by Edward Bellamy

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Chapter XXII. Economic suicide of the profit system

The morning following, Edith received a call to report at her post of duty for some special occasion. After she had gone, I sought out the doctor in the library and began to ply him with questions, of which, as usual, a store had accumulated in my mind overnight.

"If you desire to continue your historical studies this morning," he said presently, "I am going to propose a change of teachers."

"I am very well satisfied with the one whom Providence assigned to me," I answered, "but it is quite natural you should want a little relief from such persistent cross-questioning."

"It is not that at all," replied the doctor. "I am sure no one could conceivably have a more inspiring task than mine has been, nor have I any idea of giving it up as yet. But it occurred to me that a little change in the method and medium of instruction this morning might be agreeable."

"Who is to be the new teacher?" I asked.

"There are to be a number of them, and they are not teachers at all, but pupils."

"Come, doctor," I protested, "don't you think a man in my position has enough riddles to guess, without making them up for him?"

"It sounds like a riddle, doesn't it? But it is not. However, I will hasten to explain. As one of those citizens to whom for supposed public services the people have voted the blue ribbon, I have various honorary functions as to public matters, and especially educational affairs. This morning I have notice of an examination at ten o'clock of the ninth grade in the Arlington School. They have been studying the history of the period before the great Revolution, and are going to give their general impressions of it. I thought that perhaps, by way of a change, you might be interested in listening to them, especially in view of the special topic they are going to discuss."

I assured the doctor that no programme could promise more entertainment. "What is the topic they discuss?" I inquired.

"The profit system as a method of economic suicide is their theme," replied the doctor. "In our talks hitherto we have chiefly touched on the moral wrongfulness of the old economic order. In the discussion we shall listen to this morning there will be no reference unless incidentally to moral considerations. The young people will endeavor to show us that there were certain inherent and fatal defects in private capitalism as a machine for producing wealth which, quite apart from its ethical character, made its abolition necessary if the race was ever to get out of the mire of poverty."

"That is a very different doctrine from the preaching I used to hear," I said. "The clergy and moralists in general assured us that there were no social evils for which moral and religious medicine was not adequate. Poverty, they said, was in the end the result of human depravity, and would disappear if everybody would only be good."

"So we read," said the doctor. "How far the clergy and the moralists preached this doctrine with a professional motive as calculated to enhance the importance of their services as moral instructors, how far they merely echoed it as an excuse for mental indolence, and how far they may really have been sincere, we can not judge at this distance, but certainly more injurious nonsense was never taught. The industrial and commercial system by which the labor of a great population is organized and directed constitutes a complex machine. If the machine is constructed unscientifically, it will result in loss and disaster, without the slightest regard to whether the managers are the rarest of saints or the worst of sinners. The world always has had and will have need of all the virtue and true religion that men can be induced to practice; but to tell farmers that personal religion will take the place of a scientific agriculture, or the master of an unseaworthy ship that the practice of good morals will bring his craft to shore, would be no greater childishness than the priests and moralists of your day committed in assuring a world beggared by a crazy economic system that the secret of plenty was good works and personal piety. History gives a bitter chapter to these blind guides, who, during the revolutionary period, did far more harm than those who openly defended the old order, because, while the brutal frankness of the latter repelled good men, the former misled them and long diverted from the guilty system the indignation which otherwise would have sooner destroyed it.

"And just here let me say, Julian, as a most important point for you to remember in the history of the great Revolution, that it was not until the people had outgrown this childish teaching and saw the causes of the world's want and misery, not primarily in human depravity, but in the economic madness of the profit system on which private capitalism depended, that the Revolution began to go forward in earnest."

Now, although the doctor had said that the school we were to visit was in Arlington, which I knew to be some distance out of the city, and that the examination would take place at ten o'clock, he continued to sit comfortably in his chair, though the time was five minutes of ten.

"Is this Arlington the same town that was a suburb of the city in my time?" I presently ventured to inquire.


"It was then ten or twelve miles from the city," I said.

"It has not been moved, I assure you," said the doctor.

"Then if not, and if the examination is to begin in five minutes, are we not likely to be late?" I mildly observed.

"Oh, no," replied the doctor, "there are three or four minutes left yet."

"Doctor," said I, "I have been introduced within the last few days to many new and speedy modes of locomotion, but I can't see how you are going to get me to Arlington from here in time for the examination that begins three minutes hence, unless you reduce me to an electrified solution, send me by wire, and have me precipitated back to my shape at the other end of the line; and even in that case I should suppose we had no time to waste."

"We shouldn't have, certainly, if we were intending to go to Arlington even by that process. It did not occur to me that you would care to go, or we might just as well have started earlier. It is too bad!"

"I did not care about visiting Arlington." I replied, "but I assumed that it would be rather necessary to do so if I were to attend an examination at that place. I see my mistake. I ought to have learned by this time not to take for granted that any of what we used to consider the laws of Nature are still in force."

"The laws of Nature are all right," laughed the doctor. "But is it possible that Edith has not shown you the electroscope?"

"What is that?" I asked.

"It does for vision what the telephone does for hearing," replied the doctor, and, leading the way to the music room, he showed me the apparatus.

"It is ten o'clock," he said, "and we have no time for explanations now. Take this chair and adjust the instrument as you see me do. Now!"

Instantly, without warning, or the faintest preparation for what was coming, I found myself looking into the interior of a large room. Some twenty boys and girls, thirteen to fourteen years of age, occupied a double row of chairs arranged in the form of a semicircle about a desk at which a young man was seated with his back to us. The rows of students were facing us, apparently not twenty feet away. The rustling of their garments and every change of expression in their mobile faces were as distinct to my eyes and ears as if we had been directly behind the teacher, as indeed we seemed to be. At the moment the scene had flashed upon me I was in the act of making some remark to the doctor. As I checked myself, he laughed. "You need not be afraid of interrupting them," he said. "They don't see or hear us, though we both see and hear them so well. They are a dozen miles away."

"Good heavens!" I whispered--for, in spite of his assurance, I could not realize that they did not hear me--"are we here or there?"

"We are here certainly," replied the doctor, "but our eyes and ears are there. This is the electroscope and telephone combined. We could have heard the examination just as well without the electroscope, but I thought you would be better entertained if you could both see and hear. Fine-looking young people, are they not? We shall see now whether they are as intelligent as they are handsome."


"Our subject this morning," said the teacher briskly, "is 'The Economic Suicide of Production for Profit,' or 'The Hopelessness of the Economic Outlook of the Race under Private Capitalism.'--Now, Frank, will you tell us exactly what this proposition means?"

At these words one of the boys of the class rose to his feet.

"It means," he said, "that communities which depended--as they had to depend, so long as private capitalism lasted--upon the motive of profit making for the production of the things by which they lived, must always suffer poverty, because the profit system, by its necessary nature, operated to stop limit and cripple production at the point where it began to be efficient."

"By what is the possible production of wealth limited?"

"By its consumption."

"May not production fall short of possible consumption? May not the demand for consumption exceed the resources of production?"

"Theoretically it may, but not practically--that is, speaking of demand as limited to rational desires, and not extending to merely fanciful objects. Since the division of labor was introduced, and especially since the great inventions multiplied indefinitely the powers of man, production has been practically limited only by the demand created by consumption."

"Was this so before the great Revolution?"

"Certainly. It was a truism among economists that either England, Germany, or the United States alone could easily have supplied the world's whole consumption of manufactured goods. No country began to produce up to its capacity in any line."

"Why not?"

"On account of the necessary law of the profit system, by which it operated to limit production."

"In what way did this law operate?"

"By creating a gap between the producing and consuming power of the community, the result of which was that the people were not able to consume as much as they could produce."

"Please tell us just how the profit system led to this result."

