Recent Economic Tendencies

THE events of the last decade, and particularly of the last few years, have required a readjustment by economic thinkers of many preconceived points of view upon important subjects relating to industry and capital. It is not so much that the maxims of classical political economy have been proved false, as that those upon which stress has been laid during the effort to emancipate industry from mediæval fetters have become of subordinate importance because their operation has come to be modified by new conditions. The last few years have witnessed a remarkable expansion in trade and industry in nearly every civilized country, which is causing a larger volume of production in proportion to population, and employing a larger capital than any previous development of the kind. The rate for the rental of capital has risen upon every European money market higher than for many years. The great increase in the gold supply, which has added $700,000,000, or nearly twenty-five per cent, to the gold currency of the world since 1892, seems to have been ineffective in arresting the scarcity of money. Prices of commodities have risen in a surprising degree, and mills and factories have orders which cannot be filled for many months.

While this revival of industry, following upon the panic of 1893, bears much resemblance to the revivals that have followed earlier periods of depression, an important new element has gradually become a controlling factor in the situation. This is the widening of the field of competition. This widening of the field has proceeded with accelerating pace during the last two centuries as the result of labor-saving machinery, swift and cheap methods of communication, and the great accumulations of saved capital resulting from the use of these improved instruments of production and exchange. The widening of the field of effective competitors first brought the producer into competition with his near neighbors, then with the producers of the whole nation, and finally with foreign competitors on a limited scale on his own soil. The condition which now confronts him is the necessity of seeking new outlets, whether for finished goods or saved capital, in foreign markets where he must compete with other producers from without who have entered the field under the same stimulus as himself. This stimulus is the persistent human motive of the struggle for existence, and in this struggle no effective formula has yet been found to supersede that of “ the survival of the fittest.”

These new conditions of world competition do not permit effective aid to the producer by favoring legislation at home, except such as carefully removes restrictions upon the economy and efficiency of production. The home market is more than supplied by the existing equipment of machinery and capital. The new market opening in the undeveloped countries will be won by the people showing the greatest efficiency in every department of production, — not merely in machinery and labor, but in the organization of their banking and carrying systems and their distribution of the burdens of taxation. Local markets have been merged into a world market, where the operator in goods, money, or securities can place orders or make sales at his will, in London, Paris, Vienna, or New York, according as the news brought by telegraph, telephone, or cable indicates that he can buy cheaper or sell dearer at any given moment.

It is in this world market that the manufacturers and capitalists of the United States, as well as those of England and Continental Europe, must hereafter compete with one another. Powerful influences have swept away the natural barriers to competition by making it possible to transfer goods at small cost from the place of production to the remote corners of the world. The reduction of railway charges and ocean freights has followed the multiplication of lines of transportation and economies in railway management and steamship construction. Cars of steel are replacing those of wood, and cars carrying fifty tons are hauled almost as cheaply as were those carrying twenty tons a few years ago. One of the most serious problems of railway competition to-day is the adjustment of rates that shall be fair between communities which at widely varying distances claim the right to lay down their products upon equal terms in the same market. The difference of a few cents per box may determine whether California, or Florida, or Jamaica, shall control the market for oranges in New York. A similar difference on freight from the West, as between New York or Newport News, may determine which city shall be the commercial emporium of the western world. The breadth of the Atlantic is made “ a negligible quantity ” by “ export rates ” which impose the same charges upon freight from the Mississippi to Europe that are made from the Mississippi to New York.

The railway may thus, in a more emphatic sense than ever before, annihilate distances which exist; it also has the power to lengthen distances for all competitive purposes by hostile rates. These mighty engines of competition, hitherto restricted in the main to Europe and America, are putting “ a girdle round about the earth.” They are traversing the steppes whose sombre silence has been broken for centuries only by the horses’ hoofs of Tartar robbers, or by the march of the armed servants of Russian despotism ; they are marking China into a checkerboard by bands of steel; they are preparing to link Northern and Southern Africa together “ from Cairo to the Cape,” and across the Desert of Sahara; and their victorious march from Asia Minor across the valleys of the Tigris and Euphrates to the confines of India promises a more enduring conquest for civilization than that of Alexander’s armies. Under their competition the possibility of finding an exclusive market and retaining it against rivals by the barriers of distance and difficulty of approach is becoming as vain as the search of the alchemist for the source of gold, or the quest of Ponce de Leon for the fountain of perpetual youth.

