Frederic Clemson Howe.

Privilege and democracy in America online

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or the right to employ some other exclusive or
sovereign power. And it is to secure, protect, and
retain these monopoly privileges, to collect tribute
by means of them, and to capitalize that tribute
in watered securities that these interests are lured
into politics. It is this that has woven them into
the life of the nation.

An examination of the blue-book of American
millionaires will disclose that, almost without ex-
ception, the colossal fortunes which have come
into existence in recent years are the creation of
law. They have not been created by law-breakers.
They have been created by law-makers. They have



AN OVERLOOKED CAUSE OF POVERTY 217

not been acquired dishonestly through corruption
alone ; nor have they been acquired honestly through
ignorance alone. Ignorance and design, honesty
and dishonesty, have alike contributed to their
creation. The proximate cause is the control of
our politics by an economic class.

Let us trace some of the costs of this class con-
trol. It is most apparent in taxation. This is
ever the favorite tool of the privileged orders. The
total Federal revenues for the fiscal year 1908
amounted to $601,126,118. This does not include
the postal receipts. Of this sum $286,113,130
was collected from customs duties, and $251,711,126
from the excise or internal revenue taxes on dis-
tilled and malt liquors, tobacco, and oleomarga-
rine. $537,824,256 was thus collected by indirect
taxes upon consumption. The tax on sugar yielded
$50,118,141; wool and cotton manufactures yielded
$63,445,017 more; while leather, hides, wearing ap-
parel, china-ware, flax, hemp, and yarn products,
iron and steel, fruit and drugs, glass ware, chemi-
cals, wines, spirits, and tobacco yielded the greater
part of the balance. We have taxed almost every
necessity of life. The great bulk of the revenue
comes from those articles which the poor consume.
But an insignificant fraction is collected from the
luxuries of the well-to-do classes. And not a dol-
lar is taken from wealth, incomes, or inheritances
direct.



218 PRIVILEGE AND DEMOCRACY

It is the poor of America who support the Fed-
eral Government. It is they who pay for the
battle-ships and the pensions, the internal improve-
ments and the coast defences. Not one penny
comes directly from the interests which are mainly
benefited by these expenditures.

But the burdens of indirect taxation do not end
with the taxes collected. This is the least of the
cost. The protective tariff is not primarily for
revenue purposes. It is designed in the interest
of a privileged class. Sheltered behind the tariff
wall, the sugar, meat, steel, coal, iron, leather,
wool, copper, oil, and other combinations exact
monopoly prices from the consumer of America.
The amount of the tribute which is thus collected
cannot be accurately known. There are over 2,000
articles on the tariff schedule. It has been esti-
mated that the monopoly prices exacted through
the duty on sugar alone amount to from $140,000,-
000 to $165,000,000 a year. Prof. W. G. Sumner
of Yale University estimated that the tariff in-
creased prices all around from thirty to forty per
cent. The average ad valorem rate is 42.92 per
cent. The tribute which the protected interests
exact is not far from $1,500,000,000.'

• The Tariff Reform Committee of the New York Reform Club,
estimating the real cost of protection in its effect upon prices, says:
"The total price of manufactured goods sold to final consumers in
this country can hardly be less than $6,000,000,000 and may be aa
high as $8,000,000,000. If, as is reasonable and probable, their



AN OVERLOOKED CAUSE OF POVERTY 219

Including the revenues actually collected from
indirect taxes, every man, woman, and child is
robbed of approximately twenty dollars a year for
the advantage of the tariff interests. Of this three
and one-half dollars reaches the treasury. The
balance is monopoly cost. Every family of five
pays tribute to the extent of $100 per annum to
the class which rules. The average income of the
working-classes in America is below $450 a year.
The census figures place the average wage at
$432.40.^ Even this is probably an overestimate
when we consider the large percentage who are
constantly out of work, and the increasing number
of woman and child laborers whose incomes are
very much below this figure. But these are the
classes who maintain the government. It is they
who consume the great bulk of the imports as well
as the products of the protected industries. Out
of their meagre earnings the government filches
from one-fifth to one-fourth by indirect taxes and
the monopoly prices which the tariff makes possible.

