability is in nature
but an extension of the insurance against accident and sickness. In
a relatively small number of cases accidents result in permanent
disability and it is both illogical and inhumane to limit,
arbitrarily, the compensation in such cases to a certain period,
as two or three years, as is done in many compensation laws. The
disability due to advancing years is in nature a chronic illness,
inevitable, sooner or later, to all who survive. The movement to
provide some indemnity in such cases has been rapid in European
countries, doubtless because the problem was a very pressing one where
the average earnings are low. In Germany and Austria this development
has been more in connection with other forms of insurance; in Denmark,
Great Britain, and France it has had more the aspect of an extension
of poor relief. In the United States little has been done to provide
for these great needs. Massachusetts in 1907 authorized savings
banks to sell insurance and old-age pensions to those who applied. An
increasing number of corporations, especially railroads, are adopting
a pension system for men growing old in their service, but nothing has
been done of a general public nature toward compulsory and universal
protection against these misfortunes.

The following table shows the situation in some of the leading



Belgium, 1850, 1903 (voluntary except for miners).

Italy, 1898, 1907 (all wage earners).


Belgium, for miners, 1868.

Germany, 1889, 1899, 1911.

Austria, 1889 (miners only); 1906 (office employees).

Denmark, 1891, 1908 (noncontributory).

France, for seamen 1850, 1881; for miners, 1894, 1905,
1907 (noncontributory, all indigent citizens); 1910 (contributory,
all workmen and employees; was voluntary
by laws 1850, 1886).

Great Britain, 1908 (noncontributory, old age pensions,
granted by the government).

Sweden, 1913 (universal, contributory).

Sec. 12. #Unemployment insurance#. The most difficult of all the problems
of insurance is that of unemployment. There the amount of the risk
in any case is so largely dependent on the personal qualities of the
worker. There are obvious objections to making the competent, steady,
sober members of any trade bear the burden of the infirmities of their
fellows. But, on the other hand, as we have seen,[4] a large part of
the problem of unemployment is chargeable to social maladjustments
rather than to individual faults.

At present development in this field is along two lines, that
of subsidized trade-union relief (the Ghent system), and that of
compulsory state insurance in certain industries. The former has been
adopted by many cities and by some countries in western Europe, the
public paying a certain proportion (from one sixth to one third) of
the amounts of the benefits paid by the unions. Great Britain is
the only country as yet to adopt a compulsory state system. It began
operation in 1912, and applied to 2,500,000 persons, or one sixth of
all the wage-earners. The contributions are made 3/8 by employers, 3/8
by wage-earners, and 2/8 by the state. There are several original and
interesting features of the act, such as rewarding, by the refunding
of dues, those employers that provide regular employment and older
workmen that have received benefits amounting to less than their
contributions. Its administration in close connection with the labor
exchanges will give valuable experience in this field. The working
out of the many minor problems of classification, assessment, and
administration, of unemployment insurance, will require many more
years of experimentation.

Sec. 13. #Need of ideals in social insurance#. The world has had nearly
forty years of experimentation of a remarkably varied kind, in the
field of social insurance, since the German system was inaugurated in
the eighties of the nineteenth century. America stands almost at the
beginning of a development along those lines that is certain to be of
enormous extent and importance. It would be folly for us to repeat
the costly errors of other countries by failing to recognize certain
principles which have been clearly established by experience. If these
could be grasped and firmly kept in mind our progress in this field
in America would be faster, more certain, less costly, and farther
reaching than it promises otherwise to be. We can here attempt no more
than merely to outline these principles that must be embodied in an
ideal system of social insurance in America.

Sec. 14. #Insurance rather than penalty#. The principle of social
insurance rather than that of legal penalty should be universally
recognized. At present, in all countries where the several kinds of
insurance are found side by side, accidents are indemnified on plans
that are still rooted in the notion of employers' liability for
negligence; whereas, necessarily, the indemnity in case of sickness
and of old age has no such explanation. The unfortunate result of
this difference of view is that whereas all cases of sickness and
invalidity entitle to benefits, only those accidents suffered "in
the course of employment" are indemnified, and the worker is left
unprotected in a large share of the accidents to which he is liable.
The worker's need and the social need are thus not adequately met. We
have started along the same line of development in America, and it
is to be feared that only through a long series of legal fictions and
contradictory judicial decisions shall we be able to work out toward
consistency in this matter. Another unfortunate result of this
difference is that accident compensation, being made peculiarly the
task of the employers, does not develop the spirit of responsibility
on the part of the workers and of cooeperation between them
and employers that other forms of insurance call forth, where
representatives of both parties sit together in the administration of
the system.

Sec. 15. #The compulsory principle#. Insurance must be general in its
application to all the persons within broad wage-earning classes,
and in order to be general it must necessarily be compulsory,
not voluntary, in its application. To leave any form of insurance
optional, or elective, with either employers or wage-workers, is to
fail of the main purpose in a large proportion of the individual cases
where it is most needed, and to increase the expense to those that are
included. Within a compulsory system, however, there should be given
wide opportunity for the voluntary principle by admitting to the
system others that are not compelled to insure, and to enable any
insured person to increase his paid-up, nonforfeitable insurance at
any time by extra payments made at times of unusually high wages, from
legacies, or from any other exceptional income.

Sec. 16. #State insurance and a unified system#. The state, through
the public insurance office, must ultimately be the sole agency for
insurance. Only in this way can the maximum of simplicity and economy
be attained. Of course, this calls for a better appreciation of expert
training, and a broader sentiment in favor of the merit system in the
public service than we yet have in America.

There should be a unification of various kinds of insurance in one
general plan and under one general administration for the whole state.
This should be done with full regard to the actuarial differences in
costs as among various kinds of insurance, various trades, various
establishments, and, to some extent, even the various individuals, so
as to ascertain the costs and to distribute them equitably.

Only in this way can provision be made for entire mobility of labor,
so that men may not be bound, as a condition for obtaining benefits,
to continue in the service of any one employer. To this end there
should be interstate comity and cooeperation, so that the insured could
at any time transfer his actuarial equity from one state to another.

Sec. 17. #The contributory principle#. The contributory principle should
be adopted, and both employers and wage-earners contribute to the cost
in equal amounts. But further, the general public interests may
be recognized through the payments in aid of the funds (subsidies,
subventions). Both employers and employees usually seek to escape
the burden, by getting the state to bear the whole expense[5] or by
getting the other party to pay all or the larger part. But it is much
to be desired that in large part the finances of a system of social
insurance should be disassociated from the ordinary budgetary system
of taxation and public expenditures. The fundamental reason why the
premiums should be divided between employers and employees is that
this is most favorable to the equal participation and cooeperative
efforts toward reducing the risk, and developing right industrial
and political relations. Everywhere it is the practice to provide for
representation nearly in proportion to contributions.

It is usually assumed by employers, by wage-workers, and by others in
the discussion of the subject, that the burden remains and is borne by
those who directly pay the premiums, and just in proportion to their
payments. This is an almost utterly mistaken view. There is, on the
contrary, every reason to believe that the general principles of
shifting and incidence of taxation apply fully here.[6] It cannot be
doubted that, if wages are not arbitrarily fixed, if they result, as
we must believe, from an adjustment and equilibrium of the various
classes of labor in a general economic situation, then after a
time the premiums become a part of that general situation. Payments
compulsorily made by employers (by all, without exception) will
ultimately be offset by a lower wage, and if transferred to the
workmen will ultimately be offset by a higher wage. Of course, there
is some delay and friction in making the adjustment, but, under any
settled policy, the adjustment once made will be maintained. The
benefit of social insurance to the workingmen is not mainly that their
wages are increased by the direct contributions of employers to the
premiums, tho there are doubtless some cases of "parasitic" industries
and parasitic employers that escape their due share of payments for
risk, now that there is no insurance system. The great benefits are
that total wages and losses are apportioned economically to the points
of maximum utility; that accumulation of capital by and for the wage
workers is made regular, automatic, safe, and in great amounts; and
that financial aid, physical care, and mental relief from, some of the
most tragic anxieties of life, are given effectively and economically
to the masses of the people.

But, as has been indicated in another connection above, it is far
from being a matter of indifference, psychologically, where the first,
immediate burden of premium payment falls. The persons paying the
premiums, in whole or in part, are far more keenly aware of the cost,
and alive to reducing and removing the evil conditions. Moreover,
their interest is stimulated by the fact that they are the first
to gain by any temporary economies, and the more so because of the
illusory belief sure to persist, that they are the ultimate as well as
the immediate bearers of the costs.

The development of a complete system of social insurance along these
lines promises to do more than any other single measure of practical
social reform now under consideration to change the conditions and the
outlook of the wage-earning class.

[Footnote 1: See above ch. 2, sec. 14; ch. 10, sec. 7; ch. 20, sec. 1;
ch. 22, secs. 11-18.]

[Footnote 2: The American Association for Labor Legislation has issued
a pamphlet describing these features more in detail.]

[Footnote 3: Thirteen states had, in 1916, state insurance funds,
and, in five states (Oregon, Nevada, Washington, West Virginia, and
Wyoming), they are the only insurance agencies allowed.]

[Footnote 4: Ch. 22, secs. 14-18.]

[Footnote 5: See examples in the lists of laws above cited, sec. 11.]

[Footnote 6: See above, ch. 16, sec. 14.]