One of the facts that has contributed to the merging of local markets into a world market, and has changed the bearings of some of the propositions of classical political economy toward the modern world, is the great accumulation of saved capital.1 This fact has resulted in a permanent decline of the rate of interest on capital, in spite of the fluctuations of the discount rate which have for the moment carried the rental price of currency to a high figure. Saving now finds little outlet, except in duplicating needlessly the existing machinery of production and transportation, or extending it in directions where an immediate return in the form of dividends is not assured. The most hopeful field for such investments in the future, although one that involves serious risks, is the equipment of new countries.

The reduction in the rate of profit from savings should have the effect, according to the play of classical economic laws, to diminish saving on the one hand, and by the lower rental value of capital make many enterprises practicable which were not so when the rental of capital was high. It is doubtful if the first of these supposed effects of low interest — the diminution of saving — will be felt to any serious extent in modern society. The instinct of saving is to a considerable degree independent of the earning of dividends. Hoards of gold and silver are common among the people of India and other half-civilized countries, where the capital lies buried in some hiding place without yielding a penny of return. The expectation of dividends from investment is a modern phenomenon, which is only one phase of the passion for saving instilled by the evolution of civilized society. Even if the tendency to saving might be somewhat impaired by diminished returns, there is a counter influence in the necessity for larger savings than before to obtain a given return, and there is a constant addition to the number of those making savings under the tendency of growing social wealth to swell the numbers of the well - to - do classes, and diminish the proportion of those in the lower economic strata.

The diversion of capital to enterprises which would never have been executed under high rates for money is undoubtedly an important factor in absorbing the surplus of savings in modern society. Enterprises which would not have been thought possible a generation or two ago are now boldly taken up and carried through by private individuals and the state. Where such enterprises, however, supplant hand labor by the economy of machine production, the saving power of society is again increased, and the absorption of capital in these new directions is offset by the new capital created and the labor released for other productive employments. Upon the whole, therefore, the opportunity for the absorption of the saving now going on in civilized society, in such a manner as to yield dividends upon investments, must evidently be found in countries that lack the equipment of western civilization. There are great risks involved in such investments, because of the necessarily speculative character of enterprises which strike out in new paths. Mistakes must almost inevitably be made in regard to supply and demand in adapting to new peoples the mechanism which has met the needs of older civilizations. Great Britain, the first of the modern capitalistic states to make loans abroad, discovered these dangers when millions were swallowed up in the panic of 1825 by bad investments in Latin America, and again in 1857 by the overcapitalization of American railways ; but neither these experiences, nor the reckless advances of the Barings in Argentina which culminated in the crisis of 1890, nor the locking up of Scottish funds in Australia in 1893, have diverted English capital permanently from the hopeful channels opened for its investment in undeveloped countries.

The surplus of saved capital in modern society threatens to impair the force of the classical theories regarding expenditures by the state. Economists have for many years protested against the astonishing growth in public expenditure and the negotiation of loans to meet it. They have denounced in the strongest terms the doctrines that a public loan was only the transfer of the people’s money from one pocket to the other, and left the state no poorer than before. The classical theories are indisputably correct when applied to the relative poverty of society two or three generations ago, or when directed against a policy which handicaps competing power by taxing industry unduly to maintain an overgrown military establishment. From a philosophical point of view, however, the increase in state expenditure appears to be a normal development resulting from the evolution of modern society. The primary cause is the great increase in wealth, which permits the citizen to give up to the state, without feeling the burden, many times the amount that drove the subjects of Charles I. to rebellion, or impoverished France before the Revolution. Growing out of this increase of wealth are the double influences of a greater subdivision of labor, which throws upon the state many new functions, without at all implying direct progress toward socialism, and the birth of enterprises looking too far into the future to attract individual capital by the promise of an early return.

The growth of social wealth permits additions to the professional and officeholding classes of the community in a constantly accelerating ratio. If the producing power of the community is barely sufficient to supply food, clothing, and shelter, the amount of the annual earnings that can be set aside for the employment of physicians, lawyers, theatrical performers, singers, and authors is extremely small. If these classes exist, they will live the precarious livelihood of the hack writers and strolling performers of a century or two ago. When, however, the rate of production in a community is such as to afford a surplus of capital over the amount required for the necessaries of life, the professional and officeholding classes will receive a large proportion of this surplus. The better care of health will afford employment for physicians, the management of property will give rise to litigation and afford incomes to lawyers and bankers, amusements will be more largely patronized to the benefit of actors and singers, more books will be bought to the profit of publishers and authors, and the payment of generous prices for works of art will make possible a prosperous class of sculptors and painters. Under such conditions the people will look without impatience upon expenditures by the state for libraries, works of art, and the many branches of scientific investigation which are now pursued by civilized governments. The rise of the standard of living, moreover, will be accompanied by higher salaries in official places, and will swell the budget of the state far beyond its proportional cost in earlier and poorer times.

