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Modern Economic Problems by Frank Albert Fetter

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institution. In most countries the telegraph is publicly owned and
has been annexed to the post, to which it is very closely related in
purpose. National ownership of railroads is the rule, and our policy
of private ownership the great exception in the world to-day.
Many persons, even some in railroad circles, believe that national
ownership of railroads is sure to develop out of our present policy of

The national improvements connected with rivers and harbors were first
political--that is, they were for the use of the government's navy;
they became, secondly, commercial--for the free use of all citizens
engaged in trade; and they continue to unite these two characters.
Forestry is most largely undertaken in this country by the national
government, partly because some forest areas in the West extend over
state boundaries, and largely because large tracts of public forest
lands were still unsold at the time public attention was attracted
to the subject. Since 1890, the policy of reserving great areas for
forests, and picturesque districts for national parks, has developed
greatly in the United States. The national forest area contained
in the various forests in 20 states (not including Alaska and Porto
Rico), now covers about 225,000 square miles, equal in area to five
states of the size of Pennsylvania. There are, besides, fourteen large
national parks, ranging in size from a few hundred acres up to over
2,140,000 acres (the area of the Yellowstone National Park), and
aggregating 4,600,000 acres, nearly the size of Massachusetts or of
New Jersey, besides numerous other national reservations for monuments
and antiquities.

In some countries mines are thought to be peculiarly fitted for
national ownership and control. In the German Empire the several
states own coal, salt, and other mines. Coinage and banking are
everywhere looked upon as functions of sovereignty, and yet it is no
more necessary for a nation to own its own mint in order to control
the monetary system than for it to print the banknotes in order to
regulate their issue. The American government has its own printing
office. The fish commission, and the various branches of the
department, cooeperate with private industry in many ways. This brief
survey suggests that the industries undertaken by government are both
varied in nature and large in extent, altho small in proportion to the
mass of private industry.

Sec. 12. #Economic basis of public ownership#. The question as to the
proper limits of public ownership is one most actively debated. The
movement is progressing in accordance with the principle that public
ownership is economically justified wherever it secures a product
or service of widespread use that would otherwise be impossible, or
insures the public a better quality or a lower price. The question of
public ownership is not exclusively an economic question. There
are incidental problems, such as its effects on enterprise and on
political integrity, with which it is not possible here to deal. In
the main, however, public ownership is simply a business policy which
must be justified by its economic results. In the case of a general
social benefit not to be secured without public ownership (as popular
education or the climatic effect of forests), the only question
to answer is whether the utility is worth the cost. In the case of
industries already in private hands, as waterworks, gas and electric
lighting, there is needed, to make a wise decision possible, a
knowledge of the effect a change to public ownership will have upon
cost and service. If public officials can furnish some goods cheaper
than they are furnished by private enterprise, it is because of the
wide margin of monopoly profit, not because there is any magic in
public ownership. The same general items of cost must be met. The
first cost of the plant and the annual interest payments are much the
same. Experience shows that, because of political influence and of
public opinion, wages are likely to be higher under public ownership,
but salaries for management lower. Public collection of dues along
with taxes is an advantage not enjoyed by private companies. Several
public officials sometimes share the same office and thus reduce
expenses. In small towns the public electric lighting and waterworks
have been operated more economically under one roof. Some items of
cost may be less under public management, but on the whole, public
industry probably has no advantage in these respects. Public industry
does not have to meet the costs of lobbying and blackmail which are
often forced upon private companies. But the greatest source of saving
in public ownership is the value of monopoly privileges that, under
private management, go into private pockets.

The temptation of political corruption may be more insistent when a
large force of men is constantly employed, and when large supplies are
constantly purchased, by public officials, but the temptation is not
so strong or so centralized as it is in the granting of franchises to
wealthy corporations. Public industry is weakened by the absence of
certain motives to excellence that are present in private business.
The income of public officials not being dependent on the economy of
management, the spur and motives of competitive industry are lacking.
No social discovery has made individual honesty and civic virtue
useless to good government.

The decision in any specific case is one dependent on local
conditions, and the exact limits of public ownership are not fixed.
Industry is changing so rapidly that new adjustments are made every
year. The main outlines of public ownership, however, are now in large
part determined. Some industries do well, others ill, under public
management, and between these lie many debatable cases. Waterworks and
probably electric lighting, because of the comparative simplicity of
their operation, are more suitable for public ownership than are gas
works. No absolute line divides the one group from the other. But
whatever the changes, the fact can not be ignored that the increase
of public ownership is altering in manifold ways the organization
of industry, and is reacting upon the production of wealth, and the
distribution of incomes.

[Footnote 1: See above, ch. 16, sec. 5.]

[Footnote 2: See above, ch. 16, sec. 2, on the police function.]

[Footnote 3: See ch. 16, secs. 3 and 4.]

[Footnote 4: See above, ch. 16, sec. 5, statistics of receipts from
public service enterprises.]



Sec. 1. The distribution of incomes. Sec. 2. Distribution by force and by
status. Sec. 3. Social effects of the right to transmit property. Sec. 4.
Effects of the right to inherit property. Sec. 5. Broader social effects
of inheritance. Sec. 6. Limitations upon intestate inheritance. Sec. 7. Some
merits of competition. Sec. 8. Wide acceptance of competition. Sec. 9.
"Economic harmonies" and discords. Sec. 10. Competition modified by
charitable distribution. Sec. 11. Competition modified by authoritative
distribution. Sec. 12. Meanings of socialism. Sec. 13. Philosophic socialism.
Sec. 14. Socialism in action. Sec. 15. Origin of the radical socialist party.
Sec. 16. The two pillars of "scientific" socialism. Sec. 17. Aspects of the
materialistic philosophy of history. Sec. 18. Utopian nature of "scientific"
socialism. Sec. 19. Its unreal and negative character. Sec. 20. Revisionism and
opportunism in the socialist party. Sec. 21. Alluring claims of
party-socialism. Sec. 22. Growth and nature of the socialist vote. Sec. 23.
Economic legislation and the political parties.

