Frederic Clemson Howe.

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Here, too, is a kind of wealth whose value increases
automatically. It is a form of monopoly more per-
fect than any oil-, beef, or sugar trust. It requires no
syndicate, no understanding, no gentlemen's agree-
ment to determine what the traffic will bear; no
pooling of interests or division of territory is neces-
sary for the fixing of tariffs. The tribute which the
landowners collect is determined with mathematical
precision. It is fixed b}^ the simple law of demand
and supply, and the letter of the bond is collected as
ruthlessly as the rack-rents of Ireland.^

The Census Department has recognized the phe-
nomenal increase in land values which is every-
where taking place. From 1900 to 1904 something



> We can see the growth in population and the industry of a people
expressing itself in the value of the land in the newer states of the
West. Within the past few years, the territory of Oklahoma has
been opened up to settlement. Here is one of the most fertile regions
of the world. In the early nineties land was selling at from $2.00
to $5.00 an acre. To-day it is changing hands at from $10.00 to
$30.00 an acre. In 1900 the assessed value of the farming land was
$9,875,638. To-day it is assessed at $35,472,012. (Report of the
Governor of Oklahoma to the Secretary of the Interior, 1906.) It
is probably worth ten times that figure.



THE UNEARNED INCREMENT 131

less than one-half of the acre property in the United
States increased in value over $1,500,000,000. The
growth in the value of all agricultural land was,
therefore, something over $3,000,000,000. During
the same period, land and improvement values in
city as well as country increased over $9,000,000,000,
which means that the land values of the nation shot
up at least $4,500,000,000 in four years' time.'

This is a very conservative estimate. The De-
partment of Agriculture states that the aggregate
increase in the value of all classes of farms during
the five years running from 1901 to 1905 was
$6,131,000,000.'

We see the same social values, the same com-
mon treasure, in the value of the mineral resources
of America. It is apparent in the coal, the iron,
and the copper fields. Twenty years ago the
barren lands of northern Minnesota, Wisconsin, and
Michigan, upon which the Mesabi, Vermillion, Gego-
bic, and Menominee iron ranges were discovered, were
practically valueless. But the demand for iron and
steel, the improvement in machines and transpor-
tation, a thousand inventions increasing their use,
has enabled the United States Steel Corporation to
place a value of $700,000,000 upon its ore fields alone.
The president of the company testified that even this
value was inadequate. He stated before the In-

» Census Reports, "Wealth, Debt, and Taxation," pp. 20 and 26.
''Bulletin No. 44, "Local Conditions Aflfecting Farm Values."



132 PRIVILEGE AND DEMOCRACY

dustrial Commission that the ore holdings were
worth from $1,000,000,000 to $2,000,000,000/ We
see the same unearned increment in the Calumet
and Hecla copper mine. Its stock was issued at
$12,00 a share. It is now selling for $650 a share,
and has sold as high as $1,000 a share.

Society has been busy by night as well as by day,
and a steady stream of wealth has been flowing into
the laps of those who happened to acquire these
marvellous deposits. The Calumet and Hecla is
but a bonanza mine among many such copper de-
posits which are to be found in Montana, Utah,
Arizona, and elsewhere, whose combined values are
not far from $500,000,000. Less than a century
ago the anthracite coal fields of western Pennsyl-
vania were opened up to use. For fifty years they
were regarded as of comparatively little value. But
through the consolidation of the railway systems
entering the territory and the complete monopoly
of the region, these resources and railways have been
capitalized at over a half billion dollars.

To these spectacular exhibits must be added the
bituminous coal fields which spread from the Alle-
ghanies to the Rockies, and underlie whole com-
monwealths with their rich deposits; as well as the
oil wells which are pouring forth wealth of fabulous
value. Hundreds of millions more should be added
for the silver, zinc, lead, and other minerals whose

' Report of Industrial Commission, Vol. XIII, p. 472.



THE UNEARNED INCREMENT 133

value is constantly increasing through the needs of
humanity.