"There being under the old order of things," replied the boy Frank, "no collective agency to undertake the organization of labor and exchange, that function naturally fell into the hands of enterprising individuals who, because the undertaking called for much capital, had to be capitalists. They were of two general classes--the capitalist who organized labor for production; and the traders, the middlemen, and storekeepers, who organized distribution, and having collected all the varieties of products in the market, sold them again to the general public for consumption. The great mass of the people--nine, perhaps, out of ten--were wage-earners who sold their labor to the producing capitalists; or small first-hand producers, who sold their personal product to the middlemen. The farmers were of the latter class. With the money the wage-earners and farmers received in wages, or as the price of their produce, they afterward went into the market, where the products of all sorts were assembled, and bought back as much as they could for consumption. Now, of course, the capitalists, whether engaged in organizing production or distribution, had to have some inducement for risking their capital and spending their time in this work. That inducement was profit."

"Tell us how the profits were collected."

"The manufacturing or employing capitalists paid the people who worked for them, and the merchants paid the farmers for their products in tokens called money, which were good to buy back the blended products of all in the market. But the capitalists gave neither the wage-earner nor the farmer enough of these money tokens to buy back the equivalent of the product of his labor. The difference which the capitalists kept back for themselves was their profit. It was collected by putting a higher price on the products when sold in the stores than the cost of the product had been to the capitalists."

"Give us an example."

"We will take then, first, the manufacturing capitalist, who employed labor. Suppose he manufactured shoes. Suppose for each pair of shoes he paid ten cents to the tanner for leather, twenty cents for the labor of putting, the shoe together, and ten cents for all other labor in any way entering into the making of the shoe, so that the pair cost him in actual outlay forty cents. He sold the shoes to a middleman for, say, seventy-five cents. The middleman sold them to the retailer for a dollar, and the retailer sold them over his counter to the consumer for a dollar and a half. Take next the case of the farmer, who sold not merely his labor like the wage-earner, but his labor blended with his material. Suppose he sold his wheat to the grain merchant for forty cents a bushel. The grain merchant, in selling it to the flouring mill, would ask, say, sixty cents a bushel. The flouring mill would sell it to the wholesale flour merchant for a price over and above the labor cost of milling at a figure which would include a handsome profit for him. The wholesale flour merchant would add another profit in selling to the retail grocer, and the last yet another in selling to the consumer. So that finally the equivalent of the bushel of wheat in finished flour as bought back by the original farmer for consumption would cost him, on account of profit charges alone, over and above the actual labor cost of intermediate processes, perhaps twice what he received for it from the grain merchant."

"Very well," said the teacher. "Now for the practical effect of this system."

"The practical effect," replied the boy, "was necessarily to create a gap between the producing and consuming power of those engaged in the production of the things upon which profits were charged. Their ability to consume would be measured by the value of the money tokens they received for producing the goods, which by the statement was less than the value put upon those goods in the stores. That difference would represent a gap between what they could produce and what they could consume."


"Margaret," said the teacher, "you may now take up the subject where Frank leaves it, and tell us what would be the effect upon the economic system of a people of such a gap between its consuming and producing power as Frank shows us was caused by profit taking."

"The effect," said the girl who answered to the name of Margaret, "would depend on two factors: first, on how numerous a body were the wage-earners and first producers, on whose products the profits were charged; and, second, how large was the rate of profit charged, and the consequent discrepancy between the producing and consuming power of each individual of the working body. If the producers on whose product a profit was charged were but a handful of the people, the total effect of their inability to buy back and consume more than a part of their product would create but a slight gap between the producing and consuming power of the community as a whole. If, on the other hand, they constituted a large proportion of the whole population, the gap would be correspondingly great, and the reactive effect to check production would be disastrous in proportion."

"And what was the actual proportion of the total population made up by the wage-earners and original producers, who by the profit system were prevented from consuming as much as they produced?"

"It constituted, as Frank has said, at least nine tenths of the whole people, probably more. The profit takers, whether they were organizers of production or of distribution, were a group numerically insignificant, while those on whose product the profits were charged constituted the bulk of the community."

"Very well. We will now consider the other factor on which the size of the gap between the producing and consuming power of the community created by the profit system was dependent--namely, the rate of profits charged. Tell us, then, what was the rule followed by the capitalists in charging profits. No doubt, as rational men who realized the effect of high profits to prevent consumption, they made a point of making their profits as low as possible."

"On the contrary, the capitalists made their profits as high as possible. Their maxim was, 'Tax the traffic all it will bear.'"

"Do you mean that instead of trying to minimize the effect of profit charging to diminish consumption, they deliberately sought to magnify it to the greatest possible degree?"

"I mean that precisely," replied Margaret. "The golden rule of the profit system, the great motto of the capitalists, was, 'Buy in the Cheapest Market, and sell in the Dearest.'"

"What did that mean?"

"It meant that the capitalist ought to pay the least possible to those who worked for him or sold him their produce, and on the other hand should charge the highest possible price for their product when he offered it for sale to the general public in the market."

"That general public," observed the teacher, "being chiefly composed of the workers to whom he and his fellow-capitalists had just been paying as nearly nothing as possible for creating the product which they were now expected to buy back at the highest possible price."


"Well, let us try to realize the full economic wisdom of this rule as applied to the business of a nation. It means, doesn't it, Get something for nothing, or as near nothing as you can. Well, then, if you can get it for absolutely nothing, you are carrying out the maxim to perfection. For example, if a manufacturer could hypnotize his workmen so as to get them to work for him for no wages at all, he would be realizing the full meaning of the maxim, would he not?"

"Certainly; a manufacturer who could do that, and then put the product of his unpaid workmen on the market at the usual price, would have become rich in a very short time."

"And the same would be true, I suppose, of a grain merchant who was able to take such advantage of the farmers as to obtain their grain for nothing, afterward selling it at the top price."

"Certainly. He would become a millionaire at once."

"Well, now, suppose the secret of this hypnotizing process should get abroad among the capitalists engaged in production and exchange, and should be generally applied by them so that all of them were able to get workmen without wages, and buy produce without paying anything for it, then doubtless all the capitalists at once would become fabulously rich."

"Not at all."

"Dear me! why not?"

"Because if the whole body of wage-earners failed to receive any wages for their work, and the farmers received nothing for their produce, there would be nobody to buy anything, and the market would collapse entirely. There would be no demand for any goods except what little the capitalists themselves and their friends could consume. The working people would then presently starve, and the capitalists be left to do their own work."

"Then it appears that what would be good for the particular capitalist, if he alone did it, would be ruinous to him and everybody else if all the capitalists did it. Why was this?"

"Because the particular capitalist, in expecting to get rich by underpaying his employees, would calculate on selling his produce, not to the particular group of workmen he had cheated, but to the community at large, consisting of the employees of other capitalists not so successful in cheating their workmen, who therefore would have something to buy with. The success of his trick depended on the presumption that his fellow-capitalists would not succeed in practicing the same trick. If that presumption failed, and all the capitalists succeeded at once in dealing with their employees, as all were trying to do, the result would be to stop the whole industrial system outright."

"It appears, then, that in the profit system we have an economic method, of which the working rule only needed to be applied thoroughly enough in order to bring the system to a complete standstill and that all which kept the system going was the difficulty found in fully carrying out the working rule.

"That was precisely so," replied the girl; "the individual capitalist grew rich fastest who succeeded best in beggaring those whose labor or produce he bought; but obviously it was only necessary for enough capitalists to succeed in so doing in order to involve capitalists and people alike in general ruin. To make the sharpest possible bargain with the employer or producer, to give him the least possible return for his labor or product, was the ideal every capitalist must constantly keep before him, and yet it was mathematically certain that every such sharp bargain tended to undermine the whole business fabric, and that it was only necessary that enough capitalists should succeed in making enough such sharp bargains to topple the fabric over."

