Copyright
Thomas Nixon Carver.

Principles of political economy online

. (page 15 of 48)
Online LibraryThomas Nixon CarverPrinciples of political economy → online text (page 15 of 48)
Font size
QR-code for this ebook


now catch more mice in a minute than she formerly could in
a week. We should be afraid lest, in a playful mood, she
might set a paw upon us, to the detriment of our epidermis,
or that in her large-scale mouse-catching she might not always
discriminate between us and mice.

Stratification of society. There is another problem, not
strictly a corporation problem, but a social problem growing
out of the prevalence of the corporate form of industrial
organization. That is the problem of the widening gap be-
tween employers and employed, or, more strictly, between capi-
talists and laborers. It may be laid down as a general social
law that anything which separates people into sharply dis-
tinguishable groups, whether it be a geographical boundary, a



174 PRINCIPLES OF POLITICAL ECONOMY

racial difference, a difference of religious creeds, or a class
distinction, will produce, between the groups thus separated,
first ignorance of one another, then suspicion growing out of
that ignorance, then misunderstanding growing out of that igno-
rance and suspicion, and finally open warfare whenever a pre-
text is found ; whereas anything which bridges over these gaps,
or brings people together regularly and normally, creates first
knowledge of one another, then confidence instead of suspi-
cion, then understanding instead of misunderstanding, and
finally lasting peace because no difficulty seems large enough
to serve as a pretext for war. t

Now the joint-stock form of organization, though a most
effective industrial device, has had at least one serious social
result : it has widened somewhat the gap which would other-
wise have existed between the employing group and the em-
ployed group. When employers are known by their personality
and can come in some kind of personal or direct contact with
employees, and when, therefore, employer and employee know
something about one another, there can be no such degree of
suspicion of one another as now exists ; where ignorance dis-
appears, suspicion tends to disappear also. But when employers
stand as the shareholders of a corporation in a purely imper-
sonal relation to employees, when the average employer or
shareholder knows nothing personal about the employees of
the corporation, and the employees know absolutely nothing
personal about the shareholding employers, there is on either
side of the line about as great a degree of ignorance of those
on the other side as can be found anywhere in modern
social life.

Widening the gap between social classes. That gap which
separates the two groups is made so wide as to produce very
much the same result as is produced by a difference of color
between races or a difference of religion between too sharply
contrasted religious groups. Such a state of things has never
failed in the history of the world to produce suspicion, jealousy,



THE ORGANIZATION OF BUSINESS 175

misunderstanding, and, on the slightest pretext, open hostility ;
and, so far as we are able to see into the future, there is not the
slightest ground for hoping that such a condition ever will fail
to produce these same undesirable results. In other words, we
need not hope for social peace or for any cessation of the con-
flict of classes until that chasm is in some way bridged over or
made to disappear.

This result can hardly be achieved by doing away with joint-
stock corporations ; they are too effective as industrial devices
to make such a program tolerable ; but if we are ever to have
anything resembling social peace, some way must be found to
bring the employing classes and the employed into personal
relationships one with another. The ideal is undoubtedly that
of having the workers in our industrial establishments become
also the owners of the stock of the corporation. If that result
could possibly be achieved, there would be an end of the present
phase of warfare.

How this is to be achieved is another question. It will never
be achieved until our corporation laws and our judicial pro-
cedure relating to corporations are made efficient enough to
make it a safe venture for a man of small means to buy a share
in an industrial corporation. So long as these things are so
inefficient as to enable large shareholders and rings to freeze
out the small shareholders, or in any way to make it hazardous
for a man of small means, such as the average workingman,
to invest in a share, it will never be accomplished. This looks
like a legal problem rather than a legislative problem, and it
is for the legal fraternity and the courts to solve. If they will
not solve it, or if they ultimately prove unable to solve it, it
may be necessary to reform our courts. Many discriminating
persons are beginning to believe that the judicial branch of our
government, instead of being the most efficient, is less efficient
even than the legislative or the executive.

