Paul Weeks Litchfield.

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A Study in Industrial Economics


Paul W. Litchfield

Vice-prcaident and Factory Manager, The Goodyear Tire & Rubber Co.

All Rights Reserved

19 19



19 19



Chapter I.

Expansion of Political Democracy.

Chapter IL

Genesis and Development of the Labor-
Capital Opposition.

Chapter III.

Present status of the Labor-Capital Op-

Chapter IV.

Clues to the Solution.

Chapter V.

Rights involve Duties.

Chapter VI.

The Industrial Republic.

Chapter VII.

Industrial Citizenship.




Expansion of Political Democracy

After four years of fighting between all
the leading nations of the world to deter-
mine under what form of government
people should live in the future, we would
naturally look for an era of peace. Instead
of this, we find a state of anarchy and civil
war in some of the nations, and a feeling of
industrial unrest in others. The focusing of
attention on the faults of political govern-
ment has produced a similar focusing on the
faults of Industrial Management.

The result of this is an alarming state of
affairs in Eastern Europe which is gradually
spreading westward, and every effort should
be made to determine its cause, to see what
the points of misunderstanding are between
management and men in Industrv, and to



find out at what point the two sides can
meet with fairness to both.

As the conditions of civil war prevaihng
in Eastern Europe and the conditions of
general unrest spreading westward are the
direct outcome of the world war just
finished, a proper understanding of the
causes of this unrest necessitates a review
of the war in the particular phases which
have a bearing on the present industrial

Looking back to 1914, we find Germany
a highly efficient empire, ruled by a small
autocratic minority, who by efficient and
progressive direction had united a group
of small states into a nation and made this
nation very powerful. It reached a stage
where it could produce much more than it
could consume and had to depend very
largely upon the outside markets to sustain
its rapidly growing population. It found
other nations in political control of these



The German Nation had come to beUeve
on account of its rapid rise, productivity
and power, that its "Kultur" was superior
to any other upon earth, and that as a
missionary it should give its benefits to
constantly increasing areas whether the
inhabitants desired it or not. The result
was that after many years of preparation
for world control, feeling herself capable of
carrying her government by force of arms
to other countries, she seized the first con-
venient opportunity and threw down the
gage of battle. She engaged her immediate
neighbors in a struggle of life or death.

The initial advantage gained by Ger-
many, owing to her state of preparation,
followed by her barbarous methods of war-
fare and arrogant assertion of her desires
and intentions, first shocked and then
aroused the leading self-governing Nations
of the earth to the danger threatening
their own free institutions and future
safety. The whole conflict took the form of


a world-wide contest to see w^hether govern-
ment should be by self-determination, peo-
ples having a voice in their forms of govern-
ment, or whether a small autocratic minority
should establish itself in the control of
Nations on the principle of "Might makes

Russia, one of the leading nations against
Germany at the beginning of the war,
revolted from the government of the Czar
and established a republic. Soon after-
wards, the first Russian Republic was over-
thrown by a second revolt and a Socialist
Republic started. This was unable to main-
tain itself, and a third revolt took place,
throwing the Russian Government into the
hands of the Proletariat. Conditions of
civil war and anarchy became prevalent, and
the new Government withdrew from the
alliance of democracies, leaving that alli-
ance facing both ways, fighting Autocracy
on one hand and Anarchy on the other.

The first issue, that of fighting autocracy,



was settled in November 1918 by the
triumph of Democracy. The second issue ,
that of fighting anarchy, has not yet been
settled, it being the avowed intention of the
present Government of Russia to sow the
seeds of discontent and civil war throughout
the civilized world.

The Russian Bolshevik declares his revolt
to be not against political hereditary autoc-
racy, but against capitalism. He calls
upon the peoples of the world to arise and
overthrow it. His remedy is the destruction
of all capital, and he proceeds to build up
an autocracy based on ignorance of the
most cruel kind, setting back the clock by
centuries and bringing about idleness and
starvation. And the fact remains that he
has succeeded, up to the present at least, in
putting his ideas into absolute effect over
a Hundred Million People of the white race.
A state 0} "peace cannot come on Earth as long
as this challenge remains wiansivered.

