Part II

CHAPTER VIII
The New Order Of Business

WHAT has just been described, or sketched, hastily in these brief chapters on the progress of industrial America in the nineteenth century has evidently been a process of continued growth, a cumulative sequence of complex changes. And the new order of things which now faces the Americans is an outgrowth of a period of unexampled changes. So there has arisen a situation which foots up to a new order of things ; although the new order carries over much of the old order out of which it has arisen. The changes that have been going forward have taken effect primarily and most profoundly in the material circumstances which condition the life and work of this people. The material conditions, the ways and means of living and of procuring a livelihood, have been altered in a very substantial degree. At the same time these material and technical changes have also put a strain on the received canons of knowledge and belief and on the established order of law and custom; although the strain to which they have been subjected has not yet brought on any substantial measure of change in these principles of use and merit that govern belief and conduct.

The changes that have been going forward have not affected all parts of the scheme of life in anything like the same measure. The drive of change has not been the same, and the rate of change has therefore not been the same throughout. The driving forces of change have taken direct effect in the industrial arts, and have touched matters of law and custom only at the second remove. Habits of thought have therefore not been displaced and shifted forward to a new footing in law and morals in anything like the same measure in which men have learned to use new ways and means in industry. The principles (habits of thought) which govern knowledge and belief, law and morals, have accordingly lagged behind, as contrasted with the forward drive in industry and in the resulting workday conditions of living.

As is always the case, in the nature of things, so in this case, too, the changes that have taken effect in the material circumstances are the creative factors which have gone into action, as a driving force and a controlling agency, and have set afoot a new line of habituation. And as is always the case, in the nature of things, the new pattern of knowledge and the new elements of belief and conviction which these new habits of workday living are pushing forward are finding acceptance and endorsement only tardily and by way of reluctant concession to the force majeure of continued and rigorous habituation. In point of time, these adaptations of knowledge and belief come after the fact. And any departure from ancient precedent in law and morals will come into effect still more tardily, still farther in arrears. So much so that opinionated persons are quite able to believe that no substantial change need take place or can take place in that range of habitual “action patterns” in which law and morals are grounded, at least not in America. Indeed, it is something of a boast among Americans of the stricter observance that American law and custom have suffered no change, in principle, since the date of the Federal Constitution. In orinciple, that is to say in respect of its underlying habits of thought, the working system of American law and custom is held to be the finished product of a process of growth which came to a ripe conclusion some 150 years ago. This rigorously retrospective position is formally binding on the judiciary and the legal profession. It overlooks the service rendered by legal fiction and constructive precedents, of course; but there is after all a modicum of truth in the contention,—so much as will enable the judiciary and the legal profession to rest their arguments on it, pro forma.

It results that in so far as the new order of things departs from the old it has not the countenance of law and custom, except by way of legal fiction. Or to turn the proposition about, in so far as the new order of things departs from the old, the American system of law and order as embodied in the Federal constitution is out-of-date, except by way of legal fiction. The Federal constitution was framed by the elder statesmen of the eighteenth century ; whereas the new industrial order of things is created by the technicians of the twentieth century. There is accordingly a discrepancy between the run of material facts in the present and the canons of law and order as stabilised in the eighteenth century. In the same fashion, though in a less formal conflict, the traditional system of knowledge and belief also is holding out against the pressure brought by the revolution in industry. Such is necessarily the case with any stable system of usages and beliefs and with any established order of law and custom; and it holds true with particular cogency in this American case, where the rate and volume of change in the material conditions of life during this interval have been large and swift beyond example.

The established system of knowledge and belief, law and order, came out of the remoter past that lies back of the period of its own stabilisation, and it embodies the habits of thought and the frame of mind that were engendered in still earlier generations by habituation and precedent in the course of that past experience. In this sense, then, it is necessarily out-of-date by so much as the material circumstances which condition the present have departed from those past conditions to which it owes its rise and fixation; and, indeed, by so much more as the working scheme of knowledge and belief, law and order, in that past time carried forward and perpetuated habits of thought, preconceptions, principles, that are of still older date.

