CHAPTER XXVIII.
HOW THE PROFIT SYSTEM NULLIFIED THE BENEFIT OF INVENTIONS.
"The general subject of the hostility of private capitalism toprogress," pursued the teacher, "divides itself, as I said, into twobranches. First, the constitutional antagonism between a system ofdistinct and separate vested interests and all unsettling changes which,whatever their ultimate effect, must be directly damaging to thoseinterests. We will now ask you, Harold, to take up the second branch ofthe subject--namely, the effect of the profit principle to minimize, ifnot wholly to nullify, the benefit to the community of such inventionsand improvements as were able to overcome the antagonism of vestedinterests so far as to get themselves introduced. The nineteenth century,including the last quarter of the eighteenth, was marked by anastonishing and absolutely unprecedented number of great inventions ineconomic processes. To what was this outburst of inventive genius due?"
"To the same cause," replied the boy, "which accounts for the rise of thedemocratic movement and the idea of human equality during the sameperiod--that is to say, the diffusion of intelligence among the masses,which, for the first time becoming somewhat general, multipliedten-thousandfold the thinking force of mankind, and, in the politicalaspect of the matter, changed the purpose of that thinking from theinterest of the few to that of the many."
"Our ancestors," said the teacher, "seeing that this outburst ofinvention took place under private capitalism, assumed that there must besomething in that system peculiarly favorable to the genius of invention.Have you anything to say on that point beyond what has been said?"
"Nothing," replied the boy, "except that by the same rule we ought togive credit to the institutions of royalty, nobility, and plutocracy forthe democratic idea which under their fostering influence during the sameperiod grew to flowering in the great Revolution."
"I think that will do on that point," answered the teacher. "We will nowask you to tell us something more particularly of this great period ofinvention which began in the latter part of the eighteenth century."
HAROLD STATES THE FACTS.
"From the times of antiquity up to the last quarter of the eighteenthcentury," said the lad, "there had been almost no progress in themechanical sciences save as to shipbuilding and arms. From 1780, orthereabouts, dates the beginning of a series of discoveries of sources ofpower, and their application by machinery to economic purposes, which,during the century following, completely revolutionized the conditions ofindustry and commerce. Steam and coal meant a multiplication of humanenergy in the production of wealth which was almost incalculable. Forindustrial purposes it is not too much to say that they transformed manfrom a pygmy to a Titan. These were, of course, only the greatest factorsin a countless variety of discoveries by which prodigious economies oflabor were effected in every detail of the arts by which human life ismaintained and ministered to. In agriculture, where Nature, which can notbe too much hurried, is a large partner, and wherein, therefore, man'spart is less controlling than in other industries, it might be expectedthat the increase of productive energy through human invention would beleast. Yet here it was estimated that agricultural machinery, as mostperfectly developed in America, had multiplied some fifteenfold theproduct of the individual worker. In most sorts of production lessdirectly dependent upon Nature, invention during this period hadmultiplied the efficiency of labor in a much greater degree, ranging fromfifty and a hundred-fold to several thousand-fold, one man being able toaccomplish as much as a small army in all previous ages."
"That is to say," said the teacher, "it would seem that while the needsof the human race had not increased, its power to supply those needs hadbeen indefinitely multiplied. This prodigious increase in the potency oflabor was a clear net economic gain for the world, such as the previoushistory of the race furnished nothing comparable to. It was as if God hadgiven to man his power of attorney in full, to command all the forces ofthe universe to serve him. Now, Harold, suppose you had merely been toldas much as you have told us concerning the hundredfold multiplication ofthe wealth-producing power of the race which took place at this period,and were left, without further information, to infer for yourself howgreat a change for the better in the condition of mankind would naturallyfollow, what would it seem reasonable to suppose?"