Bolshevism is an industrial disease, and



a very contagious one wherever it finds
lack of confidence in the management of
Industry, and a feehng of injustice amongst
working men with their present conditions.
The problem which we must solve is to
find a remedy for stopping the spread of
Bolshevism. The first step toward this
solution is a careful study and examination
of the industrial situation, ferreting out
any injustice which may be present, and
establishing a feeling of confidence between
the working man and the management of

The relations between a political govern-
ment and the people living under that
government are very similar to the relations
between the Management of an Industry
and the People working in that Industry.
In other words; management and govern-
ment are synonymous terms, one being
usually applied to the Political and the
other to the Industrial World. Since this
war has been foujjfht to establish certain



principles of political govenment, therefore,
it is only natural that working-men should
see whether or not Management as it now
exists measures up to these principles, and
if it does not, they are certainly entitled to
know the reason why.

The principles of Government which we
fought successfully to establish, are what
we believe to be American ideals of Govern-
ment. Let us see what these are, and the
historical development which caused them
to be what they are.

Back in the early part of the 17th
Century a small group of Pilgrims braved the
dangers of the winter ocean, the dangers of
an unknown land across the sea, to leave
their homes and establish a new form of
Government where they would have more
freedom and more voice in their affairs than
they had at home. Others followed them
and these groups formed Colonies along the
Atlantic seaboard. For a century and a
half they lived as Colonies under the Mother



Country with comparative freedom. In
the latter part of the 18th Century, England
tried to tax them without representation
and these Colonies then declared themselves
independent and avowed their intention of
governing themselves as an independent
Nation. They adopted a new type of
Government, where representatives, who
formed the governing bodies, were directly
chosen by the People.

Failure of this form of Government was
freely predicted everywhere. For it was
felt that only the few were capable of
governing and that the majority could not
be trusted with this function.

The newly organized government how-
ever, under the Constitution then enacted,
has existed substantially without change
from that day to the present time. It has
been the model from which all Republican
Governments have been patterned, and the
principles underlying this form of Govern-
ment have just won a glorious victory



establishing those principles as the founda-
tion for the Governments of the world for
the future.

Yet the Republican form of Government
has not been a panacea or "cure all." It
has not always met with success in other
places. Successful government by the majority
depends upon the character of its citizenship
and the ability of the majority ivisely to
select representatives to govern them. It re-
quires a community of interest amongst
the people, and the absence of sharply
drawn class distinctions. Wherever the
character of citizenship is low, or it lacks
intelligence, democracy has not been an
entire success, and a form of Government
more or less autocratic has been necessary
to maintain order and promote prosperity.
The success of democracy, therefore, re-
quires the fostering of education for the
greatest number possible, in order that the
Government may be of the greatest good.

The Citizenship of our own Country has



been such, that under a Republican form
of government by the majority we have
grown to be the most influential power in
the world and stand as proof that what the
world said could not be done, has been and
is being done.

Let us contrast for a moment the develop-
ment of the German Government during the
past fifty years with that of our own. Prior
to 1850, Germany was composed of several
small states and frequently they had dif-
ferences of opinion and wars with one
another, each State so small that it fre-
quently became prey to other Nations.
Lack of unity and common interests very
seriously affected their peace and pros-
perity. But, face to face with a common
danger, they united, and in 1870 succeeded
in overwhelming the French Empire under
Napoleon III so decisively that they became
a world power of the first rank. They were
welded together in a strong autocratic
government in the hands of a few very



efficient men, who, with a keen reahzation
of the Nation's needs, were, with the almost
absolute power given them, able to quickly
and quietly do those thinos which were
necessary to enhance the material prosperity
and power of the German Nation.

There is no question of the maximum
efficiency of autocratic government when
administered wisely and justly, and Ger-
many's prosperity so increased by leaps
and bounds that the whole nation stood
behind the autocratic forms which had
produced such results. The same thing
happened, however, as always happens
under such a form of Government. First
came peace, then prosperity, then efficiency,
then self-satisfaction, ambition and greed.
Reaching this last stage, the world war urns
the inevitable result, teaching mankind that
no matter how efficient autocracy may he, the
only safe form of Government to rely upon
in the future is government by the Majority,
working to the end of making the majority as



efficient as possible. To prove that results
have been the same in the past where
autocracy ruled, we have but to go back in
history to the Roman Empire, the French
under Louis XIV, and under Napoleon, and
every other large nation in the past which
has followed in the same footsteps. In all
such cases the ruling party has seen the
"handwriting on the wall" too late to let
go gradually, a revolution results and de-
stroys in a large measure the efficiency and
prosperity previously built up.




Genesis and Development of the
Labor-Capital Opposition

Tliere is sucli a similarity between the
evolution of political government and in-
dustrial management that it is instructive
to go back to the origin of Industry, tracing
its development to the present stage.