Sec. 1. #The distribution of incomes#. The great economic progress of the
past two centuries has been mainly in lines of technical production.
The developing natural sciences and mechanic arts have given men a
marvelously increased control over forces and materials. This has
multiplied the quantities of goods of most kinds at the disposal of
men, collectively considered. All men, with rare exceptions, have
been gainers; but the increased production has been very unequally
distributed among the members of the community. More and more
insistently the plea and the demand have been made for better methods
of distribution that will give to the masses of the people a larger
share of the goods produced. Production is largely a problem of the
technical arts; distribution is a problem of social economy.

Two aspects of distribution may be distinguished: functional
distribution is the attribution of value (yields) to wealth and labor
considered impersonally, as groups of productive agents; and personal
distribution is the actual movement of incomes into the control of
persons.[1] Personal incomes, whether monetary, real, or psychic,
are the sum of a number of elements. Some parts are due to services
performed by the person himself. When one combs his own hair he
is performing for himself a service that is a part of his income.
Benjamin Franklin said it was better to teach a boy to shave himself
than to give him a thousand dollars with which to pay barbers for a
life-time. Other parts of income are the uses and fruits of legally
controlled wealth; chance finds, as gifts of value or lost and
abandoned goods; goods assigned to one by authority; wealth inherited;
illegal gains by robbery; goods secured on credit; gifts either
of things or of services. The many methods by which incomes are
distributed to the persons making up a society may be grouped in the
following five general classes: force, status, charity, competition,
and authority. These will be discussed in due order.

Sec. 2. #Distribution by force and by status.# Distribution by force is
the most primitive mode of distribution. The stronger takes from the
weaker. Forceful distribution still persists in the form of crime,
and if we include fraud within the term it still affects an enormous
amount of income. The lawless take whatever they can, and the
supporters and officers of the law do what they can to check the acts.
Slavery is distribution by force, as is the levying of war indemnities
from a conquered people.

Distribution may be by status, or set rules and customs. In this case
men receive incomes that are independent of their efforts and outside
of their control. Distribution by status is guided neither by the
personal merit of the recipients nor by the value of their direct
services, but the merits and acts of men not living. Feudal society
was built on status. Men were born to certain privileges and
positions; they inherited property which could neither be bought
nor sold; they followed trades which could rarely be entered by any
outside of favored families. Caste in India and in other Oriental
countries regulates a large part of the life of the people.

This method still prevails to a greater extent in our society than is
usually recognized.[2] By public opinion and by prejudice, status is
still maintained in respect to the choice of occupations even where
the law has formally abolished it, as is seen in modern race problems,
in western countries to-day inheritance of property is the main legal
form of status and it shades off into other forms of distribution.
Private property must find its justification in social expediency.[3]
There is no feature of it that is more questioned than is the right of

Sec. 3. #Social effects of the right to transmit property.# The right
to transmit property by inheritance or by bequest may be judged with
reference to its effects upon the giver, upon the receiver, and upon
society at large. It is well to take these three points of view.
The right to dispose of property either during life or at death has
undoubtedly in many ways a good effect upon the character of men.
It stimulates the husband and father to provide for his wife and
children, and spurs others to continued economic activity. There is
a joy in giving, a joy in the power to bestow one's wealth upon those
one loves, or as one pleases. Much of the existing wealth probably
never would have been created if men had not had this right. But there
is a limit to the working of this motive, and other motives often are
more effective. Many a man after gaining a competence continues to
work for love of wealth and power in his own lifetime, as the miser
continues to toil for love of gold. When men without families die
wealthy, when men not having the slightest interest in their nearest
relatives labor till their dying days to amass wealth, it is evident
that the right to bequeath property has little to do with their
efforts. Love of accumulation and love of power in these cases supply
the motives. A more limited liberty to dispose of property at death
might still suffice, therefore, to call out the greater part of the
efforts now made to accumulate property.

Sec. 4. #Effects of the right to inherit property#. That the effects upon
the receiver of the property are good is somewhat more doubtful. It is
true that children reared in families of large incomes would be great
sufferers if plunged into poverty at the death of their parents. There
is much social justification for permitting families to maintain
an accustomed standard of comfort. Few would deny that provision by
parents to provide education and opportunity for their children is
commendable and desirable. But the evil effects of waiting for dead
men's shoes are proverbial. Many a boy's greatest curse has been his
father's fortune. Many a man of native ability waits idly for fortune
to come and lets opportunities for self-help slip by unheeded. The
world often exclaims over the failure of the sons of noted men to
achieve great things, for, despite confusing evidence, men still
have faith in biologic heredity. A too easy fortune saps ambition and
relaxes energy; and thus rich men's sons, if not most carefully and
wisely trained, are often made paupers in spirit, while the self-made
fathers think their boys have better opportunities than they
themselves enjoyed. The greater social loss is not the dissipated
fortunes, but the ruined characters. Andrew Carnegie said that it
would be a good thing if every boy had to start in poverty and make
his own way. Cecil Rhodes recorded in his will his contempt for the
idle, expectant heir.

Sec. 5. #Broader social effects of inheritance#. Inheritance has good
effects for the community insofar as it helps to secure efficient
management of wealth. If the son or relative has been in business with
the deceased, there is a reason that he should inherit the property,
and his succession to it makes the least disturbance to existing
business conditions. This consideration, however, has less weight as
the corporate form of organization becomes well nigh universal in
"big business." Every profligate son, every incompetent heir, is
an argument against the inheritance of property. It is to society's
interest that no able-bodied member should stand idle. Every child
should have presented to him the motive to use his powers in useful
ways. Moreover, many feel that the great fortunes now accumulating
through successive generations in the hands of a few families are a
danger to our free society, even if these fortunes should continue to
be well administered. There is a widespread feeling that the heredity
of great wealth is, like the heredity of political power, out of
harmony with the democratic spirit. Democracy wishes to see men and
individuals put to the test, not profiting forever by the deeds of
their forebears. This feeling is shared by those who cannot be charged
with radical prejudices. It was startling when a conservative body
of lawyers meeting in their state association in Illinois, passed
a resolution favoring moderate limits to inherited fortunes. Almost
every year sees bills of this purport introduced in the legislatures
and in Congress. Probably no one of many current radical proposals
is more widely favored than this, among men of otherwise conservative
social views. Tho sum most often mentioned as the proper limit is
$1,000,000, but in every case it is a sum larger than the fortune of
the person speaking.[4]