"It would seem safe to take for granted at the least," replied the boy,"that every form of human unhappiness or imperfection resulting directlyor indirectly from economic want would be absolutely banished from theearth. That the very meaning of the word poverty would have beenforgotten would seem to be a matter-of-course assumption to begin with.Beyond that we might go on and fancy almost anything in the way ofuniversal diffusion of luxury that we pleased. The facts given as thebasis of the speculation would justify the wildest day-dreams ofuniversal happiness, so far as material abundance could directly orindirectly minister to it."
"Very good, Harold. We know now what to expect when you shall go on totell us what the historical facts are as to the degree of improvement inthe economic condition of the mass of the race, which actually did resultfrom the great inventions of the eighteenth and nineteenth centuries.Take the condition of the mass of the people in the advanced countries atthe close of the nineteenth century, after they had been enjoying thebenefits of coal and steam, and the most of the other great inventionsfor a century, more or less, and comparing it with their condition, say,in 1780, give us some idea of the change for the better which had takenplace in their economic welfare. Doubtless it was something marvelous."
"It was a subject of much nice debate and close figuring," replied theboy, "whether in the most advanced countries there had been, taking oneclass with another, and disregarding mere changes in fashions, any realimprovement at all in the economic basis of the great majority of thepeople."
"Is it possible that the improvement had been so small that there couldbe a question raised whether there had been any at all?"
"Precisely so. As to the English people in the nineteenth century,Florence has given us the facts in speaking of the effects of foreigncommerce. The English had not only a greater foreign commerce than anyother nation, but had also made earlier and fuller use of the greatinventions than any other. She has told us that the sociologists of thetime had no difficulty in proving that the economic condition of theEnglish people was more wretched in the latter part of the nineteenthcentury than it had been centuries previous, before steam had beenthought of, and that this was equally true of the peoples of the LowCountries, and the masses of Germany. As to the working masses of Italyand Spain, they had been in much better economic condition during periodsof the Roman Empire than they were in the nineteenth century. If theFrench were a little better off in the nineteenth than in the eighteenthcentury, it was owing wholly to the distribution of land effected by theFrench Revolution, and in no way to the great inventions."
"How was it in the United States?"
"If America," replied the lad, "had shown a notable improvement in thecondition of the people, it would not be necessary to ascribe it to theprogress of invention, for the wonderful economic opportunities of a newcountry had given them a vast though necessarily temporary advantage overother nations. It does not appear, however, that there was any moreagreement of testimony as to whether the condition of the masses had onthe whole improved in America than in the Old World. In the last decadeof the nineteenth century, with a view to allaying the discontent of thewage-earners and the farmers, which was then beginning to swell torevolutionary volume, agents of the United States Government publishedelaborate comparisons of wages and prices, in which they argued out asmall percentage of gain on the whole in the economic condition of theAmerican artisans during the century. At this distance we can not, ofcourse, criticise these calculations in detail, but we may base areasonable doubt of the conclusion that the condition of the masses hadvery greatly improved upon the existence of the popular discontent whichthey were published in the vain hope of moderating. It seems safe toassume that the people were b
etter acquainted with their own conditionthan the sociologists, and it is certain that it was the growingconviction of the American masses during the closing decades of thenineteenth century that they were losing ground economically and indanger of sinking into the degraded condition of the proletariat andpeasantry of the ancient and contemporary European world. Against thelaborious tabulations of the apologists of capitalism we may adduce, asfar superior and more convincing evidence of the economic tendency of theAmerican people during the latter part of the nineteenth century, suchsigns of the times as the growth of beggary and vagabondage to Old Worldproportions, the embittered revolts of the wage-earners which kept up aconstant industrial war, and finally the condition of bankruptcy intowhich the farming population was sinking."
"That will do as to that point," said the teacher. "In such a comparisonas this small margins and nice points of difference are impertinent. Itis enough that if the indefinite multiplication of man's wealth-producingpower by inventive progress had been developed and distributed with anydegree of intelligence for the general interest, poverty would havedisappeared and comfort if not luxury have become the universalcondition. This being a fact as plain and large as the sun, it isneedless to consider the hairsplitting debates of the economists as towhether the condition of this or that class of the masses in this or thatcountry was a grain better or two grains worse than it had been. It isenough for the purpose of the argument that nobody anywhere in anycountry pretended that there had been an improvement noticeable enough tomake even a beginning toward that complete transformation in the humancondition for the better, of which the great inventions by universaladmission had contained the full and immediate promise and potency.
