desirable. The telephone system in a city should be a
unit, not two or three units. The same is true of street
car service. To a less extent, perhaps, the same is also
true of railroads. Two railroads, separately conducted
and organized and following the same routes, are uneco-
nomical. For this reason, these public utilities, whether
owned by the public, i.e., the government, or privately
owned, must be permitted to work as monopolies.
They must be closely controlled, however, in order
to protect the right of the public as against the rights
of the individuals who own the stock in the monopoly.
At present, the extent of the regulation depends greatly
upon questions of practical statesmanship. This mat-
ter will be further considered later.
Operative Functions The student will have realized
that the regulative functions of government, carried
to extremes, tend to overlap into the operative. There
are, however, some operative functions which the
governments all over the world, practically, retain in
their own hands. The outstanding instance is, of
course, the carriage of mails. The post office is an
institution which few, even of the most rabid,
THE ECONOMIC FUNCTIONS OF GOVERNMENT 413
individualists would like to see again in private hands.
We seldom realize to what a tremendous extent civi-
lization depends upon the free and cheap carriage of
mails. A little consideration, however, will serve to
show the extreme importance of this function. If any
industry must be carried on as a monopoly in order
to serve its purpose well, it is this.
The supply of transportation, however, is almost as
important. Hence it is in this instance that we find the
next most common of the operative functions. It is
true that the national government is not so usually
concerned as the municipal. But the fact that trans-
portation within the confines of a city tends more and
more to become the care of the civic authorities does
not take away from the governmental nature of the
operation. There are few cases, moreover, where the
cities which have once undertaken the management of
their own transportation systems have relinquished that
management into the hands of private corporations.
The same is true of the supply of water and of light
and heat. The question then arises, how far is the
governmental function of operating industries either
in competition with or in supersession to private
operation, to be extended. There are some cities that
run their own electric car systems, but do not supply
their own water. Others supply their own water but
not transportation. Some own their telephone systems,
but not their gas and electricity. In some countries
the government owns the railways entirely; others
have both government and privately owned railway
systems ; while in still others the railway systems are
privately owned and operated.
414 AN INTRODUCTION TO ECONOMICS
Government or Private Ownership of Public Utili-
ties The question as to whether public utilities should
be owned by the public themselves or by private in-
terests is one which cannot be given a general answer ;
so much depends upon the individual instance. It is
important to remember, however, that government
itself consists only in the relegation to certain in-
dividuals of a certain amount of control over others.
These individuals frequently abuse the power placed
in their hands. Frequently they make grave mistakes.
To take hypothetical instances, we may say quite
definitely that where the government consists of in-
dividuals who are not trusted by the governed, or
where they are notoriously inefficient, there is no
question but that public utilities should remain in
the hands of private enterprisers. Where, on the
other hand, the government has proved itself both
honest and capable, a strong case is made out for the
operation of public utilities by the governmental or-
ganization.
It is well to remember, too, that because government
has failed in a particular case to give a good account of
its operations that is no argument against the general
case for government ownership and operation of public
utilities. In a recent work it was argued that because
a certain government had failed miserably in working
a telephone system, dishonesty and inefficiency being
evident in all its workings, therefore the case for govern-
ment ownership of telephones was entirely lost. As a
matter of fact, however, that same government had
shown itself utterly incapable of administering jus-
tice with the least degree of equity. If the former
THE ECONOMIC FUNCTIONS OF GOVERNMENT 415
argument held good, then it was just as conclusively
proved that law and order should be in private hands.
Private enterprise has advantages that it would be
absurd to underestimate. With profit as the great aim
of life, a vast multitude of different satisfactions have
been produced. The fullest development of the in-
dividual activity, self-seeking, has made possible the
sustenance of a great population. Countries which
formerly supported with difficulty a population of a
few millions now support with comparative ease many
times that number. During the past hundred years
inventions of labor-saving machinery have been million-
fold; so also have inventions to satisfy our aesthetic
senses. Men have expended every last ounce of energy
they have possessed in the service of their fellows. It is
not true, however, that they have always realized
this service and have taken it for their aim. The
service has been incidental ; but it nevertheless existed,
and that much must be granted to the individualistic
system of private enterprise.
Lessons of the War A system is not properly tested
in normal times, however. It must stand the strain
of a crisis before we can say that it is really successful.
At the present time, we are in the midst of one of the
greatest crises in the history of the world. The great
war is practically ended, and we cannot afford to be
blind to the lessons which it has taught us. It is not
within the scope of our study to inquire into the moral
aspects of war or into the political causes and results.