Sec. 6. #Limitations upon intestate inheritance#. A proposal less crude
and with strong reasons of social expediency in its favor is to
limit the right of intestate inheritance to persons that have been
in essential economic and social relations with the deceased. The
foregoing considerations show that the case for the right of gift in
the lifetime of the giver is strongest; that for the right of bequest
comes next. The man who has acquired wealth may usually be trusted to
decide who bear to him close social or personal relations, and to say
whose lives have in a measure furnished the motives of his activity.
But the right of intestate inheritance by distant relatives is one
that stands on weak social foundations. It is a survival from more
patriarchal conditions when, in the large family, or clan, the bond
of unity was very strong. A truer test to-day of the proper limits for
intestate inheritance is whether the wish to provide for these heirs
has furnished the motive for the producing and preserving of the
wealth. The claims of those nearest in blood and closest in personal
relations are strongest. Family affection and friendship form the
strongest of social ties, and it is socially expedient to cultivate
them. Motives for abstinence and industry must be strengthened. But
the same test shows that the zealous regard of the American law for
the rights of distant kinsmen in foreign lands, or in distant quarters
of this country, is irrational, and is unjust to the community where
the fortune was made. Public opinion tends strongly toward this idea.

Property rights as they exist are clearly seen not to be a product of
pure reason. They are the result of social evolution, of historical
accidents, of class legislation, and in many cases, of selfish
interests. Changing social conditions and ideas are bringing many
changes in law, and further changes must be expected to come, which
will reduce the influence of inheritance of property in fostering
status in distribution. Especially important are the increasing
application of the progressive principle to incomes and
inheritance,[5] and the development of insurance to put family savings
into the form of terminable annuities instead of capital sums.[6]

Sec. 7. #Some merits of competition#. The dominant method of distribution
to-day is that of competition.[7] This is not a mere accident, but
is a resultant of unending experimentation with different methods of
distribution carried on since the beginning of human society. A method
of distribution had to be found and retained that would work under
the conditions of human nature at each stage of social progress; and
competition, however imperfectly, has worked. It is evident from the
voices of praise and of blame that competition has its good and its
bad aspects. Let us observe first the good ones. Competition acts to
distribute the working force over the field of industry wherever it
is most needed. The remarkable (tho far from perfect) adjustment
of industry to the needs of each neighborhood is brought about by
individual motives, not by centralized authority. Wherever consumers
settle, stores are started and factories are built. Wherever work is
to be done, men come in about the right number to do it. It is not
mere chance that produces this result. The available skill is adjusted
to varying needs by the delicate measurement of the market rate of
wages. Two-sided competition gives a definite rule of price--the only
definite impersonal rule. The theoretical competitive price is the
standard to which things tend constantly to adjust themselves in an
open market.[8]

Competition is an essentially economic method as contrasted with the
legal and personal methods above and later described, because it
is impersonal and reducible to a rule of value. Distribution under
competition is made, not with reference to abstract ethical principles
or to personal affection, but to the value of the product. Each worker
strives to do what will bring him the largest return, and the price
others pay expresses their estimates of the service in that market.
Each seeking his own interest is led to make himself more valuable to
others. In most cases and in large measure, competition stimulates men
to sacrifice, to invention, to preparation; thus is zeal animated and
are efforts sustained. In the economic realm, as is now seen to be the
case in the biologic realm, competition of some effective kind is
an indispensable condition not only of progress but of life without
degeneration. Monopoly, as we have noted, never has ceased to
rest under the ban of Anglo-Saxon law, and therefore to exemplify
compulsory, as opposed to competitive distribution. A striking feature
of the competitive method is its decentralization. Each helps to value
the economic services of each. If one pays more for the services of
the singer than for those of the cook, it is not because one would
rather listen to the singing than to eat when starving, but because by
apportioning one's income one can get the singing and the eating too.
In the existing circumstances, the singer's services seem to the music
lover to be worth paying for, and he backs his opinion with his money.
So each is measuring the services of all others, and all are valuing
the services of each. It is distribution by valuation, and it is
valuation by democracy.

Sec. 8. #Wide acceptance of competition.# On purely abstract and _a
priori_ grounds competition cannot be accorded an ethical sanction, as
is sometimes assumed. But because of the qualities above outlined, and
because it meets in large measure the pragmatic tests, the competitive
rule of distribution appeals to all men (even to those who denounce
it) as having in many of its applications a moral character, as
compared with the other possible methods of distribution. Indeed,
the competitive rule is the only rule that does not involve either
personal and arbitrary judgment (force, charity, and authority) or
status. Even such measure of justification as is found in status (as
in property and inheritance laws) is traceable, in the long run, to
competition. The case for a limited application of status is based
upon its results in stimulating motives of effort and accumulation.[9]
When the rule of authority is applied to-day in the large field of
public regulation where _actual_ competition has become impossible,
almost the only guiding rule is _hypothetical_ competition. The
just rate is felt to be that which in the long run _would be_ just
sufficient to afford "normal" incomes to labor and to capital, to
call forth the necessary effort, skill, judgment, and forethought,
if competition _were_ at work, as it is not.[10] Only this rule
of hypothetical competition redeems these public rates from
arbitrariness, favoritism, and force.