Sec. 1. Nature of the population problem. Sec. 2. Complexity of race problems.
Sec. 3. Economic aspects of the negro problem. Sec. 4. Favorable economic
aspects of early immigration. Sec. 5. Employers' gains from immigration.
Sec. 6. Pressure of immigration upon native wage-workers. Sec. 7.
Abnormal labor conditions resulting from immigration. Sec. 8. Popular
theory of immigrant competition. Sec. 9. Divergent views of effects on
population. Sec. 10. The displacement theory; its fundamental assumption.
Sec. 11. Magnitude of the inflow of immigrants. Sec. 12. Earlier and recent
effects of immigration upon wages. Sec. 13. _Laissez-faire_ policy of
immigration. Sec. 14. Social-protective policy of immigration. Sec. 15.
Population and militarism. Sec. 16. Problem of maximum military power.

Sec. 1. #Nature of the population problem.# No one of the problems of
labor thus far discussed is of so great importance in relation to
popular welfare as is "the problem of population." By this is meant
the problem of determining and maintaining the best relation between
the population and the area and resources of the land. What is to be
deemed "best" in this case depends, of course, on the various human
sympathies and points of view of those pronouncing judgment. Very
generally, until the nineteenth century, the only view that found
expression was that of a small ruling class which favored all increase
in population as magnifying the political power of the rulers and as
increasing the wealth of the landed aristocracy. This view still is
unconsciously taken by the members of a small but influential class,
and is echoed without independent thought by many other persons.
But more and more, in this and other labor problems, another more
democratic standard of judgment has come to be taken, that of the
abiding welfare of the masses of the people. This is the point of view
that must be taken by the political economist in a free republic.

The problem of population presents two main aspects: one as to
composition, and the other as to numbers of the people. Changes in
either of these respects concern the welfare of the masses. Changes in
the kinds of people, or in their relative numbers, may greatly affect
the welfare of the people, in some cases touching special large
classes, and in others affecting the whole mass of the people.

Sec. 2. #Complexity of race problems.# The questions of race composition
that we shall here consider are those of the negro and of the
immigrant.[1] Both of these questions are complex and go beyond
the limits of mere economic considerations, touching the most vital
political and social interests of the nation. Indeed they involve the
very soul and existence of peoples, for who can doubt that ultimately
racial survival and success are mainly to be determined by physical
and spiritual capacity?

The negro in America is the gravest of our population problems. In
large portions of our land it overshadows every other public question.
Yet the negro is here because men of the seventeenth century ignored
the complexity of the labor problem and thought only of its economic
aspect. The landowners wished cheaper labor and, reckless of other
consequences, they imported slaves from Africa to get it. They gained
for themselves and a few generations of their descendants a measure
of comparative ease, but at a frightful cost to our national life--a
cost of which the Civil War now seems to have been merely a first
installment on account rather than a final payment.

Sec. 3. #Economic aspects of the negro problem.# The negro as a wage
earner is found very little outside of the least skilled branches of
a limited range of occupations. Of these the principal ones, as is a
matter of common knowledge, are farm work, domestic service (including
janitor service in stores and factories and work in hotels), and crude
manual outdoor labor. Repeated attempts to operate factories with
a labor force of negroes have proved unsuccessful. In some of the
better-paying occupations in which large numbers of negroes were found
in the North soon after the Civil War, such as barbering, waiting
on table in the best hotels, and skilled manual work, they have been
largely displaced by European immigrants. Negroes are a disturbing and
unwelcome influence in labor organizations, and even when nominally
eligible to membership are in fact rarely accepted. They very
frequently are employed as strike-breakers and this fosters race
antagonism both immediately and permanently.

The negro problem is, from our present outlook, insoluble. The most
laudable of present efforts, that for industrial training, represented
by Hampton and Tuskegee Institutes, and the work of Booker T.
Washington, leaves the dire fact of two races side by side and
yet unassimilated socially, politically, and, in large measure,
economically. Two other possibilities, race admixture and caste,
are both so repellent to white American thought, that they cannot be
looked upon as solutions. Segregation in a separate state, or separate
states, is a thorogoing proposal, but is practically impossible.
Finally there is the conceivable, but improbable, event of the
decrease and extinction of the negroes in America, Their relative
number has declined since 1800,[2] but their absolute number still
continues to increase. It seems probable that if European immigration
were to be stopped that a very large migration of negroes from the
South to the North and the West would occur to take places hitherto
filled by unskilled immigrant workers. In the year 1915, following the
check to immigration as a result of the European war, a very marked
movement of this kind set in. If this occurred on a much larger scale
it might result in greatly reducing the negro population in some
portions of the South, and as the "natural rate of increase" of the
negroes in the North is a negative quantity, it might cause the total
negro population of the country to begin absolutely decreasing.

Sec. 4. #Favorable economic aspects of earlier immigration.# Regarding
the immigration problem we are not confined to futile expressions of
regret as in the last case. For by the "immigration problem" is
meant primarily and mainly the coming of immigrants, and we can by
legislation limit or stop their coming, if we will. The question at
issue is whether their coming really is an evil or, on the whole, a
blessing to the country.

The historic American attitude toward immigration has been highly
favorable to it. The early settlers on these coasts were led by
various motives, some political, some religious, but far the largest
part economic, the motive of bettering their worldly condition.
Land was plentiful and all men of any capacity could easily become
landowners. An inflow of laborers was favorable to the interests
of all the influential elements of the population, especially to
landowners and active business men. Increase of numbers, favoring
division of labor and the economies of production in manufacturing,
and reducing the dangers from Indians and from foreign enemies, seemed
an unmixed blessing. Many of the newcomers soon became landowners and
employers, and in turn favored a continuance of the movement. Thus was
hastened the peopling of the wilderness. The interest of these classes
harmonized to a certain point with the public interest; but likewise
it was in some respects in conflict with the abiding welfare of the
whole nation. It led to the fateful introduction of slavery from
Africa, and it encouraged much defective immigration from Europe, the
heritage of which survives in many defective and vicious strains of
humanity, some of them notorious, such as the Jukes, the Kallikak
family, and the Tribe of Ishmael.

Sec. 5. #Employers' gains from immigration.#. The immigration from Europe
has furnished an ever-changing group of workers, moderating the
rate of wages which employers otherwise would have had to pay. The
continual influx of cheap labor aided in imparting values to all
industrial opportunities. A large part of these gains have been in
trade, in manufacturers, and in real estate as the cities have taken
and retained an ever-growing share of the immigrants. Successive waves
of immigration, composed of different races, have ever been ready to
fill the ranks of the unskilled workers at wages somewhat lower than
the current American rate.

The lower enterprisers' costs that resulted from immigration surely
did not accrue to the advantage of the employers alone. Bearing in
mind the fact that the employing-enterpriser is a middleman,[3] we
may see that the lower costs must, in most cases, be passed on to
the consumers in the form of lower prices of products. And often the
consumer, as the employer of domestic service at lower rates than
otherwise would be possible, gets this advantage directly. This
increases the number of those whose self-interest, at least when
narrowly judged, leads them to favor the policy of unrestricted
immigration, Tho perhaps less general than it once was, this sentiment
in favor of immigration is still potent. The continuous inflow
of immigrants has in many industries come to be looked upon as an
indispensable part of the labor supply. Conditions of trade, methods
of manufacturing, prices, profits, and the capital value of the
enterprises have become adjusted to the fact. Hence results one of
those illusions cherished by men whenever they identify their own
profits with the public welfare. Without immigration, it is said, "the
supply of labor would not be equal to the demand." It would not at the
wages prevailing. But supply and demand have reference to a certain
price. At a higher wage the amount of labor offered and the amount
demanded would come to an equality. This would temporarily curtail
profits, and other prices would, after readjustment, be in a different
ratio to wages.

Sec. 6. #Pressure of immigration upon native wage-workers.# There
must always have been cases where the labor incomes of workers were
somewhat depressed by the incoming of immigrants. Indeed, that must to
some extent always be so when the natives continue to work alongside
of the immigrant at just the same job. But before the Civil War living
conditions were simple, wages comparatively high and (more important)
pretty steadily rising, and the wage-earning class not yet a large
share of the population. Moreover, this conflict of interest was
minimized and often quite avoided by the native changing to another
occupation. In the old days there was always the outlet of free
land on the frontier, now closed. Always there has been a better
opportunity for natives to move into higher positions of foremanship
or as employers of immigrant labor.

As the wage-earners have become relatively more numerous, many of
them have felt more keenly the pressure of competition from immigrant
labor. Moreover, the immigration since 1890 has been increasingly
from southern and southeastern Europe, from countries with much lower
standards of living, and has been of enormous proportions. Here are
some significant figures as to immigration since 1820.

| | | Immigration,
| Immigration | Increase of | per cent of
Decade | in the period | population | population-
| | | increase
1820-30 | 124,000 | 3,300,000 | 3.8
1830-40 | 528,000 | 4,200,000 | 12.3
1840-50 | 1,604,000 | 6,100,000 | 26.3
1850-60 | 2,648,000 | 8,200,000 | 32.3
1860-70 | 2,369,000 | 8,400,000 | 28.2
1870-80 | 2,812,000 | 10,400,000 | 27.0
1880-90 | 5,246,000 | 12,700,000 | 41.3
1890-1900 | 3,687,000 | 13,100,000 | 28.1
1900-1910 | 8,795,000 | 16,000,000 | 55.0
Total, 90 yrs. | 27,800,000 | 82,400,000 | 33.7

Sec. 7. #Abnormal labor conditions resulting from immigration.# The
labor supply coming from countries of denser population and with low
standards of living creates, in some occupations, an abnormally low
level of wages and prices. Children cannot be born in American homes
and raised on the American standard of living cheaply enough to
maintain at such low wages a continuous supply of laborers. Many
industries and branches of industry in America are thus parasitical
A condition essentially pathological has come to be looked upon as
normal. The commercial ideal imposes itself upon the minds of men in
other circles.