(the protected) goods are worth twenty per cent, more in the home
market than they would . . . command in our markets were there
no tariff-protected trusts and monopoHes in control here, then we are
paying something more than $1,000,000,000 for our tariff whistle.
This is the cost at wholesale prices. At retail prices the cost of
'protection' is probably $1,500,000,000, or $1,600,000,000. This is
about $90.00 per family for our entire population. "

'The census for 1900 gives the total average number of wage-
earners in the United States as 5,373,108 and the total wages paid
as $2,324,453,993. The average wage for the country was therefore
$432.40 for the year.— United States Census, Vol. VII, p. xlviii.



220 PRIVILEGE AND DEMOCRACY

We hear but little of this burden. The con-
sumer cannot trace his falling standard of living
to its source. There is no paid lobby, no press, no
spokesman for those who only toil. Now and then
there comes a protest against this inequity. ''The
tariff has built up an aristocracy already quite as
numerous as were the refractory slave-owners in
the South," says the Hon. John Bigelow of New
York. "It has built it up, too, by privileges quite
as unjust and as exclusively for money's worth,
but a thousand times more lucrative to its benefi-
ciaries than slavery ever was. The consequences
are that it has divided our people into two classes
— one, of the people who have more wealth than they
know what to do with or how to give away, and
another, of bread-winners, who, if they lose a day's
wages, even by illness, have to go in debt for their
next day's expenses. The increased cost of living
compels an increase in wages from time to time,
but always the cost of living increases faster, until
now the food of the proletariat has reached famine
prices in most of our large cities and is daily in-
creasing. With food enough produced in the United
States to nourish twice its population, the average
wage earner can lay up nothing, can provide few
privileges for his family and practically no recrea-
tion." '

' Extract from published letter from Hon. John Bigelow to Gov-
ernor Hughes of New York, November 25, 1908.



AN OVERLOOKED CAUSE OF POVERTY 221

In a letter to the Committee of Ways and Means,
hearing evidence upon the present tariff in No-
vember, 1907, Mr. Charles Francis Adams of Boston
said: ''Speaking after the manner of men, they
[the protected interests] are either thieves or hogs.
I myself belong to the former class. I am a tariff
thief, and as such I have a license to steal. It
bears the broad seal of the United States, and is
what is known as the 'Dingley Tariff.' I stole
under it yesterday; I am stealing under it to-day;
I propose to steal under it to-morrow. But, on the
other hand, I am also a radical tariff reformer. I
would like to see every protective schedule swept
out of existence. "

Not only does the protective tariff impoverish
the people and promote corruption, it encourages
extravagance as well. The carnival of expendi-
ture, to which we became accustomed during the
Civil War, and which has continued ever since, is
directly traceable to the system of indirect taxa-
tion. In 1860 the total ordinary expenditures of
the Federal Government were but $63,130,000.
By 1900 they had shot up to $487,713,000. By
1908 they had still further increased to $659,196,000.
While the population increased 178 per cent, ex-
penditures increased over 1,000 per cent. A war
and a naval programme has been entered upon,
whose cost to the nation is now $294,000,000 a
year. The annual expenditure for pensions, even



222 PRIVILEGE AND DEMOCRACY

with the war half a century away, amounts to
$154,000,000. The pension bill is higher to-day
than it was ten years ago.

We have reversed every principle of sound finan-
cing. We do not collect what we reasonably need;
we spend what the tariff, designed in the interest
of a class, produces. An expenditure of nearly
$350,000,000 for war, navy, and pension purposes
would meet with a far different reception were
taxes laid upon wealth rather than upon consump-
tion. The cost of the government would prob-
ably shrink to one-half its present volume were
privilege taxed instead of labor. For direct taxes
compel caution, scrutiny, and responsibility. In-
direct taxes breed extravagance, corruption, and
war. Congress would not even consider a ship
subsidy bill if privileged wealth paid the cost of it
all. War would come to an end to-morrow were
those who benefited by its happening compelled
to pay for its maintenance. There would be no
need of peace conferences were the government to
make forcible requisition on wealth before it made
requisition on human life. Were the billions ex-
pended annually on the armaments of the world
collected from direct taxes upon the land, upon
the railways, upon incomes and inheritances, every
agency of public opinion would be on the side of
peace. Were the rich and powerful classes the
first to suffer from a declaration of hostilities,



AN OVERLOOKED CAUSE OF POVERTY 223

the press and every agency of public opinion would
be on the side of arbitration. Then there would
arise a demand for the settlement of the disputes
of the world that would be irresistible. Then the
financiers, who find in war a source of profit to
themselves, would coerce their rulers into a concord
of nations. For war only persists because the
privileged orders are able to throw its cost onto the
defenceless members of the community.