The new order of things has arisen out of the past by a change in degree carried so far as to result in an effectual change in kind. In the American case this change in the material conditions of life has gone so far as to amount to a break with the past; while the system of legal and customary rights, powers, immunities, and privileges stands over on the base given it by the elder statesmen of the past, except for legal fiction.

The changes which have made this break with the past and have set up this discrepancy between the current conditions of life and the received rules which govern the conduct of life,—these changes have been, primarily and immediately, changes in the material circumstances of the case, due to a progressive change in the state of the industrial arts and to a continued growth of population. And in both of these respects the rate and volume of change have been large, beyond example. And this altered state of their material circumstances has not yet had time to affect the spiritual animus, the frame of mind, of the American community, at all seriously or substantially ; nor has it all at all seriously affected their outlook on things even in those matters of knowledge and belief that have to do directly with the industrial arts and the material welfare of the community.¹

It is true, business enterprise and business methods have undergone some measure of reorganization, designed to get the benefit of the new opportunities offered by the new scale of work that has been brought into action by the continued advance of the industrial arts. So that business has been conducted on a larger scale and at a swifter pace, and with a wider sweep of credit relations— all due in great part to improved mechanical facilities ; but the spirit in which American business is conducted, as well as the law and custom which formally govern its powers and procedure, are still the same spirit and the same principles of law and morals that have long been familiar to the horse-trading farmer and the collusive retailers of the country towns.²

The material circumstances which underlie and enable the new order, which supply its working forces and limit its powers, are the state of the industrial arts and the manpower of the underlying population ; and these forces have come up into their present state by an irrepressible growth, and they are still engaged in a sweeping advance which is pushing them farther and farther from their point of departure. But the control of these industrial powers, and the decision as to what, when, and how much work shall be done by them, is vested in the absentee owners of the country’s resources. And these owners and their business agents go into this work of directing and restraining the work in hand with such powers and preconceptions as have been conferred on them according to a scheme of law and custom that was worked out and stabilised in an alien past for purposes that are alien to this latterday state of the industrial arts and out of touch with the latterday state of population. The New Order, therefore, is by way of being a misfit. It is an organisation of new ways and means in the way of industrial processes and man-power, subject to irresponsible control at the hands of a superannuated general staff of business men moving along lines of an old-fashioned strategy toward obsolete ends.³

This new order of things in American business and industry may be said to have arisen so soon as a working majority of the country’s industrial resources, including the transportation system, had been brought securely under absentee ownership on a sufficiently large scale, in sufficiently large holdings, to make these national resources and the industries which make use of them amenable to concerted surveillance and control by the vested interests that represent these larger absentee owners. Of course, there is no sharply drawn date-line to mark the beginning of this new dispensation; de jure it does not exist. But the de facto rise of the new order may be conveniently dated from about the turn of the century. Loosely speaking, that large-scale control of the industrial forces which has made the outcome, dates back to the ten or twelve years overlapping the end of the century. The “era of trust-making,” sometimes so called, that ran for some years from, say, 1897 onward, was concerned in this transition to a new footing in American business.

This appears to make the New Order a new order of business. And so it is, in the sense that the New Order is an order of things in which business considerations are paramount. Its distinctive characteristic on this head being that it is an order of things in which Big Business is paramount. But Big Business still is business of the old familiar kind, with the old familiar aims to be worked out in the old familiar spirit.

Big Business is paramount in the New Order. But all the while the conditioning circumstances which underlie this new order of business enterprise are circumstances of a material, tangible, mechanical, technical nature, ways and means of doing tangible work, not merely new and improved ways and means of doing business. Business has to do with the intangibles of ownership, and only indirectly with the tangible facts of workmanship. Under the new dispensation as under any other, the whole duty of business enterprise is to come in for as large and secure a net gain as may be, to acquire title, to “make money,” and therefore to turn all tangible means and performances to account for this intangible but paramount purpose of acquiring title. The new expedients that have been brought into action in the conduct of business are contrivances and expedients designed to serve this intangible end; new ways and means of responding to the call of those new opportunities for gain that arise out of tangible changes in the industrial system,—for it is out of the tangible performance of this industrial system that the gains of ownership are drawn and it is to these tangibles of industrial work and products that title is to be acquired. And the tangible changes affecting the industrial system have been going forward as an unremitting proliferation, a continuous advance in the scale and articulation of the industrial process at large.