The subdivision of labor imposes new functions upon a state, largely because the individual citizen, absorbed in his own special work by the exacting conditions of the new competition, is debarred from that general knowledge of markets, qualities of goods, and prices which was possible for his ancestors. The state is called upon to interfere with the play of individual action, by pure food laws, meat inspection, and especially in the great cities by provision for sewage, water, lighting, sanitary inspection, and many other functions. Whatever may be the ultimate tendency of such legislation in paving the way toward socialism, it cannot be treated in its essence as socialistic nor as abridging the freedom of the citizen. The citizen simply delegates to his servants, intelligent specialists in official employ, the functions which in a more primitive state he exercised for himself, but with much less expert knowledge and efficiency. It is not necessary to carry the illustration of these functions into great detail, in order to indicate how largely responsible they are for the increase of official budgets so much bewailed by some of the classical economists. Many of these expenditures by the state, such as those for food inspection, street cleaning, and garbage collecting, are nothing more than the delegation of small items of individual expenditure to public officials, who by means of the concentration of the work, and in spite of the admitted inefficiency of officialdom, render services at small cost which would otherwise wastefully absorb the time, thought, and money of individuals.

Coming to the broader problem of state expenditures for important public works, it is obvious that there are many such works which are not attractive to private capital, because of the delay in reaping the profits from them, but which will afford a substantial net gain to the community within a reasonable period. The works of this class are those requiring a good many years of preparation before the results are realized, — what the French call works de longue haleine. For such works the state is undoubtedly justified in negotiating loans, if the benefits of the undertaking are plainly shown. There are also classes of works whose benefits to the community as a whole are plain, and may even involve the question of its supremacy in commercial competition with other communities, but whose benefits are so minutely subdivided that they cannot well be made the subject of definite charges. Among the first of these classes of works are canals and railways in countries capable of development, but not promising immediate returns to private investors at the rates which a railway would be permitted to charge. Such enterprises are not economically justifiable if they do not afford an economy over preexisting methods ; but railways are compelled to make their charges upon a basis fixed by custom rather than just within the limits of the old charges for wagon or water service. In the second class may be found river and harbor improvements, which may be of great value to the community, but whose benefits might be neutralized if heavy tolls were levied either by a private corporation or by the state.

Undoubtedly state action offers greater danger than private action of the misdirection of capital and energy, and proposals for state works of this character should receive the most careful scrutiny. The ultimate test of the wisdom of any work intended purely for utility should be its dividend-paying capacity, if the dividend can be collected from all who benefit by it; but where a community possesses sufficient surplus wealth to accomplish important improvements, it may be simpler and more economical to distribute the benefits by taxation over the whole community than to attempt to divide them into specific tolls of infinitesimal amount and inquisitorial character. While these considerations appear to justify some relaxation of the rigid enforcement of the doctrines of laissez faire, there is no doubt that state expenditures and state intervention in private affairs are liable to grave abuses. The most severe scrutiny both as to objects and as to methods of state expenditure should not be relaxed, because the principle is admitted that state action may be justified. In other words, the burden of proof should continue to rest upon those who ask for state interference or state expenditure in any given case, but the case should not be closed to argument upon the theory that the action of the state could not under any conditions be defended, even if substantial benefits to the community by its action could be clearly shown.

The reduction of the return upon investments raises a serious question, as has been suggested by the present writer in another article,2 whether a system of old-age insurance will not soon supersede direct savings for old age by the working classes. There is some danger in applying to the earnings of the people a system of taxation which may make production more costly than that of competing nations, but Germany has already taken some long steps toward old-age insurance, and Great Britain is seriously considering the subject. There is an economic advantage in this measure, in relieving the congestion of capital, because the amount required to support a laborer in old age is taken from current production rather than from the dividends on saved capital. The substitution of the direct method of taxation for the indirect method of saving can hardly diminish in any case the net funds left to the laborer for the purchase of goods for consumption, and is likely materially to increase his capacity for such purchases. The system of saving for investment, with the purpose of applying only the income to maintenance during old age, locks up a much greater amount of capital than would be the case if the active laborers of to-day contributed their share from their current earnings to sustain the retired laborers, and relied upon similar assessments upon the active laborers of the future to sustain them in their old age.