These are some of the costs of the tariff. It is
not an isolated fiscal question. It is not alone a
social question. The tariff is woven into every
fibre of our politics, from the smallest hamlet to
the United States Senate. Quoting again from
the letter to the Ways and Means Committee of
Congress, Mr. Charles Francis Adams says: " Mean-
while let me add, without any doubt in my own
mind as to the accuracy, and I may say the
moderation, of the statement, that in the heyday
of its strength and arrogance the old slave power
of the South was never so strongly intrenched in
its position, so defiant in its attitude, so corrupting
in its influence, so difficult to be overthrown, or so
utterly insatiable in its demands and so unscrupu-
lous in its methods of satisfying those demands, as
are to-day the combined tariff-protected interests of
the country. An overgrown octopus, their tentacles
are all-pervasive, as, from the self-interested point
of view, their arguments are convincing."



224 PRIVILEGE AND DEMOCRACY

A superstition has been created about the policy
of protection which poisons every agency of pubhc
opinion. It prevents its free discussion in the press,
the university, or in business circles. The ghost of
hard times is held up before the working man and
the farmer, the shopkeeper and the manufacturer.
The most scandalous abuses may not be corrected,
for fear of opening up the whole schedule. For,
once the principle of protection is questioned, the en-
tire superstmcture may be undermined by inquiry.
The scandalous extortions of monopoly go on unre-
buked, because of the multitude of noisy interests
which make use of its power to protect themselves
from disturbance.

The protected interests obtained their control
during the Civil War. They have never been dis-
lodged. In a sense, they are now subordinate to
the railways, the transportation and the franchise
corporations, which have been invited to a share in
the plunder. With them are allied the banking
and financial institutions, which own the public
service corporations. In the West the land and
timber thieves are a part of the system. The rail-
roads, running into every state in the Union, form
the foundations of the merger. They lend the West
and South to the designs of the privileged East.
Their attorneys are active in local politics. They
are to be found in every state legislature. They
mould public opinion and draft party platforms.



AN OVERLOOKED CAUSE OF POVERTY 225

They are a hireling class and justify their actions by
the serviceable ethics of the common law, which
commands a lawyer to represent whatever client
demands his services.

The railways are drawn into politics by the very
nature of their business. They are quasi-public
agents, they enjoy a portion of the sovereignty of
the state. They are the highways of modern civ-
ilization. The franchise corporations are natural
monopolies. They are made monopolies by law.
They occupy public property. Like the railways
and the protected interests, they are drawn into
politics, not to protect their property, but to pro-
tect their privileges, which in these instances are
the privilege of being a monopoly. They can only
avoid regulation or ownership by controlling the
government from which they draw their life.

We have seen that the capitalization of the rail-
ways has increased from $10,635,008,074 in 1897 to
$16,082,146,683 in 1907. During the same period
their gross earnings have grown from $1,122,089,773
to $2,589,105,578, while net earnings have in-
creased from $369,565,009 in 1897 to $840,589,764
in 1907. Like rent, the earnings of the railways and
the public service corporations grow with popula-
tion and industry. They need only provide the ser-
vice; the demand increases with each passing day.
This increased capitalization, earnings, and divi-
dends is largely society's contribution to their own-



226 PRIVILEGE AND DEMOCRACY

ers.* For, while railway mileage increased but 22.2
per cent, from 1896 to 1906, railway dividends in-
creased by 200 per cent.

And it is to protect this '^ unearned increment/'
this social value, from taxation and regulation, that
the railways find it necessary to become the govern-
ment. The monopoly tribute which they exact
in excessive rates and charges is not less than
$300,000,000 a year. Measured by a fair return
on the actual capital invested by the owners in the
property, it is probably twice this sum. The trib-
ute of the other public utility and franchise corpora-
tions is $200,000,000 more. This is the annual
cost of the private ownership of the highways and
the public service corporations of the nation.