The trust. It is important that we distinguish between the
corporation, as we have just described it, and the trust, or



176 PRINCIPLES OF POLITICAL ECONOMY

combine. The corporation is an organization of individuals who
put their capital together in order to carry on a business which
requires more capital than is likely to be possessed by any one
of them. The trust, or combine, is mainly an organization of
corporations (though it may also include a few individual capi-
talists), for the purpose of controlling the market. While such
organizations are to be distinguished sharply from corporations
as such, nevertheless they could scarcely have come into exist-
ence if the corporation had not preceded them and prepared
the way. They may therefore be called extreme developments
of the corporation idea, though not necessary developments.
As to these extreme developments of the corporation principle,
it is becoming more and more apparent that their power for
evil lies wholly in their power of controlling and manipulating
prices. If that power could be taken out of their hands, we
should then have nothing to fear from them.

Control of prices. If they could not succeed and survive in
competition through their power over prices, they could then
succeed only through their power of production. If they should
then survive, the mere fact of their survival would prove their
fitness to survive. This has been pointed out many times by
scholars ; but the practical politicians, with their unerring in-
stinct for the wrong way, have ignored it and have been trying
various hard and useless methods of dealing with the problem.
Eventually, after having tried every possible way of going wrong,
we shall apply the simple and direct remedy of government
control of prices wherever a monopoly exists.

It is not necessary to indulge in any sentimental rhapsodies
on the subject of the people and their control over affairs of
this kind. Government affairs are controlled by politicians,
and politicians are no more interested in the people than are
the trust magnates themselves. The choice is a hard one. But
where competition fails to regulate prices, these prices are
going to be fixed arbitrarily by someone. In the absence of
government control they are fixed by the trust operators



THE ORGANIZATION OF BUSINESS 177

alone. Where there is government control, they are fixed by
the joint action of the politicians and the trust operators. Their
interests are not the same, and, as the result of their pulling
and hauling, prices will not be fixed quite so completely in the
interest of the trusts, but more in the interest of the trusts
and the politicians. Since the people can control the trusts after
a fashion by refusing to buy of them, and the politicians after a
fashion by refusing to vote for them, it will happen that through
this double control the interests of the people will be somewhat
better safeguarded than they are now.

Incidentally this would destroy most of the trusts. No trust
exists by virtue of its superior productive powers. Every one de-
pends for its existence upon its superiority in buying or selling ;
that is, upon its power over prices. Take away this power and
enable the outside concerns to match their productivity against
that of the trust, and outside competition will increase and
force the trust to break up into its most efficient productive
units, as distinguished from the most efficient bargaining units.

The cooperative society. It has often been proposed to
substitute a radically different form of business organization
for the corporation, or joint-stock company. This is known as
the cooperative society. In a sense the corporation itself is
cooperative, but it differs from the cooperative society in two
fundamental characters :

In the first place, the corporation involves cooperation
among the owners, whereas the cooperative society involves
cooperation among the workers. In the chapter on Capital
we saw that the rise of modern industrial conditions had
brought about a sharp separation of owners and workers. In
the original form of manufacturing (that is, the small shop,
where the workman owned the shop and the tools) we had the
function of ownership and of labor combined in the same
individual. With the rise of the factory system these two
functions were separated. The corporation represents the
organization of owners, and maintains the separation of owners



178 PRINCIPLES OF POLITICAL ECONOMY

from workers. The cooperative society, on the other hand, repre-
sents an association of workers. Under the corporation, owner-
ship and management go together ; under the cooperative
society, labor and management go together.