Statistics show that the prevailing wages for unskilled manual workers
in America have risen much less since the Civil War than have other
wages.[4] Wages in the great lower stratum of the unskilled and
slightly skilled workers are much lower in America relative to those
of more skilled and professional workers than they are in Europe. It
can hardly be doubted that the most important, tho not the sole, cause
of this situation has been the unceasing inflow of immigrants going
into these low-paid occupations. The "general economic situation" in
America, but for immigration, would compel higher wages to be paid to
the masses of the workers. If immigration were suddenly stopped in a
period of normal or of increasing business, wages in these occupations
would at once rise, and that, without the aid of organization, of
strikes, or of arbitration. This would affect most those occupations
which now present the most serious social problems, in mines,
factories, and city sweatshops. In some small measure the war in the
Balkan States, by recalling many men for service, had this influence
in 1912; and the great war beginning in 1914, by stopping a large
part of the usual immigration, gave a striking demonstration of
this principle. In employing circles the rise of wages was sometimes
referred to with an air of grievance as due to the "monopoly of
labor," as if the economic situation here, enabling the wage-earners
(millions of them immigrants), to get a higher competitive wage when
immigration temporarily was diminished, constituted a monopoly.

Sec. 8. #Popular theory of immigrant competition.# The depressing effect
of the ever-present and ever-renewing supply of immigrant labor upon
wages appears most clearly at the time of wage contests, and often
seems to be the most important aspect of the question. Laws against
contract labor, passed to prevent this particular evil, have put
no check to the great stream of those guided by friends to a "job."
Organized labor thinks most of these immediate effects. Commonly
labor's protest is expressed in terms of the untenable "lump of labor"
theory of wages. "Every foreign workman who comes to America" is
believed to take "the place of some American workman." The error in
this too rigid conception of the influence exerted upon wages by new
supplies of labor is evident in the light of the principles of wages.
Yet it may be true that, both immediately and ultimately, the foreign
workman depresses the incomes of those already here with whom he
directly competes. On the other hand, those in occupations into
which few immigrants enter may, as consumers of cheaper products,
be immediately the gainers in real wages, by the very change
that depresses the wages in the lower strata.[5] The
manufacturing-employers advocate "protection" which enhances the price
of their products, while usually favoring "free trade" in immigration
to cheapen their costs. What more natural than that laborers should
favor a policy of protection to labor, to keep foreigners from coming
here to be their competitors.

Sec. 9. #Divergent views of effects on population.# The foregoing views
of the effects of immigration upon wages, both of those favoring and
those opposing it, are short-time views, relating to immediate rather
than ultimate effects. If the immediate causes are continuously
repeated throughout the lives of successive generations the results
are for those mortal men as ultimate as anything that concerns them.
In this case it would make no difference to the millions of workers,
whose wages are depressed, if it could be shown that wages fifty or
a hundred years from now would be no lower as a result of continued
immigration than they otherwise would be; or to the employer that
wages would then be no higher. But to the social philosopher and to
the statesman, interested in the abiding general welfare, the ultimate
economic effects are of the greatest importance.

The question is: What will be the far-reaching, long-time effects of
immigration upon the general economic situation, as that determines
the welfare of the mass of the people? We confine ourselves here to
the economic effects, leaving aside as far as possible the racial,
moral, religious, political, and general social aspects of the

We are met at the outset by two divergent opinions as to the permanent
results of immigration upon the growth of population. The one is that
all immigrants coming to our shores are net additions, hastening by
so much the growth in density of population; the other opinion, the
displacement theory, is that immigration has the effect of checking
the natural increase of the native stock so much that it does not
materially change the total population, or actually causes it to be
less than it would have been had no immigration occurred.

Sec. 10. #The displacement theory; its fundamental assumption.# The
latter opinion which still has many upholders[6] was first advanced by
a distinguished economist, Francis A. Walker, but his first statement
of it referred only to the period between 1830 and 1860. The main
argument in support of this opinion was that in the three decades from
1830 to 1860 during which a large immigration occurred, the decennial
rates of increase of the population were almost the same as in the
three decades from 1800 to 1830.[7] The conclusion drawn from these
figures is that the immigrants were the cause of the decline of the
average birthrate that occurred in the families of native stock. The
validity of this conclusion is absolutely dependent on the assumption
that no other forces were at work to produce this result. Must we
believe that, but for immigration, the native birthrate would not have
declined at all? This is incredible. The birthrate of the native stock
had already begun to decline before 1820 as is shown by many family
records, and by the fall of the decennial rate of increase from 35 and
36 in the decades ending 1800 and 1810, to 33.1 and 33.5 in the next
two decades. This occurred despite the enormous western settlement
then under way on the Louisiana Purchase. The decline of the birthrate
began at that time to appear as a world-wide phenomenon, accompanying
improved transportation (roads, steamboats, steam railways), the rapid
growth of cities, and the general industrial revolution. The general
birthrate has declined of recent years in Australia and New Zealand,
where there has been little immigration, more rapidly than it has in
the United States.[8]

Sec. 11. #Magnitude of the inflow of immigrants.#In view of these facts
it seems necessary to modify the displacement theory greatly. To the
extent that the coming of immigrants caused a net addition to the
population, it doubtless hastened the growth of cities and the
development of industrialism, and thus helped to reduce the birthrate
in some classes. But this view admits the effect upon population which
the displacement theory denies. Probably, in a good many cases the
more rapid business advancement of the natives, because of the
coming of the immigrants, led to the decline of birthrate that is a
consequence of economic success.[9] But a large part of this change
would have inevitably occurred even if there had been no immigration
after 1820. Between 1820 and 1910 the population increased 82,400,000,
and the total number of immigrants was 27,800,000, or 33.7 per cent
of the total increase. In an urban environment the birthrate among
immigrants always has been very much higher than that of native
Americans. This fact alone might well be taken as sufficient to offset
whatever depressing effects the coming of the immigrants may have
had upon the native birthrate, leaving the immigration nearly a net
addition to population. It does not seem possible to believe that
if there had been no immigration, our native population, rapidly
advancing in average wealth, wages, and general education, would have
continued with an unchecked birthrate, and would have filled all the
places taken by immigrants. And no believer in the displacement
theory has ever ventured to claim, as the argument requires, that if
immigration were now stopped, the birthrate would again return to the
old standard of 1820, or would cease to decrease somewhat. Especially
of late, since the rate of increase of the native population has
become much less, is the effect of continuing immigration apparent.
In the decade of 1900-1910 the total population increased 16,000,000,
while nearly 9,000,000 immigrants arrived. Of the remaining increase,
3,000,000 consisted of children born of foreign parents. That leaves
three or at the most four million (4,000,000) increase attributable to
the native stock, white and negro combined.

Sec. 12. #Earlier and recent effects of immigration upon wages.# Let us
now correlate the principle of decreasing returns and the facts as to
the exploitation of our natural resources[10] with the growth of
our population, on the assumption that immigration has been a net
contribution to our numbers. While the vast frontier was open to
settlement, the growth of population could not fail to be looked
upon as a blessing, even tho somewhat mixed with political evils,
immorality, and pauperism. Beginning in colonial times, the policy of
"the open door" to immigrants came thus to be deemed the traditional,
patriotic American policy. Yet there is grave reason to believe that
the rate of growth in the nineteenth century was wastefully rapid and
that a slower and sounder growth might have been better.[11] However,
this rapid growth was largely extensive, spreading over wider areas,
and was consistent with a pretty steady rise of real wages in America
until about 1895,[12] the level continuing higher than that of Europe
despite the contemporaneous rise of wages there. Much of this general
rise is undoubtedly attributable to the adoption of better tools,
machinery, and industrial processes, the more so as inventions and
new methods have rapidly become free goods.[13] The beneficial
improvements long cooperated with the rapid exploitation of rich
resources to raise real wages, and then undoubtedly continued to
offset for a time the unfavorable effects as the richer resources
began to show signs of exhaustion. Since the end of the last century,
however, the net trend upward seems to be checked, and "the rising
cost of living" (real cost) has come to be a serious actuality for
larger sections of the population.[14]

Yet so long as wages are enough higher in America to pay the passage
of the low-paid workers of the industrially backward nations, they
will continue to come. The ease and cheapness of migration in these
days of steamships, the encouragement of immigration by the agencies
and advertisements of the steamship lines, and the increasing
readiness of the peasantry to migrate, have become well known through
recent discussions. Unless immigration is limited, it must continue to
depress the wages of American workingmen, through both its immediate
and its ultimate effects.