The local taxing authorities are controlled for the
same purpose. Not content with exemption from
Federal taxation, privilege has evaded the bulk of
its local taxes as well. The amount of the evasion
is colossal. For the year ending June 30, 1903, the

iThis social value, this unearned increment, which railways en-
joy is recognized by privilege. It is the basis of the constant
watering of securities. Wall Street occasionally expresses it openly,
as in the following editorial from Moody's Magazine for January,
1909. It says, page 6: "There can be no cessation of this steady
growth in value of railroad property in a large sense as long as the
population of the coimtry increases, rights of way and terminal
sites grow in value, and natural resources are opened up and de-
veloped. . . . Like the public utility corporation which enjoys a
perpetual franchise, and like the owner of realty in the heart of a
growing community, every year must automatically add to the
equity back of railroad securities, despite government regulation or
other ordinary legislation."



AN OVERLOOKED CAUSE OF POVERTY 227

railways of the country paid in taxes the sum of
$57,797,737. In the year 1904 their commercial
value, as ascertained by the Census Bureau, was
$11,244,852,000/ The total taxes paid amounted
to but one-half of one per cent, on this value. VV^ere
the railways assessed as are the farmer and the
home-owner they would have paid from $168,672,000
to $224,897,000.'

The evasions of the express, telegraph, sleeping-
car, pipe-line, fast-freight, telephone, street and
interurban railway, gas, water, and electric-light-
ing companies are equally colossal. They, too, are
assessed on but a fraction of their value. Only in
rare instances are their franchises taxed at all.
Prior to the passage of the franchise tax law in New
York in 1903, the public service corporations of the
state were assessed on their physical property.
This law increased their valuation by $235,000,000
in New York city alone. The constitutionality of
the law was contested from court to court. It was
finally affirmed by the Supreme Court of the United
States.^

' Commercial Valuation of Railway Operating Property, Bulletin
21, Bureau of the Census, p. 8. This year is taken rather than a
later one because of the census valuation of 1904.

^ Estimating ordinary taxes at one and one-half per cent, and two
per cent., respectively.

^ The capitalized value of the street and electric railways of the
country in 1902 was $2,308,282,000 or $139,778.7 a mile. (Bulletin
of the Census, Street and Electric Railways, p. 11.) This is from
two to three times their cost of construction. They paid in taxes
but $13,078,899 or approximately one-half of one per cent, on their



228 PRIVILEGE AND DEMOCRACY

In 1905 the United States Steel Corporation paid
in taxes but $3,646,490. Its capitalization was
$1,637,811,000. The taxes paid were a trifle over
one-fifth of one per cent, on the value. Were the
Steel Trust taxed at the average rate of other prop-
erty, it would pay into the treasuries of the various
states at least $20,000,000, or six times its present
taxes.

Were we to add to these losses those of the coal
and the iron, the oil and the gas, the copper and
other mining monopolies, which are still assessed as
farming land and which have passed under the con-
trol of monopoly, we should have a total of tax
evasions by these interests in the neighborhood of
$100,000,000 a year. If to this were added the eva-
sions of the railways and the public service corpora-
tions, the grand total would amount to not far from
$250,000,000 a year. It may exceed this figure.

These are some of the spoils of privilege. These
are part of the tribute of monopoly. On the one
hand, a control of Congress. On the other hand, a
control of the states and the cities. Above is a
cruelly unjust system of indirect taxation which

valuation. They escaped from forty to fifty millions in taxes. The
total capital of the telephone companies in 1902 was $348,031,058.
The total tax paid was $2,944,281, or less than nine mills upon their
capital value. (Bureau of Census, Bulletin on Telephones and Tele-
graphs, p. 16.) In the state of Ohio alone it has been computed that
the public service corporations, including the railways, escape taxa-
tion on a billion dollars of value and evade the payment of from
fifteen to twenty millions annually.



AN OVERLOOKED CAUSE OF POVERTY 229

exacts from one and a half to two billions annually
from the consuming class; below is an equally unjust
system of local taxation which increases the burden
by at least a quarter of a billion more. In nation,
state, city, there is a resistance to regulation and
ownership and a ceaseless struggle for still further
privileges.