No new order of business and industry has sprung up suddenly and complete at any given date, even though a visible change has taken effect within a reasonably short time. It is only that somewhere about the turn of the century a critical point was reached and passed, without much visible change of circumstances at the time. The new system, in business and in industry, has in fact been maturing into its present working shape through some twenty years past. And it is still feasible for legally-minded persons to believe that no substantial change has taken effect for a longer period than that. Nor will it do to say that this new growth has now run its course to a finality; although it should perhaps not come as a surprise if the present phase of it turns out to mark something like a station in the course of events, possibly even something of a new point of departure. Certain indications that the present situation may constitute such a critical phase, and may mark a new departure, will be brought into the argument in a later passage and in another connection.

The critical pass, the point at which the New Order may be said to have set in, was reached and passed so soon as a working majority of the country’s industrial resources had been brought under absentee ownership on a sufficiently large scale for collusive management. But this is not intended to say that at that period anything like a statistical majority of the natural resources had been taken over into large holdings ; but only that, loosely about that period, an effectual working majority of those natural resources and industrial plants which are immediately engaged in the so-called “key industries” had already passed into absentee ownership on so large a scale as to enable an effectual collusive control of these things by the vested interests concerned, such a degree of control as to make a reasonably concerted check on production in these key industries a manageable undertaking.⁴

In effect, whether by intention or not, the country’s industrial system as a working whole, as an industrial going concern, was thereby brought under control and became subject to a varying degree of sabotage at the hands of the vested interests in these key industries.

That is what is meant by calling them “key industries,” The business concerns that have to do with other branches of production and trade necessarily wait on the movement of things in these key industries. That is also a matter of course and of common notoriety. Not that the businesslike management of one and another of these key industries will aim to administer sabotage to any or all of the underlying and outlying members of the industrial system. That is not the intention; it is only the effect. Indeed, in so curtailing employment and output in the underlying and outlying industries by curtailing the output in the key industries the business management of these latter unintentionally curtail the fund of wealth from which the owners of the key industries are to draw their run of free income. So that it is, in effect, at a sacrifice of the long run of gain that the management of the key industries “grabs off” an enhanced rate of earnings for the time being, by curtailing its output and advancing its price schedule. But then, business enterprise, particularly American business enterprise, habitually looks to the short run. And there are reasons why Big Business in particular should conduct its operations with a view to the short-time returns.⁵

The working schedule throughout the rest of the industrial system is conditioned from day to day on the rate, volume, and balance of work and output in these key industries ; inasmuch as the secondary, underlying and outlying branches of the system are, in effect, engaged on what may be called continuation work, which draws unremittingly on the output of the key industries for power, raw materials, transportation, and mechanical equipment, and which presently will unavoidably halt when the flow of these indispensable ways and means of production is clogged by obstructive manoeuvres and curtailment in the key industries. So also, the habitual and deliberate failure of the key industries, for business reasons, to run at their full productive capacity acts, in effect, to set the pace, to adjust the rate and volume of employment and output throughout the rest of the industrial system at a lower average than would otherwise be the rule. Any degree of concerted control over these natural resources, as it takes effect in the curtailment or speeding-up of these main industries that so lie at the tactical center of the system, will effectually govern the movements of the country’s industrial system at large, as a comprehensive going concern.

And this control, and the running balance of sabotage which is its chief method of control and its chief material consequence, all takes effect in an impersonal and dispassionate way, as a matter of business routine. Absentee ownership and absentee management on this grand scale is immune from neighborly personalities and from sentimental considerations and scruples.⁶

It takes effect through the colorless and impersonal channels of corporation management, at the hands of businesslike officials whose discretion and responsibility extend no farther than the procuring of a reasonably large— that is to say the largest obtainable—net gain in terms of price. The absentee owners are removed out of all touch with the working personnel or with the industrial work in hand, except such remote, neutral and dispassionate contact by proxy as may be implied in the continued receipt of a free income ; and very much the same is true for the business agents of the absentee owners, the investment-bankers and the staff of responsible corporation officials. Their relation to what is going on, and to the manpower by use of which it is going on, is a fiscal relation. As industry, as a process of workmanship and a production of the means of life, the work in hand has no meaning for the absentee owners sitting in the fiscal background of these vested interests. Personalities and tangible consequences are eliminated and the business of governing the rate and volume of the output goes forward in terms of funds, prices, and percentages.

