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and franchises, which the State conceded to individuals
and corporations through the medium of free and honest
contracts. While these grants and contracts may some-
times have been socially unwise, they are as valid in
morals as similar acts of individuals. If at a later date



54 SOCIALISM: PROMISE OR MENACE

the State repudiates them by the process of confiscation,
it perpetrates an act of bad faith and immorality.

Another part is the saved and invested proceeds of
interest which was obtained without paying unjustly
low wages to labour or charging unjustly high prices to
consumers. In the opinion of the Socialist this capital
was unjustly acquired because the interest from which
it sprang always represents a "part of the product of
the workers' toil." For the Socialist maintains that all
interest, no matter how small the rate or how liberally
its receiver has acted toward labourer and consumer, is
immoral.

In reply to this contention, I would say briefly that
interest on capital is justified either because capital has
contributed a share of the productive force which is real-
ized in the joint product of capital and labour, or because
under the system of private capital interest is necessary
in order to provide a sufficient amount of capital, or
because the abolition of interest could not be enforced
in a system of private enterprise. If the day should
ever come when private control of capital became detri-
mental to human welfare, the capitalist would no longer
have a right to function as such; but he would still
have a valid claim to compensation for the capital that
he had acquired through the receipt of interest which
had been at once free from extortion and socially neces-
sary. The effect would have the same justification as
the cause.

Finally, there is a fourth section of capital which has
come into being through various forms of injustice, such
as physical force, fraudulent contracts, oppression of
labourers, and extortion upon consumers. Through the



THE SOCIALIST INDUSTRIAL STATE 55

lapse of time, however, and the other long-recognized
conditions of prescription, a great part of this capital
has become the morally and legally valid property of
the present owners.

Prescription is a valid title of ownership for the simple
reason that it responds to the needs of social and human
welfare. To disregard it in the expropriation process
would in a very large proportion of cases inflict quite
as much injury on innocent individuals as^to^iisfegard
any of the other titles. As to that part of the unjustly
acquired capital which is not clothed with the title of
prescription, it could properly, provided that identifica-
tion of it were possible, be taken without compensation.

Consequently, it is probable that only a relatively
small part of capital could be confiscated with reason-
able certainty that the process was not immoral.

The fact that governments have occasionally taken
individual property without compensation does not
justify the practice ethically. On the other hand, I do
not mean to deny that it is ever morally legitimate, for
example, in some supreme national crisis when no other
course is physically possible. But it is a far cry from an
exigency of this magnitude to the Socialist principle
of mere expediency. By the latter theory the process
of confiscation is not required to wait for a critical
situation. It can be set in motion as soon as there exists
a balance, however slight, of expediency in its favour.
Thus the Socialist would entirely obliterate the distinc-
tion between right and might.

In his encyclical, "On the Condition of Labour," issued
May 15, 1891, Pope Leo XIII declared that Socialism



56 SOCIALISM: PROMISE OR MENACE

is to be utterly rejected because "contrary to the natural
rights of mankind." From the words of the Latin text,
"praedium," "terra," "fundus," "ager," "solum," etc.,
we know that he had in mind specifically the Socialist
proposals with regard to land. Moreover, he was in all
probability thinking of the more extreme plans of that
day, which embraced collective operation, as well as col-
lective ownership, of all the land of a country.

A regime in which all the cultivators should be em-
ployed by the State would certainly be less conducive
to human welfare than a system of full ownership and
secure possession by individuals. Experience has shown
conclusively that the large farm is considerably less
profitable than the small or medium-sized farm. If
this is the case under the direction of the private owner,
it would hold to a greater extent under salaried manage-
ment in a Socialist organization.

Moreover, the cultivators would not work as intelli-
gently or as energetically as they do under the incentive
of private ownership. Beyond all other workers, the
farmer is influenced by the desire to own and hold per-
manently the thing upon which and with which he labours.
Such a thoroughgoing form of agrarian collectivism would
undoubtedly be detrimental to individual and social
welfare.

