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.

“Certainly.”

“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.”

HOW PROFITS CUT DOWN CONSUMPTION.

“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 TELLS ABOUT THE DEADLY GAP.

“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.”

“Certainly.”

“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.”

MARION EXPLAINS OVER-PRODUCTION.

“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?”

“Overproduction.”

“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.”