But the land and mineral resources do not com-
plete this enumeration of the unearned increment.
The same process of social production and private
appropriation is apparent in the capitalization of
the railways. It may be seen in the swollen secu-
rities of the franchise corporations. Year by year
evidences of ownership are issued to keep pace with
the value which the growth of society pours into
the pockets of those who own them. No new wealth
is called into being in the process. The country is
no richer by reason of the increased securities which
are issued. In 1907 the railways of the country
were capitalized at $16,082,146,683. Ten years ear-
lier they were capitalized at but $10,635,008,074.
The difference is largely a site or land value just
like that which a corner lot enjoys. The increasing
value of the franchise corporations of our cities is of
the same character. It is a social product, due to
the favored sites which the public utility corpora-
tions occupy. The value of their securities reflects
the growth of population. The unearned incre-
ment of the franchise corporations of New York
City runs into the hundreds of millions of dollars.*

'Mr. John Moody, editor of Moody's Manual, says: "The pub-
lic utiUty corporations of New York City cost to construct less
than $200,000,000, and yet to-day they are capitalized for over
$1,000,000,000."— "The Evolution of the Trust," The Arena, May,
1907.



134 PRIVILEGE AND DEMOCRACY

What is true of the city of New York is true of all
the cities of America. Franchises for street rail-
ways, for gas, water, electric-lighting, telephone,
and other corporations have been granted by cor-
rupt or ignorant councils, or bestowed upon favor-
ites by the legislatures of our states, much as the
English Stuarts gave away the property of the
nation to the worthless favorites of the king. Yet
the privileges bestowed in the olden days were of
insignificant value in comparison with the princely
gifts of our cities, many of them in perpetuity, and
all of them for long periods of time. In almost
every large city these grants exceed in value the
amount of the city debt.

Unfortunately there is no means of ascertaining
the amount of this social wealth, this land value
which, by every principle of justice, belongs to us all.
Yet it should be the first concern of the govern-
ment to ascertain its amount. For if it be the first
obligation of society to protect the property which
has been produced by the individual, it is surely
an obligation scarcely less sacred to ascertain and
make known the wealth which is the common
property of us all.

It is, however, possible to estimate this unearned
increment, which the laws of society permit to be
appropriated by those who own the land. In 1904
an investigation was made by the Census Bureau
of '^Wealth, Debt, and Taxation" in the United



THE UNEARNED INCREMENT 135

States. From this report it appears that the value
of the land with its improvements, as well as of the
railways and the franchise corporations, amounted
to $71,195,626,966.^ Unfortunately no distinction
is made as to pure land values and improvement
values. But from other and independent investi-
gations, from the tax valuations of cities where
land and improvements are separately valued, it is
safe to say that the land values are fifty per cent,
of the total. On this basi-s the pure land values of
the country amount to not less than $35,000,000,-
000. They undoubtedly exceed this amount. Mr.
John Moody estimates them at $60,000,000,000.'

No other forms of wealth, save the land and the
privileges identified with land, respond in this way
to the growth of population. Society works for the
owner of the land and him alone. Every other
form of wealth is produced by individual labor.
Every other form of wealth depreciates and decays.
It has but a transitory existence. Much of it does
not survive the year which saw it produced. Such
wealth involves constant care and attention. But
each tick of the pendulum of time passes into the
purse of those who own the land the power to take
from those who toil an increasing portion of that
which their labor produces.

'.United States Census, "Wealth, Debt, and Taxation," p. 27.
2 "The Evolution of the Trust," The Arena, May, 1907. For a
fuller discussion of land values in America see Appendix No. 1.



136 PRIVILEGE AND DEMOCRACY

Land values are not really wealth at all, although
the increase which has taken place in recent years
has been heralded as a sign of increasing prosperity.
And such it is to those who enjoy the increasing
rents which land values make possible. But wealth
is something which ministers to the comfort, hap-
piness, and well-being of humanity. Houses are
wealth; food, clothing, machinery, tools, and works
of art and refinement are wealth. All of the prod-
ucts which labor creates are wealth. But land
values are a tax on wealth. Rent is in the nat-
ure of a tax. It is far worse than a tax. So-
ciety receives some return from its taxes. It re-
ceives none whatever from the payment of rent.
Rent is a tribute from labor to those who give no
service in return.

In his Essays in Political Economy, Frederic
Bastiat, the French economist, tells the story of
the gratification of the crowd which had collected
before a broken shop window.