First, man existed on the bounty of
nature, hunting and fishing, and by his
labor alone acquired those things which were
necessary to sustain life. With this method
of living, each man required large areas of
land to support him, and the world could,
therefore, support a very small population.
Man soon found however, that he could
cultivate the ground, produce food, and that
he could raise animals also, instead of
depending only on what nature produced



unassisted. This enabled a much larger
population to exist on the same area of land.
It was next found that productive
capacity would be further increased by
subdivision of labor, some men doing one
thing and some another, and exchanging
the products of their labor. As soon as the
condition developed whereby a man was
able to produce more than he was himself
able to consume, he had the choice of
ceasing to work as soon as his wants were
supplied, or continuing to work and saving
a portion of the product of his labor. The
hunter saved some of the animals, fish, and
fruit which he secured in the summer,
dried them and put them away for the
winter. When he started to cultivate the
ground, he saved and stored away the
surplus to tide him over until the next
harvest. After he gathered the harvest, he
industriously devoted his spare time to
making tools with which he could produce
crops in larger quantities with less labor.



This gave rise to Capital which is always
the result of and has its origin in the Savings
of labor. Some men did not save but
ceased to work beyond the point of barely
taking care of their necessities. Others
continued to work both for their physical
and material benefit, and out of their
savings created things necessary for suste-
nance and tools and machinery with which
to increase their productive capacity. These
savings became what we now know as
"capital." The use of this capital by labor
resulted constantly in increased production
at less expenditure of labor. The savings
of this combined effort was again applied
still further to increase production, enabling
the earth's surface to support a constantly
increasing population, until now it is so
densely populated that destruction of capital
would result in world-wide starvation.
Therefore, in Industry today it is absolutely
essential that capital and labor go hand in



hand to produce the best results, in which
they have a common interest.

In the old days when tribes existed on
the bounty of nature, as the population
increased, it was found necessary for one
tribe to fight another to kill off the popu-
lation in order that there might be enough
food for the remainder. It was popularly
considered that wars were an economic
good, as otherwise the standard of living
and subsistence would go constantly down
as the population increased. The introduc-
tion of capital has destroyed this theory
and we now know that it is the use of
capital, combined with labor, that is the
key to the solution of an increase both in
the population and in the higher standards
of living.

Capital, be it reiterated, is nothing but
the Savings of labor, and its logical function
is to be put at the disposal of mankind to
be combined with labor to make that labor
more productive. In other words, capital



should be put at the disposal of those who
labor, for the benefit of the community, and
the owners of that capital should be entitled
to a fair reward for its use. It is evident
that this is something entirelj^ different from
the view that humanity should loan its
labor to the man who owns capital for
the benefit of capital, and it is the difference
between these two ideas that is to a large
extent at the bottom of the industrial unrest of

To return to the progress of industry:
As we pass from the agricultural stage to
the manufacturing stage, it becomes advis-
able to divide laborers into groups, part to
do the farming, part to manufacture the
tools and machines necessary to increase
production, and part for special services,
such as doctors, ministers, lawyers, etc.,
render. This started the so-called crafts
where different groups of men specialized
in their particular craft or trade, and by
study and practice became very efficient in



these lines, making the tools necessary and
exchanging these tools for the products of
the labor of others. These men combined
their own capital with their own labor and
disposed of the product to the best advant-
age of themselves.

In this evolution some men saved a great
deal more than others. Tools became more
highly specialized and more costly in time
and labor, and only those who had saved
considerable were able to own these tools.
The men that had these tools were able to
produce cheaper than those who had not,
which caused the latter to find their busi-
ness unprofitable, as they could not get
sufficient returns in competition to give
them an adequate return for their labor.
These men in the meantime, however, had
become so skilled in their crafts that they
could combine their labor with the capital
of others and still make more than engaging
in some other occupation which did not
require capital.



From this grew the wage system whereby a
man sold his labor for a fixed amount as
being the most convenient and easy way of
getting his share of the combined effort. The
lack of control of capital on his part placed
him at a disadvantage, and in order to
protect himself and get a fair share of the
product of his labor, he combined with
others in a similar position and this has
resulted in the formation of trade unions
for the mutual benefit of those who work
for wages. The result of this was that he
built up a community of interest with
others of his class, and by force of numbers
was able to get better wages and better
working conditions than would otherwise
have been the case. A natural reaction
was the creation of a community of interest
among owners of capital and tliey in turn
joined to protect their capital or savings, to
see that it also had a fair return from the
combined efforts of capital and labor. This
resulted in the opposition of the two classes.