But all the while the work in hand goes forward in terms of mechanical power, fuel, raw materials, mechanical equipment, chemical processes, man-power, and technical design and surveillance,—matters hidden, perhaps mercifully, from the absentee owners who come in for that free income on which the strategy of these vested interests converges. Thereby the absentee owners as well as their absentee business managers are spared many distasteful experiences, saved from reflecting on many dreary trivialities of life and death,—trivialities on the balance sheet of assets and liabilities, although their material counterfoil in terms of life and death among the underlying population may be grave enough to those on whom their impact falls. But the absentee owners and their business agents are also by the same screen of absentee immunity barred out from knowing what to do, or from doing anything at all to the purpose in case of need, in case these trivialities of life and death head up in a tangle of discord and mutiny such as to jeopardise the orderly run of their free income, after the fashion which is now becoming familiar to all men.⁷

The strategy of business—the strategy of getting a larger net gain in dollars—dictates what is to be done or left undone; and having so dictated, it moves on to the next thing in the same line. There is no place in Big Business for considerations of a more material sort or of a more sentimental sort than net gain within the law. It moves on that particular plane of make-believe on which the net gain in money-values is a more convincing reality than productive work or human livelihood. Neither the tenuous things of the human spirit nor the gross material needs of human life can come in contact with this business enterprise in such a way as to deflect its course from the line of least resistance, which is the line of greatest present gain within the law.

This line of least resistance and greatest present gain runs in the main by way of a vigilant sabotage on production. So true is this and so impassively binding is this duty of businesslike sabotage, that even in a crisis of unexampled privation, such as these years since the War, the captains of Big Business have been unable to break away and let the forces of production take their course ; and this in spite of their being notably humane persons, imbued with the most benevolent sentiments. With an eye single to the net gain, business strategy still continues impartially to dictate a conscientious withdrawal of efficiency.⁸

The state of things brought on by the War and perpetuated by the businesslike Peace which has followed after, is complicated enough in detail ; but the outline of things so far as regards the main circumstances which govern business and industry is not especially obscure. When relieved of those personalities and moralities that commonly cloud the argument, the case will stand somewhat as follows. There is a very large inflation of credits, both in the set form of loan credits and in fiduciary currency, in all the civilised nations. The inflation in America, taking one thing with another, may perhaps be rated at something like ioo per cent., rather over than under.⁹ Hence money-values have advanced, resulting in an effectual recapitalisation of American business concerns, their assets and their presumptive earnings.¹⁰ At the same time the aggregate wealth of the country, as counted by weight and tale and use-value, has fallen off greatly, as has also the man-power available for productive work. Hence there has arisen a discrepancy between the country’s material wealth and the business community’s capitalised wealth, which may in a manner of speaking be called a divergence between the country’s wealth de facto and its wealth de jure; between the country’s wealth in hand considered as a business proposition (which has increased) and its material wealth considered as a proposition in livelihood (which has decreased). The country is richer in money-values and poorer in use-values.

But capitalisation and earnings are a business proposition; livelihood is not. And in any civilised country, like America, business controls industry ; which means that production must wait on earnings. Under these circumstances it is, as a matter of common honesty, incumbent on the business men in charge to keep this—in a sense fictitious—capitalisation intact, and to make it good by bringing current earnings up to the mark. And they have been endeavoring to do this by curtailing employment and output to such a point that the resulting smaller volume of output at the resulting increased price per unit will yield the requisite increased total price-return. Among the expedients by which it is sought to save the capitalisation intact is a concerted effort to reduce wages.¹¹