"And now tell us, Harold, what our ancestors had to say as to thisastonishing fact--a fact more marvelous than the great inventionsthemselves, namely, their failure to prove of any considerable benefit tomankind. Surely a phenomenon at once so amazing in itself and involvingso prodigious a defeat to the hopes of human happiness must have set aworld of rational beings to speculating in a very impassioned way as towhat the explanation might be. One would suppose that the facts of thisfailure with which our ancestors were confronted would have been enoughto convince them that there must be something radically and horriblywrong about any economic system which was responsible for it or hadpermitted it, and that no further argument would have been wanted toinduce them to make a radical change in it."
"One would think so, certainly," said the boy, "but it did not seem tooccur to our great-grandfathers to hold their economic system to anyresponsibility for the result. As we have seen, they recognized, howeverthey might dispute as to percentages, that the great inventions hadfailed to make any notable improvement in the human condition, but theynever seemed to get so far as to inquire seriously why this was so. Inthe voluminous works of the economists of the period we find nodiscussions, much less any attempt to explain, a fact which to our viewabsolutely overshadows all the other features of the economic situationbefore the Revolution. And the strangest thing about it all is that theirfailure to derive any benefit worth speaking of from the progress ofinvention in no way seemed to dampen the enthusiasm of our ancestorsabout the inventions. They seemed fairly intoxicated with the pride oftheir achievements, barren of benefit as they had been, and their daydreams were of further discoveries that to a yet more amazing degreeshould put the forces of the universe at their disposal. None of themapparently paused to reflect that though God might empty his treasurehouse for their benefit of its every secret of use and of power, the racewould not be a whit the better off for it unless they devised someeconomic machinery by which these discoveries might be made to serve thegeneral welfare more effectually than they had done before. They do notseem to have realized that so long as poverty remained, every newinvention which multiplied the power of wealth production was but onemore charge in the indictment against their economic system as guilty ofan imbecility as great as its iniquity. They appear to have whollyoverlooked the fact that until their mighty engines should be devoted toincreasing human welfare they were and would continue mere curiousscientific toys of no more real worth or utility to the race than so manyparticularly ingenious jumping-jacks. This craze for more and more andever greater and wider inventions for economic purposes, coupled withapparent complete indifference as to whether mankind derived any ultimatebenefit from them or not, can only be understood by regarding it as oneof those strange epidemics of insane excitement which have been known toaffect whole populations at certain periods, especially of the middleages. Rational explanation it has none."
"You may well say so," exclaimed the teacher. "Of what use indeed was itthat coal had been discovered, when there were still as many firelesshomes as ever? Of what use was the machinery by which one man could weaveas much cloth as a thousand a century before when there were as manyragged, shivering human beings as ever? Of what use was the machinery bywhich the American farmer could produce a dozen times as much food as hisgrandfather when there were more cases of starvation and a largerproportion of half-fed and badly fed people in the country than everbefore, and hordes of homeless, desperate vagabonds traversed the land,begging for bread at every door? They had invented steamships, theseancestors of ours, that were miracles, but their main business wastransporting paupers from lands where they had been beggared in spite oflabor-saving machinery to newer lands where, after a short space, theywould inevitably be beggared again. About the middle of the nineteenthcentury the world went wild over the invention of the sewing-machine andthe burden it was to lift from the shoulders of the race. Yet, fiftyyears after, the business of garment-making, which it had been expectedto revolutionize for the better, had become a slavery both in America andEurope which, under the name of the 'sweating system,' scandalized eventhat tough generation. They had lucifer matches instead of flint andsteel, kerosene and electricity instead of candles and whale-oil, but thespectacles of squalor, misery, and degradation upon which the improvedlight shone were the same and only looked the worse for it. What fewbeggars there had been in America in the first quarter of the nineteenthcentury went afoot, while in the last quarter they stole theirtransportation on trains drawn by steam engines, but there were fiftytimes as many beggars. The world traveled sixty miles an hour instead offive or ten at the beginning of the century, but it had not gained aninch on poverty, which clung to it as the shadow to the racer."