Sec. 9. #"Economic harmonies" and discords.# Every truth in political
philosophy finds some exaggerated expression. Competition, as
compared with status and custom, has some notable merits; and when the
eighteenth century was throwing off some of the burdens inherited from
the more static Middle Ages, competition appeared to be a panacea for
all the ills of society.[11] The belief in the benefits of competition
and the virtues of economic freedom found its extremist expression
in the first half of the nineteenth century in the doctrine of "the
economic harmonies." According to this, if men are left entirely free
to do as their interests dictate, the highest efficiency and best
results for all will follow; the economic interests of all men are in
harmony. Corresponding with this doctrine is the economic policy of
extreme _laissez faire._

But experience has shown that the economic interests of the
individuals in a community are only partly very rarely are they
wholly, in harmony. There are three species of competition in every
market: that between sellers, that between buyers, and that between
sellers on the one hand and buyers on the other.[12] If at any point
free competition is hindered, even the disciple of economic harmony
must, from the very nature of his doctrine, expect a discordant
result. In reality competition is rarely quite complete on both sides,
and when it is not the weak usually suffer. Men do not start with fair
opportunities. All that they may be entitled to have under competition
may be so little that social sympathy seeks to better the results;
hence poor relief, public and private. Society as a whole has an
interest in the outcome of the individual's economic struggle.
It cannot see men starving or driven into crime. Moreover, when
competition is the rule of valuation, it, like all valuations,
partakes of the quality of those choosing--wise or foolish, good or
evil.[13] And tho competition is the rule of democracy in economics,
yet democracy cannot permit the economic vote of a vicious or of
a foolish group to stand, where the goods, services, and prices
resulting offend the prevailing public judgment and social conscience.

Sec. 10. #Competition modified by charitable distribution.# In practice
the competitive method of distribution always has been modified or
supplemented in varying degrees by the other methods. Important among
these is charitable distribution. Charitable is here used in its
original sense, as synonymous with benevolence and affection. First is
parental love, the root and type of all the forms of charity. There is
a complete lack of economic equivalence in the relation of parent and
child in early years. The helpless infant does nothing for the parent,
the parent gives all and does all for the child. Gradually, however,
the balance is regained; as the years go on, not only do children
repay in affection but in many cases they repay in material ways.
Especially in the factory districts and on the farm the child sooner
or later begins to reestablish the balance, becomes a worker, and
contributes to the family income as much as the cost of his support,
and finally more. A student of modern English town life has traced the
curve of poverty traversed by the average poor family as the children
are first an economic burden, and later an aid to their parents. In
the middle, or propertied, classes the children do not for many years
cease to be a financial burden to their parents, and in most eases the
economic balance is never reestablished. It is not to the parents, but
to the succeeding generation, that the debt is tardily paid.

Friendship widens the range of generosity and multiplies the mass of
gifts. Broad sentiments of humanity lead to gifts outside the range of
personal affection and personal interest, to the beggar on the street,
to institutions devoted to charity. In New York state alone a sum of
more than $20,000,000 a year is expended by institutional charities.
About $512,000,000 in public benefactions were given in the United
States by private donors in the year 1915, and in this respect that
year was not exceptional. An enormous and increasing body of property
is thus being year by year socialized, largely through bequests
from persons without direct heirs. Great public subscriptions to
the sufferers from great disasters, such as the Irish and the Indian
famines, the Chicago fire, the Galveston flood, the San Francisco
earthquake, the great European war, bespeak a widening generosity.
Religion impels to the building of churches, to the support of
priests, missions, and manifold religious undertakings. Charity in
this connection is the expression of a sentiment that varies from
the most intense personal, affection to the broadest and most general
humanitarian sentiment.

Sec. 11. #Competition modified by authoritative distribution.# Authority
is, after force, the oldest and was the earliest widely operative
method of distribution. It shades into force, status, and charity in
manifold ways, but it is essentially the assignment of a common, or
social, income to individuals by some person or persons chosen, or
accepted, by the society to perform this function. Thus it may be
distinguished from force, which takes for itself what belongs to
another; and from charity, which gives to another what belongs to
one's self; and from status, which transmits claims to income from one
generation to another by a fixed impersonal rule, not by a personal
judgment in the particular case.

Authoritative distribution is the dominant method in patriarchal
tribes, in communal societies, and in monastic and other religious
orders. Each person works at what he is commanded to do, and some one
in authority (patriarch, head of the community, father of the monastic
order) portions out the tasks and the rewards. In the family this rule
largely prevails, and even after the children have come to years of
discretion they not infrequently accept, from habit or affection, the
will of the parents, and give up their entire wages to receive back
a portion. The method of charitable distribution while the child is
young gradually changes to authoritative distribution after the child
becomes a worker. The untrained and indocile youth, however, is made
the subject of compulsory distribution.

The collection and distribution of taxes is by public authority. No
attempt is made to give back an exact equivalent to each taxpayer. The
money is taken and spent by authority. The new forms, or at least the
new extensions, of taxation, especially of incomes and inheritances
at progressive rates, are very important examples of authoritative
distribution.[14] The courts sometimes find themselves obliged to
apply the method of authoritative distribution, altho they do it
unwillingly. They try to confine their efforts to interpreting the
contracts men have voluntarily entered into, and they avoid, so far
as possible, the making of contracts or the fixing of rates.
Authoritative distribution is exemplified in the work of many
commissions appointed by law to fix rates or settle disputes, such as
boards of conciliation and arbitration and railway commissions.

Sec. 12. #Meanings of socialism.# Our reason for leaving to the last the
discussion of _authority_ as a method of distribution is not that it
appeared last in historical development, but that it now is the most
strongly advocated as an alternative of competition. One of the most
striking developments of opinion in the nineteenth century was that
favoring an increasing use of authority in distribution. This was
meant not merely to supplement and modify competition, but to displace
it completely, or (in the more moderate program) in large part. This
opinion, or plan, has appeared under a variety of names, the main ones
being communism, collectivism, social-democracy, and socialism, of
which the last name has just now the greatest vogue. Socialism is
a word of manifold meanings no one of which is generally accepted.
Discussion is therefore often a Babel of tongues.

Socialism designates (1) a social[15] philosophy (2) a mode of social
action, (3) a particular political party. There is thus philosophic,
active, and partisan socialism. Each of these may be taken either in
an absolute or in a more or less relative sense. The first meaning
is the most fundamental, the second less so, and the last the least
fundamental, but just now the most frequently used.