It is evident that in its main lines this precarious situation that has been precipitated by the War, and the Peace, does not differ notably, unless in degree, from the orderly run of business and industry during the times of peace immediately preceding the War. The drift of things in that time set visibly in the direction of such an outcome as the War has brought to a head. Then as since then over-capitalisation was the rule ;¹² as a standard practice there has been more or less of a running sabotage on production, that is to say more or less unemployment of equipment and man-power; there has been intermittent and, on the whole, increasing discord and distrust between the workmen in the larger industries and their corporate employers, rising with increasing frequency into hostilities in the way of strikes and lockouts, while there has also been a rapidly increasing use of strike-breakers, labor spies (“under-cover men”), armed guards, hired “deputies,” state police and other armed forces, to keep the peace, uphold the rights of property and make good the absentee owners’ claim to a reasonable net gain. By and large, the system of civilised business and industry appears to have been moving forward as a whole and in an orderly fashion toward some such state of balanced inaction and suspended hostilities as that which has been precipitated by the War.

At first sight this view seems to be sound, but a closer scrutiny may leave it in doubt. On the face of things, it looks as if the business community which controls the country’s industrial forces had for some time past been engaged in a concerted movement of cumulative overcapitalisation and sabotage; while the industrial manpower has been increasingly and systematically falling into an attitude of cross-purposes and ill-will. There is scarcely a question about the intractable attitude of the industrial man-power, and the steadily rising pitch and sweep of it. Nor is there a tenable doubt as regards the increasing resort to over-capitalisation and sabotage on the part of the business community. But there is at least a reasonable doubt as to how far the business managers have been moving in concert in this matter. Their dutiful denials have, of course, no significance except as a ground of suspicion. But the circumstantial evidence in the case is not convincing.

The War, and the businesslike Peace, have brought the economic system as a whole to a state of balanced inaction by a general and uniform check, which gives the resulting situation of sabotage on employment and output the appearance of concerted action on a deliberate and comprehensive plan. But there is no good evidence of widely concerted inaction in that businesslike sabotage that prevailed in the pre-war period. And there is at least a reasonable doubt whether the present apparently concerted inaction, after the War, is the outcome of deliberate choice arrived at in concert by the business community at large acting in collusion. Superficially it has the appearance of conspiracy, of course; and the evidence is perhaps reasonably conclusive that the large employers have been working together the past two years on a common understanding to break down the labor unions, in the well-known campaign for what is called the “open shop.” But there is no good evidence of any similarly wide concert of action on their part in earlier years. They have showed no capacity for concerted action on such a scale in the past. Except for the banking community, who are held under passable control of a coercive kind by the great credit establishments at the financial center, acting under the coercive surveillance of the Federal Reserve, the American business community have showed no great aptitude for such intelligent and sustained concert of action as this would imply.

There has in the past, from time to time, been an effectual concert of action within certain groups, among the business concerns which take care of certain industries; as, e. g., in steel, coal, lumber, oil, copper, electrical and building supplies, and in a degree in transportation. But the resulting inaction and curtailment, so far as it has affected the industrial system at large, has been somewhat haphazard. It has had the appearance of being governed by uncoordinated yielding to the pressure of circumstances, tracing back to curtailment of supplies from one or another of the key industries or to measures taken in the centralised credit business. The industrial business concerns at large have commonly appeared to act in sev-eralty, yielding to a common pressure, rather than moving by a common impulse and looking to a shrewdly balanced sabotage on employment and output as a whole. Of course, in ordinary times there is a routine of sabotage, a restriction of output to meet the market, which goes into the day’s work of all sizable concerns that do business in productive industry; but all that has been a matter of routine business within each concern ; which is something quite different from such a nation-wide campaign of inaction and hostilities as has held up the country’s industry since the War.

The question may be put in this way:—Is this post-bellum state of resolute inaction in business and of unemployment and hostilities in industry the rightful outgrowth of the ordinary agencies that have been at work during the past two decades? or is it all a transient derangement of things, due to transient causes extraneous to that system of absentee ownership and finance that makes the New Order of things? And if the latter appears to be the case, if this post-bellum complication of hardships and inaction does not belong in the orderly course of things under the New Order, what should then reasonably be looked for in the calculable future as an outcome of continued growth along the line of the past two decades? What is reasonably to be looked for as the outcome of absentee ownership and control on this large scale as it is working out on the ground of an increasingly large and close-knit industrial-system, and an increasingly large and compact underlying population?