Labor and Capital, each more or less sharply
defined, each dependent upon the other,
and each trying to see that it got its fair
share of the results of the combined effort.
For several centuries past the proportion
of wage earners who combine their labor
with other people's capital has been con-
stantly increasing over the people who
combine both capital and labor in their own
supervision, such as the farmers, profes-
sional men, and others, until at the present
time an extremely large portion of laborers
are wage earners with little if any capital
at their own command.

In the beginning the division of the
product of industry between those who
furnished the capital and those who fur-
nished the labor was relatively a simple
matter, as the groups working together
were very small. The men who furnished
the capital were working with the others,
and understood the wants and needs of
labor, and were in a position to accurately



measure the service rendered by those who
furnished the labor. But in order to in-
crease production and lower costs, labor
became further and further subdivided and
industries changed from small units to very
large units, concentrated in centers of popu-
lation and in convenient locations with
reference to power, the gathering of raw
materials and distribution of finished pro-
duct. Industries of this nature so much
better served the community that others
were soon at a disadvantage and went out
of business.

The efficiency of this so-called Mass
Production or Big Business organization of
industry produced so much greater results
that those whose capital was invested in
this form of organization received very
large returns, and the owners of this cap-
ital, having much more than sufficient to
support themselves, either for the present
or future, found that work of any nature
for them became unnecessary and many



of them simply continued to loan their
capital and live upon the returns from this,
i. e., instead of running the business them-
selves, they hired other men to manage the
business for them.

These men were hired to perforTn labor,
which had formerly been done by the capital-
ist, this being to look after and increase the
share which capital should have in the reward.
In other words, they were laborers hired to
manage other laborers, but not with the
same community of interest with the other
laborers, and their reward was to be meas-
ured by the amount that they could increase
the capital which they were hired to man-
age. In consequence, lack of interest in the
collective result of the industry outside of
the wage received (which seemed to bear no
particular relation to the success of the
industry as a whole), soon seized upon the
rank and file of industrial employees. No
longer having any acquaintance with the
men who labored in industry, soon caused



a lack of interest on the part of those who
suppHed the capital. The employees, feeling
their wage reasonably assured, started to
spend all of their wages for current needs
and did not save for the future.

Such has been the genesis and develop-
ment of the labor-capital opposition. The
result of this evolution has been to create a
class of capitalists, who do not work, and a
class of laboring men who do not save and
who have no capital. It must be perfectly
evident to anyone that there can be no
community of interest whatsoever between
these two classes, and the division of a
population into two classes of this nature
results in endless friction and continual col-
lective bargaining, neither side being satis-
fied with the ever- varying results.

Thence follow strikes, lockouts and loss of
product, as the capitalist who does not
work always desires to have as much reward
as the capitalist who does work, and the
laboring man who saves nothing always



desires to live as well and be as well taken
care of in the future as the man who saves
a part of the results of his labor for a rainy
day. Neither of these desires are right, but
are merely special privileges which can only
be granted by injustice to others. As there
never can be any mutual ground between
the capitalist who does not work and the
laborer who does not save, the power of
either one of these groups to obtain for
itself special privileges, to which it has no
right, should be curbed.

The tendency of combinations of capital
and combinations of labor to build up large
powerful bodies, each one for its own
interest, is, therefore, undemocratic and un-
American, and in the interests of all there
should be substituted for this something
which would increase the incentive for
labor to save more, which in turn would
cause it to produce more. We should also
endeavor to see that capital which does not
labor should be restricted in its ability to



acquire more than the current market rate
for the use of its capital, and remove from
such capital any possibility of being used on
the principle of "Might makes Right."
Increased production and the ability of
the earth to support an increasing popula-
tion depends entirely upon both labor and
capital working together. Economically
therefore, they have a common interest and
they should be so organized that this com-
mon interest is so apparent to both that
they are working together in harmony.




Present Status of the Labor-Capital

Examining the typical form of large In-
dustrial Organizations of today, we find a
very large plant investment, often running
into many millions of dollars in value, for
purposes of production and distribution.
The capital which this represents has been
furnished often by thousands of different
people, who have presumably placed their
savings in this particular enterprise because
they thought that their savings would bring
a higher return when invested here than

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Online LibraryPaul Weeks LitchfieldThe industrial republic; a study in industrial economics → online text (page 1 of 3)