When it is borne in mind that the total annual
production of wealth in America is $18,540,345,312,*
the cost of these law-made privileges is apparent.
The burden of indirect taxation, of monopoly rates
and prices, and the evasion of local taxes, all made
possible by the control of the government by these
privileges, is equal to one-eighth and possibly one-
sixth of all the wealth there is to distribute. It
probably exceeds the total amount distributed each
year in wages to American labor.^

Herein is an overlooked cause of poverty. It is
not the chief cause. That is to be found in the
private ownership of the land and the burden of
rent which it involves. But when we consider that
these taxes must be paid from out the current
wealth that is produced, and that the bulk of them
are paid by those who toil, the reduction in the
standard of living of the mass of the people is
obivous. Nearly all of the Federal revenues come

•Census estimates of 1900.

* In 1900 the total wages paid in America amounted to $2,234,-
453,993,— United States Census, Vol. VII.



230 PRIVILEGE AND DEMOCRACY

from the poorer classes, for the tariff and the excise
taxes are adjusted to the articles of universal con-
sumption. They would yield but little revenue if
this were not true. The monopoly charges of the
interests protected by the tariff reduce the standard
of living still further. They, like the Federal and
the local taxes, are collected from consumption.
They enter into the cost of every article that we
consume. They are collected over and over again
in the process of production and distribution. They
are paid by pennies, dimes, and dollars, and chiefly
by the poor.

Privilege, untaxed on what it owns, thus levies
a double tribute upon humanity. It compels the
consumer to maintain a government whose expen-
ditures are largely devoted to the promotion of its
interests, while, in addition, it compels him to pay
excessive prices for all that monopoly produces and
all of the services which it renders.



CHAPTER XIX
THE CAUSE OF CIVILIZATION AND DECAY

We are now in a position to explain the inquiry
with which we started. We can now understand
why it is that, in spite of the advances in the arts
and sciences and with all of the improvements in
the means of production, poverty continues to
intrude, like a poor relation at the feast. We can
now understand why the discoveries of the mechani-
cal world pass over society, like a rain-laden cloud
over a thirsty desert, and leave humanity but little
better off than it was before. It is also possible
to unravel the mystery of history; to explain the
laws which govern the rise and fall of nations and
the destruction of whole peoples in the midst of
their splendor.

We have missed the purpose of organized govern-
ment. We have perverted the state from its proper
ends. We have exalted privilege above liberty and
the rights of property above humanity. In this is
to be found the explanation of the unequal distri-
bution of wealth. It is not due to any natural
inequalities in the endowments of men. The
princely fortunes which have come into existence

231



232 PRIVILEGE AND DEMOCRACY

during the past few years are not traceable to thrift,
intelligence, or foresight on the part of their owners
any more than the wide-spread poverty of the masses
of the people is due to the lack of these virtues on
their part. The laws of the land are responsible for
the billionaires, just as they are responsible for the
dock laborers ; they are responsible for the Waldorf-
Astoria, just as they are responsible for Packing-
Town.

The American people are between the upper and
the nether millstones of law-made privileges. Above
are the cruelly oppressive taxes of the Federal
Government, which exact from one and a half to
two billion dollars a year from those who labor.
Below are the rent of the land, the monopoly charges
of the mine-owners, the railways, the transporta-
tion agencies, and the other public utihty corpora-
tions, as well as the countless other monopohes,
which are identified with the land or are directly
traceable to the tariff or the railways, and which
exact from three to four billion dollars a year more.
Struggling between these law-made privileges are
80,000,000 of people, whose political institutions
have fallen under the control of a class. The heart
and the brain of this merger is in Wall Street. Its
tentacles reach out into the humblest home in the
land. It pursues its purpose with no concern for
the nation's welfare. It is deaf and dumb to any
appeal save self. It differs from the privileged



CAUSE OF CIVILIZATION AND DECAY 233

orders of other lands only in the magnitude of its
operations. History is filled with examples of gov-
ernment by a class, but history nowhere records a
nation of free men, endowed with the ballot and
safeguarded by laws of its own making, permitting
its highways, its resources, and its machinery of


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Online LibraryFrederic Clemson HowePrivilege and democracy in America → online text (page 14 of 19)