"One question more. The bad effects of a bad system are always aggravated by the willfulness of men who take advantage of it, and so, no doubt, the profit system was made by selfish men to work worse than it might have done. Now, suppose the capitalists had all been fair-minded men and not extortioners, and had made their charges for their services as small as was consistent with reasonable gains and self-protection, would that course have involved such a reduction of profit charges as would have greatly helped the people to consume their products and thus to promote production?"

"It would not," replied the girl. "The antagonism of the profit system to effective wealth production arose from causes inherent in and inseparable from private capitalism; and so long as private capitalism was retained, those causes must have made the profit system inconsistent with any economic improvement in the condition of the people, even if the capitalists had been, angels. The root of the evil was not moral, but strictly economic."

"But would not the rate of profits have been much reduced in the case supposed?"

"In some instances temporarily no doubt, but not generally, and in no case permanently. It is doubtful if profits, on the whole, were higher than they had to be to encourage capitalists to undertake production and trade."

"Tell us why the profits had to be so large for this purpose."

"Legitimate profits under private capitalism," replied the girl Margaret--"that is, such profits as men going into production or trade must in self-protection calculate upon, however well disposed toward the public--consisted of three elements, all growing out of conditions inseparable from private capitalism, none of which longer exist. First, the capitalist must calculate on at least as large a return on the capital he was to put into the venture as he could obtain by lending it on good security--that is to say, the ruling rate of interest. If he were not sure of that, he would prefer to lend his capital. But that was not enough. In going into business he risked the entire loss of his capital, as he would not if it were lent on good security. Therefore, in addition to the ruling rate of interest on capital, his profits must cover the cost of insurance on the capital risked--that is, there must be a prospect of gains large enough in case the venture succeeded to cover the risk of loss of capital in case of failure. If the chances of failure, for instance, were even, he must calculate on more than a hundred per cent profit in case of success. In point of fact, the chances of failure in business and loss of capital in those days were often far more than even. Business was indeed little more than a speculative risk, a lottery in which the blanks greatly outnumbered the prizes. The prizes to tempt investment must therefore be large. Moreover, if a capitalist were personally to take charge of the business in which he invested his capital, he would reasonably have expected adequate wages of superintendence--compensation, in other words, for his skill and judgment in navigating the venture through the stormy waters of the business sea, compared with which, as it was in that day, the North Atlantic in midwinter is a mill pond. For this service he would be considered justified in making a large addition to the margin of profit charged."

"Then you conclude, Margaret, that, even if disposed to be fair toward the community, a capitalist of those days would not have been able safely to reduce his rate of profits sufficiently to bring the people much nearer the point of being able to consume their products than they were."

"Precisely so. The root of the evil lay in the tremendous difficulties, complexities, mistakes, risks, and wastes with which private capitalism necessarily involved the processes of production and distribution, which under public capitalism have become so entirely simple, expeditious, and certain."

"Then it seems it is not necessary to consider our capitalist ancestors moral monsters in order to account for the tragical outcome of their economic methods."

"By no means. The capitalists were no doubt good and bad, like other people, but probably stood up as well as any people could against the depraving influences of a system which in fifty years would have turned heaven itself into hell."


"That will do, Margaret," said the teacher. "We will next ask you, Marion, to assist us in further elucidating the subject. If the profit system worked according to the description we have listened to, we shall be prepared to learn that the economic situation was marked by the existence of large stores of consumable goods in the hands of the profit takers which they would be glad to sell, and, on the other hand, by a great population composed of the original producers of the goods, who were in sharp need of the goods but unable to purchase them. How does this theory agree with the facts stated in the histories?"

"So well," replied Marion, "that one might almost think you had been reading them." At which the class smiled, and so did I.

"Describe, without unnecessary infusion of humor--for the subject was not humorous to our ancestors--the condition of things to which you refer. Did our great-grandfathers recognize in this excess of goods over buyers a cause of economic disturbance?"

"They recognized it as the great and constant cause of such disturbance. The perpetual burden of their complaints was dull times, stagnant trade, glut of products. Occasionally they had brief periods of what they called good times, resulting from a little brisker buying, but in the best of what they called good times the condition of the mass of the people was what we should call abjectly wretched."

"What was the term by which they most commonly described the presence in the market of more products than could be sold?"


"Was it meant by this expression that there had been actually more food, clothing, and other good things produced than the people could use?"

"Not at all. The mass of the people were in great need always, and in more bitter need than ever precisely at the times when the business machine was clogged by what they called overproduction. The people, if they could have obtained access to the overproduced goods, would at any time have consumed them in a moment and loudly called for more. The trouble was, as has been said, that the profits charged by the capitalist manufacturers and traders had put them out of the power of the original producers to buy back with the price they had received for their labor or products."

"To what have our historians been wont to compare the condition of the community under the profit system?"

"To that of a victim of the disease of chronic dyspepsia so prevalent among our ancestors."

"Please develop the parallel."

"In dyspepsia the patient suffered from inability to assimilate food. With abundance of dainties at hand he wasted away from the lack of power to absorb nutriment. Although unable to eat enough to support life, he was constantly suffering the pangs of indigestion, and while actually starving for want of nourishment, was tormented by the sensation of an overloaded stomach. Now, the economic condition of a community under the profit system afforded a striking analogy to the plight of such a dyspeptic. The masses of the people were always in bitter need of all things, and were abundantly able by their industry to provide for all their needs, but the profit system would not permit them to consume even what they produced, much less produce what they could. No sooner did they take the first edge off of their appetite than the commercial system was seized with the pangs of acute indigestion and all the symptoms of an overloaded system, which nothing but a course of starvation would relieve, after which the experience would be repeated with the same result, and so on indefinitely."

"Can you explain why such an extraordinary misnomer as overproduction, should be applied to a situation that would better be described as famine; why a condition should be said to result from glut when it was obviously the consequence of enforced abstinence? Surely, the mistake was equivalent to diagnosing a case of starvation as one of gluttony."

"It was because the economists and the learned classes, who alone had a voice, regarded the economic question entirely from the side of the capitalists and ignored the interest of the people. From the point of view of the capitalist it was a case of overproduction when he had charged profits on products which took them beyond the power of the people to buy, and so the economist writing in his interest called it. From the point of view of the capitalist, and consequently of the economist, the only question was the condition of the market, not of the people. They did not concern themselves whether the people were famished or glutted; the only question was the condition of the market. Their maxim that demand governed supply, and supply would always meet demand, referred in no way to the demand representing human need, but wholly to an artificial thing called the market, itself the product of the profit system."

"What was the market?"

"The market was the number of those who had money to buy with. Those who had no money were non-existent so far as the market was concerned, and in proportion as people had little money they were a small part of the market. The needs of the market were the needs of those who had the money to supply their needs with. The rest, who had needs in plenty but no money, were not counted, though they were as a hundred to one of the moneyed. The market was supplied when those who could buy had enough, though the most of the people had little and many had nothing. The market was glutted when the well-to-do were satisfied, though starving and naked mobs might riot in the streets."

"Would such a thing be possible nowadays as full storehouses and a hungry and naked people existing at the same time?"

"Of course not. Until every one was satisfied there could be no such thing as overproduct now. Our system is so arranged that there can be too little nowhere so long as there is too much anywhere. But the old system had no circulation of the blood."

"What name did our ancestors give to the various economic disturbances which they ascribed to overproduction?"

"They called them commercial crises. That is to say, there was a chronic state of glut which might be called a chronic crisis, but every now and then the arrears resulting from the constant discrepancy between consumption and production accumulated to such a degree as to nearly block business. When this happened they called it, in distinction from the chronic glut, a crisis or panic, on account of the blind terror which it caused."

"To what cause did they ascribe the crises?"

"To almost everything besides the perfectly plain reason. An extensive literature seems to have been devoted to the subject. There are shelves of it up at the museum which I have been trying to go through, or at least to skim over, in connection with this study. If the books were not so dull in style they would be very amusing, just on account of the extraordinary ingenuity the writers display in avoiding the natural and obvious explanation of the facts they discuss. They even go into astronomy."