Sec. 13. #Philosophic socialism.# As a philosophy socialism is related
to social just as individualism is related to individual. Socialism
is faith in the group motive and group action rather than in
self-interest and competitive action. Instead of social philosophy we
may say social faith, or social ideals. This faith may be absolute,
or radical, to the rejection of all economic competition; or it may
be moderate, and leave more or less place for self-interest and
competition. Every man of conscience and of ideals has moods that
are socialistic (in this sense) and dreams of a world without toil,
competition, or poverty.

This social philosophy has taken form as "Christian Socialism" among
men of strong religious natures, in various religious denominations.
Great secular dreamers--Plato in his "Republic," Sir Thomas More, in
his "Utopia," Edward Bellamy, in "Looking Backward," William Morris,
in "News from Nowhere," and others--have painted beautiful pictures of
ideal economic states from which all of the great evils and problems
of our society have been banished.

Sec. 14. #Socialism in action.# Active socialism is group action in
economic affairs. This may be by private voluntary groups, as a club,
church, or trade union, or by a public group, or political unit of
government, which has therefore a compulsory character. The radical
kind of active socialism would be the ownership by government of all
the means of production and the conduct of all business, assigning
men, by authority, to particular work and granting them such incomes
as the established authority thought they deserved. This kind exists
nowhere. A moderate kind of active socialism is represented by each
separate case of public ownership or industry. Even public regulation
by authority, of the many kinds described in this volume, is touched
with a quality of active socialism. In this sense there can be more or
less of active socialism in a community; a state may be more or less
socialized in its economic aspects. An English Chancellor of the
Exchequer declared in the last decade of the nineteenth century, "We
are all socialists now." The ever-increasing sphere of the state[16]
gives to that statement to-day a larger, fuller meaning than when it
was uttered.

Socialism in action is of course always the expression of a more or
less socialistic philosophy shared by a majority of the people. This
great recent movement of socialization in industry is the expression
not of a radical but of a moderate social philosophy. It does not look
to the abolition, but only to the modification and limitation in
some directions, of private property and of competitive industry. The
spirit of this movement is opportunist, or experimental. It is ready
to try public action, but recognizes that it has difficulties and
limitations. The ultra-radical and the ultra-conservative alike
declare that these measures "logically" lead on to the complete
destruction of private property. But men find that they can warm their
hands without being "logically" compelled to thrust them into
the fire, and that they can quench their thirst without a growing
resolution to drink the well dry. When this governmental activity has
proceeded somewhat extensively and systematically in cities, as in
Great Britain, it is called municipal socialism; and in states, as in
Germany, it is called state socialism.

Sec. 15. #Origin of the radical socialist party.# Socialism in the
partizan sense is an actual political organization. Both in Europe
and in America such organizations have been designated as
"social-democratic," "socialist labor," or "labor" parties. Socialism
in this sense of a party organization, or movement, is very different
from a social philosophy. In its partizan phase socialism exhibits all
of the baffling variability and elusiveness that it does in its other
aspects. However, in its printed program the socialist party sets
forth both a socialist philosophy and an ideal of active socialism in
their most radical forms.

Modern political socialism traces its origin directly to the most
radical of German social philosophers, Marx, Engels, and Lassalle.
Karl Marx (1818-1883), preeminently the philosophic leader of the
movement, sought to give a solider foundation of reason to the
somewhat romantic socialist philosophy current in his day. His own
doctrine, first set forth connectedly[17] in the Communist Manifesto
in 1848, he called Communism. This has come to be called by his
followers, "scientific socialism." "Scientific" was meant to emphasize
the contrast with "Utopian" socialism, as Marx and Engels somewhat
scornfully characterized the older communist philosophy, romances of
the ideal state, and attempts to found and conduct small communistic

Sec. 16. #The two pillars of "scientific" socialism.# Scientific
communism was to be based upon two immovable pillars. The one was
"the labor theory of value," by which all profits and incomes
from investment were shown to be robbery of the wage-workers.[18]
"Capital," that is, the ownership of the means of production, was
declared to be the instrument of this "exploitation." The other
foundation stone was "the materialistic philosophy of history," that
is, the explanation of all the intellectual, cultural, and political
changes of mankind from the side of the material economic conditions
as causes. As Engels expressed it, "The pervading thought ... that the
economic production with the social organization of each historical
epoch necessarily resulting therefrom forms the basis of the political
and intellectual history of this epoch." This doctrine denies that,
in an equally valid sense, biological changes in brain, and cultural
changes in science, arts, and education, cause the mechanical
inventions and improved processes and thus alter the form bf economic

Sec. 17. #Aspects of the materialistic philosophy of history#. Marx's
general formula of economic materialism had three minor propositions
or corollaries: (a) The doctrine of the _class conflict_; all history
is a record of the class struggle between those who have property,
the ruling classes within the nations, and those who have not, the
oppressed working class, (a conception of history blind to most of the
great international conflicts). The class conflict was declared to
be more sharply marked and bitter than ever before; "the entire human
society more and more divides itself into two great hostile camps,
into two great conflicting classes, _bourgeoisie_ and proletariate."
(b) The doctrine of _increasing misery_; the conditions before
described must cause the steadily increasing degradation of the
masses. (c) The _catastrophic theory_; the final and inevitable result
of this movement must be a revolution, when the downtrodden workers
will throw off their chains and expropriate the expropriators. There
is no doubt that Marx, when he first formulated this philosophy,
believed that such a revolution, most violent in nature, would occur
within a few years.

Sec. 18. #Utopian nature of "scientific" socialism#. The term
"scientific" set in contrast with "utopian" was meant to imply that
the doctrine of Marx was not "utopian" (a word which had come to mean
fanciful and impracticable). Marx had a contempt for the romances
of the ideal state and for what he deemed to be the unfounded
speculations of earlier prophets of communism. But utopian (from
_utopia_, Greek for no place) means nonexistent, and Marxian socialism
surely was that. "Experimental" or "actually at work" would have
been a more logical contrast with "utopian." Marx and his followers
likewise had a contempt for the communistic experiments, or
settlements and colonies, which by the scores had been started and had
failed, bringing discredit upon all communistic proposals. The beauty
of "scientific" socialism was that it never could be tried on a small
scale--or tried at all until a whole nation adopted it.