HELEN GIVES THE EXPLANATION OF THE FACTS.
"Now, Helen," pursued the teacher, "we want you to explain the facts thatHarold has so clearly brought out. We want you to tell us why it was thatthe economic condition of humanity derived but a barely perceptibleadvantage at most, if indeed any at all, from an inventive progress whichby its indefinite multiplication of productive energy should by everyrule of reason have completely transformed for the better the economiccondition of the race and wholly banished want from earth. What was thereabout the old system of private capitalism to account for a _fiasco_so tremendous?"
"It was the operation of the profit principle," replied the girl Helen.
"Please proceed with the explanation."
"The great economic inventions which Harold has been talking about," saidthe girl, "were of the class of what were called labor-saving machinesand devices--that is to say, they enabled one man to produce more thanbefore with the same labor, or to produce the same as before with lesslabor. Under a collective administration of industry in the equal generalinterest like ours, the effect of any such invention would be to increasethe total output to be shared equally among all, or, if the peoplepreferred and so voted, the output would remain what it was, and thesaving of labor be appropriated as a dividend of leisure to be equallyenjoyed by all. But under the old system there was, of course, nocollective administration. Capitalists were the administrators, being theonly persons who were able to carry on extensive operations or take theinitiative in economic enterprises, and in what they did or did not dothey had no regard to the public interest or the general gain, bu
t totheir own profit only. The only motive which could induce a capitalist toadopt an invention was the idea of increasing his profits either bygetting a larger product at the same labor cost, or else getting the sameproduct at a reduced labor cost. We will take the first case. Suppose acapitalist in adopting labor-saving machinery calculated to keep all hisformer employees and make his profit by getting a larger product with thesame labor cost. Now, when a capitalist proposed to increase his outputwithout the aid of a machine he had to hire more workers, who must bepaid wages to be afterward expended in purchasing products in the market.In this case, for every increase of product there was some increase,although not at all an equal one, in the buying power of the community.But when the capitalist increased his output by the aid of machinery,with no increase in the number of workers employed, there was nocorresponding increase of purchasing power on the part of the communityto set off against the increased product. A certain amount of purchasingpower went, indeed, in wages to the mechanics who constructed thelabor-saving machines, but it was small in comparison with the increasein the output which the capitalist expected to make by means of themachinery, otherwise it would have been no object to him to buy themachine. The increased product would therefore tend directly to glut yetmore the always glutted market; and if any considerable number ofcapitalists should introduce machinery in the same way, the glut wouldbecome intensified into a crisis and general stoppage of production.
"In order to avert or minimize such a disaster, the capitalists couldtake one or two courses. They could, if they chose, reduce the price oftheir increased machine product so that the purchasing power of thecommunity, which had remained stationary, could take it up at least asnearly as it had taken up the lesser quantity of higher-priced productbefore the machinery was introduced. But if the capitalists did this,they would derive no additional profit whatever from the adoption of themachinery, the whole benefit going to the community. It is scarcelynecessary to say that this was not what the capitalists were in businessfor. The other course before them was to keep their product where it wasbefore introducing the machine, and to realize their profit bydischarging the workers, thus saving on the labor cost of the output.This was the course most commonly taken, because the glut of goods wasgenerally so threatening that, except when inventions opened up whollynew fields, capitalists were careful not greatly to increase outputs. Forexample, if the machine enabled one man to do two men's work, thecapitalist would discharge half of his force, put the saving in laborcost in his pocket, and still produce as many goods as ever. Moreover,there was another advantage about this plan. The discharged workersswelled the numbers of the unemployed, who were underbidding one anotherfor the opportunity to work. The increased desperation of thiscompetition made it possible presently for the capitalist to reduce thewages of the half of his former force which he still retained. That wasthe usual result of the introduction of labor-saving machinery: First,the discharge of workers, then, after more or less time, reduced wagesfor those who were retained."