Therefore, it would be a violation of natural rights.
As against other individuals and the State, man has
an inborn right to control and use the bounty of nature
in the way that will best secure the requisites of reasonable
life and self-development. That the existing system has
not yet enabled all individuals to attain this object does
not prove that it is not better adapted for the purpose



57

than Socialism ; particularly when we consider its recent
history, its present trend, and its inherent capacity for
improvement.

Even the modified agrarian programme of Socialism
contains elements which involve a violation of individual
rights. Precisely how far this programme would extend
the individual control of "land of reasonable /dimensions
actually cultivated or used by the farmer without-em^
ployment of hired help to any appreciable extent," is
not easy to say ; for the desire to make converts among
the fanners has brought American Socialists to a situa-
tion in which " there is a minority ready to compromise
everything in this question." l However, they still
seem to cling to the doctrine that the title to all land must
remain with the State.

This would mean that the State could turn out the
small farmer at any time deemed expedient, and could,
even while it allowed him to remain in possession, tax
the land at its full rental value.

That the majority of American Socialists would have
the State adopt the latter policy consistently from the
beginning, seems to be clear in view of the declarations
of the "Communist Manifesto," of Marx, and of other
leading members of the party, and in view of the general
Socialist principle which condemns private receipt of
rent and interest. 2

Now State retention of the title means uncertainty
of tenure, and therefore injury to the cultivator, while
the appropriation of economic rent means confiscation of
property values.

1 Walling, op. tit., p. 318.

2 Cf. Walling, op. cit., pp. 322, 323.



58 SOCIALISM: PROMISE OR MENACE

So much for the morality of the Socialist programme with
regard to land. The proposals of the party concerning
artificial capital are somewhat more satisfactory to dis-
cuss because they have been more definitely and author-
itatively formulated. Their ethical character can be
determined only through an examination of their bearing
upon human welfare. This is the ultimate test of the
morality of any social system. In the matter of social
institutions, moral values and genuine expediency are
in the long run identical. The remainder of this paper
will, therefore, deal immediately with the practical side
of the socialist industrial order.

Under Socialism the great national industries, as steel
and petroleum, would be under the immediate direction
of commissions or boards of managers. Owing to the
number of these bodies and the varied character of their
functions, they could not be selected with advantage by
general popular vote. Conceivably they might be ap-
pointed by the national executive authority, but it is
unlikely that the people would intrust any group of
officials with this tremendous power.

Such an arrangement would enable a few men to con-
trol not merely the political, but the entire industrial,
life of the nation, to build up a bureaucracy more despotic
than anything of the kind that the world has ever seen,
to impose whatever harsh conditions they saw fit upon a
minority, yes, upon a majority occasionally, of the indus-
tries and workers, and to fortify themselves in a position
from which they could not be dislodged except by a rev-
olution.

Present Socialist opinion seems to favour selection of



THE SOCIALIST INDUSTRIAL STATE 59

the commissions by the workers in each industry. Even
this method has its own difficulties. In the first place,
the great mass of employees in, for example, the steel
industry would be much less competent to make an in-
telligent choice than is the relatively small number of
stockholders who at present determine the outcome of
an election for the board of directors.

The case is not parallel with the choice of political
officials. It is a question of getting technical experts,
and even the most democratic among us now realize that
such functionaries should be appointed by the mayor,
governor, or President, instead of being elected by popu-
lar vote.

In the second place, while the stockholders of a corpora-
tion have a direct pecuniary incentive to choose the most
efficient directors obtainable, the workers in a Socialist
industry would desire men who would make working
conditions easy, rather than men who would be bent
upon getting out the maximum amount of product.