In the second place, in a corporation, as we have seen, the
various individuals who contribute capital vote in proportion
to the number of shares which they own. In a cooperative
society each individual has one vote, regardless of the number
of shares which he owns or the amount of capital which he
has put in. One man, one vote is the rule- here, whereas one
share, one vote is the rule of the corporation. It is inaccurate,
however, to say that capital votes in a corporation. Only men
vote, and a man may vote once for each share which he owns,
or he may vote once and once only, regardless of the number
of his shares. As to the comparative merits of these two forms
of organization, the opinion of the world is somewhat divided.
It must be admitted that the corporation has had much the
larger growth, though in recent years the cooperative society
has been gaining ground rapidly.

Comparative merits of the corporation and the cooperative
society. It is the opinion of the present writer that the ques-
tion will always be decided on rather definite economic grounds.
Where the difficult problem is that of getting sufficient capital,
he who supplies the capital must be placated ; that is to say,
where everything else is easily obtainable, where there are always
plenty of laborers seeking employment, plenty of raw material
to be had, and buyers ready to buy the finished product, but
where the limiting factor is capital and the puzzling thing is
to know where to get capital, favorable terms must be offered
to the capitalist and he must be allowed to have his way, or
the capital cannot be secured. In the early stages of manu-
facturing expansion, capital was the limiting factor.

The limiting factor will dominate. Now and then conditions
arise under which capital is not the limiting factor. Among
farmers, for example, where a creamery is needed, it is never



THE ORGANIZATION OF BUSINESS 179

very difficult to raise capital enough to equip the creamery ;
the difficulty is to get business ; that is, to get the farmers to pro-
duce the milk and sell the cream to the creamery. In these
cases the producer of milk must be placated and persuaded to
join the organization. He must therefore be given control.
This gives rise to what is known as the cooperative creamery,
in which the producing farmers own the plant, direct its
management, and share in its profits. Such a creamery, how-
ever, is cooperative only in a special sense. The men who
work in the creamery are employed as other laborers would
be employed in a privately owned factory of any kind. A
cooperative store is likewise dependent upon custom. It is
easier to get capital and to hire clerks and salesmen than it
is to induce people to trade at the store. Therefore the
patrons of the store must be placated and given control. The
great cooperative societies, as pointed out in the chapter on
Competition, have been societies where cooperative buying
and selling was substituted for competitive buying and selling.
That is, they have been mercantile societies. They do not
represent cooperation among producers or among the workers
in the stores and factories, for the workers in the stores
and factories are hired on the same terms as workers in the
privately owned or corporation owned stores and factories.

There are a few cases of real cooperation, but they are not
very conspicuous. The only real cooperation is cooperation
among workers, where the men who do the work in a fac-
tory manage it themselves or direct its management and fur-
nish or hire the capital. This form of cooperation has not yet
proved very successful, mainly because labor has seldom been
the limiting factor. It is generally so easy to get labor that
the laborer does not have to be placated and given much con-
trol. When the time comes, as it probably will, when labor
is scarce and hard to find, when it is necessary to placate
the laborer rather than the capitalist or the purchaser of finished
products, then we may expect that this form of cooperation



1 80 PRINCIPLES OF POLITICAL ECONOMY

will gain ground. If the laborer has to be placated in order
to induce him to work in an establishment, he will be given
more and more control over it.

Control by the indispensable person. Generally speaking,
the indispensable man, whether he be the one who furnishes
capital, the one who furnishes raw material (as in the case of
the cooperative creamery), the one who buys the finished
product (as in the case of the cooperative store), or the one
who supplies the labor (as in the case of the true cooperative
society), is in so strong a position that he can dictate terms
to all the others. When the laborer becomes so indispensable,
that is, so scarce and hard to find that the average business
enterprise must wait on his will, he will be in so strong a posi-
tion that he can dictate terms to all the others who participate
in the enterprise. He will then, without resort to force, really
direct its management on a purely voluntary and contractual
basis. There is not a very good prospect for cooperation among
laborers under any other conditions. There is a strong proba-
bility that, with the rapid accumulation of capital (especially if
habits of frugality and saving are encouraged) and with the
growing scarcity of labor (especially if wise immigration laws
are passed and a high standard of living among laborers is
encouraged), there will come a time when capital will be almost
superfluous because of its great abundance, and every individual
laborer will become almost indispensable because of the scarcity
of labor. Then we must expect that capital will lose the power
to direct the management of industries and will take the posi-
tion of a hireling. The laborer will then gain control and
assume the position of the master.