Sec. 13. #Laissez-faire policy of immigration.# There are those who take
a fatalistic, or a _laissez-faire_, view of the subject, and declare
that the problem will solve itself as the level of American wages
comes to be nearly the same as that of the countries of Europe from
which our immigration is coming. True enough, if this can be called a
"solution." There are many who cherish the commercial ideal according
to which cheap labor is absolutely desirable and needful to produce
cheaper products. This ideal has spread to wider circles. Here, for
example, are the words of a man who combines wide knowledge of the
facts of immigration with keen sympathy for the working classes:[15]
"The past industrial development of America points unerringly to
Europe as the source whence our unskilled labor supply is to be drawn
. . . America is in the race for the markets of the world; its call
for workers will not cease." Yet a little further on he must say: "All
wage-earners in America agree that it is not as easy to make a living
to-day as it was twenty years ago, and the dollar does not go so far
now as it did then. The conflict for subsistence on the part of
the wage-earner is growing more stern as we increase in numbers and
industrial life becomes more complicated, and the fact must be faced
that the vast army of workers must live more economically if peace and
well-being are to prevail."

Sec. 14. #Social-protective policy of immigration.# A different kind of
solution is offered by those who favor the strict limitation, if not
the complete prohibition, of immigration.

The foregoing study indicates that the time has come, if it is not far
past, when the traditional policy of fostering immigration is opposed
to the welfare of the masses of the people. This belief can be based
solely on grounds of numbers, the relation of population to resources,
quite apart from a preference for particular races or the familiar
arguments regarding social and political evils and lack of
assimilation, however valid they may be. The limitation of immigration
would immediately improve working-class conditions where they are
worst in America,[16] and would check and probably reverse the
tendency to diminishing returns already manifest in many directions.
This opinion does not necessitate an absolute prohibition of
immigration; it is consistent with the continuance of immigration of a
strictly selected character, and in numbers so small that all European
immigrants now here could be rapidly and completely assimilated,
economically and racially. With a slow national increase of population
and with the continued progress of science and the arts, it should be
possible for real wages to continue indefinitely rising in America.
The selection of immigrants to be admitted should be a part of a
national policy of eugenics,[17] which aims to improve the racial
quality of the nation by checking the multiplication of the strains
defective in respect to mentality, nervous organization, and physical
health, and by encouraging the more capable elements of the population
to contribute in due proportion to the maintenance of a healthy,
moral, and efficient population. In such a view, a eugenic opportunity
is presented in the selection and admission of immigrants that are
distinctly above (not merely equal to) the average of our general

Sec. 15. #Population and militarism#. In view of the recrudescence of the
spirit of armed national aggression evident of late, and especially
in the outbreak of the Great War in 1914, the military aspect of the
population question deserves serious consideration. The growth of
savage and barbarian tribes in numbers, so that their customary
standards of living were threatened, frequently has led to the
invasion and conquest of their richer neighbors.[18] To-day nations
on a higher plane of living are probably repeating history. The nation
with an expanding population is tempted to seek an outlet for its
numbers and for its products by entering upon a policy of commercial
expansion, which in turn has to be supported by stronger military and
naval establishments. It is led by primitive impulses that to it
carry their own moral justification, to possess the territory of its
neighbors. The immediate occasion is probably some matter of internal
politics, such as growing discontent and democratic sentiment among
the people. Nations with slowly growing populations, and still
possessed of ample territories to maintain their accustomed standards
of life, naturally favor the _status quo_, and are pacifist or
nonmilitarist. If they arm it is for their own safety. In this view,
militarism is seen to consist not in having drilled soldiers and
stores of munitions, but in the national state of mind that would
use these for aggression, not merely for defense. When, therefore,
a powerful nation has reached a certain stage in the relation of its
population to resources, limitation of population not limitation
of armaments is the real pacifism; and increase of population, not
increased military training or a larger navy, is the real militarism.

Sec. 16. #Problem of maximum military power.# It is a grave question,
however, whether a nation with a comparatively sparse population,
high wages, and great wealth can safely limit that population in the
presence of a capable, ambitious, and efficient rival that covets such
opportunities. On the one hand, a population may be so sparse that
it has not soldiers enough to defend its territory against a numerous
enemy; on the other hand, it may be so dense, and consequently average
incomes be so low, that it cannot properly train, arm, and support
its population of military age. The recent developments in the art
of warfare call for great use of the mechanical industries, for
great power to endure taxation, and for great financial resources,
conditions found only where the average of national income is high.
The point of maximum military power must be far short of the maximum
possible population. It would seem that a nation of 100,000,000
inhabitants favorably situated to resist aggression, well supplied
with the natural materials for munitions, and well equipped to produce
them, might safely limit its numbers so as to ensure a high level of
popular income. This safety would be greatly increased by permanent
alliance with other peoples likewise limiting their numbers and,
therefore, interested in maintaining the peace of the world. In
this way it would be possible for them all to maintain a standard
of popular well-being even higher than is fully consistent with
the maximum military power, even in the presence of prolific and
aggressive rival nations.

[Footnote 1: Even more important than these is the relative decrease
of the successful strains of the population, briefly treated in Vol.
I, ch. 33. This is the problem of eugenics, the choice and biologic
breeding of capable men to be the citizens of the nation, and broadly
understood, it includes both the negro and the immigrant problems.]

[Footnote 2: See Vol. I, p. 430, figure 58, showing the fall in the
decennial rate of increase of negroes compared with whites; and see
comment in accompanying note.]

[Footnote 3: See above, ch. 20, sec. 11, and references in note.]

[Footnote 4: See below, sec. 12.]

[Footnote 5: See Vol. I, p. 221, on non-competing classes.]

[Footnote 6: The latest and best statement is that of H.P. Fairchild,
"Immigration," pp. 215-225, citing various opinions, and accepting the
view of Walker. But he says (p. 216): "It must be admitted that
this is not a proposition which can be demonstrated in an absolutely
mathematical way, which will leave no further ground for argument."]

[Footnote 7: See Vol. I, p. 429, for figures of population and of
decennial rates of increase.]

[Footnote 8: The effect of the growth of cities is discussed in the
"American Journal of Sociology," Vol. 18, p. 342, in an article on
"Walker's Theory of Immigration," by E.A. Goldenweiser.]

[Footnote 9: See Vol. I, p. 420.]

[Footnote 10: See Vol. I, chs. 34 and 35.]

[Footnote 11: E.g., see above ch. 14, sec. 11 on the prodigal land

[Footnote 12: See Vol. I, p. 436 ff.]

[Footnote 13: See Vol. I, ch. 36, on machinery and wages.]

[Footnote 14: For analysis of the available statistics bearing on the
subject, with conclusions that real wages are no longer rising, see
H.P. Fairchild, in "American Economic Review" (March, 1916), "The
standard of living-up or down?"]

[Footnote 15: Peter Roberts, in "The New Immigration," 1912, preface,
p. viii, and p. 47.]

[Footnote 16: See above, sec. 7; also ch. 21, sec. 9.]

[Footnote 17: See above, sec. 2, note; also Vol. I, p. 422.]

[Footnote 18: See Vol. I, p, 412, on war and the pressure of





Sec. 1. Agriculture and farms in the United States. Sec. 2. Rural and
agricultural. Sec. 3. Lack of a social agricultural policy in America. Sec. 4.
Period of decaying agricultural prosperity. Sec. 5. Sociological effects of
agricultural decay. Sec. 6. Fewer, relatively, occupied in agriculture; use
of machinery. Sec. 7. Transfer of work from farm to factory. Sec. 8. The
rural exodus. Sec. 9. The farmer's income in monetary terms. Sec. 10.
Compensations of the farmer's life. Sec. 11. Ownership and tenancy.

Sec. 1. #Agriculture and farms in the United States#. There were
nearly 12,400,000 persons in the United States gainfully occupied in
agriculture in 1910, this being 32.5 per cent of all in occupations.
These, together with other family members not reported as engaged
in gainful occupations, constitute the agricultural population, and
comprize more than one third of the total population of the country.
"Agriculture" is here used in a broad sense, including floriculture,
animal husbandry (poultry, bee culture, stock raising), regular
fishing and oystering, forestry and lumbering. Agriculture thus
produces not only the food but (excepting minerals, including coal,
stone, natural gas, and oil) the raw or partly finished materials for
all the manufacturing and mechanical industries.