''It will make more work for the glazier," said
one of the crowd. ''It is a good thing for property
to be destroyed, otherwise no one would give us
employment. "

This is the result that was seen. The unseen
thing was that the shopkeeper would have to go
without a needed pair of shoes. He would have
to make some sacrifice in order to pay for the loss.
The making of the shoes would also have provided



THE UNEARNED INCREMENT 137

work, but work which would have added to the
wealth of society. This is the result that was
unseen.

So it is with the growth of land values. Those
who measure the well-being of a nation through
the increase in the value of the land and the in-
flated capitalization of the mines, the railways, and
the franchise corporations, see in these vaulting
figures an increase in the wealth of the people.
But the effect that is not seen, like the cost of the
broken pane of glass to the shopkeeper, appears
in the increasing cost of living to those who bear
the burdens which these increasing values involve.
Their standard of living is reduced. The demand
for the products of labor is diminished. The out-
put of the factory is curtailed. It is this increasing
rent charge which reduces the amount of wealth
which can be consumed. In time the industry of a
country will be greatly impaired through the ap-
propriation by rent of a great part of what the na-
tion produces. For the well-being of a nation, in
the last analysis, depends far less on the amount of
wealth that is produced than on the way it is dis-
tributed.



CHAPTER XII
A FEUDAL SURVIVAL

The railway question is at bottom a land ques-
tion. The railway is a monopoly because of its
identity with the land. It is this that differen-
tiates the transportation industry from other busi-
ness. The right of way of a railway is a site of land
long drawn out. It is of much greater value than
that of adjacent farms because of this fact. The
particular site which it occupies cannot be du-
plicated. Terminals in the cities can only be ob-
tained at a prohibitive cost. In many instances
the only available routes through the mountains
are already occupied. No new corporation could
raise sufficient capital to force an entrance into
New York, Philadelphia, Chicago, or any of the
other large cities in the face of the opposition of the
existing lines. We have an example of this diffi-
culty in the entrance of the Gould lines into Pitts-
burg. The Vanderbilt system owns a narrow strip
of land along the Mohawk River, which is almost
the only available railway route in New York
state between the Hudson River and the W^est.
The same is true of the Pennsylvania and the Bal-
timore and Ohio systems further south. Compe-

138



A FEUDAL SURVIVAL 139

tition is only possible by tunnelling through moun-
tain ranges and the appropriation of city lands of
fabulous value.

It is their identity with the land that makes the
highways of the nation natural monopolies. It is
this that explains the ease of their consolidation,
the watering of their securities, the constant growth
of earnings, and the difficulty, if not the impossi-
bility, of regulation by the nation or the states.

And the value which a railway enjoys is like that
of the land underlying a city. Its earnings increase
with the growth of population and of industry.
Locomotives, cars, and equipment can be repro-
duced indefinitely, just as can wagons, carriages,
or automobiles. In these things there can be no
permanent monopoly. But in any industry affixed
to the land, like a railway, a franchise corporation,
or a mine, monopoly is almost inevitable. For
continued competition is impossible.

We can see this identity of the railways with the
land in the growth in their securities. In 1906
the aggregate outstanding railway securities of the
country were $14,570,421,478, of which $7,766,-
661,385 was in the form of bonded indebtedness.
According to the United States Census valuation,
the total wealth of the country in 1904 was $107,-
104,000,000. The outstanding securities of the
railways amounted to 13.7 per cent, of the total.
The bonded indebtedness alone amounts to $36,213



140 PRIVILEGE AND DEMOCRACY

per mile. This is more than the known average
cost of construction of many roads. In many in-
stances the bonds have been watered as well as
the stock. In 1898 the total railway capital was
but $10,818,554,031; in 1900 it had increased to
$11,491,034,900, in 1903 to $13,213,124,679, while
in 1906 it had risen to $14,570,421,478.

Capitalization fast outruns the growth in mileage.
During the year 1905, $600,000,000 of new securi-
ties were issued. The construction in that year
was but 4,000 miles. This is equivalent to $150,000
a mile, probably more than three times the actual
cost of the increased mileage. According to the
report of the Industrial Commission $457,000,000
of securities were issued in 1900, of which not more
than $120,000,000 could be assigned to new con-
struction.