"What do you mean?"

"I suppose the class will think I am romancing, but it is a fact that one of the most famous of the theories by which our ancestors accounted for the periodical breakdowns of business resulting from the profit system was the so-called 'sun-spot theory.' During the first half of the nineteenth century it so happened that there were severe crises at periods about ten or eleven years apart. Now, it happened that sun spots were at a maximum about every ten years, and a certain eminent English economist concluded that these sun spots caused the panics. Later on it seems this theory was found unsatisfactory, and gave place to the lack-of-confidence explanation."

"And what was that?"

"I could not exactly make out, but it seemed reasonable to suppose that there must have developed a considerable lack of confidence in an economic system which turned out such results."

"Marion, I fear you do not bring a spirit of sympathy to the study of the ways of our forefathers, and without sympathy we can not understand others."

"I am afraid they are a little too other, for me to understand."

The class tittered, and Marion was allowed to take her seat.


"Now, John," said the teacher, "we will ask you a few questions. We have seen by what process a chronic glut of goods in the market resulted from the operation of the profit system to put products out of reach of the purchasing power of the people at large. Now, what notable characteristic and main feature of the business system of our forefathers resulted from the glut thus produced?"

"I suppose you refer to competition?" said the boy.

"Yes. What was competition and what caused it, referring especially to the competition between capitalists?"

"It resulted, as you intimate, from the insufficient consuming power of the public at large, which in turn resulted from the profit system. If the wage-earners and first-hand producers had received purchasing power sufficient to enable them to take up their numerical proportion of the total product offered in the market, it would have been cleared of goods without any effort on the part of sellers, for the buyers would have sought the sellers and been enough to buy all. But the purchasing power of the masses, owing to the profits charged on their products, being left wholly inadequate to take those products out of the market, there naturally followed a great struggle between the capitalists engaged in production and distribution to divert the most possible of the all too scanty buying each in his own direction. The total buying could not of course be increased a dollar without relatively, or absolutely increasing the purchasing power in the people's hands, but it was possible by effort to alter the particular directions in which it should be expended, and this was the sole aim and effect of competition. Our forefathers thought it a wonderfully fine thing. They called it the life of trade, but, as we have seen, it was merely a symptom of the effect of the profit system to cripple consumption."

"What were the methods which the capitalists engaged in production and exchange made use of to bring trade their way, as they used to say?"

"First was direct solicitation of buyers and a shameless vaunting of every one's wares by himself and his hired mouthpieces, coupled with a boundless depreciation of rival sellers and the wares they offered. Unscrupulous and unbounded misrepresentation was so universally the rule in business that even when here and there a dealer told the truth he commanded no credence. History indicates that lying has always been more or less common, but it remained for the competitive system as fully developed in the nineteenth century to make it the means of livelihood of the whole world. According to our grandfathers--and they certainly ought to have known--the only lubricant which was adapted to the machinery of the profit system was falsehood, and the demand for it was unlimited."

"And all this ocean of lying, you say, did not and could not increase the total of goods consumed by a dollar's worth."

"Of course not. Nothing, as I said, could increase that save an increase in the purchasing power of the people. The system of solicitation or advertising, as it was called, far from increasing the total sale, tended powerfully to decrease it."

"How so?"

"Because it was prodigiously expensive and the expense had to be added to the price of the goods and paid by the consumer, who therefore could buy just so much less than if he had been left in peace and the price of the goods had been reduced by the saving in advertising."

"You say that the only way by which consumption could have been increased was by increasing the purchasing power in the hands of the people relatively to the goods to be bought. Now, our forefathers claimed that this was just what competition did. They claimed that it was a potent means of reducing prices and cutting down the rate of profits, thereby relatively increasing the purchasing power of the masses. Was this claim well based?"

"The rivalry of the capitalists among themselves," replied the lad, "to tempt the buyers' custom certainly prompted them to undersell one another by nominal reductions of prices, but it was rarely that these nominal reductions, though often in appearance very large, really represented in the long run any economic benefit to the people at large, for they were generally effected by means which nullified their practical value."

"Please make that clear."

"Well, naturally, the capitalist would prefer to reduce the prices of his goods in such a way, if possible, as not to reduce his profits, and that would be his study. There were numerous devices which he employed to this end. The first was that of reducing the quality and real worth of the goods on which the price was nominally cut down. This was done by adulteration and scamped work, and the practice extended in the nineteenth century to every branch of industry and commerce and affected pretty nearly all articles of human consumption. It came to that point, as the histories tell us, that no one could ever depend on anything he purchased being what it appeared or was represented. The whole atmosphere of trade was mephitic with chicane. It became the policy of the capitalists engaged in the most important lines of manufacture to turn out goods expressly made with a view to wearing as short a time as possible, so as to need the speedier renewal. They taught their very machines to be dishonest, and corrupted steel and brass. Even the purblind people of that day recognized the vanity of the pretended reductions in price by the epithet 'cheap and nasty,' with which they characterized cheapened goods. All this class of reductions, it is plain, cost the consumer two dollars for every one it professed to save him. As a single illustration of the utterly deceptive character of reductions in price under the profit system, it may be recalled that toward the close of the nineteenth century in America, after almost magical inventions for reducing the cost of shoemaking, it was a common saying that although the price of shoes was considerably lower than fifty years before, when they were made by hand, yet that later-made shoes were so much poorer in quality as to be really quite as expensive as the earlier."

"Were adulteration and scamped work the only devices by which sham reductions of prices was effected?"

"There were two other ways. The first was where the capitalist saved his profits while reducing the price of goods by taking the reduction out of the wages he had paid his employees. This was the method by which the reductions in price were very generally brought about. Of course, the process was one which crippled the purchasing power of the community by the amount of the lowered wages. By this means the particular group of capitalists cutting down wages might quicken their sales for a time until other capitalists likewise cut wages. In the end nobody was helped, not even the capitalist. Then there was the third of the three main kinds of reductions in price to be credited to competition--namely, that made on account of labor-saving machinery or other inventions which enabled the capitalist to discharge his laborers. The reduction in price on the goods was here based, as in the former case, on the reduced amount of wages paid out, and consequently meant a reduced purchasing power on the part of the community, which, in the total effect, usually nullified the advantage of reduced price, and often more than nullified it."

"You have shown," said the teacher, "that most of the reductions of price effected by competition were reductions at the expense of the original producers or of the final consumers, and not reductions in profits. Do you mean to say that the competition of capitalists for trade never operated to reduce profits?"

"Undoubtedly it did so operate in countries where from the long operation of the profit system surplus capital had accumulated so as to compete under great pressure for investment; but under such circumstances reductions in prices, even though they might come from sacrifices of profits, usually came too late to increase the consumption of the people."

"How too late?"

"Because the capitalist had naturally refrained from sacrificing his profits in order to reduce prices so long as he could take the cost of the reduction out of the wages of his workmen or out of the first-hand producer. That is to say, it was only when the working masses had been reduced to pretty near the minimum subsistence point that the capitalist would decide to sacrifice a portion of his profits. By that time it was too late for the people to take advantage of the reduction. When a population had reached that point, it had no buying power left to be stimulated. Nothing short of giving commodities away freely could help it. Accordingly, we observe that in the nineteenth century it was always in the countries where the populations were most hopelessly poor that the prices were lowest. It was in this sense a bad sign for the economic condition of a community when the capitalist found it necessary to make a real sacrifice of profits, for it was a clear indication that the working masses had been squeezed until they could be squeezed no longer."

"Then, on the whole, competition was not a palliative of the profit system?"

"I think that it has been made apparent that it was a grievous aggravation of it. The desperate rivalry of the capitalists for a share in the scanty market which their own profit taking had beggared drove them to the practice of deception and brutality, and compelled a hard-heartedness such as we are bound to believe human beings would not under a less pressure have been guilty of."

"What was the general economic effect of competition?"