With the exception of areas devoted to forestry on a large scale and
to fishing, the industry of agriculture is pursued on the 6,400,000
farms, covering 46 per cent of the total land area of the country. Of
the land in farms, a little over half is classified as improved. The
estimated value of farm property, including buildings, implements,
machinery, and live stock, was, in 1910, about $41,000,000,000,
somewhere near one fourth of the estimated wealth of the country at
that date.[1]

Sec. 2. #Rural and agricultural.# The adjectives rural and agricultural
are often used loosely as synonyms. Agricultural refers primarily to
the occupation of cultivating the soil, and is properly contrasted
with other occupations, as mechanical and professional; whereas rural
refers to place of residence outside of incorporated places of
a specified minimum population (of late, 2500), and is properly
contrasted with urban, applied to those living in larger population
groupings. In 1910 the rural population comprised 53.7 per cent of the
total population. It is true that the two groups of the agricultural
and the rural populations are largely composed of the same persons,
but to a considerable extent they are not. Many farm houses, together
with part or all of the farm lands, lie inside urban boundaries, and,
besides, some persons engaged in agriculture reside in urban places.
On the other hand, any one acquainted in the least with a rural
district (in the statistical sense) can at once think of many
persons living there that are not engaged in agriculture; they may
be merchants, warehousemen, railway employees, physicians,
handicraftsmen, teachers, artists, retired business men, and others.
The percentages given in this and in the preceding section indicate
that about two fifths of the rural families are not engaged in

It is often important to make this distinction, tho it is difficult
to do; for some of the much-discussed rural questions are of a
broad social nature, are matters of rural sociology, relating pretty
generally to the rural population; while other questions of "rural
economics" are more strictly matters of agricultural economics and
relate to the farm as a unit of industry, or to agriculture as an

Sec. 3. #Lack of a social agricultural policy in America.# It is a common
remark that the farmer lives an independent life. This develops in him
a self-reliant spirit. He readily gives and takes simple neighborly
help in informal ways, but he does not readily turn to government
for aid. While every influential urban group, organized or
unorganized--manufacturers, merchants, wage-earners--has sought and
obtained special protective social legislation, the farmer has, from
choice or necessity, usually had to work out his economic problems
unaided. The exceptions are few and of small importance. For example,
the prodigal land-policy of the state and national governments
encouraging the settlement of the frontiers was not a farmers'
policy. It was originally inspired by the larger political purpose
of extending the bounds of the nation; later it was advocated and
fostered by a land-speculating element, linked with bad politics, in
the frontier states, and not by farmers as such. It in time greatly
injured the farmers of the eastern states. The "Granger legislation,"
to regulate railroad rates, was so called by the East in a spirit of
derision because it began in the distinctively agricultural states
of the Northwest; but it had neither the aim, nor the result, of
obtaining especially for farmers any rates that were not open to
every one on the same terms. The tariff rates on American agricultural
products, placed in the acts as a matter of form, have, with minute
exceptions, been ineffective to favor farmers, as the shipments were
all outward and none inward, while heavy and effective rates were
placed on most things that the farmers had to buy.[2]

In part the explanation of the lack of legislation favoring farmers
is to be found in their small part and influence, as a class, in
political affairs, outside of minor executive offices in township and
county governments. In the state legislatures farmers are few relative
to their numbers in the community, and still fewer in either House in
Washington. Among the real exceptions to the otherwise fair record of
the farming class in this respect is the tax on oleomargarine and the
special favor accorded to farmers' associations in the Clayton Act. It
might be cynically said that the farmer has not been "sharp" enough
to get his share of the "good" things" that the business classes were
passing around in protective legislation. But farmers have, as has
every economic group, interests which may legitimately be the subject
of social legislation; whereas they have limited their attention to
their private affairs at home and have been prone to vote patiently
and proudly the "straight ticket" to elect business men and lawyers to

Sec. 4. #Period of decaying agricultural prosperity#. Despite the facts
just stated, every campaign orator admits that there is no other
occupational class of the nation of greater importance to the nation
than the farmers, or more deserving of prosperity. Every other part
of the industrial organization of a nation is interrelated with
its agriculture. Great changes, in respect to growth of population,
immigration, exhaustion of natural resources, mechanical inventions,
scientific discovery, and many things more, have been occurring,
which have altered and, in some communities, have destroyed the very
foundations of agricultural enterprise in America since the close
of the Civil War in 1865. But the farmers have been left to struggle
individually with their individual difficulties, tho the outcome was
of the gravest portent to the whole social economy. Such was the case
in the period of agricultural depression from 1873 to about 1896.[3]
Multitudes of ancestral homesteads were then left behind by the last
farmer-descendant of the old line. No longer able to make a living on
the soil, he took up an urban occupation.

Sec. 5. #Sociological effects of agricultural decay#. Such changes caused
a relative decline in the birthrate of the old American stock. The places
of many of these long-settled families remained unfilled as thousands of
abandoned farm houses testified. The places of others were taken by a
tenantry, white or black, lacking the thrift of ownership; the lands of
others passed to new owners of alien races. The populations of many rural
neighborhoods thus became heterogeneous, with results calamitous to the
social life. Once prosperous schools declined, once thronging country
churches were deserted, and much of the old neighborhood democracy
disappeared. When, about the year 1900, prosperity began slowly to return
to the American countrysides in the form of rising prices of farm produce,
it was in large part too late to remedy the evil, except as it may be
done by generations of effort under more favoring conditions. There
are merely suggested here some of the complex sociological effects of
past economic changes in American agriculture. It is certain that in
the future also the economic changes in this field will be related
closely to social and political changes of a fundamental character.

Sec. 6. #Fewer, relatively, occupied in agriculture; use of machinery.#
Probably ever since the first census in 1790, the relative number of
agriculturists in this country has been decreasing. Beginning in
1880, the numbers of those occupied in agriculture for gain have
been reported at the census dates in a form that makes them fairly

The explanation of this decrease in the proportion of the population
that is engaged in agriculture is twofold; the first is the real
increase in the productive output per person in agricultural industry.
In larger part this is due to the increasing use of machinery in place
of simple hand tools, and the substitution of horse-, hydraulic-,
windmill-, steam-, and gasoline-power for human labor. This change has
been made readily in the regions of level fields, but of late has been
made possible to a greater extent in hilly country, by rearranging
and combining the old irregular fields into regular fairly level
rectangular fields easily tillable, while turning the rougher lands
and hillsides into wood lots and pastures.[5] One man, thus, driving
three or four or more horses, can do the work formerly done by two
or more men and do it just as well. The farmers' incomes in different
parts of the country vary pretty nearly with the amount of horse-power
used per man. Economies equally great are made in the work done in the
barnyards and barns. In most parts of the country only a beginning
has been made in these ways, and in future the census will continue to
reflect the progress in these directions.

Sec. 7. #Transfer of work from farm to factory#. The other part of the
explanation of the decrease in the proportion of the population that
is engaged in agriculture is that many operations are, step by step,
being transferred from the farm to the factory. "Agriculture," we have
observed, is a great complex of industries, in which many different
products are taken from the first simplest extractive stage, and then
put through successive processes to make them more nearly fitted for
their final uses. Not so long ago grain cut in the field was threshed,
winnowed, shelled, made into flour, and baked on the farm, as it still
is in many places. Logs were cut into boards, planed, and made into
houses or furniture by the farmer. The old-time farmer made by hand a
large number of his farm implements--rakes, ax handles, pumps, carts,
and even wagons. Until a generation ago all butter, cheese, and other
dairy products were made on the farm. Now these things are being done
in steadily increasing proportion by workers classified as in the
manufacturing industries, and agriculture contains fewer separate
industries and processes. Of course there is economy of labor in
nearly all of these changes, but the number occupied in agriculture is
greatly reduced. Many farmers and more farmers' sons are moving from
agriculture into occupations of manufacturing, trade, transportation,
and the professions, and are becoming more narrow specialists.

Sec. 8. #The rural exodus#. The percentage of persons in the rural
population changes at about the same rate as does that of the persons
occupied in agriculture. In 1890 it was 64, in 1900 it was 60, and in
1910 it was 54 per cent. The percentage of the population in cities of
8000 or more has steadily increased. This phenomenon has been marked
in all of the countries that have been developing along industrial
lines. It has been variously described as "the rural exodus," "the
abandonment-of-the-farm-movement," and "the city-ward drift."[6] It
is only in part explained by the change from agriculture to other
occupations; perhaps even in greater part it is due to the decline
and disappearance in many rural places of small manufacturing and
mercantile businesses before the competition of large business in the
cities. In much of the long-settled area of the country every hillside
stream once turned a little mill to saw timber, grind corn, forge
iron, or weave cloth. Most of these mills are now deserted. In
countless villages the old blacksmith shop, once a center of business,
is abandoned. Here and there a patriarchal smith still serves a
dwindling group of customers and speaks with mingled pride and pathos
of his sons, now in the automobile business in the city.

The movement away from the countryside has been but little
counteracted as yet, but may be more in future, by the growing
enjoyment of rural life, by the back-to-the-land movement, by
interurban railways, by improved roads, and by automobiles.

Sec. 9. #The farmer's income in monetary terms#. Census figures and some
additional investigations have led to the estimate of the average
real income of the farmers of the United States in 1909, expressed in
monetary terms, as $724. The estimated value of all products, whether
sold or used by the farmer, plus the value of his house rent and fuel
consumed by family, was $1236, from which expenditures of $512 are
deducted for outside labor, and for materials used for operating and
maintaining the farm. Of the $724 the sum of $402 is estimated to
be the labor-income of the family and $322 is estimated to be the
wealth-income (at 5 per cent of the capitalization of the farm). This
was in a period of rising values in farm lands, averaging about $323
per farm annually, and this to most farmers was equivalent to so much
monetary savings. The main items of net income, therefore, are as

Rent $125
Food from the farm 261
Fuel 35
Cash 303

Total $724
Increase in value of farm 323

Total estimated monetary income $1047

Of the total, $422 is a labor-income, and $645 is a wealth income.[7]

It would be difficult, even if the available statistics were much more
exact than they are, to compare exactly the farmer's income with those
of urban classes. Averages of such large numbers and over such a wide
area have a limited significance in the specific case; and living
conditions and the purchasing power of money are so different in
country and city and in different parts of the country.[8]

Sec. 10. #Compensations of the farmer's life#. In bare monetary terms
the average farmer's family gets a labor-income less than that of the
ordinary wage-earner in a factory, and it is only by the aid of the
wealth-income that it appears to fare as well or better. Even the few
largest incomes made in farming are small in comparison with many of
those made in commerce, transportation, and manufacturing. The great
mass of farmers of the nation are hard-laboring men, poor in the eyes
of the city dwellers.[9]

But this much is certain: the farmer's income in monetary terms has
on the average much larger power to purchase the main goods of life
(material and psychic goods) than it would have in town. Equally good
house usance would cost more in nearly all towns, and much more in
larger cities. Retail prices of the same food and fuel even in small
towns would be much greater. The necessary outlay for clothes to
maintain the class standard is much less for farmers than for city
dwellers. Moreover, in the use of horses and carriages, and now of
automobiles, and in the free control of his own time--in many elements
of psychic income--the farmer is on a parity with men in other
occupations of double or quadruple his income expressed in monetary

Tho the farmer's working day in the busiest season of summer is very
long compared with that of factory or office workers, his working
day at other seasons is usually much shorter than the average urban
worker's day. The farmer's life is nearly always free from the
excessive pressure, haste, and competition of city life, and the
value, to many a man, of the more natural and wholesome conditions of
outdoor life and outdoor work are hardly to be measured in terms of
even the most untainted dollars.