Wherever population is densest there the capi-
talization is highest. The Erie Railway carries a
capitalization of $300,000 per mile. The Lake
Shore and Michigan Southern, a road of much su-
perior construction and equipment, is capitalized at
$100,000 per mile. The total capitalization of the
Michigan Central Railroad amounts to $402,000
per mile. The average capitalization for the en-
tire country is $81,791 per mile.

The watered securities of the railways are so-
ciety's contributions to the owners. They repre-
sent no increase in the wealth of the nation, no



A FEUDAL SURVIVAL 141

great intelligence or thrift on the part of the owners,
no addition to the comfort and convenience of the
people. Increased capitalization where no real in-
vestment is made means increased orders on the
labor and industry of the future.

It is possible to measure the exertions of society
on behalf of those who own the highways in the
growth of their earnings, as well as in their in-
creasing capitalization. In 1897 the gross earn-
ings of the railways amounted to $1,222,089,773.
Ten years later they had grown to $2,346,640,000.
During the same period net earnings increased
from $369,565,009 to $790,188,000, a gain of $420,-
622,991. During these years railway mileage in-
creased but 22.2 per cent., while the gross and net
earnings increased over 100 per cent, and the divi-
dends over 200 per cent.

In this, as in many other respects, the nineteenth
century has reproduced the institutions of earlier
ages. The private ownership of the railways is an
instance of political atavism. Along the banks of
the upper Rhine, perched upon some inaccessible
crag or point of land, may still be seen the majestic
ruins of castles fast passing to decay. They date
from a period when the only authority was force,
and the only government the will of the feudal
overlord. Throughout lower Germany from the
Netherlands to the Tyrol; in France, in Austria,
in Italy — in fact all over the face of Europe, these



142 PRIVILEGE AND DEMOCRACY

monuments of an earlier society stand out grimly
from every point of vantage, suggestive of the reign
of force and lawlessness which was the only govern-
ment in continental Europe for a thousand years.
From these fastnesses the lords of the surrounding
territory levied tribute upon the caravans which
passed that way. They, too, did it as a matter
of right. Did they not own the highways? They
filled their castles with the tapestries and the luxu-
ries of the Orient. They took what they needed
of the industries of Italy and Germany; theirs were
the best of wines and the costliest of furnishings.
Without labor they maintained themselves and
their followers through the labor and industry of
others. This tribute was exacted no more arbi-
trarily than that of the railways of to-day. Then
as now this power was possible through the owner-
ship of the land, by means of which the highways
of the country were controlled.

The railways of to-day levy tribute upon all
trade. They collect a toll upon all industry. By
reason of the complexity of industrial relations,
the railways have become indispensable to our life.
They are the arteries of commerce. Were they
closed by some calamity of nature, the entire popu-
lation of our cities would be on the brink of starva-
tion in a few days' time. All industry would come
to a standstill. To this extent are we dependent
upon the will of the modern barons of privilege into



A FEUDAL SURVIVAL 143

whose hands we have intrusted this most vital
function of our Hves. Every article of consump-
tion is subject to this tribute; a tribute which is
fixed by the arbitrary will of a handful of men,
just as was the toll of the passing traveller of the
Middle Ages to the overlord of the territory through
which he passed.

The identity of the railway with the land not
only explains the increase in capitalization and the
growth in earnings, it also explains the ease of
their consolidation. The railways cannot be du-
plicated. The very nature of the railway business
makes it a monopoly; a monopoly which has rap-
idly concentrated into a very few hands. ^

' Senate Document No. 278, GOth Congress, 1st session, 1908, on
" Interstate Commerce Corporations Owning Capital Stock of Other
Transportation Companies, " shows the extent of this community of
control and interest between the railways of the country as well as
the extent to which this control is lodged in the banking and financial
interests. From this it appears that fifty-one persons constitute a
majority of the board of directors of the great railway systems of the
country, comprising 53.29 per cent, of miles operated, 64.7 per cent,
of the gross earnings, 71.69 per cent, of the ton mile of freight
carried, and 66.12 per cent, of the commercial value of operating
property. The report says: "The extent of the centralization of
control in railway administration is not fully disclosed by the in-
formation thus far presented. Community of interest and unity of
direction extend beyond the contractual or proprietary relations
which underlie the systems. This may be termed the control of
group interests. It has long been a matter of common knowledge
that in many cases a comparatively small number of men, acting
unitedly, may, through their ownerships or control of stocks in the
controlling corporations of two or more systems, unify the operations
of those systems in such a wise as to produce as harmonious opera-
tion as could be had if all the elements were aggregated into a single