War, however, is very largely an economic problem,
especially when it is on a large scale. The colossal
scale upon which the great war has been waged has
416 AN INTRODUCTION TO ECONOMICS
put an enormous strain upon our economic organization.
In the first place it has meant the withdrawal from
productive labor of a very large section of the popu-
lation of the belligerent countries. Probably over
thirty -five million men have been engaged in actual
fighting. Add to these the great number who have
been more or less intimately connected with purely war
production and we enormously increase the total
number of those whose labors are non-productive for
ordinary purposes.
Meanwhile, of course, the remainder of the population
must produce all the necessaries of life, not only for
themselves but for those who are withdrawn from ordi-
nary production. Normally we may assume that, on
the average, each produces enough for his support
and for the support of his dependents. Now a much
smaller number must labor to supply all the needs.
But production cannot be maintained at a constant
level during war time. If the war is to be successfully
waged, production must be increased because of the
enormous waste of material, a waste which is infinitely
greater than that of ordinary life.
Such a situation places a tremendous strain upon the
economic organism. If it has been inefficient before,
but the inefficiency has not been very evident, it will
appear at once with the new strain. At the outbreak
of the war it was quite obvious that without great
changes the economic structure must break down. The
first indications lay in th financial world. We have
already noted that finance is peculiarly sensitive to
economic disturbances. The methods of financing
international trade are complicated and require a
THE ECONOMIC FUNCTIONS OF GOVERNMENT 417
very considerable amount of trust in the fulfillment of
promises. Now in war time some of these inter-
national contracts simply cannot be fulfilled. Ships are
required for the transport of men. When the enemy
resorts to indiscriminate destruction of merchant
ships the loss of transport facilities is very much greater.
Without government assistance the whole structure of
our international payment system would have broken
down. Acceptances could not be met at maturity.
Exchanges were subject to rapid fluctuations much
wider than in ordinary times. Organized co-operation
was essential unless an epidemic of bankruptcies was
to ensue. Hence almost at the very outbreak of the
war, we find government after government taking
steps to prevent these bankruptcies. It is impossible
within the limits of the present book to enter into
details as to the methods adopted in one country
or another. The principle which we wish to emphasize,
however, is clear. Private enterprise, relying very
largely upon the competitive system, succeeds fairly
well in normal times, but in a crisis, all must realize
the intimate interdependence of society, and organized
co-operation must be substituted for the working of a
laissez faire system.
It is not in the financial realm, however, that the
most important effects of war upon economic structure
are seen. It is in the realm of production. The whole
basis of production is changed. Under a system of
private enterprise, the motive for production is not the
rendering of services. The services must be rendered,
of course, but this is incidental. The real motive is
the gaining of profit to the person who performs the
418 AN INTRODUCTION TO ECONOMICS
service. Now the highest profit, as we have seen, does
not necessarily mean efficient production so as to secure
the greatest amount with the least effort. With a
diminished working population and an enormously
increased demand, profit, from the social point of
view, ceases to count. What is required is a vast
increase in production utilizing every known means of
economizing effort. The nation could not afford to
let private individuals take the opportunity of profiting
by the peculiar circumstances which caused the great
increase in demand for goods and services.
Let us take one of the principal illustrations of the
failure of uncontrolled private enterprise. Our rail-
road system, or rather our railroad systems, have on
the whole shown a wonderful power of organization, but
they have nevertheless allowed a very great amount of
waste effort. Competitive lines running between the
same terminals have meant uneconomic terminal
facilities, unequal distribution of freights, and when?
the two lines were more than sufficient for the traffic
to be borne, half empty trains and idle freight cars
have resulted. Cars have often passed one another,
going in opposite directions, with similar goods. All
this is pure waste and is incidental to a system of
private enterprise. This waste, however, could not
be suffered under the crisis. Hence some co-ordinating
effort had to be made to eliminate it. Practically, the
only way was that which was actually adopted. The
government took entire control of the railways. Every
available car was used, and all cross-shipments pre-
vented as far as possible. If the government, however,
had merely assumed control of the railways, without
THE ECONOMIC FUNCTIONS OF GOVERNMENT 419
at the same time controlling production, much of the
possible economy would have' been missed. Possibly
the best way in which the whole operation of govern-
ment control and organization can be seen is to take as
an illustration the building of a merchant fleet under
government contract.
Illustration of Government Economic Activity during
the War At the outbreak of the war the American
merchant marine was almost a negligible quantity.
The British owned far more ships than any other
country, and while a good deal of British shipping was
used to transport foodstuffs and munitions of war from
the United States, this shipping was in great demand
for purely British purposes. More ships were abso-
lutely necessary to carry on the normal trade, let
alone the abnormal demands of the war period. The
facilities for building ships in this country, while
sufficient for previous needs, were entirely inadequate
for the construction of enough vessels to satisfy the
new demands.