CHAPTER XV
THE BALANCING OF THE FACTORS OF PRODUCTION

Balanced rations, fertilizers, etc. Every farmer nowadays is
familiar with the idea of a balanced ration for his live stock and
a balanced fertilizer for his soil. Students of human dietetics
are also familiar with the idea of a balanced ration for man.
By a balanced ration is meant one which contains the different
food elements in the proportion in which the body needs them.
By a balanced fertilizer is meant a fertilizer which contains the
different elements of plant food in the proportion in which
plants need them. Sometimes, however, a balanced fertilizer
may mean a fertilizer which will balance up the soil and put
into it the elements of plant food which it lacks, in order that
it may possess those elements in the proportion in which plants
need them. Thus, a soil that is rich in nitrogen but deficient
in potash would need a fertilizer that was particularly rich in
potash. Not long ago the writer was at the home of a pro-
fessor of agriculture in one of our leading agricultural colleges.
The grass was growing up between the bricks in the sidewalk
in front of the agriculturist's house. As a demonstration he
was using fertilizer to kill the grass. It was excellent fertilizer,
and in the proper relation it would have made the grass grow
more luxuriantly. He simply put on too much. The result of
this bad balance was to kill the grass. In addition to those
elements of plant food which ordinarily go into the fertilizer,
moisture and other factors are required. If there is too much
of one and too little of another factor, plants will not grow.
Everyone is familiar with the fact that on swampy land plants
will not grow because there is too much water, and that on
desert land they will not grow because there is too little.

181



1 82 PRINCIPLES OF POLITICAL ECONOMY

Balanced ingredients. All these facts are mentioned to make
it perfectly clear to the student that in almost any line of pro-
duction the question of the balance of the factors of production
is a very important one. All the factors may be present, but if
they are not in the right proportions, production will be reduced
or even destroyed. This is true not only of the elements of
plant and animal growth, which are agents of production, but
of tools, implements, raw materials, and other things which enter
into a mechanical industry. In the manufacture of old-fashioned
gunpowder, for example, charcoal, saltpeter, and sulphur were
required, and they had to be combined in fairly definite propor-
tions. If it happened that there was more charcoal on the
market than would combine with the limited supply of one
of the other ingredients, say saltpeter, the production of gun-
powder was limited by the small supply of saltpeter and not
by the supply of charcoal. Only as much gunpowder could
be manufactured as the small supply of saltpeter would permit.
In the making of old-fashioned mortar, lime and sand were
required. Too much of either one or too little of the other
would spoil the mortar. If in any given situation there should
happen to be a scarcity of sand, very little lime could be used,
because only as much mortar could be made as the limited sup-
ply of sand would permit. Again, however abundant both lime
and sand might be for the making of mortar, if brick and stone
were scarce, very little mortar could be used, and there would
therefore be very little productive demand for sand and lime.

Balanced agents of production. This principle applies not
only to the raw materials which are used in various lines of
production, but to the active agents themselves, such as labor.
However numerous the hodcarriers might be, if there were a
great scarcity of brick and stone masons, not many hodcarriers
could be used. The farmer who had plenty of land and tools,
but no horses, oxen, or tractors, would not be able to use either
his land or his tools effectively. If he could not raise the money
in any other way, it would pay him to sell some of his tools or