It is a question of human behavior under pressure of changing circumstances with a minimum of change in the formal rules which govern this behavior. Apparently it should involve a question of the degree and direction of change to be looked for in the law and the administrative procedure that touches the conduct of industry and business. Which becomes, in effect, a question of what the courts, the legislatures, and the administrative officials are likely to decide in these premises. There should apparently be small ground for doubt on that head, in the light of what has been taking place. So that the answer to this part of the question may be taken for granted, with a fair degree of confidence.

As has been customary in recent times, so also during the past two decades the courts and legislatures have, on the whole, acted to safeguard and fortify the rights, powers and immunities of absentee ownership whenever there has been occasion, and the administrative officials have acted in the same sense with celerity and effect, to the best of their knowledge and belief; in all of which the constituted authorities have doubtless acted in good faith and have followed out the logic of law and custom that has been bred in them by precept, example and tradition. There need be no apprehension of interference with the course of things from that side, so far as the course of things is dictated by the needs of absentee ownership. It may accordingly be assumed that the case of America as it runs into the calculable future will continue to be ordered on the lines of absentee ownership without much afterthought, governed by business enterprise carried on with an eye single to the largest net gain in terms of price. The law allows it and the court awards it. The changes to be looked for are such changes as are initiated from outside the jurisdiction of law and custom. There are three somewhat divergent main lines, at least, along which the resulting new growth may move ; according as one or another of the country’s main business interests comes to dominate the situation, alone or in a combination. (a) The funded power, the control of credit, in the hands of the associated banking-houses and the Federal Reserve, may be able to govern the course of business to such effect as to safeguard the interests of absentee ownership at large, maintain a steadily rising overcapitalisation of absentee assets, and assure an indefinitely continued increase of net gains on investments and credit commitments. The drift just now appears to set in that direction. These agencies may be able to maintain such a balanced and stable progressive expansion of assets and earnings. In any case, the dominant position of this community of “investment-bankers,” moving in concert under the steady surveillance of the Federal Reserve, will exercise an influence of this kind and will greatly affect the outcome, (b) At the same time it is conceivable that the vested interests which own and control the main natural resources and the key industries may take the lead, with the support of the banking community. Ownership of these tangible assets that underlie the country’s industrial system, the underlying material resources and equipment, will enable these corporate interests to draw together on a concerted plan of common action and set the pace for the country’s industry as a whole by limiting output and service to such a rate and volume as will best serve their own collective net gain. In so doing they will be in a position progressively to draw the industrial system as a whole in under their own absentee ownership, without material reservation, at least to the extent of coming in for the effectual usufruct of the whole,— somewhat after the fashion in which the packers, millers, and railways, now enjoy the usufruct of the farming community in the Middle West, but with a stricter authority. In this connection it is to be recalled that there is already a far-reaching identity both of personnel and of corporate interests between the group of corporations who control the key industries on the one side and the banking community on the other, and this coalescence or consolidation of the masters of tangible assets with the masters of credit and solvency is visibly on the increase. So that what should be looked for is quite as likely to be an effectual coalescence and concert of these two powers, the bankers and the key industries, rather than the dominance of either one as against the other, (c) There is also the possibility that the business concerns which control the natural resources and the great industries will continue to act by groups as in the recent past, each group taking measures for itself in what may be called group sev-eralty, and each group of Interests ¹³ seeking its own immediate advantage by charging what the traffic will bear, at the cost of any other vested interests and of the underlying population. In so doing these collusive groups of industrial concerns will necessarily be working more or less at cross purposes, and will thereby carry on a haphazard and fluctuating sabotage on employment and output, after the pattern that had become familiar during the years before the War. Such is the tradition of business enterprise in industry and of that “competitive system” that still lives in American tradition, and there is always the chance that the conservative spirit of the American business may preclude any effectual departure from this familiar plan of mutual distrust and sharp practice. In the background of any such pattern of semidetached group action there is, of course, always the collusive banking community to be counted with; and there remains therefore the question of how far the banking community will tolerate cross purposes between groups of industrial business concerns.