"If I understand you, then," said the teacher, "the effect oflabor-saving inventions was either to increase the product without anycorresponding increase in the purchasing power of the community, therebyaggravating the glut of goods, or else to positively decrease thepurchasing power of the community, through discharges and wagereductions, while the product remained the same as before. That is tosay, the net result of labor-saving machinery was to increase thedifference between the production and consumption of the community whichremained in the hands of the capitalists as profit."
"Precisely so. The only motive of the capitalist in introducinglabor-saving machinery was to retain as profit a larger share of theproduct than before by cutting down the share of labor--that is to say,labor-saving machinery which should have banished poverty from the worldbecame the means under the profit system of impoverishing the masses morerapidly than ever."
"But did not the competition among the capitalists compel them tosacrifice a part of these increased profits in reductions of prices inorder to get rid of their goods?"
"Undoubtedly; but such reductions in price would not increase theconsuming power of the people except when taken out of profits, and, asJohn explained to us this morning, when capitalists were forced bycompetition to reduce their prices they saved their profits as long aspossible by making up for the reductions in price by debasing the qualityof the goods or cutting down wages until the public and the wage-earnerscould be cheated and squeezed no longer. Then only did they begin tosacrifice profits, and it was then too late for the impoverishedconsumers to respond by increasing consumption. It was always, as Johntold us, in the countries where the people were poorest that the priceswere lowest, but without benefit to the people."
THE AMERICAN FARMER AND MACHINERY.
"And now," said the teacher, "I want to ask you something about theeffect of labor-saving inventions upon a class of so-called capitalistswho made up the greater half of the American people--I mean the farmers.In so far as they owned their farms and tools, however encumbered bydebts and mortgages, they were technically capitalists, althoughthemselves quite as pitiable victims of the capitalists as were theproletarian artisans. The agricultural labor-saving inventions of thenineteenth century in America were something simply marvelous, enabling,as we have been told, one man to do the work of fifteen a century before.Nevertheless, the American farmer was going straight to the dogs all thewhile these inventions were being introduced. Now, how do you account forthat? Why did not the farmer, as a sort of capitalist, pile up hisprofits on labor-saving machinery like the other capitalists?"
"As I have said," replied the girl, "the profits made by labor-savingmachinery resulted from the increased productiveness of the laboremployed, thus enabling the capitalist either to turn out a greaterproduct with the same labor cost or an equal product with a less laborcost, the workers supplanted by the machine being discharged. The amountof profits made was therefore dependent on the scale of the businesscarried on--that is, the number of workers employed and the consequentfigure which labor cost made in the business. When farming was carried onupon a very large scale, as were the so-called bonanza farms in theUnited States of that period, consisting of twenty to thirty thousandacres of land, the capitalists conducting them did for a time make greatprofits, which were directly owing to the labor-saving agriculturalmachines, and would have been impossible without them. These machinesenabled them to put a greatly increased product on the market with smallincrease of labor cost or else the same product at a great decrease oflabor cost. But the mass of the American farmers operated on a smallscale only and employed very little labor, doing largely their own work.They could therefore make little profit, if any, out of labor-savingmachinery by discharging employees. The only way they could utilize itwas not by cutting down the expense of their output but by increasing theamount of the output through the increased efficiency of their own labor.But seeing that there had been no increase meanwhile in the purchasingpower of the community at large, there was no more money demand for theirproducts than before, and consequently if the general body of farmersthrough labor-saving machinery increased their output, they could disposeof the greater aggregate only at a reduced price, so that in the end theywould get no more for the greater output than for the less. Indeed, theywould not get so much, for the effect of even a small surplus when heldby weak capitalists who could not keep it back, but must press for sale,had an effect to reduce the market price quite out of proportion to theamount of the surplus. In the United States the mass of these smallfarmers was so great and their pressure to sell so desperate that in thelatter part of the century they destroyed the market not only forthemselves but finally even for the great capitalists who conducted thegreat farms."