Owing to the dependence of the industrial direction
upon the mass of the workers, and owing to the absence
of certain powerful incentives, the Socialist organization
of industry would be inefficient and unprogressive.
Directors, superintendents, foremen, and all others in
managerial positions would be afraid to punish loafing
or to exercise the power of discharge, except in rare and
flagrant cases. Even if they were sufficiently fearless
to exact a reasonable amount of work from all their
subordinates, they would lack the normal and necessary
incentive to such a course, and to efficient management
generally. They would not have the stimulus of com-

1 Cf. Hillquit, op. cit., p. 142.



60 SOCIALISM: PROMISE OR MENACE

petition which to-day prevents public concerns from fall-
ing too far behind those under private control ; nor the
vital interest in their tasks which arises from ownership
and its opportunities of pecuniary gain ; nor the hope
of promotion and fear of discharge which operate so
promptly and powerfully in the present system.

The general spirit of the management would be to "let
well enough alone," to refrain from disturbing either the
personnel or the methods of industry, so long as things
moved on in the old routine way and continued to ap-
proximate a certain level of mediocrity.

Indeed, the deadening effect of the absence of compe-
tition has already appeared in the management of our
present "socialized" industries. In every great industry
there is a maximum size of plant which is efficient and
economical, and a maximum number of plants which can
be profitably combined under a single direction. Mr.
Brandeis has shown that in the United States Steel
Corporation the lack of competition has more than offset
the gains of combination, while Professor Meade sums
up the general failure of the trusts thus :

"During a decade of unparalleled industrial develop-
ment, the trusts, starting with every advantage of large
capital, well-equipped plants, financial connections, and
skilled superintendence, have not succeeded."

If this can happen when the management is financially
interested in the business, it would prevail to a far
greater degree in the absence of this powerful stimulus.
The driving force of competition and the hope of prompt
pecuniary rewards can be supplemented, but not sup-
planted, by other and loftier motives and stimuli.

1 The Journal of Political Economy, April, 1912, p. 366.



THE SOCIALIST INDUSTRIAL STATE 6 1

In the field of industrial invention the lack of adequate
incentive would be particularly harmful. Men who
were capable of inventing new machines, new processes,
new ways of combining capital and labour could expect
neither the gains that are obtainable under the system
of private ownership, nor that prompt and eager recogni-
tion by the industrial authorities which is such a con-
spicuous feature of privately directed concerns.

It is contended that the manager and the inventor will
be impelled to bring out the best that is in them by the
hope of public honour and recognition, and by the special
pecuniary compensations that will be possible even under
Socialism. The example of Colonel Goethals, who has
successfully directed the building of the Panama Canal
on a relatively moderate salary, is cited by way of illus-
tration.

It merely illustrates a typical Socialist fallacy, namely,
that what the exceptional man does in exceptional cir-
cumstances will be done by the ordinary man in ordinary
circumstances. Colonel Goethals is an officer in the
army. Now the traditions and training of the army
have for centuries impressed upon its members strong
conceptions of public service, honour, and professional
duty and responsibility. Moreover, the task upon
which he is engaged is conspicuous beyond all others,
and without any competitor for public honour and
esteem.

To assume that the average member of an industrial
board of managers, the average factory superintendent,
or the average floor-walker in a store would respond
as readily to the motive of public honour as the army
officer, and that the everyday activities of the tens of



62 SOCIALISM: PROMISE OR MENACE

thousands of men in positions of industrial authority
would attract sufficient public notice and recognition
to be worth seeking or considering implies a childlike
faith that is touching but not convincing. The cold
fact is that there would not be enough public honour and
recognition to go round the circle of industrial manage-
ment, or it would have to be spread so thinly that very
few of its beneficiaries would hold it very precious.

As to the special pecuniary rewards that might be
given, they would lose much of their effectiveness be-
cause of tardiness in arriving. Merit is much more
promptly recognized in private than in public employ-
ments, on account of the direct financial interest of those
from whom the recognition must come.