The old time "scientific" socialist had a lofty scorn for any less
dogmatic philosophy than his own or for any less sweeping social
change than that he expected. Moderate social reform to him was but
temporizing; indeed, it was evil, inasmuch as it helped to postpone
the inevitable, but in the end, beneficent catastrophe of the
social revolution. A step-by-step movement toward socialism, state
socialism,[19] even of a pretty sweeping character, was, to the
old-time Marxians, not really socialism at all. A valid reason for
this attitude was found in the extremely limited manhood suffrage
and in the aristocratic class government of most European countries,
especially of Germany; so that, as the party socialists saw it,
multiplying state enterprises but increased the power of the ruling,
and eventually of the militarist, class. The social-democratic leaders
felt that until they themselves were in power, the growth of "state
socialism" would be a calamity for the nation. The events of 1914 may
make our judgment tolerant toward their feeling.

Sec. 19. #Its unreal and negative character.# The so-called "scientific"
socialism had, therefore, a peculiarly unscientific spirit; for, in a
modern sense, science implies a patient search for truth, not a
sudden revelation; a constant testing of opinions by observation
and experiment, not a dogmatic conviction that refuses the test of
reality. "Scientific" socialists talked much (and still talk much) of
the "evolution" of social institutions; but they refused to admit the
essential condition for institutional evolution, the competitive trial
on a small scale, of a new form of economic organization to prove its
fitness to survive. Indeed, it had been tried on a small scale many
times, and had always failed in a brief time.

Lincoln said that a man's legs ought to be long enough to reach to the
ground; but "scientific" socialism was not built on that plan. To be
sure it contained many elements of truth, but these were so distorted
that the result was a caricature of history, of philosophy, of
economics, and of prophecy. The most important influence of radical
socialism has been exerted through negative criticism. It has
performed the function of a party in opposition, relentlessly hunting
out and pointing out the defects of existing institutions, arousing
the smugly contented, and, by its very recklessness and bitterness,
inspiring at times a wholesome fear of more revolutionary evils. This
has been a real service to the cause of moderate and constructive

Sec. 20. #Revisionism and opportunism in the socialist party#. Most
men have always agreed in an adverse judgment of the claims of
"scientific" socialism. The criticisms have been admitted in part even
by the intellectual leaders among the Social-democrats. They lost some
of their fantastic illusions, they tempered some of their exaggerated
claims of oracular inspiration. "Revisionism," the socialist higher
criticism, became influential in the party. Whenever the party gained
any success at the polls, the socialists in public office and the
party leaders found it necessary to "do something" immediately.
The rank and file might be willing to talk of the millennium, but
preferred to take it in instalments instead of waiting for it to come
some centuries after they were dead. And so the socialist party, as
fast as it gained any practical power, became "opportunist" and
worked for moderate practical reforms. The leaders did this with many
misgivings lest the masses might become so reconciled to the present
order that they would refuse to rise in revolt. In that case the
revolution never could happen (altho it was inevitable).

As the party socialists did more to improve the present, they talked
less of the distant future state. They ceased their criticisms of
"mere temporizing" "_bourgeois_" reforms, and began to claim these as
the achievements of the socialist party. They began to write of the
remarkable growth of social legislation in Europe and America in the
past half century under such titles of "socialism in practice" and
"socialists at work." This was despite the fact that these reforms
were all brought about by governments in which the socialist party had
no part whatever or was a well-nigh insignificant minority. This bald
sophistry, or self-deception, was easily possible by confusing the
word "socialist" as relating to the abstract principle of social
action, with socialist as applied to their own party organization. It
is as if the Republican party in the United States were to claim
as its own all the works of the republican spirit and principles of
government in the world from the party's organization to the present

Sec. 21. #Alluring claims of party socialism.# In thus changing the
emphasis of its claims, the socialist party has been somewhat put to
it to retain any clear distinction between itself and other parties of
social reform. It has done this however by continuing to proclaim the
_ultimate_ desirability of reorganizing all society without leaving
any productive wealth in private hands. It has had no misgivings
prompted by the experience of the world. Its case continues to be far
the strongest in its negative aspect, the exposure of the evils in
present society. To many natures the claims of the socialist party
have all the allurements of patent medicine advertisements. These
describe the symptoms so exactly and promise so positively to cure
the disease, that they are irresistible--especially when the regular
physicians keep insisting that the only way to get well is to take
baths and exercise, and stop the use of whisky and tobacco.

Those attracted to the socialist party by its sweeping claims are of
two main types. The one is the low-paid industrial wage-worker; the
other is the sympathetic person of education or of wealth (or of
both), who has become suddenly aroused to the misery in our industrial
order. To both of these types, feeling intensely on the subject,
the socialist party appeals as the only party with promises sweeping
enough to be attractive. The one becomes the proletarian, the
other the intellectual, the one becomes the workshop, the other the
parlor-socialist. Many of the latter type are persons overburdened
either with unearned inherited wealth or with an undigested education.
Many of them, having enjoyed for a time the interesting experience of
radical thought and of bohemianism, come later to more moderate social

Sec. 22. #Growth and nature of the socialist vote.# In 1912 the socialist
party in the United States polled 900,000 votes in the presidential
election. The socialist parties in the various lands have almost
steadily grown, and now cast votes numbering in the aggregate six
to ten million (as variously estimated, the name socialist being
elastic). The socialist parties may be expected to continue
growing. They will ultimately gather within their folds most of
the ultra-discontented, and others that are not able to find an
alternative economic philosophy and a plan that inspire their hopes.
But the socialist party vote is made up of men of many shades
of opinion, a large number of whom hold only the mildest sort
of socialistic philosophy. Not many of the more than 3,000,000
social-democratic voters in Germany before the war were members of the
regular party organization; but they supported the party as the
one unequivocal way to declare themselves against militarism and
undemocratic class-government. In the United States only about one
tenth of the socialistic party voters have been enrolled as members of
the party.