"It operated in all fields of industry, and in the long run for all classes, the capitalists as well as the non-capitalists, as a steady downward pull as irresistible and universal as gravitation. Those felt it first who had least capital, the wage-earners who had none, and the farmer proprietors who, having next to none, were under almost the same pressure to find a prompt market at any sacrifice of their product, as were the wage-earners to find prompt buyers for their labor. These classes were the first victims of the competition to sell in the glutted markets of things and of men. Next came the turn of the smaller capitalists, till finally only the largest were left, and these found it necessary for self-preservation to protect themselves against the process of competitive decimation by the consolidation of their interests. One of the signs of the times in the period preceding the Revolution was this tendency among the great capitalists to seek refuge from the destructive efforts of competition through the pooling of their undertakings in great trusts and syndicates."

"Suppose the Revolution had not come to interrupt that process, would a system under which capital and the control of all business had been consolidated in a few hands have been worse for the public interest than the effect of competition?"

"Such a consolidated system would, of course, have been an intolerable despotism, the yoke of which, once assumed, the race might never have been able to break. In that respect private capitalism under a consolidated plutocracy, such as impended at the time of the Revolution, would have been a worse threat to the world's future than the competitive system; but as to the immediate bearings of the two systems on human welfare, private capital in the consolidated form might have had some points of advantage. Being an autocracy, it would have at least given some chance to a benevolent despot to be better than the system and to ameliorate a little the conditions of the people, and that was something competition did not allow the capitalists to do."

"What do you mean?"

"I mean that under competition there was no free play whatever allowed for the capitalist's better feelings even if he had any. He could not be better than the system. If he tried to be, the system would crush him. He had to follow the pace set by his competitors or fail in business. Whatever rascality or cruelty his rivals might devise, he must imitate or drop out of the struggle. The very wickedest, meanest, and most rascally of the competitors, the one who ground his employees lowest, adulterated his goods most shamefully, and lied about them most skillfully, set the pace for all the rest."

"Evidently, John, if you had lived in the early part of the revolutionary agitation you would have had scant sympathy with those early reformers whose fear was lest the great monopolies would put an end to competition."

"I can't say whether I should have been wiser than my contemporaries in that case," replied the lad, "but I think my gratitude to the monopolists for destroying competition would have been only equaled by my eagerness to destroy the monopolists to make way for public capitalism."


"Now, Robert," said the teacher, "John has told us how the glut of products resulting from the profit system caused a competition among capitalists to sell goods and what its consequences were. There was, however, another sort of glut besides that of goods which resulted from the profit system. What was that?"

"A glut of men," replied the boy Robert. "Lack of buying power on the part of the people, whether from lack of employment or lowered wages, meant less demand for products, and that meant less work for producers. Clogged storehouses meant closed factories and idle populations of workers who could get no work--that is to say, the glut in the goods market caused a corresponding glut in the labor or man market. And as the glut in the goods market stimulated competition among the capitalists to sell their goods, so likewise did the glut in the labor market stimulate an equally desperate competition among the workers to sell their labor. The capitalists who could not find buyers for their goods lost their money indeed, but those who had nothing to sell but their strength and skill, and could find none to buy, must perish. The capitalist, unless his goods were perishable, could wait for a market, but the workingman must find a buyer for his labor at once or die. And in respect to this inability to wait for a market, the farmer, while technically a capitalist, was little better off than the wage-earner, being, on account of the smallness of his capital, almost as unable to withhold his product as the workingman his labor. The pressing necessity of the wage-earner to sell his labor at once on any terms and of the small capitalist to dispose of his product was the means by which the great capitalists were able steadily to force down the rate of wages and the prices paid for their product to the first producers."

"And was it only among the wage-earners and the small producers that this glut of men existed?"

"On the contrary, every trade, every occupation, every art, and every profession, including the most learned ones, was similarly overcrowded, and those in the ranks of each regarded every fresh recruit with jealous eyes, seeing in him one more rival in the struggle for life, making it just so much more difficult than it had been before. It would seem that in those days no man could have had any satisfaction in his labor, however self-denying and arduous, for he must always have been haunted by the feeling that it would have been kinder to have stood aside and let another do the work and take the pay, seeing that there was not work and pay for all."

"Tell us, Robert, did not our ancestors recognize the facts of the situation you have described? Did they not see that this glut of men indicated something out of order in the social arrangements?"

"Certainly. They professed to be much distressed over it. A large literature was devoted to discussing why there was not enough work to go around in a world in which so much more work evidently needed to be done as indicated by its general poverty. The Congresses and Legislatures were constantly appointing commissions of learned men to investigate and report on the subject."

"And did these learned men ascribe it to its obvious cause as the necessary effect of the profit system to maintain and constantly increase a gap between the consuming and producing power of the community?"

"Dear me, no! To have criticised the profit system would have been flat blasphemy. The learned men called it a problem--the problem of the unemployed--and gave it up as a conundrum. It was a favorite way our ancestors had of dodging questions which they could not answer without attacking vested interests to call them problems and give them up as insolvable mysteries of Divine Providence."

"There was one philosopher, Robert--an Englishman--who went to the bottom of this difficulty of the glut of men resulting from the profit system. He stated the only way possible to avoid the glut, provided the profit system was retained. Do you remember his name?"

"You mean Malthus, I suppose."

"Yes. What was his plan?"

"He advised poor people, as the only way to avoid starvation, not to get born--that is, I mean he advised poor people not to have children. This old fellow, as you say, was the only one of the lot who went to the root of the profit system, and saw that there was not room for it and for mankind on the earth. Regarding the profit system as a God-ordained necessity, there could be no doubt in his mind that it was mankind which must, under the circumstances, get off the earth. People called Malthus a cold-blooded philosopher. Perhaps he was, but certainly it was only common humanity that, so long as the profit system lasted, a red flag should be hung out on the planet, warning souls not to land except at their own risk."


"I quite agree with you, Robert," said the teacher, "and now, Emily, we will ask you to take us in charge as we pursue a little further this interesting, if not very edifying theme. The economic system of production and distribution by which a nation lives may fitly be compared to a cistern with a supply pipe, representing production, by which water is pumped in; and an escape pipe, representing consumption, by which the product is disposed of. When the cistern is scientifically constructed the supply pipe and escape pipe correspond in capacity, so that the water may be drawn off as fast as supplied, and none be wasted by overflow. Under the profit system of our ancestors, however, the arrangement was different. Instead of corresponding in capacity with the supply pipe representing production, the outlet representing consumption was half or two thirds shut off by the water-gate of profits, so that it was not able to carry off more than, say, a half or a third of the supply that was pumped into the cistern through the feed pipe of production. Now, Emily, what would be the natural effect of such a lack of correspondence between the inlet and the outlet capacity of the cistern?"

"Obviously," replied the girl who answered to the name of Emily, "the effect would be to clog the cistern, and compel the pumps to slow down to half or one third of their capacity--namely, to the capacity of the escape pipe."

"But," said the teacher, "suppose that in the case of the cistern used by our ancestors the effect of slowing down the pump of production was to diminish still further the capacity of the escape pipe of consumption, already much too small, by depriving the working masses of even the small purchasing power they had before possessed in the form of wages for labor or prices for produce."

"Why, in that case," replied the girl, "it is evident that since slowing down production only checked instead of hastening relief by consumption, there would be no way to avoid a stoppage of the whole service except to relieve the pressure in the cistern by opening waste pipes."

"Precisely so. Well, now, we are in a position to appreciate how necessary a part the waste pipes played in the economic system of our forefathers. We have seen that under that system the bulk of the people sold their labor or produce to the capitalists, but were unable to buy back and consume but a small part of the result of that labor or produce in the market, the rest remaining in the hands of the capitalists as profits. Now, the capitalists, being a very small body numerically, could consume upon their necessities but a petty part of these accumulated profits, and yet, if they did not get rid of them somehow, production would stop, for the capitalists absolutely controlled the initiative in production, and would have no motive to increase accumulations they could not dispose of. In proportion, moreover, as the capitalists from lack of use for more profits should slacken production, the mass of the people, finding none to hire them, or buy their produce to sell again, would lose what little consuming power they had before, and a still larger accumulation of products be left on the capitalists' hands. The question then is, How did the capitalists, after consuming all they could of their profits upon their own necessities, dispose of the surplus, so as to make room for more production?"