The United States government, therefore, decided
to build its own ships. It financed the existing ship-
building companies so that they could extend their
yards. It provided much of the funds necessary to
build new yards. Contract after contract was let for
the construction of ships, the total amount involved
being several hundred million dollars. Not only did
the government let the contracts; it undertook to
provide the steel necessary and the wood also, where
the ships were built of wood. All orders for material
of any nature required in the construction of the
ships boilers, machinery, anchors, chains, cable,
420 AN INTRODUCTION TO ECONOMICS
steel were centralized. And it was here that the
control of the railways played such an important part.
The steel and other materials were sent from the nearest
manufacturing point to the place where they were
needed. The orders were so placed that as far as
possible each ship-builder had sufficient material for
his immediate needs, without laying in a great stock.
Thus no ships were provided with machinery long before
the machinery could be installed in the vessel, while
others lacked machinery and were delayed in construc-
tion. As far as was possible in such a rapidly con-
structed organization, every available means was
adopted to secure the whole of the ship construction
program working as one unit.
This system would have been quite impossible with-
out the government organization. It would have been
extremely difficult for the individual concerns to have
organized themselves on such a basis that each of them
received all that it required and as it was required.
Under private enterprise each would have sought to fill
his requirement for as long a future period as possible,
regardless of the fact that others might have to delay
construction of ships until necessary material could be
obtained.
The contractors were left very largely to themselves
in the matter of construction, although government
inspection of every part of the ships was secured.
That there was a considerable amount of waste and
some duplication of effort is undoubtedly true. This,
however, was inevitable under the circumstances.
The object was to produce ships as quickly as possible
and regardless of the cost. No one can deny that this
THE ECONOMIC FUNCTIONS OF GOVERNMENT 421
object was fully achieved. It was only possible to
achieve it, however, under government organization.
Now let us summarize the difference between the old
private system and the new government organization.
Under the old system we had fairly efficient single
organizations competing with one another, but no
co-ordination of general effort. Under the new, while
there was no doubt a considerable amount of inefficient
work, there was distinct co-ordination of general effort.
Waste there was, too, but the waste was due rather to
the extreme haste with which all construction had to
be carried on. But waste existed also under the
older system. In fact it would be safe to say that there
was greater waste in the competitive method than
in the new co-operative method. To counterbalance
the waste there was a great economy of productive
effort. This was bound to be the case when the aim of
production was changed from the mere securing of
profit to the increasing of the amount produced. In
short, left to itself the private enterprise could not
have produced the American Merchant Marine which
has been developed in the brief space of one and a
half years by the United States Shipping Board.
It is not only in the line of production, however, that
government had to take on new duties. Scarcity of
foodstuffs and materials generally made it necessary
to ration these to consumers. We all know how the
government restricted the individual use of sugar,
wheat, and other foods. We know also that the
makers of clothing materials were restricted in the
amount of wool that they could use. It is not so well
known, however, that in other countries (in England,
422 AN INTRODUCTION TO ECONOMICS
for example) practically every manufacture was super-
vised to the extent that the raw material was rationed
out among the manufacturers. Instead of competing
with one another for the use of the raw materials, each
received a share according to his capacity to use it.
American wheat was practically rationed out to the
European countries who were too occupied with actual
fighting to produce their necessary food. It is, indeed,
probable that for a long time such regulation of food
importations will have to be maintained.
At the present moment we are not concerned with
the question whether this government rationing is
the right method or not. All that we are trying to
show is that in a time of national crisis, the system of
private enterprise must give place to government
control and in many cases government operation also.
One lesson we have learned from the experiments
conducted during the war a lesson which will have
extremely important influences upon the economic
organization of the future. In spite of the efficiency
which has characterized industry all over the world,
and American industry in particular, production has
been only a fraction of what is possible. A hastily
organized and in many respects incomplete government-
operated system has more than doubled the total
production in this country. With intelligent co-
operation between the great producers, a vast increase
in total production can be achieved, even with our
existing knowledge of productive methods.
There is great hope for a better economic system
in this new knowledge. All that is wanted to make
good use of it is the will and the exercise of the best
THE ECONOMIC FUNCTIONS OF GOVERNMENT 423
brains of the country on the problem of satisfying
desires instead of reaping fortunes.
Our war experience sheds a great light on some of the
theories which have been advanced from time to time
by reformers and even by dreamers, and we shall turn,
in our final chapter, to a consideration of some of
the most important theories of social and economic
reconstruction.