Sec. 23. #Economic legislation and the political parties.# This floating
socialist vote is now so large that it is eagerly sought by candidates
of the older parties. These independent voters care little for the
radical and distant tenets of the socialist party leaders, and these,
to attract wider support, are forced to place increasing stress upon
immediate and moderate reforms. On the other hand, men of larger
qualities of leadership in the older parties are constantly adopting
and advancing pending measures of social reform. Where this is not
done the socialist party tends more quickly to develop into the one
powerful party of protest and of popular aspiration, receiving support
from many elements of the middle and small propertied classes and from
non-radical wageworkers. This movement from both sides is leaving less
noticeable the contrast between the socialist party and other parties
claiming to be "progressive" or "forward looking." The strongest
allies of the more radical communistic faction of the socialist party
are those members of the conservative parties who fail to recognize
the need of humane legislation, who irritate by their unsympathetic
utterances, and who unduly postpone by their powerful opposition the
gradual and healthful unfolding of the social spirit, energy, and
capacity of the nation. The greatest problem of social and economic
legislation for the next generation is to determine how far, and how,
the principle of authority may wisely be substituted for the principle
of competition in distribution.

[Footnote 1: Distribution as a problem of incomes is not to be
confused with distribution of physical goods by transportation (as
on the railroads) or by commercial agencies transferring goods from
producer to consumer (as in cooeperative distribution). Functional
distribution is the prime subject of the theory of value in Vol. I
(e.g., usance, value of labor, time-preference, profits), a study
of which is prerequisite to an intelligent study of the problems of
personal distribution.]

[Footnote 2: See Vol. I, pp. 190, 223; and above, ch. 2, secs. 11-13.]

[Footnote 3: See Vol. I, pp. 248-255, 297-298, 406, 408, 415-418,
480-481, 483-484: also Vol. II, pp. 22-23, 146-148, 161-162, 178-180,
283, and various passages in the chapters of this Part.]

[Footnote 4: See above, ch. 2, sec. 7, on limitations upon bequest and

[Footnote 5: See ch. 18.]

[Footnote 6: See ch. 12, sec. 14.]

[Footnote 7: See ch. 2, sec. 10.]

[Footnote 8: See Vol. I, pp. 54 and 66; also pp. 504 507 in an organic
theory of value.]

[Footnote 9: See above, sec. 2, note 3.]

[Footnote 10: Compare, e.g., portions of chs. 9, 15, 20, 21, 27; and
29, see. 17.]

[Footnote 11: See ch. 2, sees. 11-13.]

[Footnote 12: See Vol. I, p. 75.]

[Footnote 13: See, e.g., Vol. I, pp. 25, 71, 205, 479, 509, 511, 513.]

[Footnote 14: See above, ch. 18.]

[Footnote 15: See Vol. I, p. 6, on "social" and the social sciences.]

[Footnote 16: See e.g., ch. 9, secs. 2, 10; ch. 11, secs. 7, 8; ch.
16, secs. 3, 4, 12; chs. 18, 21, 22, 23, 27, 29, and 30.]

[Footnote 17: See Vol. I, p. 502, on communism and value theory.]

[Footnote 18: See Vol. I, pp. 210, 228, 502 on the labor-theory of

[Footnote 19: See above, sec. 14.]


Accident insurance,
Agricultural credit,
Agricultural, decay,
economics, problems of,
prices, fall of,
Agricultural, and rural population,
Agriculture and crises,
Agriculture, exhaustion of the soil,
number in,
the new,
Aldrich report,
American Federation of Labor,
Appreciation and interest,
Arbitration, voluntary,
Assessment insurance,
Assessment of taxes,
Authoritative distribution,


Balance of merchandise,
Balance of trade argument,
Bank, deposits as investments,
restriction act,
Banking, in the U.S., before 1914,
Banks, functions of,
in U.S.,
taxes on,
Bellamy, Edward,
Bills of exchange,
Bonds, taxation of,
Bowley, statistician,
Building and loan associations,
Business cycle,


California Fruit Exchange,
Canadian Industrial Disputes Act,
Capitalistic monopoly,
Charitable distribution,
Capitalization theory of rises,
Charity, and control of vice,
Christian socialism,
City growth,
Clark, John B.,
Clay, Henry,
Clayton Act,
and farmers,
Cleveland, Grover,
Closed shop, see Open shop
Coinage on governmental account,
Collective bargaining,
Combinations, industrial,
Common law, on monopoly,
Comparative advantages, doctrine of,
Compensated gold dollar,
Compensation, for accidents,
Competition among employers,
among workers,
of railroads,
and monopoly,
as regulative principle,
merits of,
see also Monopoly
Competitive system,
Compulsory insurance,
economy of,
Consolidation, of railroads,
Consumers' League,
Contributory principle in insurance,
Cooeperation, producers',
among farmers,
Corporation taxation,
difficulty of,
Costs of production, and the tariff,
Crises, and industrial depressions,
and unemployment,


Davies, Joseph E.,
Deferred payments, standard of,
Deposits, bank,
Debts, public,
Dingley Act,
Discrimination, railroad,
Displacement theory of immigration,
Distribution of incomes,
Doctrine of comparative advantages,
Dynamic conditions,


Economic, harmonies,
system, the present,
Emerson's premium plan,
Employers, and immigration,
Employment offices,
Engels, Friederich,
Erdman act,


Factory conditions,
Fair competition,
see also Unfair practices
Fairchild, H.P.,
Farm, stock,
raw materials,
and factory,
Farmer's income,
Farming, commercial,
Farms, area,
in U.S.,
size of,
and railroads,
Federal Industrial Commission,
Federal legislation against monopoly,
Federal Reserve Act,
Federal Rural Credits Act,
Federal taxation,
Federal Trade Commission Act,
Fiat money,
Finance, public,
Food prices,
Foreign, banking,
Fractional coins,
Franchises, railroad,
for public utilities,
Free trade,
see also Protective tariff