Sec. 11. #Ownership and tenancy.# Since 1880, when the first figures
on farm tenures were collected, the proportion of farms operated by
owners has steadily decreased.

Percentage of farms operated by
Owners Cash tenants Share tenants

1880 ............ 74.5 8.0 17.5
1890 ............ 71.6 10.0 18.4
1900 ............ 64.7 13.1 22.2
1910 ............ 63.0 13.0 24.0

These statistics arouse fears that the class of independent farmers
operating their own farms is gradually giving way to a tenantry
in America. But in some respects the figures are misleading unless
carefully interpreted. The increasing proportion of tenants is due not
so much to owners falling into the class of tenants as to the
hired laborers rising into the class of tenants. The number of male
operating owners compared with all male workers (not merely with all
farms) has remained almost constant at about 42 per cent; while the
per cent of hired workers has decreased from 43.3 (in 1880) to 41.4
(in 1890) and to 34.6 (in 1900). Most hired men on farms are farmers'
sons; the city boy does not adapt himself readily to farm work. Most
hired men of native stock become tenants, and finally owners. Only 11
per cent of the hired workers in agriculture (in 1900) were over 35
years of age.

The landlord of a farm let to a tenant, especially to a share tenant,
is still to a large extent the general manager, controlling in a
large measure through the renting contract and by his oversight, the
operations of the farm. Older men find that letting the farm to
a share tenant is easier for them and gives better results than
continuing to operate the farm with hired labor. And it evidently
gives a man a somewhat higher status to become a tenant than to
continue to be a hired laborer. In the South this movement has taken
on large proportions in the breaking up of large plantations once
operated by the owner with hired labor, and now let in smaller lots
to operating tenants. Yet such a change appears, statistically, as a
decrease in the proportion of farms operated by owners. Despite these
somewhat reassuring facts, the problem of maintaining and increasing
operating ownership of farms in America is one deserving of the most
earnest thought and efforts. The best form of farm tenure is
not necessarily that giving the best immediate economic results.
Politically in a democratic nation, and sociologically in its effects
upon the size of families and the raising of healthy children, the
preservation of an independent American yeomanry is of fundamental
importance to the nation.

The problem is as difficult as it is important, and becomes more
difficult with the rise in the acreage value of lands and with the
economical size of farms, both calling for a larger investment to
become an owner. Changes in the system of taxation should be made with
reference to this object; the system of agricultural credit should be
developed and administered to assist; special efforts in agricultural
education should be made and active administrative efforts should be
directed, toward this important end.

[Footnote 1: See above, ch. 1, secs. 7 and 8.]

[Footnote 2: See ch. 14, sec. 5.]

[Footnote 3: See Vol. I, p. 437.]

[Footnote 4: It must be observed in studying these figures, that
farmers' wives and children, working at home, are not reported as
gainfully occupied. But a widow or a spinster owner, if herself acting
as the enterpriser, is reported as "occupied" in agriculture. The
increasing number of such cases in the past generation in part
explains the growing number and percentage of females in agriculture.

Number occupied in agriculture Per cent of all persons occupied
Males Females Both sexes Males Females Both sexes

1880... 7,068,658 594,385 7,663,043 47.9 22.5 44.1
1890... 7,787,539 678,824 8,466,363 41.4 17.3 37.2
1900... 9,272,315 977,336 10,249,651 39.0 18.4 35.3
1910...10,582,039 1,806,584 12,388,623 35.2 22.4 32.5

[Footnote 5: See further, ch. 26, secs. 1 and 2 on the size of farms
as an economic factor.]

[Footnote 6: See above, sec. 2, on the distinction between rural and
agricultural. In part the change here noted results from increases in
the population of towns and incorporated places from a little below
2500 to something about 2500. For example, if there were 2499 persons
in a town in 1900 they would all be classified as rural; if in 1910
there were 2500 or more they would all be classified as urban.]

[Footnote 7: Sec Vol. I, p. 225, and note 11.]

[Footnote 8: See Vol. I, p. 206.]

[Footnote 9: See Vol. I, p. 227, note, for figures on owners and farm



Sec. 1. Size of farms, and total farming area. Sec. 2. Influences acting
upon the size of farms. Sec. 3. Self-sufficing versus commercial farming.
Sec. 4. Farming viewed as a capitalistic enterprise. Sec. 5. Diversified versus
specialized farming. Sec. 6. Conditions favoring diversified farming. Sec. 7.
Intensive farming in Europe and America. Sec. 8. Prospect of more intensive
cultivation of land in America. Sec. 9. The new agriculture. Sec. 10.
Difficulty of cooeperation among farmers. Sec. 11. Rapid growth of farmers'
selling cooeperation. Sec. 12. Some economic features of farmers' selling
cooeperation. Sec. 13. Cooeperation in buying. Sec. 14. Need of agricultural
credit. Sec. 15. Recent provisions for farm loans.

Sec. 1. #Size of farms, and total farming area#. The average area of
farms has varied from a maximum of 203 acres, in 1850 (the first
figures), to a minimum of 134 acres in 1880, being 138 acres in 1910.
A better index, perhaps, is the average improved area per farm, which
has been more nearly stationary, varying from a maximum of 80 acres
in 1860 to a minimum of 71 acres in 1870 and 1880, being 75 acres in
1910. Here again the statistics require interpretation, for in the
spread of the frontier the addition of large farms in the arid and
semi-arid regions may raise the average, or the breaking up of large
plantations in the South may decrease the average, without this
indicating any essential change in the technical conditions of farming
in the country generally. Since about 1900 the total area in farms has
increased very slowly. Between 1900 and 1910 the increase was only 4.8
per cent; whereas a larger increase occurred in the area of improved
land, 15.4 per cent, and the unimproved area in farms decreased
5.6. Future changes of farm areas may be expected to be of this same
nature, mainly in the improvement of rough pastures, swamps, partly
cleared woodlands, and desert lands awaiting irrigation. An increasing
population will have to be provided with food and other products of
agriculture on a farming area that henceforth will be increasing less
rapidly than it has in the past and than the population increases.

Sec. 2. #Influences acting upon the size of farms#. In these averages
for the whole country many conflicting influences unite and neutralize
each other. Making for smaller farms is the breaking up of large
grazing areas in the West into smaller general purpose farms or
irrigated fruit districts, and of larger general farms in the North
and East into small poultry, flower, and fruit farms. Opposed to this
is a movement toward the merging of farms of 50 to 100 acres into
larger farms of 300 acres, more or less. The economic cause of this
movement is interesting and important. The typical and economic size
of farms when the Atlantic states were settled, was determined by the
use of hand tools, which permitted a man and his family to operate a
farm of about 75 acres of which about half was tilled and the rest was
in permanent pasture and woodland. The fields were small and were laid
out irregularly, which was no disadvantage for hand cultivation. But
for the most economic use of land in field crops and under more modern
conditions it is necessary to have pretty level fields, of regular
rectangular shape. The farm unit should be of such extent as to permit
of the proper use of the soil by rotation of crops, and to employ
fully the best modern labor-saving machinery for each purpose.
Numerous recent agricultural surveys point to the conclusion that for
general farming this unit is a comparatively large area of about 300

These conditions offer a reward to those agricultural enterprisers
who can purchase lands at a price based upon the high costs and lower
yields of the older methods and cultivate them at the lower costs and
with the larger yields of the newer methods. This movement, therefore,
toward the consolidation of smaller into larger farms is likely to
continue in many communities for several decades. This is likewise
an advantage to the community in increasing the production with less
labor. But the net effect upon the social life of the countryside is
more doubtful, and calls for careful consideration.