CHAPTER XXX
PROPOSALS FOR SOCIAL RECONSTRUCTION
Economic Organization a Steady Growth From
time to time in the preceding chapters we have tried
to show that our social and economic organization is
the result of a gradual growth. \Ve do not progress by
leaps and bounds, although at times it appears that a
great step forward has been taken. Insensibly changes
are taking place and realization of the changes only
develops when they have become obvious through the
difference between present and fairly distant times.
No sudden great change has much' chance of being
permanent. The instinct of conservatism which is
strong in us all tends to prevent the success of any
absolutely radical change. Those steps in progress
which have appeared to be of great importance can
usually be traced by the historian to a long line of
small developments all preparing the way for the
change.
Society Dynamic, not Static In spite of this, from
time immemorial men have tried to imagine or con-
struct new schemes of society which would be an im-
provement on the existing system. From Plato to
H. G. Wells we have had our Utopians. There is,
however, a noticeable difference between the Utopias
constructed in the past and those which are suggested
in our present generation, for we have not lost the
PROPOSALS FOR SOCIAL RECONSTRUCTION 425
desire for the perfect life. The older schemes of state
reconstruction were static. That is, they were schemes
for a perfect, completed organization which was to be
the last word in organization. Perfection, however,
is the very negation of life. When a thing is perfect
there is nothing further to strive for. In our very best
efforts there is always a little short of absolute per-
fection. We see this in every phase of life in art,
in science, in literature, in music. No matter how
great the artist, writer, or composer, there will always
be the critic to point out his shortcomings. Our
modern Utopians realize the fact that the perfect
society is always ahead of us and can never be present ;
they know that a society which has no goal toward
which it strives is dying. Hence we have, instead of
the older static schemes of a realized perfection, the
dynamic state a living system which has all the
elements of growth. That the suggestions are attempts
at picturing perfection cannot be denied, but there is
always the realization that in practice difficulties would
arise difficulties to be overcome by careful thought
and a re-solving of problems.
All Utopias, however, have as their basis a feeling
that the existing state is unsatisfactory. Hence the
very schemes that are propounded as a cure for these
evils constitute in the first place a criticism.
Failure of Communistic Experiments The inventor
and discoverer is always impatient at the slowness of
his fellows; so impatient, in fact, that in schemes of
social reconstruction in particular, he is anxious to try
experiments. It may be said at the outset that all
the schemes that have been tried have proved to be
426 AN INTRODUCTION TO ECONOMICS
failures ; but this fact does not detract from the possi-
bility of the ideas being of great value in a growing
social organization. Communism has been attempted
at various times and in various places, occasionally
with temporary success and ultimate failure, sometimes
with failure from the start. This does not, however,
prove that communism is an absolute failure as a
solution of the social problem. We have seen, in the
course of our study, that all history proves the growing
interdependence of human beings. The economic unit
has steadily grown until, as far as civilized countries
are concerned, it covers the whole world. No group
can separate itself permanently from the great social
organism and hope to have a real effect upon that
organism. Even if successful for a time, its very
isolation tends to bring about its own ultimate de-
struction.
The idea that man would be better off if he shared
everything with his neighbors finds support from a
great number of people who are dissatisfied with the
existing scheme of distribution. Private property has
been declared to be at the root of all the evils of
which they complain. Hence the solution of the
problem lay, to their minds, in the abolition of private
property. The supporters of communism, however,
are comparatively few at present, and the greater
part of the schemers for a better system pin their
faith to one form or other of what is called socialism.
Socialism It has been frequently necessary to
remark that words are used colloquially in many
different senses, and for the purpose of scientific
discussion it is necessary to give a sharp definition to
PROPOSALS FOR SOCIAL RECONSTRUCTION 427
each term used. Terms which are common in political
thought are probably more subject to varying inter-
pretations than any others. Take the common terms,
Democrat and Republican, in our American politics!
Is it possible to define accurately the meaning of these
terms, apart from the incomplete definition contained
in the suggestion that they refer respectively to
members of the Democratic and Republican parties?
Just as it is impossible to give a definition of these
two political names, so also is it impossible to define
socialism in a manner which will satisfy all socialists.
Moreover, the ideas of the meaning of socialism
held by those who do not claim to be socialists are at
infinite variance from the meaning attached to the
term by its professors. How, then, are we to discuss
socialism with any degree of satisfaction ?
Though the variants of socialism are very numerous,
there is a certain idea running through all the forms
which is essentially the same in each. We shall,
therefore, before discussing one or two of the prin-
cipal forms, consider the main idea which pervades
them all.
Socialist Criticisms Like all other more or less
Utopian schemes, socialism commences with a criticism
of the existing system. The nature of the criticism
necessarily points out the methods by which the evils