"Of course," said the girl Emily, "if the surplus products were to be so expended as to relieve the glut, the first point was that they must be expended in such ways that there should be no return, for them. They must be absolutely wasted--like water poured into the sea. This was accomplished by the use of the surplus products in the support of bodies of workers employed in unproductive kinds of labor. This waste labor was of two sorts--the first was that employed in wasteful industrial and commercial competition; the second was that employed in the means and services of luxury."

"Tell us about the wasteful expenditure of labor in competition."

"That was through the undertaking of industrial and commercial enterprises which were not called for by any increase in consumption, their object being merely the displacement of the enterprises of one capitalist by those of another."

"And was this a very large cause of waste?"

"Its magnitude may be inferred from the saying current at the time that ninety-five per cent of industrial and commercial enterprises failed, which merely meant that in this proportion of instances capitalists wasted their investments in trying to fill a demand which either did not exist or was supplied already. If that estimate were even a remote suggestion of the truth, it would serve to give an idea of the enormous amounts of accumulated profits which were absolutely wasted in competitive expenditure. And it must be remembered also that when a capitalist succeeded in displacing another and getting away his business the total waste of capital was just as great as if he failed, only in the one case it was the capital of the previous investor that was destroyed instead of the capital of the newcomer. In every country which had attained any degree of economic development there were many times more business enterprises in every line than there was business for, and many times as much capital already invested as there was a return for. The only way in which new capital could be put into business was by forcing out and destroying old capital already invested. The ever-mounting aggregation of profits seeking part of a market that was prevented from increasing by the effect of those very profits, created a pressure of competition among capitalists which, by all accounts that come down to us, must have been like a conflagration in its consuming effects upon capital.

"Now tell us something about the other great waste of profits by which the pressure in the cistern was sufficiently relieved to permit production to go on--that is to say, the expenditure of profits for the employment of labor in the service of luxury. What was luxury?"

"The term luxury, in referring to the state of society before the Revolution, meant the lavish expenditure of wealth by the rich to gratify a refined sensualism, while the masses of the people were suffering lack of the primary necessities."

"What were some of the modes of luxurious expenditure indulged in by the capitalists?"

"They were unlimited in variety, as, for example, the construction of costly palaces for residence and their decoration in royal style, the support of great retinues of servants, costly supplies for the table, rich equipages, pleasure ships, and all manner of boundless expenditure in fine raiment and precious stones. Ingenuity was exhausted in contriving devices by which the rich might waste the abundance the people were dying for. A vast army of laborers was constantly engaged in manufacturing an infinite variety of articles and appliances of elegance and ostentation which mocked the unsatisfied primary necessities of those who toiled to produce them."

"What have you to say of the moral aspect of this expenditure for luxury?"

"If the entire community had arrived at that stage of economic prosperity which would enable all alike to enjoy the luxuries equally," replied the girl, "indulgence in them would have been merely a question of taste. But this waste of wealth by the rich in the presence of a vast population suffering lack of the bare necessaries of life was an illustration of inhumanity that would seem incredible on the part of civilized people were not the facts so well substantiated. Imagine a company of persons sitting down with enjoyment to a banquet, while on the floors and all about the corners of the banquet hall were groups of fellow-beings dying with want and following with hungry eyes every morsel the feasters lifted to their mouths. And yet that precisely describes the way in which the rich used to spend their profits in the great cities of America, France, England, and Germany before the Revolution, the one difference being that the needy and the hungry, instead of being in the banquet room itself, were just outside on the street."

"It was claimed, was it not, by the apologists of the luxurious expenditure of the capitalists that they thus gave employment to many who would otherwise have lacked it?"

"And why would they have lacked employment? Why were the people glad to find employment in catering to the luxurious pleasures and indulgences of the capitalists, selling themselves to the most frivolous and degrading uses? It was simply because the profit taking of these same capitalists, by reducing the consuming power of the people to a fraction of its producing power, had correspondingly limited the field of productive employment, in which under a rational system there must always have been work for every hand until all needs were satisfied, even as there is now. In excusing their luxurious expenditure on the ground you have mentioned, the capitalists pleaded the results of one wrong to justify the commission of another."

"The moralists of all ages," said the teacher, "condemned the luxury of the rich. Why did their censures effect no change?"

"Because they did not understand the economics of the subject. They failed to see that under the profit system the absolute waste of the excess of profits in unproductive expenditure was an economic necessity, if production was to proceed, as you showed in comparing it with the cistern. The waste of profits in luxury was an economic necessity, to use another figure, precisely as a running sore is a necessary vent in some cases for the impurities of a diseased body. Under our system of equal sharing, the wealth of a community is freely and equally distributed among its members as is the blood in a healthy body. But when, as under the old system, that wealth was concentrated in the hands of a portion of the community, it lost its vitalizing quality, as does the blood when congested in particular organs, and like that becomes an active poison, to be got rid of at any cost. Luxury in this way might be called an ulcer, which must be kept open if the profit system was to continue on any terms."

"You say," said the teacher, "that in order that production should go on it was absolutely necessary to get the excess of profits wasted in some sort of unproductive expenditure. But might not the profit takers have devised some way of getting rid of the surplus more intelligent than mere competition to displace one another, and more consistent with humane feeling than wasting wealth upon refinements of sensual indulgence in the presence of a needy multitude?"

"Certainly. If the capitalists had cared at all about the humane aspect of the matter, they could have taken a much less demoralizing method in getting rid of the obstructive surplus. They could have periodically made a bonfire of it as a burnt sacrifice to the god Profit, or, if they preferred, it might have been carried out in scows beyond soundings and dumped there."

"It is easy to see," said the teacher, "that from a moral point of view such a periodical bonfire or dump would have been vastly more edifying to gods and men than was the actual practice of expending it in luxuries which mocked the bitter want of the mass. But how about the economic operation of this plan?"

"It would have been as advantageous economically as morally. The process of wasting the surplus profits in competition and luxury was slow and protracted, and meanwhile productive industry languished and the workers waited in idleness and want for the surplus to be so far reduced as to make room for more production. But if the surplus at once, on being ascertained, were destroyed, productive industry would go right on."

"But how about the workmen employed by the capitalists in ministering to their luxuries? Would they not have been thrown out of work if luxury had been given up?"

"On the contrary, under the bonfire system there would have been a constant demand for them in productive employment to provide material for the blaze, and that surely would have been a far more worthy occupation than helping the capitalists to consume in folly the product of their brethren employed in productive industry. But the greatest advantage of all which would have resulted from the substitution of the bonfire for luxury remains to be mentioned. By the time the nation had made a few such annual burnt offerings to the principle of profit, perhaps even after the first one, it is likely they would begin to question, in the light of such vivid object lessons, whether the moral beauties of the profit system were sufficient compensation for so large an economic sacrifice."


"Now, Charles," said the teacher, "you shall help us a little on a point of conscience. We have, one and another, told a very bad story about the profit system, both in its moral and its economic aspects. Now, is it not possible that we have done it injustice? Have we not painted too black a picture? From an ethical point of view we could indeed scarcely have done so, for there are no words strong enough to justly characterize the mock it made of all the humanities. But have we not possibly asserted too strongly its economic imbecility and the hopelessness of the world's outlook for material welfare so long as it should be tolerated? Can you reassure us on this point?"