144 PRIVILEGE AND DEMOCRACY

There are six great groups^ whose mileage and
capitalization includes practically all of the greater
transportation agencies of the country. And these
groups are interrelated by the closest of ties. They
are banded together by the closest of business,
personal, and financial interests.^

system. . . . When the same individuals constitute harmoniously
acting majorities of the boards of directors of two or more corpora-
tions, it seems proper to say that the control of the particular cor-
porations whose boards are thus constituted is actually imified. " —
P. 109.

It further appears from the same report that ninety-three persons,
acting together, would be able to control more than 75 per cent, of the
operated mileage of the country, more than 81 per cent, of the gross
earnings, more than 87 per cent, of the tonnage, and more than 82
per cent, of the commercial value of railway operating property. —
P. 110.

As a matter of fact, if the individuals who nominally appear upon
the directorates of these railways were still further reduced to the
real owners, it would be found that six or eight financial interests,
the Rockefeller, Morgan, Vanderbilt, Harriman, Gould, Pennsylvania,
Kuhn-Loeb, Moore, and one or two other harmoniously acting finan-
cial groups, really controlled from 75 to 90 per cent, of the railway
systems of America.

> By 1903 the following community of interest had come to prevail:

Group Mileage Capitalization

Vanderbilt group 21,888 1,169,196,132

Morgan 47,206 2,265,116,350

Harriman, Kuhn-Loeb . . . 22,943 1,321,243,711

Pennsylvania 19,300 1,822,402,235

Gould, Rockefeller .... 28,157 1,368,877,540

Moore 25,092 1,070,250,939

164,586 9,017,086,407

See Moody's Truth About the Trusts, p. 439.

" " The financiers who are at the head of an entirely administered
railroad trust are J. Pierpont Morgan, John D. and William Rocke-
feller, W. K. and W. F. Vanderbilt, George J. Gould, A. J. Cassatt,
James J. Hill, Edward Hawley, H. H. Rogers, August Belmont,
Thomas F. Ryan, W. H. and J. H. Moore. . . . The superior domi-



A FEUDAL SURVIVAL 145

This narrowing of control will undoubtedly con-
tinue. Competition is already at an end. In the
hands of a syndicate of stock speculators the life
and industry of 80,000,000 people rests. Through
discrimination and rebates they have crushed
out competition in the oil business; they have
concentrated the ownership of the anthracite and
bituminous coal in their own hands; they have
aided in the monopolization of the iron and the
steel, the sugar and the tobacco monopolies. The
meat-packing monopoly has been fostered by car
and freight-rate favors until it is invulnerable.
Almost every one of the universal necessities of
life has been monopolized by this process, or its
cost increased to the consumer. For the power
to fix railway rates is the power to destroy. It
is, in all respects, a power to arbitrarily tax. The
standard of living of the consumer, the farmer,
and the mechanic lie under this control. The
prices of wheat and of corn, of beef and of other
foodstuffs are now determined in the markets of
the world. That which the farmer receives is fixed
in Liverpool. The returns of his efforts are de-
termined by none of the elements which control
the returns of the manufacturer, the retail dealer,
or the professional man. They are fixed by the

nating influence of Mr. Rockefeller and Mr. Morgan is felt in greater
or less degree in all of the groups." — Moody's Truth About the
Trusts, p. 442.



146 PRIVILEGE AND DEMOCRACY

competition of Russia and Argentina. And the
railways determine what portion of the world-made
price the farmer shall receive. It frequently costs
as much to place his wheat and corn at the seaport
as he receives for it. The charges of the railways,
like the rent of the landlord in Ireland, is fixed by
what the railway managers think the farmer will
bear. Such a power has no parallel in the history
of mankind.

The railway problem is far more serious than the
evils which have been thus far attacked. Legis-
lation has been directed against discriminations
and rebates. But a more serious evil remains, an
evil far greater than that at which the legislation of
the past few years has been directed. And that is the


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Online LibraryFrederic Clemson HowePrivilege and democracy in America → online text (page 9 of 19)