Since the great mass of the workers would have the
ultimate control over the management and managers
of industry, they would strive to make the conditions of
employment as pleasing as possible to themselves. This
would mean that the majority of them would prefer an
industrial administration which would permit a consider-
able amount of "loafing on the job," and which would
separate them from their jobs only in the most flagrant
cases of shirking and inefficiency. Engaged as they
must be upon tasks which are monotonous, mechanical,
and relatively uninteresting, the great majority would be
impervious to the "joy of work," would fail to find that
pleasure and work were one, and would see no good reason
for putting forth anything like the degree of effort that
is to-day exacted under penalty of discharge.

This reasoning is not based on "the theological con-
ception that the sole human incentive to do right is the



THE SOCIALIST INDUSTRIAL STATE 63

fear of punishment or the hope of reward." In the first
place, there is no such conception; for the theologian
gives full recognition to the existence and efficacy of
higher motives. But he is not afraid to look facts in the
face, and to read therein the lesson that the higher mo-
tives can neither entirely supplant nor even reduce to
a secondary position the motives of reward and punish-
ment in the mind and will of the average man. The
theologian is sufficiently scientific to put a higher
value upon universal experience than upon enthusiastic
hopes.

The contention that the worker will find sufficient
incentive of a material character in being "a partner
in the industrial enterprise in which he will be employed "
is based on the fallacy that remote and general interests
affect the individual as powerfully as immediate and spe-
cific interests. There is a vast difference between "part-
nership" in a Socialist industry, which after all is owned
by the State, and ownership of a definite portion of a
private industry.

In the latter case the worker realizes that his energy
and efficiency have a direct bearing upon his income;
in the former he knows that he may take things easy
and still retain his place and his stipulated remunera-
tion. Although he may be convinced that in the long
run the policy of universal shirking will be harmful
to his industry, he feels that the "long run" is too long
and too remote to offset the immediate and practical ad-
vantages of being as lazy as he dares to be. Besides,
he expects that there will be other industries and other
jobs in the limitless expanse of Socialist economy. And
he has no assurance that if he were to put forth his best



64 SOCIALISM: PROMISE OR MENACE

efforts, his example would be generally imitated by his
fellows in his own or in other industries.

To the average worker, partnership in a Socialist
industry would seem about as important as efficient
local or national government seems to the average citi-
zen. The latter is much less interested in civic welfare
than in his job, business, or profession.

To the objection that his scheme has never been justi-
fied by actual trial, the Socialist sometimes replies by
pointing to the successful cooperative establishments
under democratic management in Belgium, Germany,
and England. As a matter of fact, the history of the
cooperative movement in its entirety furnishes a rather
strong argument against Socialism. Practically all the
successful efforts in this field have been in connection
with cooperatives of distribution. Cooperative produc-
tion has been attempted hi many countries, but "the
record on the whole is one of failure." *

The simple and sufficient reason is that these enter-
prises are much more complicated and require a much
higher quality of leadership and management than dis-
tributive concerns. As yet, not many of the men who
possess these qualities can be induced to exercise them
without the spur of a dominating pecuniary interest in
the establishment.

Nevertheless, I believe that a sufficient number of such
men will in time be found to direct cooperative enterprises
over a considerable, though restricted, part of the field
of production. This result can be reached only very

^aussig, "Principles of Economics," vol. n, p. 356; New York,
1912.



THE SOCIALIST INDUSTRIAL STATE 65

gradually, through appropriate industrial and moral
enlightenment. And it will, I believe, be realized only
in the smaller industries, those in which the individual
worker can easily see that his actions will have a vital
and direct bearing on the success of the whole enter-
prise. In the larger industries labour participation in
capital ownership will necessarily take the form of co-
partnership. That is, the worker will be a shareholder
rather than a genuine cooperator.