BALANCING OF FACTORS OF PRODUCTION 183

some of his land and buy horses, in order to restore the balance.
At bottom this is much the same problem as that of balancing
rations or fertilizers. Again, however much land he might pos-
sess, if he lacked equipment, his farm would not be very pro-
ductive. It would pay him, if he could not raise the money in
any other way, to sell some of his land in order to buy equip-
ment of various kinds. Some of our frontier farmers found
themselves in possession of a soil which was very rich in plant
food. They lacked, however, other forms of capital, or the
money wherewith to purchase building materials, machinery,
live stock, etc. Many of them virtually sold their surplus soil ;
that is, they grew such crops as they could, sold them off, and
took no pains to replace the fertility which was used up in the
growing of the crops. They are said to have " mined the soil " ;
that is to say, as the miner extracts his mineral and puts noth-
ing back, so many of these frontier farmers extracted plant food
and put nothing back. Whatever may be said of this from the
point of view of national policy, it was, under the circumstances,
undoubtedly good business from the point of view of the farmer.
He was trying to balance up his establishment. Having an
abundance of plant food in his soil, but very little of anything
else, he found it to his advantage to sell some of his plant
food in order to put up houses, barns, and fences and purchase
machinery and live stock. He was doing virtually the same
thing that another farmer would do who found himself in the
possession of a large number of horses and no plows or har-
rows to which to hitch his teams. It would pay him to sell off
some of his horses and buy enough equipment to make the
remaining horses productive.

A balanced nation. This principle of balancing up the factors
of production is just as important for the nation as a whole as
it is for the individual farmer or manufacturer. The country
which possesses a surplus of land and a scarcity of labor will
find that its land is very ineffectively used. What it needs is
more labor. It cannot very well sell its land, but it will in all



1 84 PRINCIPLES OF POLITICAL ECONOMY

probability pursue a policy which will increase its labor supply.
Labor under such conditions will be in great demand, and for the
same reason that, in dietetics, protein will be in great demand
if it is scarce while the other food elements are abundant. In
such a community land is certain to be cheap and labor dear.
The high price of labor, the ease with which men can estab-
lish themselves on the land as independent farmers, or get re-
munerative work, encourages early marriages and large families.
This is especially true on the farms, where labor is scarce and
land abundant. Every additional child is money in the farmer's
pocket, because as soon as the child is old enough to work he
helps to solve the ever-present problem of scarcity of labor.
Immigration is also likely to be encouraged by such a country.
And thus from two sources the labor supply is increased in
response to the effort to balance up the factors of production.

But tools and equipment of all kinds, which are generally
included under the word capital, are almost, though not quite,
as essential as either labor or land. If capital is scarce while
one or both of the other factors are abundant, it will be in
great demand, for the same reason that labor is in great demand
where it is scarce and land abundant, or that water is in great
demand where there is an abundance of land with all the ele-
ments of chemical fertility, but a scarcity of water. An over-
populated country, on the other hand, finds itself with a badly
balanced industrial system, but the balance is in this case dis-
turbed in the opposite direction. Land being the scarce factor,
every acre that can possibly be used is of the utmost impor-
tance. Labor, on the other hand, is cheap. It can easily be
spared. If it sees fit to migrate to other countries, no great
effort is made to prevent it, and no high price is offered it as
a reward for staying at home. Under such circumstances, to
hold an acre of land out of use would seriously reduce the
total production of the community.

Balanced capital. As on the farm or in the factory we saw
that different kinds of tools have to be combined, so we should



BALANCING OF FACTORS OF PRODUCTION 185

find that different kinds of capital, or tools, have to be combined
in the nation at large. If, for any reason, the country should
find an oversupply of one class of tools, say agricultural
implements, and an undersupply of another class of tools, say
railroads and rolling stock, the productive power of the whole
nation would be limited by the deficiency of transportation
facilities. However much might be produced with the agri-
cultural implements, if it could not be transported to market, it
would be of little use. This would be a case of badly balanced
national capital. The result would be that the industrial system,
if it were a good system, would find some way to restore the
balance. It would be poor economy, under such circumstances,



Online LibraryThomas Nixon CarverPrinciples of political economy → online text (page 15 of 48)