There is also the more obscure question of what the industrial man-power and the underlying population will say to it all, if anything. In strict consistency, of course, under the dispassionate logic of established law and custom, neither the industrial man-power nor the underlying population come into the case except as counters in the computation of what the traffic will bear. Anything like reasoned conduct or articulate behavior on their part will scarcely be looked for in this connection. Yet there remains an uneasy doubt as touches the de facto limits of tolerance.

1: The country town has apparently been the chief agency by which this stable and peevish quietism of American knowledge and belief has been kept in repair, as indicated in an earlier passage.

2: Of course, what so is said of a new order of things will apply only de facto, not de jure. Indeed, that is the point in argument. De jure, of course, the current state of things in the American industrial world differs in no degree from the situation of a hundred years ago. And the difficulties and perplexities, and animosities, that have lately been coming to a head under this new industrial order have arisen out of the growing divergence between the state of things de jure and the state of things de facto. It is, perhaps, necessary to add that “de facto” is here used not in the sense of a convenient prevarication, as in latterday diplomatic usage, but rather as designating the material circumstances of the case.

3: It is not intended to cast aspersions on this general staff of business men who so administer the country’s industrial affairs for the benefit of its absentee owners. They are superannuated, not in point of physical senility but only in point of their aims and methods, bias and preconceptions. By interest, training, and perhaps by native gift, they are holdovers out of a past order of conceptions, which cannot be defined in terms of the later industrial processes or in terms of the man-power engaged. They are responsible men, of course, but their responsibility runs in such terms and to such effect that it has no meaning within the system of the latter-day technology.

4: Effectual concert of action in this bearing does not involve anything like a formal collusive arrangement, such as would constitute a “conspiracy in restraint of trade” in the opinion of the courts. E. g., even now slightly more than one-half of the steel production of the country is in the hands of “independent” concerns which have no corporate connection with the Steel Corporation; at least no such relation is visible to the courts or avowed by the corporation executives. Yet it is a fact accepted as a matter of course and of common notoriety that the policy pursued by the Steel Corporation, e. g., in its “labor management” and its campaign for the “open shop,” will in the nature of things govern the conduct of the Independents in the same connection.—Cf. Report on the Steel Strike of 1919, by the Commission of the Interchurch World Movement (New York, 1920), where this state of the case is very much in evidence throughout the findings of the Commission.

5: Cf., “On the Nature of Capital,” second paper, reprinted in The Place of Science, pp. 352-386, especially pp. 373-386.

6: Cf., e. g., Testimony of E. H. Gary before the Senate Commission to investigate the Steel Strike of 1919-1920, vol. I; and Peport on the Steel Strike of 1919 by The Interchurch World Movement (New York, 1920), througiiout, and especially sections II (“Ignorance”) and V (“Grievances and Control”).

7: ‘‘The conditions described have caused me deep concern. The first intimation months ago that such a situation existed . . . led me to institute prompt inquiry, with the hope that any just grounds for criticism might be removed forthwith. That these efforts, long since under way and still in progress, have not been more quickly effective has been and is a disappointment.”—Cf. also The Epistles of Saint John of the Standard to the Holy Brotherhood of the Long Bow. Passim.

8: Here as in other passages of this argument “Sabotage” is taken to mean “A Conscientious Withdrawal of Efficiency,” with whatever tactics of artifice and effrontery may be required to give it effect. The phrase is said to have originated among the I. W. W. ; but it is no less convenient for use in the present con nection. Like aims call for like procedure.

It will be said, of course, as it has been said, that this comfortless and perplexing situation of the immediate present has been precipitated by the War, and that the difficulties and distress involved in this present state of things are the difficulties of recovery from the devastation and disorganization incident to the War. But it is by no means certain that very much the same state of things would not have come on anyway, before long, as the rightful outgrowth of that run of forces that have been at work in business and industry during these past two decades, while the New Order has been coming into its own, and that the fatalities of the War have only brought it all to a head more sharply and perhaps more speedily than might otherwise have happened. The situation is a complicated one, and further analysis may reach a different result.

9: This is at present (1923) over the official figure, so far as official figures have been given out. Indeed, inflation has been denied for America, apparently in good faith. The dollar is still claimed to be at par and redeemable. It is needless to question the fact here. The dollar may be redeemable in some sense de jure; de facto the depreciation is effective. Official statistics of prices make it something like 60 or 70 per cent, over the level of 1914 ; the effectual inflation still seems to run appreciably over the official figures.