Even if productive cooperation had been invariably
successful, it would not be of much value as an argument
for Socialism. The differences between the two are
more important than the resemblances. In the former
each of the workers has direct ownership of a definite
share of the concern, and an immediate pecuniary inter-
est in its profits and its fortunes. Moreover, he realizes
that it must compete with similar enterprises under
both cooperative and private control. Under Socialism
none of these conditions is verified. The worker is in-
terested only in his job and his wages.

Of these the first depends ultimately upon a board of
managers chosen by the workers themselves, while the
second is fixed beforehand by the central executive or
legislative authority, and is only remotely and feebly
dependent upon the conduct of the individual labourer.
Consequently, the interest of the labourer in the financial
success of his industry is very general and very remote
as compared with that of the participant in a cooperative
concern.

To sum up the preceding paragraphs: Competition,
the hope of definite personal reward, and the fear of defi-
nite personal loss, which experience has shown to be



66 SOCIALISM: PROMISE OR MENACE

extremely powerful forces in economic life, would either
disappear or be greatly diminished under Socialism.
And the Socialist is unable to provide adequate substi-
tutes.

In the present economic organization, the farmer,
labourer, manufacturer, merchant, etc., are not compelled
to deal as buyers or as sellers \vith any single individual
or association. Nor are they constrained in the majority
of instances to accept or to pay a predetermined price.
Through the process of bargaining they can exercise
some control over this supremely important economic
factor. While the trusts have greatly curtailed the bar-
gaining power of the individual with regard to many
commodities, they will cease to do so just as soon as the
people and the government seriously and systematically
undertake the task of checking them. This task has not
yet been fairly begun.

Under Socialism all prices, whether of labour or of
goods, except in the relatively unimportant individual
and cooperative enterprises, would be fixed beforehand
by the public authorities. For the great majority of
workers, wages and all other conditions of employment
would be determined by legislative or executive enact-
ment of the national or local governments. There could
be no competition in this field between the two govern-
mental jurisdictions. Hence the labourer would be com-
pelled to work for practically one employer. As con-
sumers, men would have to purchase at a predetermined
price from a single seller, and to take the kind and quality
of goods that the public authorities saw fit to produce.

At present a man can get anything that he has the



THE SOCIALIST INDUSTRIAL STATE 67

money to pay for. A Socialist regime would feel no in-
ducement to develop new wants nor to satisfy old ones
in new ways. The tendency would be overwhelming
to turn out only the old and standard kinds of goods.
The combined effect of all these restrictions on the buying
and selling power of the individual would be disastrous
to self-respect, self-development, social contentment,
and social stability.

To be sure, the ultimate control of all these industrial
arrangements would be in the hands of the people, who
could correct all possible abuses. In practice, however,
the people always means a part of the people. In the
Socialist State the majority would have unlimited power
over not merely the political, but also the economic, wel-
fare of the minority. To-day industrial life is controlled
by the government or the majority only indirectly, and
within well-defined limits. A hundred checks and coun-
terchecks are set up by private individuals, private
associations, private institutions. Under Socialism all
these safeguards would disappear, and substantially
all social power would be concentrated in the Leviathan,
the Omnipotent State.

The prediction that "there will be no fixed majorities
and minorities in all matters," is not reassuring in view
of the inevitable contrary tendency. A majority com-
posed of all the workers in the most powerful industries
could combine for the purpose of fixing all wages and
prices to favour themselves and oppress the minority.
Such a combination would be remarkably cohesive and
homogeneous, since it would represent the interests of
all its members in the matters of politics, industry, the
schools, and the press. Its personnel could easily re-



68 SOCIALISM: PROMISE OR MENACE

main substantially unchanged until it and the entire
system was dissolved in a revolution.

To assert that at present " the capitalist minority domi-
nates the non-capitalist majority in all matters," is to
ignore the immense gains made by the masses on the
classes in the past, the very real limitations upon capi-
talist power to-day, and the far greater restrictions that
can and will be put upon it to-morrow, without recourse
to the other autocracy called Socialism. We are not
compelled to choose between the latter and a rampant


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