Gambling, uneconomic character of,
Gantt's premium plan,
Gardner Land Bank Act,
Garfield, James A.,
Ghent, unemployment insurance,
General property tax, see Property
George, Henry,
Glass-Owen bill,
Glut theories of crises,
Gold-exchange standard,
Gold, production,
standard, defectiveness of,
Gold-using countries,
Goldenweiser, E.A.,
Governmental aid to railroads,
Graduated taxation,
Graduation principle,
Gresham's law,


Hadley, A.T.,
Halsey's premium plan,
Hamilton, Alexander,
Hancock, Gen. Winfield Scott,
Harrison, Benjamin,
Hayes, Rutherford B.,
Home market argument,
Housing problem,
Hours and wages, public regulation of,


Immigrants, and organized labor,
Immigration, and low wages,
and population,
economic aspects of,
and wages,
and farming,
Imports into the U.S. chart,
Income, taxation, federal,
Independent treasury,
Index numbers, chart,
Industrial revenues of government,
remuneration, methods of,
monopoly, problem of,
trust, nature of growth,
depressions, see Crises
Infant industry argument,
limitations of,
Interest rate, and deferred payments,
and prices,
in crises,
Insurance, principles of,
companies, taxes on,
against unemployment,
Internal revenue,
International exchange, equation of,
International trade,
Interstate Commerce Act,
Invalidity pensions,
Investment banking,


Jackson, Andrew,
Jenks, J.W.,
Justice in taxation,


Kemmerer, E.W.,
Knights of Labor,


Labor, legislation,
and social legislation,
exchanges, see Employment offices
Land, taxation, reform of,
Large production, in public utilities,
Large industry,
Lassalle, Ferdinand,
Leclaire, profit sharing,
Legal tender,
Loans, governmental,
Lump of labor notion,


McKinley Act,
McKinley, William,
Market, public,
Materialistic philosophy,
Marx, Karl,
Merchandise, imports and exports,
Militarism, and population,
Military power, maximum,
Mill, J.S.,
Minimum wage,
Mitchell, Wesley C.,
Monetary economy,
theory of crises,
Money, nature, use, and coinage,
value of,
quantity theory,
per capita circulation,
Monopolistic nature of protection,
Monopoly, and labor organization,
in railroads,
public policy in respect to,
in public utilities,
Moody, John,
Moral judgments of monopoly,
More, Sir Thomas,
Morris, William,
Mortality table for insurance,
Mortgage taxation,
Municipal ownership,


National banks,
National Monetary Commission,
Negro problem,
Natural agents, and monopoly,
Newlands act,


Old-age pensions,
Open shop,
Organized labor,
and legislation,
Ownership of farms,


Paper money,
Par of exchange,
Paradox of value,
Payne-Aldrich tariff,
Personal taxes,
Piece work,
Police state,
Political, money,
aspects of labor,
aspect of railroads,
Population, agricultural and rural,
and immigration,
Postal savings,
Precious metals as money,
Premium plans,
Price, standard,
common market,
Prices, general level,
changes in,
and international trade,
and monopoly,
Profit sharing,
Profits from monopoly,
Progressive taxes, see graduation,
Promoters of monopoly,
Property, private,
taxes on,
tax on,
Property tax, general,
Protection, "true principle" of,
Protective, tariff, policy of,
tariffs, prevalence of,
railroad rates,
Public finance,
view of trade unions,
and labor legislation,
Public utility commissions,
Public utilities, monopolistic nature of,


Quantity theory of money,


Race problems,
Railroad mileage,
Resources, material,
of the nation,
Reserve, cities,
plan of insurance,
Reserves, bank,
against notes,
against deposits,
Restraint of trade,
Revenue tariff,
Ricardo, David,
Rich man's panic,
Ripley, W.Z.,
Roberts, Peter,
Roosevelt, Theodore,
Root, Elihu,
Rowan's premium plan,
Rural, definition,


Saturation point of money,
Saving, and investment,
Savings, banks,
insurance assets as,
"Scientific" socialism,
Seasonal fluctuations, and unemployment,
Seligman, E.R.A.,
Sherman Anti-trust law,
Shifting and incidence,
of insurance premiums,
Shorter working day,
Sickness, insurance against,
Single tax,
Smith Adam,
Social, legislation,
protective policy of immigration,
agricultural policy,
effects of inheritance,
Social insurance,
by trade unions,
Social utility,
Social welfare, in taxation,
and shorter working day,
Socialism, some aspects of,
meanings of,
Socialist, party,
Standard money,
see also Deferred payments,
State, sphere of,
Strike, right to,


Tabular standard,
Taft, William Howard,
Tariff, changes and crises,
and wages,
and unemployment,
reductions, harm of,
board, a permanent,
history, American,
for revenue,
"true principle" of,
"competitive principle" of,
and business depressions,
Task work,
Taxation, objects and principles of,
revenues from,
forms of,
as a public question,
separation of,
system of,
Taxes, effect upon property valuations,
property and corporation,
Taylor's premium plan,
Tenancy on farms,
Tilden, Samuel J.,
Time work,
Trade education,
Trade unions,
see also Organized labor,
taxes on,
Trant, on trade unions,
Trust company,
Trust, definition,
see Monopoly,
Two-profits argument,


Underwood tariff,
in crises,
Unfair practices,
Usance of wealth,
of labor,
Usury laws,


Van Hise, C.R.,


Wage contract, limitation of,
growth of,
practicability of,
Wages, and tariff,
and general prices,
general, and organization,
particular, and organization,
maladjustment of, and unemployment,
and immigration, see Immigration,
see also Hours and wages,
Walker, Francis A.,
Walker tariff,
Washington, Booker T.,
the nation's,
taxation of,
"Wealth of Nations",
Weir's premium plan,
Wild-cat banking,
Wilson tariff act,
Wilson, Woodrow,
Wolman, L.,
Women, working day for,
Wyman, Bruce,

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