Sec. 3. #Self-sufficing versus commercial farming. The typical American
farming family once produced nearly everything it used, and used
nearly everything it produced. It was very nearly a self-sufficing
economic unit, "a closed economy," as it sometimes called. Food,
clothing, fuel, lumber, houses, furniture, tools, were on the farm
carried through the various processes from the first gathering of the
raw materials to the finished product. They were then consumed by the
farm household. It is true that even in the first settlements there
were some craftsmen, cobblers, millers, weavers, blacksmiths--whose
services and wares were got by trading some of the surplus products
from the farms--butter, cheese, eggs, wool, hides, furs, live stock,
grain lumber. A few rare commodities of foreign make found their way
to the farm through peddlers and merchants; but altogether the goods
produced outside the farm were a small fraction of the family's
consumption, and were exchanged for but little of the farm's
production. Most farmers tried to produce for themselves, as far as
possible, everything their families needed, when the soil and
situation were poorly suited to the purposes. True, there were early
some exceptions to the general rule, where only one kind of crop was
taken from the land. Such was the forest product of masts, shingles,
lumber, and turpentine, and the great southern staple, tobacco, and
later, cotton. The exceptions have been tending to become the rule
in more and more communities. Farmers have been specializing more
and more in the kinds of products to which their farms are adapted in
respect to soil, relation to market, and otherwise. These products are
taken to market and sold for money with which are bought the things
needed for use on the farm.

Sec. 4. #Farming viewed as a capitalistic enterprise#. Thus the farm
comes to be looked upon more and more, not just as a home, but much as
if it were a commercial enterprise or a factory, by which products are
made for sale. This change, to be sure, is far from complete, as the
figures for the average farmer's income show that a large share of the
family living still comes from the farm. It has gone on much further
in some districts than in others, as is indicated in the types of
farming discussed below. But just to the extent that the farmer grows
crops to sell, his outlook on his work undergoes a change. He is
less exclusively a farmer, concerned with the technical processes of
farming; he must be more largely a business man. Like a manufacturing
enterpriser, he buys the factors of production, combines them into
new products, and sells them again. He becomes interested in market
conditions and prices. He grows more commercially-minded. He views
the farm no longer as a fixed area, but one that may be enlarged by
purchase or by rental, and that may be reduced by selling or letting
the less needed parts. One-fifth of farm owners now rent additional
land. In commercial farming the land is not contrasted with capital as
something apart, consisting of the value of the equipment and stock;
but the whole complex of land and other goods is thought of as a
capital-investment. The greater ease of transferring landed-property
in America and the greater mobility of our population have always made
it more natural here than in Europe to look upon land as a capital
investment. This view is now becoming more general as a result of the
commercializing of farming enterprise.

This change has been favored by other influences. Particularly has
the use of machinery and of other equipment, calling for a larger
investment per man and per acre, been making agriculture, in its
form of enterprise, more and more like manufacturing and commercial

Sec. 5. #Diversified versus specialized farming#. To be self-sufficing a
farming family must carry on general farming, that is, must produce
a diversity of products. As farming becomes more commercialized it
necessarily becomes somewhat more specialized, and produces a smaller
variety of products. In some parts of the country and on particular
farms this specialization is extreme: in California, citrus fruits, or
prunes, or beans, may be the only crop raised; wheat in Kansas and
the Dakotas, and dairy products in thousands of farms surrounding
the great cities, are the main, tho not the exclusive products. Many
farmers in these districts have no gardens or orchards, keep no cow,
and buy much or all of the grain for their horses, as well as milk,
butter, vegetables and fruits for their own use. Poultry and eggs
are shipped in trainloads two thousand miles from the Middle West to
California to be consumed by orange growers. Many farmers in the East
no longer keep sheep, pigs, or beef cattle, and they buy out of the
butcher's wagon all the meat except fowls used by their families. This
partly explains the decrease of live stock in the whole country in
recent years and the increase in the price of meat.

Sec. 6. #Conditions favoring diversified farming#. There are, however,
limits to the net advantage of specialization in crops, and competent
authorities on agriculture question whether in many cases that limit
has not been readied and passed. Most farms have a variety of soils
and of conditions--hilltops, slopes, bottom lands--which are suitable
for different purposes. A rotation of crops is necessary to get good
yields. Live stock must be kept to maintain the fertility of the land,
which deteriorates fast if hay and grain are continually sold. Some
live stock can be kept on every farm very cheaply with the food that
would go to waste otherwise. The specialization in stock raising in
the prairie states ceased to be profitable when lands became more
valuable. Specialization in wheat production in the states just west
of the Mississippi is possible only so long as wheat will grow on
the virgin soil without costly fertilizers. The cotton farmers of
the South, especially the negro farmers, have been forced by debt and
thriftlessness into a one-crop policy that is now seen to be wasteful
in the long run. A variety of production is necessary to employ labor
somewhat regularly on a farm throughout the year. These and other
conditions will make most farming always an industry of comparatively
diversified products. Only 1 per cent of the farms get as much as 40
per cent of their receipts from fruit; 2 per cent get that much from
tobacco; 3 per cent from vegetables; 6 per cent from dairy products;
and 19 per cent from cotton. The remaining 60 per cent of receipts
were in most cases from various sources, and these figures did not
include the value of produce consumed by the farmer's family.

Sec. 7. #Intensive farming in Europe and America#. No other farm problem
interests the city man so much as that of increasing the production
of the land. To most city men farming hardly seems to be an occupation
giving livelihood and life to the farmer; it seems rather to exist
for the sole purpose of feeding men living in cities. The city man,
therefore, measures the success of farming not by the farmer's income,
by the level of countryside prosperity, but by the number of bushels
per acre raised to ship to town. Every city newspaper and magazine
contains articles pointing to the fact that larger crops per acre
are raised in Europe than in America, and broadly suggesting that the
American farmer could do as well, if only he would. Foreign travelers
comment in like vein on the wasteful use of land in America as
compared with farming methods in Europe.

Land is used most extensively, with respect to labor, when it is in
forests; somewhat less so when in pasture as care must be given to the
live stock; and still less when used for hay, grain, and other crops.
But the use of machinery in large fields is far more extensive than
the patient work of peasants with their hand tools. The more labor or
the more equipment (or both together) that is put upon an acre, the
larger the product, but the larger the cost per unit. It is a familiar
economic principle.[1] It would bankrupt any farmer, excepting the
millionaire amateur, to farm in America by European methods. American
farmers, at least many of them, could raise as many bushels per
acre and keep their farms as thoroly cultivated as do the European
peasants, if wages were as low here as are the peasants' incomes.

Sec. 8. #Prospect of more intensive cultivation of land in America#. As
the aggregate need for food increases in America there must come a
steady pressure upon our stock of land uses, resulting in decreasing
returns to labor in agriculture, unless this movement can be
counteracted by the spread of better methods in agriculture--not
European peasant methods, but new American methods consistent with
high labor-incomes. A good deal of our farm land is undoubtedly too
intensively used now in view of present and prospective commodity
prices and wages. Maladjustment of land uses has resulted
from mistaken judgment, from changing conditions as to prices,
transportation, and markets, and from loss of soil fertility. There
are thus, on nearly every old farm, some fields that would better be
in pasture and much hillside pasture that would better be woodland. It
is often declared extravagantly that our country could support easily
the total population of China, or as great a population per square
mile as that of Italy. If it did so it would be only on the penalty
of lowering wages toward, if not quite to, the level of the Chinese
coolie or of the Italian peasant. Great metropolitan dailies gravely
present as an argument in favor of unrestricted immigration, the
proposition that "if" the cheaper immigrants would but go upon our
"waste" land (which they refuse to do), and raise food by European
methods the problem of the rising cost of food in the cities would be
solved. This urban ideal of a frugal, low-paid agricultural peasantry
can hardly be adopted in America as the national ideal. Rather,
it would seem, any movement toward more intensive agriculture that
necessitates a lowering of the standard of living of the masses of the
American people will, when it is recognized, be condemned and opposed.

Sec. 9. #The new agriculture#. Agricultural method, the technic of
farming, has been constantly progressing for two hundred years in
Europe and in America, Were it not for this, the great growth of
population on this combined area would have been quite impossible.
But the betterments since about 1890 in America have been especially
great. They are mostly the first large fruits of the scientific study
made possible by the land-grant colleges and agricultural experiment
stations fostered by state and national, legislation. These many
diverse improvements are grouped under the general title of "the
new agriculture." Its chief features are: new machinery and other
labor-saving methods; better methods of cultivation of the soil;
better selection of seed; introduction of new plants and trees from
abroad to utilize low-grade lands; plant-breeding to develop new
varieties of better quality, heavier bearing, or immune to disease;
more efficient and economical ways of maintaining soil fertility;
better methods of marketing; and better technical education of the
individual farmer. Each of these topics, and a number of other minor
ones, would require a chapter in a complete treatise on agricultural
economics. Here this mere enumeration must be allowed to convey its
own suggestion of far-reaching results for the whole political economy
of the nation and of the world.

Indeed, so much has been written in a Barnumesque way of the
wonders of the new agriculture, that its actual results and further
possibilities are in many minds absurdly exaggerated. It has not as
yet been potent enough to prevent diminishing returns in respect to
the great staple foods and raw materials obtained by agriculture.
It apparently has barely kept pace with the needs of the growing
population of Christendom. It has enabled a larger population to exist
in about the same, if not in a worse condition, on the same area,
while progress in cheapness of goods has come almost entirely from the
side of the chemical and the mechanical industries. It does not
give the promise of an indefinite amelioration of the lot of an
indefinitely multiplying population. But to a population slowly
increasing, a new and ever newer agriculture, utilizing constantly the
achievements of the natural sciences and the mechanic arts, ensures
the possibility of a steady betterment of the popular welfare in city
and in open country alike.