"Easily," replied the lad Charles. "No more conclusive testimony to the hopelessness of the economic outlook under private capitalism could be desired than is abundantly given by the nineteenth-century economists themselves. While they seemed quite incapable of imagining anything different from private capitalism as the basis of an economic system, they cherished no illusions as to its operation. Far from trying to comfort mankind by promising that if present ills were bravely borne matters would grow better, they expressly taught that the profit system must inevitably result at some time not far ahead in the arrest of industrial progress and a stationary condition of production."

"How did they make that out?"

"They recognized, as we do, the tendency under private capitalism of rents, interest, and profits to accumulate as capital in the hands of the capitalist class, while, on the other hand, the consuming power of the masses did not increase, but either decreased or remained practically stationary. From this lack of equilibrium between production and consumption it followed that the difficulty of profitably employing capital in productive industry must increase as the accumulations of capital so disposable should grow. The home market having been first, glutted with products and afterward the foreign market, the competition of the capitalists to find productive employment for their capital would lead them, after having reduced wages to the lowest possible point, to bid for what was left of the market by reducing their own profits to the minimum point at which it was worth while to risk capital. Below this point more capital would not be invested in business. Thus the rate of wealth production would cease to advance, and become stationary."

"This, you say, is what the nineteenth-century economists themselves taught concerning the outcome of the profit system?"

"Certainly. I could, quote from their standard books any number of passages foretelling this condition of things, which, indeed, it required no prophet to foretell."

"How near was the world--that is, of course, the nations whose industrial evolution had gone farthest--to this condition when the Revolution came?"

"They were apparently on its verge. The more economically advanced countries had generally exhausted their home markets and were struggling desperately for what was left of foreign markets. The rate of interest, which indicated the degree to which capital had become glutted, had fallen in England to two per cent and in America within thirty years had sunk from seven and six to five and three and four per cent, and was falling year by year. Productive industry had become generally clogged, and proceeded by fits and starts. In America the wage-earners were becoming proletarians, and the farmers fast sinking into the state of a tenantry. It was indeed the popular discontent caused by these conditions, coupled with apprehension of worse to come, which finally roused the people at the close of the nineteenth century to the necessity of destroying private capitalism for good and all."

"And do I understand, then, that this stationary condition, after which no increase in the rate of wealth production could be looked for, was setting in while yet the primary needs of the masses remained unprovided for?"

"Certainly. The satisfaction of the needs of the masses, as we have abundantly seen, was in no way recognized as a motive for production under the profit system. As production approached the stationary point the misery of the people would, in fact, increase as a direct result of the competition among capitalists to invest their glut of capital in business. In order to do so, as has already been shown, they sought to reduce the prices of products, and that meant the reduction of wages to wage-earners and prices to first producers to the lowest possible point before any reduction in the profits of the capitalist was considered. What the old economists called the stationary condition of production meant, therefore, the perpetuation indefinitely of the maximum degree of hardship endurable by the people at large."

"That will do, Charles; you have said enough to relieve any apprehension that possibly we were doing injustice to the profit system. Evidently that could not be done to a system of which its own champions foretold such an outcome as you have described. What, indeed, could be added to the description they give of it in these predictions of the stationary condition as a programme of industry confessing itself at the end of its resources in the midst of a naked and starving race? This was the good time coming, with the hope of which the nineteenth-century economists cheered the cold and hungry world of toilers--a time when, being worse off than ever, they must abandon forever even the hope of improvement. No wonder our forefathers described their so-called political economy as a dismal science, for never was there a pessimism blacker, a hopelessness more hopeless than it preached. Ill indeed had it been for humanity if it had been truly a science.


"Now, Esther," the teacher pursued, "I am going to ask you to do a little estimating as to about how much the privilege of retaining the profit system cost our forefathers. Emily has given us an idea of the magnitude of the two great wastes of profits--the waste of competition and the waste of luxury. Now, did the capital wasted in these two ways represent all that the profit system cost the people?"

"It did not give a faint idea of it, much less represent it," replied the girl Esther. "The aggregate wealth wasted respectively in competition and luxury, could it have been distributed equally for consumption among the people, would undoubtedly have considerably raised the general level of comfort. In the cost of the profit system to a community, the wealth wasted by the capitalists was, however, an insignificant item. The bulk of that cost consisted in the effect of the profit system to prevent wealth from being produced, in holding back and tying down the almost boundless wealth-producing power of man. Imagine the mass of the population, instead of being sunk in poverty and a large part of them in bitter want, to have received sufficient to satisfy all their needs and give them ample, comfortable lives, and estimate the amount of additional wealth which it would have been necessary to produce to meet this standard of consumption. That will give you a basis for calculating the amount of wealth which the American people or any people of those days might and would have produced but for the profit system. You may estimate that this would have meant a fivefold, sevenfold, or tenfold increase of production, as you please to guess.

"But tell us this: Would it have been possible for the people of America, say, in the last quarter of the nineteenth century, to have multiplied their production at such a rate if consumption had demanded it?"

"Nothing is more certain than that they could easily have done so. The progress of invention had been so great in the nineteenth century as to multiply from twentyfold to many hundredfold the productive power of industry. There was no time during the last quarter of the century in America or in any of the advanced countries when the existing productive plants could not have produced enough in six months to have supplied the total annual consumption as it actually was. And those plants could have been multiplied indefinitely. In like manner the agricultural product of the country was always kept far within its possibility, for a plentiful crop under the profit system meant ruinous prices to the farmers. As has been said, it was an admitted proposition of the old economists that there was no visible limit to production if only sufficient demand for consumption could be secured."

"Can you recall any instance in history in which it can be argued that a people paid so large a price in delayed and prevented development for the privilege of retaining any other tyranny as they did for keeping the profit system?"

"I am sure there never was such another instance, and I will tell you why I think so. Human progress has been delayed at various stages by oppressive institutions, and the world has leaped forward at their overthrow. But there was never before a time when the conditions had been so long ready and waiting for so great and so instantaneous a forward movement all along the line of social improvement as in the period preceding the Revolution. The mechanical and industrial forces, held in check by the profit system, only required to be unleashed to transform the economic condition of the race as by magic. So much for the material cost of the profit system to our forefathers; but, vast as that was, it is not worth considering for a moment in comparison with its cost in human happiness. I mean the moral cost in wrong and tears and black negations and stifled moral possibilities which the world paid for every day's retention of private capitalism: there are no words adequate to express the sum of that."


"That will do, Esther.--Now, George, I want you to tell us just a little about a particular body among the learned class of the nineteenth century, which, according to the professions of its members, ought to have known and to have taught the people all that we have so easily perceived as to the suicidal character of the profit system and the economic perdition it meant for mankind so long as it should be tolerated. I refer to the political economists."

"There were no political economists before the Revolution," replied the lad.

"But there certainly was a large class of learned men who called themselves political economists."

"Oh, yes; but they labeled themselves wrongly."

"How do you make that out?"

"Because there was not, until the Revolution--except, of course, among those who sought to bring it to pass--any conception whatever of what political economy is."

"What is it?"

"Economy," replied the lad, "means the wise husbandry of wealth in production and distribution. Individual economy is the science of this husbandry when conducted in the interest of the individual without regard to any others. Family economy is this husbandry carried on for the advantage of a family group without regard to other groups. Political economy, however, can only mean the husbandry of wealth for the greatest advantage of the political or social body, the whole number of the citizens constituting the political organization. This sort of husbandry necessarily implies a public or political regulation of economic affairs for the general interest. But before the Revolution there was no conception of such an economy, nor any organization to carry it out. All systems and doctrines of economy previous to that time were distinctly and exclusively private and individual in their whole theory and practice. While in other respects our forefathers did in various ways and degrees recognize a social solidarity and a political unity with proportionate rights and duties, their theory and practice as to all matters touching the getting and sharing of wealth were aggressively and brutally individualistic, antisocial, and unpolitical."

"Have you ever looked over any of the treatises which our forefathers called political economies, at the Historical Library?"