"The conclusion is, then, Helen," said the teacher, "that the net effectof labor-saving machinery upon the mass of small farmers in the UnitedStates was ruinous."
"Undoubtedly," replied the girl. "This is a case in which the historicalfacts absolutel
y confirm the rational theory. Thanks to the profitsystem, inventions which multiplied the productive power of the farmerfifteenfold made a bankrupt of him, and so long as the profit system wasretained there was no help for him."
"Were farmers the only class of small capitalists who were injured ratherthan helped by labor-saving machinery?"
"The rule was the same for all small capitalists whatever business theywere engaged in. Its basis, as I have said, was the fact that theadvantage to be gained by the capitalists from introducing labor-savingmachinery was in proportion to the amount of labor which the machineryenabled them to dispense with--that is to say, was dependent upon thescale of their business. If the scale of the capitalist's operations wasso small that he could not make a large saving in reduced labor cost byintroducing machinery, then the introduction of such machinery put him ata crushing disadvantage as compared with larger capitalists. Labor-savingmachinery was in this way one of the most potent of the influences whichtoward the close of the nineteenth century made it impossible for thesmall capitalists in any field to compete with the great ones, and helpedto concentrate the economic dominion of the world in few and ever fewerhands."
"Suppose, Helen, that the Revolution had not come, that labor-savingmachinery had continued to be invented as fast as ever, and that theconsolidation of the great capitalists' interests, already foreshadowed,had been completed, so that the waste of profits in competition amongthemselves had ceased, what would have been the result?"
"In that case," replied the girl, "all the wealth that had been wasted incommercial rivalry would have been expended in luxury in addition to whathad been formerly so expended. The new machinery year by year would havegone on making it possible for a smaller and ever smaller fraction of thepopulation to produce all the necessaries for the support of mankind, andthe rest of the world, including the great mass of the workers, wouldhave found employment in unproductive labor to provide the materials ofluxury for the rich or in personal services to them. The world would thuscome to be divided into three classes: a master caste, very limited innumbers; a vast body of unproductive workers employed in ministering tothe luxury and pomp of the master caste; and a small body of strictlyproductive workers, which, owing to the perfection of machinery, would beable to provide for the needs of all. It is needless to say that all savethe masters would be at the minimum point as to means of subsistence.Decaying empires in ancient times have often presented such spectacles ofimperial and aristocratic splendor, to the supply and maintenance ofwhich the labor of starving nations was devoted. But no such spectacleever presented in the past would have been comparable to that which thetwentieth century would have witnessed if the great Revolution hadpermitted private capitalism to complete its evolution. In former agesthe great mass of the population has been necessarily employed inproductive labor to supply the needs of the world, so that the portion ofthe working force available for the service of the pomp and pleasures ofthe masters as unproductive laborers has always been relatively small.But in the plutocratic empire we are imagining, the genius of invention,through labor-saving machinery, would have enabled the masters to devotea greater proportion of the subject population to the direct service oftheir state and luxury than had been possible under any of the historicdespotisms. The abhorrent spectacles of men enthroned as gods aboveabject and worshiping masses, which Assyria, Egypt, Persia, and Romeexhibited in their day, would have been eclipsed."
"That will do, Helen," said the teacher. "With your testimony we willwind up our review of the economic system of private capitalism which thegreat Revolution abolished forever. There are of course a multitude ofother aspects and branches of the subject which we might take up, but thestudy would be as unprofitable as depressing. We have, I think, coveredthe essential points. If you understand why and how profits, rent, andinterest operated to limit the consuming power of most of the communityto a fractional part of its productive power, thereby in turncorrespondingly crippling the latter, you have the open secret of thepoverty of the world before the Revolution, and of the impossibility ofany important or lasting improvement from any source whatever in theeconomic circumstances of mankind, until and unless private capitalism,of which the profit system with rent and interest were necessary andinseparable parts, should be put an end to."
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