Sec. 10. #Difficulty of cooeperation among farmers#. Rural communities
are proverbially conservative; the American farmer is proverbially
an individualist. No wonder, then, that the new ideas and plans of
cooeperation in business matters have made headway in agriculture
slowly and with difficulty. The need of mutual aid among American
farmers is especially great, for, as has often been, said, isolation
is the problem of the farm as congestion is that of the city. On the
frontier a cooeperative spirit manifested itself frequently in mutual
helpfulness, in house raising bees, husking bees, threshing bees, and
other similar gatherings.

But this spirit seems to have almost disappeared in the older
communities, the more rapidly doubtless in the period of decaying
agricultural prosperity.[2] To-day, for example, it is impossible on
a certain Pennsylvania road for one more progressive farmer to get
his neighbors to cooeperate in so simple a matter as hauling their
milk cans to the creamery, and so every day in the year ten horses are
hitched to ten delivery wagons carrying two or three milk cans apiece,
and driven by ten drivers along the same road to and from the railroad
station. One driver and two horses could easily carry as much or
more, as is done now in many other dairy districts. Even of successful
cooeperation among farmers sympathetic critics are forced to say: "Many
students of rural economics assert that cooeperation as applied to the
distribution and marketing of farm products is not very successful
unless it is founded upon dire necessity. When the records of the
organizations of the country are analyzed it becomes almost necessary
to accept that statement. So long as farmers do fairly well in their
own way they are not inclined to cooeperate."

Sec. 11. #Rapid growth of farmers' selling cooeperation#. Despite what has
just been said, cooeperation among farmers now is more developed and is
growing faster than all other kinds of cooeperation in America. This
is most marked in farming communities in the West, especially in
California and in the Middle Western or Northwestern states (e.g.,
Minnesota and Wisconsin). There the farmers are younger, and many have
been educated in the state agricultural colleges. They all produce
nearly the same kinds of crops of staple produce which must be shipped
to distant markets. The need of uniting to get what they thought
would be fair treatment from the railroads, and to protect themselves
against the abuses of the competitive commission salesagents, seems to
have given the first impetus to farmers' cooeperation.

The most notable developments were those of the California Fruit
Exchange and of cooeperative societies of the Northwest for marketing
grain. The membership of the former is made up entirely of the
local citrus growers' associations in California. It has a complete
organization of selling agents in the Eastern cities and a remarkably
efficient, tho simple, system of equalizing and expediting shipments.
Now the agricultural cooeperative associations of various kinds are
multiplying all over the country, for shipping live stock, fruits,
butter, cheese, and other farm products. Cooeperation for these
purposes called forth new activities; packing houses were built, and
grain elevators and creameries and dairies, and now a goodly number of
the simple manufacturing processes are undertaken by these societies,
now numbering thousands.

Sec. 12. #Some economic features of farmers' selling cooeperation#. This
type of producers' selling cooeperation is proving in America to be far
more successful than producers' cooeperation among workingmen;[3] and
certain important economic features in it should be noted. The local
producers' selling cooeperative society is composed of farmers who as
enterprisers own and carry on their own separate businesses; they
are not, as in the other case, wage workers. Any productive processes
undertaken by this kind of society are subordinate to the main
business, being such as picking, packing, drying, preserving, and
making boxes for packing. This form of cooeperation with the related
form of consumers' cooeperation that is fostered by it, promises to
have a wide extension.

Some of these societies, as those dealing in citrus fruits, regulate
with some success the picking and the marketing so as to distribute
them more evenly throughout the year. They watch the markets and
direct their agents by telegraph to divert cars _en route_ away from
markets that are glutted with products and into markets where prices
are higher. They take some of the products, as eggs in the spring at
the period of low prices, and pack or refrigerate them, to be sold
when prices are higher. For thus withholding the supply they are said
by some to exercise a monopolistic power. But this is a more than
doubtful view. So long as only the seasonal variations are equalized
and the total supply of the year is not reduced it is, on the marginal
principle, an economic service to the consumers, comparable to
insurance in its utility. Any reduction of the area planted or of the
entrance of others into the industry would be a monopolistic act but
this as yet has not occurred.

Sec. 13. #Cooeperation in buying.# Cooeperative buying (called also
consumers' cooeperation or distributive cooeperation) has had a large
growth in the British Isles, since 1844, when the society called the
Rochdale Pioneers was founded by a group of factory workingmen. The
cooeperative stores, both in Great Britain and on the Continent, have
continued to develop mainly among the industrial classes in urban
centers. However, this has not been exclusively the case, and
particularly in Denmark and Ireland cooeperative buying has increased
in agriculture in connection with selling associations. Since 1890
the growth of consumers' cooeperation among European industrial
wage-earners has been phenomenal, especially in Belgium, Germany, and
Switzerland. American wage-workers, however, have made few and feeble
efforts in this direction.

In the period beginning 1867 many cooeperative stores were founded in
America by farmers in the Grange movement, who operated also grain
elevators, warehouses, and steamboat lines. But the movement failed
about 1877. This result is easily explained by lack of commercial
knowledge and lack of harmony among the members, selling on credit,
and inefficient management. A new era in consumers' cooeperation for
farmers began about 1900 and now in several widely separated parts
of the country--Minnesota, Kansas, California, Washington, and
elsewhere--the movement is spreading rapidly, supported in large part
by the same persons who are members of the selling associations.

Sec. 14. #Need of agricultural credit.# Banking originated in cities and
for the use of the merchant-class. It still retains pretty faithfully
its commercial character. The change of farming toward a more
commercial form[4] has been little aided by banking credit. National
banks and many others were forbidden in their charters to lend on the
security of real-estate, the farmer's one business asset.[5] A great
number of farms are always in course of being purchased, the balance
of purchase money being borrowed by the purchaser. A group of private
agencies such as life insurance and mortgage loan companies and local
money lenders has supplied in somewhat costly ways the need of farm
credits. Tho rates of interest have become more equalized throughout
the whole country, they still range between 7 and 10 per cent in the
Southern and Western states, averaging 7 per cent in the whole country
for interest and commission. The need of better opportunities for
credit in the agricultural districts has long been recognized. The
high rate of interest for borrowed money necessarily placed a limit on
improvements in equipment and methods of farming.[6]

Sec. 15. #Recent provisions for farm loans#. The Federal Reserve Act
made two important changes to improve agricultural credit.[7] Soon
afterward some of the states took more vigorous action to provide
a special system of agricultural credit, especially New York and
Missouri. In the latter state, on the initiative of a public-spirited
citizen of St. Louis, was passed in 1915 a notable act of legislation
known as the Gardner State Land Bank Act (effective December 1, 1916,
provided a constitutional amendment is adopted in November, 1916).
This authorizes the establishment of a land bank, with power to lend
on the security of farming lands, for buying farms and for productive
improvements, and to issue bonds to be sold to investors.

Following this general plan the Federal Farm Loan Act became law
July 17, 1916. It authorized the establishment of twelve Federal Land
Banks, each with a capital of not less than $750,000 to make loans
through national farm loan associations organized somewhat after the
model of the building and loan associations. The bonds issued by these
banks are to bear not to exceed 5 per cent interest. It is hoped that
they will have the high credit of municipal bonds so that they may
be sold at parity, bearing interest at 4 or 4.5 per cent. The loan
is repaid by the farmers under a regular plan of amortization. The
practical results of these measures are yet to appear. They are
expected to give to loans that are made on the security of farms as
wide a market and as high credit as state and municipal bonds now
have. They bid fair to bring the rate of interest on long-time loans
to farmers down to 5 per cent or less in the remotest parts of the
land. This will stimulate agricultural improvement, and facilitate
the purchase of land by tenants. Where the interest rate has been
the highest it should raise the value of farm lands as it brings them
within the circle of a lower-interest-rate economy. This may hasten
the transfer of the lands from less provident to more provident
owners, who are willing to take the land at a higher capitalization.
But the system of loans will probably help to develop greater thrift
in the younger farming population.

[Footnote 1: See Vol. I, chs. 12 and 13 on proportionality and

[Footnote 2: See ch. 25, secs. 4 and 5.]

[Footnote 3: See above, ch. 19, secs. 13, 14, 15.]

[Footnote 4: See above, sec. 3.]

[Footnote 5: See ch. 8, sec. 8.]

[Footnote 6: See Vol. I, pp. 495-497, on the relation between lower
interest rates and productive processes.]

[Footnote 7: See ch. 9, sec. 7 on time deposits, and sec. 9 on farm



Sec. 1. Rise of the corporation concept. Sec. 2. The modern era of
corporations. Sec. 3. Beginning of corporation problems. Sec. 4. The era of
canals. Sec. 5. Rapid building of American railroads. Sec. 6. Reasons for
governmental aid. Sec. 7. Kinds of governmental aid. Sec. 8. Emergence of
the railroad problem. Sec. 9. Discrimination as to goods. Sec. 10. Local
discrimination. Sec. 11. Personal discrimination. Sec. 12. Economic power
of railroad managers. Sec. 13. Political power of railroad managers,
Sec. 14. Consolidation of railroads. Sec. 15. State railroad commissions. Sec. 16.
Passage of the Interstate Commerce Act. Sec. 17. Working of the Act.
Sec. 18. Public nature of the railroad franchise. Sec. 19. Other peculiar
privileges of railroads. Sec. 20. Private and public interests to be

Sec. 1. #Rise of the corporation concept#. In the legal systems of
primitive people and long afterward, only natural persons had legal
rights, could make contracts, have property, and carry on a business.

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