"I confess," the boy answered, "that the title of the leading work under that head was enough for me. It was called The Wealth of Nations. That would be an admirable title for a political economy nowadays, when the production and distribution of wealth are conducted altogether by and for the people collectively; but what meaning could it conceivably have had as applied to a book written nearly a hundred years before such a thing as a national economic organization was thought of, with the sole view of instructing capitalists how to get rich at the cost of, or at least in total disregard of, the welfare of their fellow-citizens? I noticed too that quite a common subtitle used for these so-called works on political economy was the phrase 'The Science of Wealth.' Now what could an apologist of private capitalism and the profit system possibly have to say about the science of wealth? The A B C of any science of wealth production is the necessity of co-ordination and concert of effort; whereas competition, conflict, and endless cross-purposes were the sum and substance of the economic methods set forth by these writers."

"And yet," said the teacher, "the only real fault of these so-called books on Political Economy consists in the absurdity of the title. Correct that, and their value as documents of the times at once becomes evident. For example, we might call them 'Examinations into the Economic and Social Consequences of trying to get along without any Political Economy.' A title scarcely less fit would perhaps be 'Studies into the Natural Course of Economic Affairs when left to Anarchy by the Lack of any Regulation in the General Interest.' It is, when regarded in this light, as painstaking and conclusive expositions of the ruinous effects of private capitalism upon the welfare of communities, that we perceive the true use and value of these works. Taking up in detail the various phenomena of the industrial and commercial world of that day, with their reactions upon the social status, their authors show how the results could not have been other than they were, owing to the laws of private capitalism, and that it was nothing but weak sentimentalism to suppose that while those laws continued in operation any different results could be obtained, however good men's intentions. Although somewhat heavy in style for popular reading, I have often thought that during the revolutionary period no documents could have been better calculated to convince rational men who could be induced to read them, that it was absolutely necessary to put an end to private capitalism if humanity were ever to get forward.

"The fatal and quite incomprehensible mistake of their authors was that they did not themselves see this, conclusion and preach it. Instead of that they committed the incredible blunder of accepting a set of conditions that were manifestly mere barbaric survivals as the basis of a social science when they ought easily to have seen that the very idea of a scientific social order suggested the abolition of those conditions as the first step toward its realization.

"Meanwhile, as to the present lesson, there are two or three points to clear up before leaving it. We have been talking altogether of profit taking, but this was only one of the three main methods by which the capitalists collected the tribute from the toiling world by which their power was acquired and maintained. What were the other two?"

"Rent and interest."

"What was rent?"

"In those days," replied George, "the right to a reasonable and equal allotment of land for private uses did not belong as a matter of course to every person as it does now. No one was admitted to have any natural right to land at all. On the other hand, there was no limit to the extent of land, though it were a whole province, which any one might not legally possess if he could get hold of it. By natural consequence of this arrangement the strong and cunning had acquired most of the land, while the majority of the people were left with none at all. Now, the owner of the land had the right to drive any one off his land and have him punished for entering on it. Nevertheless, the people who owned n required to have it and to use it and must needs go to the capitalists for it. Rent was the price charged by capitalists for not driving people off their land."

"Did this rent represent any economic service of any sort rendered to the community by the rent receiver?"

"So far as regards the charge for the use of the land itself apart from improvements it represented no service of any sort, nothing but the waiver for a price of the owner's legal right of ejecting the occupant. It was not a charge for doing anything, but for not doing something."

"Now tell us about interest; what was that?"

"Interest was the price paid for the use of money. Nowadays the collective administration directs the industrial forces of the nation for the general welfare, but in those days all economic enterprises were for private profit, and their projectors had to hire the labor they needed with money. Naturally, the loan of so indispensable a means as this commanded a high price; that price was interest."

"And did interest represent any economic service to the community on the part of the interest taker in lending his money?"

"None whatever. On the contrary, it was by the very nature of the transaction, a waiver on the part of the lender of the power of action in favor of the borrower. It was a price charged for letting some one else do what the lender might have done but chose not to. It was a tribute levied by inaction upon action."

"If all the landlords and money lenders had died over night, would it have made any difference to the world?"

"None whatever, so long as they left the land and the money behind. Their economic role was a passive one, and in strong contrast with that of the profit-seeking capitalists, which, for good or bad, was at least active."

"What was the general effect of rent and interest upon the consumption and consequently the production of wealth by the community?"

"It operated to reduce both."


"In the same way that profit taking did. Those who received rent were very few, those who paid it were nearly all. Those who received interest were few, and those who paid it many. Rent and interest meant, therefore, like profits, a constant drawing away of the purchasing power of the community at large and its concentration in the hands of a small part of it."

"What have you to say of these three processes as to their comparative effect in destroying the consuming power of the masses, and consequently the demand for production?"

"That differed in different ages and countries according to the stage of their economic development. Private capitalism has been compared to a three-horned bull, the horns being rent, profit, and interest, differing in comparative length and strength according to the age of the animal. In the United States, at the time covered by our lesson, profits were still the longest of the three horns, though the others were growing terribly fast."

"We have seen, George," said his teacher, "that from a period long before the great Revolution it was as true as it is now that the only limit to the production of wealth in society was its consumption. We have seen that what kept the world in poverty under private capitalism was the effect of profits, aided by rent and interest to reduce consumption and thus cripple production, by concentrating the purchasing power of the people in the hands of a few. Now, that was the wrong way of doing things. Before leaving the subject I want you to tell us in a word what is the right way. Seeing that production is limited by consumption, what rule must be followed in distributing the results of production to be consumed in order to develop consumption to the highest possible point, and thereby in turn to create the greatest possible demand for production."

"For that purpose the results of production must be distributed equally among all the members of the producing community."

"Show why that is so."

"It is a self-evident mathematical proposition. The more people a loaf of bread or any given thing is divided among, and the more equally it is divided, the sooner it will be consumed and more bread be called for. To put it in a more formal way, the needs of human beings result from the same natural constitution and are substantially the same. An equal distribution of the things needed by them is therefore that general plan by which the consumption of such things will be at once enlarged to the greatest possible extent and continued on that scale without interruption to the point of complete satisfaction for all. It follows that the equal distribution of products is the rule by which the largest possible consumption can be secured, and thus in turn the largest production be stimulated."

"What, on the other hand, would be the effect on consumption of an unequal division of consumable products?"

"If the division were unequal, the result would be that some would have more than they could consume in a given time, and others would have less than they could have consumed in the same time, the result meaning a reduction of total consumption below what it would have been for that time with an equal division of products. If a million dollars were equally divided among one thousand men, it would presently be wholly expended in the consumption of needed things, creating a demand for the production of as much more; but if concentrated in one man's hands, not a hundredth part of it, however great his luxury, would be likely to be so expended in the same period. The fundamental general law in the science of social wealth is, therefore, that the efficiency of a given amount of purchasing power to promote consumption is in exact proportion to its wide distribution, and is most efficient when equally distributed among the whole body of consumers because that is the widest possible distribution."

"You have not called attention to the fact that the formula of the greatest wealth production--namely, equal sharing of the product among the community--is also that application of the product which will cause the greatest sum of human happiness."

"I spoke strictly of the economic side of the subject."

"Would it not have startled the old economists to hear that the secret of the most efficient system of wealth production was conformity on a national scale to the ethical idea of equal treatment for all embodied by Jesus Christ in the golden rule?"

"No doubt, for they falsely taught that there were two kinds of science dealing with human conduct--one moral, the other economic; and two lines of reasoning as to conduct--the economic, and the ethical; both right in different ways. We know better. There can be but one science of human conduct in whatever field, and that is ethical. Any economic proposition which can not be stated in ethical terms is false. Nothing can be in the long run or on a large scale sound economics which is not sound ethics. It is not, therefore, a mere coincidence, but a logical necessity, that the supreme word of both ethics and economics should be one and the same--equality. The golden rule in its social application is as truly the secret of plenty as of peace."

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