Under the exacting surveillance of the Federal Reserve, the banking community have hitherto exercised a very salutary collusive control of credits, which has upheld the effectual inflation and so prevented any precipitate liquidation. They have indeed effected a slow and temperate retrenchment of credits, which may conceivably have gone far enough to offset the continued shrinkage of assets that has run along at the same time, due to idleness, consumption and wear and tear. Nor, conceivably, need America experience a period of acute liquidation so long as the effectual bankruptcy of virtually all civilised Europe does not pass from de facto to de jure; provided always that the Federal Reserve continues to administer the American credit situation with a firm hand, and provided also that the nation’s Business Administration does not live up to its election promises in the way of businesslike legislation. It may yet be within the power of the American banking community and the Federal Reserve to postpone the formal bankruptcy of Europe indefinitely, if European statecraft can be brought to substitute common sense for politics in any sensible degree. All this appears to be known to those who control the American credit situation and to be acted on by them.

10: The capital value of a business concern at any given time, its purchase value as a going concern, is measured by the capitalised value of its presumptive earnings ; which is a question of its presumptive net earning-capacity and of the rate or coefficient of capitalisation currently accepted at the time; and the second of these two factors is intimately related to the rate of discount ruling at the time.

11: It will be noted that all this businesslike strategy falls properly under the head of sabotage. It is, in effect, a traffic in privation, of course. It is also business-as-usual. No fault need be found with it, since there is no help for it. It is not a matter of personal preference or moral obliquity. It is not that these captains of Big Business whose duty it is to administer this salutary modicum of sabotage on production are naughty. It is not that they aim to shorten human life or augment human discomfort by contriving an increase of privation among their fellow men. Indeed, it is to be presumed that they are as humane as they profess. But only by shortening the supply of things needed and so increasing privation to a critical point can they sufficiently increase their (nominal) earnings, and so come off with a clear conscience and justify the trust which their absentee owners have reposed in them. They are caught in the net of business-as-usual, under circumstances which dictate a conscientious withdrawal of efficiency. The question is not whether this traffic in privation is humane, but whether it is sound business management; which reduces itself to a question of whether the underlying population will put up with a sufficient degree of privation for a sufficiently long time. And the underlying population of this country is notoriously tolerant as regards all those things that are done in the name of business.

12: “Over-capitalisation” is here used for brevity only, and in a particular technical sense, applicable in this connection and not necessarily serviceable for general use. It is intended to cover the well-known fact that in current practice business capital, the capital value of any successful business concern, has habitually and increasingly exceeded the value of the material wealth which underlies it. The fact is perhaps most obvious in the case of corporate capitalisation, but it is scarcely less true for going concerns which are not incorporated. In other words, the total capitalised assets of the country’s business concerns have habitually, and increasingly, exceeded their total tangible assets.

Of course there is nothing reprehensible in this business practice. It is a matter of sound business routine. Such “overcapitalisation” is one of the ordinary consequences, as it is also an evidence, of good management; being in great part a capitalisation of “good-will,” so called. But it involves two consequences that are worth noting in this connection:—it results that (a) the total wealth of the country counted as assets, funded capital values, is very appreciably larger than the same total when counted as itemised material wealth in hand; and (b) these assets on which the earnings of business are to be computed are notably larger than the holdings of materially productive goods employed. Which brings up the paradox that the ordinary net earnings of business must exceed the ordinary net product of industry from which alone these net earnings are to be drawn. Which gives added precision to the statement that business management is businesslike and capable only in so far as it gets something for nothing.

The case of the American farm population, too, comes in for sharper definition in the light of this paradox. The assets of the going concerns in business yield earnings in excess, as a reward of sound business management. On the other hand, as is known to statisticians, the assets of the farmers yield, on an average, next to no earnings, perhaps none. The ordinary income of the average farm where the equipment is owned by the cultivator will foot up to scant wages for the labor expended by the farmer and his household.

13: As, e. g., railways, steel, oil, anthracite coal, bituminous coal, packers, millers.