It is probable that the removal of the mass of laborers from the field of those saving for investment would diminish considerably the amount of capital seeking investment on the money market. It would, on the other hand, materially increase the demand for consumption goods. Two or three generations ago such an adjustment of the relations between saving and expenditure would have been a calamity to western civilization. The character of the problem has been changed by the increase in the amount of saved capital offered annually for investment. These offerings have swelled the supply of such capital beyond the amount that can be profitably invested, and have caused a permanent decline in the rate of interest. The withdrawal of the purchasing power of this savings fund, moreover, from the field of demand for consumption goods has added to the difficulty by diminishing the demand for such goods, while the facilities for producing them were being increased from the savings fund by the duplication of manufacturing plants and lines of transportation. The natural equilibrium between production and consumption, which is one of the theories of political economy, is based substantially upon the proposition that all that one man produces shall constitute a demand for what others produce. If a portion of one man’s purchasing power is withdrawn from the market by being put in the form of a banking credit which is not immediately employed as a demand for other goods, the supply of goods exceeds the effective demand, and this condition is carried in successive waves through every industry, causing overproduction, stagnation, and commercial convulsions. The essential difficulty is that production is diverted by unremunerative investments into wrong channels, and those who have thus employed their savings are deprived at once of the dividends which they expected, and of the comforts they might have enjoyed if they had eschewed saving for the increase of the comforts of life.

The dividing line which shall maintain a really healthy equilibrium between supply and demand is found in an amount of saving sufficient to restore the wear and tear of the existing equipment of production and exchange, provide new equipment for the increase of population and business, and afford a fund of free capital for investment in really profitable new devices for saving labor and increasing production. When the amount of saved capital passes this point, the result is disastrous to individuals, if not to the whole community. The theory of the classical economy is well founded, that sooner or later the community will profit by the reduction of the interest rate, because this reduction will permit the employment of capital in directions where it could not be employed when the rental of capital was high, and will thus increase the sum of comforts placed at the command of the community. Experience has shown, however, that when saved capital accumulates rapidly, the groping after new uses for it, especially within the limits of a well-developed industrial community, causes waste and disaster. The process works with so much friction, and inflicts such severe injury by destroying commercial confidence, arresting production, and thereby throwing laborers out of employment, that checks to the process of capitalization or new outlets for capital must be found to maintain healthy conditions. The establishment of old-age insurance, upon a scale broad enough to divest the system of any aspect of almsgiving and make it a part of the established economic order, would tend to restore the equilibrium between production and consumption by diminishing the amount of new savings seeking investment in fields already occupied.

The appearance of all the great industrial nations in the field of competition for foreign markets imposes upon each the duty of organizing its machinery of competition upon the most economical basis. This requires not merely the adoption of every labor-saving and money-saving device in mechanics and transportation, but the adjustment of the financial and fiscal systems so as to impose the lightest fetters upon industry. Consolidation of small plants is one of the natural results of this new order. This form of organization cannot be carried beyond certain limits without neutralizing its benefits, but within those limits, where combination permits production at diminished cost and economy in distribution, the industrial combination can be stamped out only at the cost of crippling national competing power. It is the widening of markets which is responsible in a large measure for combinations among producers. The trust — where it is a natural economic growth, and not merely a gambling venture by speculators who live by their wits — is simply the combination of several small establishments, in order to secure greater economy and efficiency in the machinery of production. Such economy and efficiency become of the highest importance where more goods are produced at home than can be sold for a profit, and the surplus has to be sold in foreign markets.

The necessity of seeking foreign markets for surplus products operates to some extent to check the power to fix prices far above the point determined by cost of production and legitimate profit. The immunity from competition at home which is secured by the trust, whether under the shelter of special favors by law or not, is lost when its products meet the similar products of other nations in the foreign field. While an international combination in restraint of trade is conceivable, it is not easy to perfect in the case of manufactured goods, in view of differences in language, raw materials, styles, cost of transportation, methods of banking and credit, and the other conditions of production. The price then has to be brought down to the actual competitive price. A surplus may sometimes be unloaded at a lower price abroad than that for which the product is sold at home, but domestic prices must in the long run bear some reasonable relation to foreign prices charged by the same producer for the same goods. In the foreign market, therefore, under modern conditions, the trust combination must prove its right to live by its ability to undersell its rivals. Whatever modification may be required by circumstances in the application of the old doctrines of political economy, there is nothing more true in the long run than the maxim that “ speculation succeeds only if it renders a service, — when it has foreseen a future need and satisfied it.”

The power of industrial combinations may require regulation by the state for political reasons, but all such regulations should be kept within the narrowest limits which public policy will permit. Taxation should be so adjusted that its burden should not be felt upon the free movement of capital from one industry to another. From this point of view, taxes should be laid upon wealth after it is earned rather than in process of employment as a part of the machinery of production. An income tax, however oppressive its rate, could not essentially change the direction of industry in a given community, because it would fall only upon net profits. If it had any influence in diverting capital from one industry to another, it would have only the legitimate economic influence of reducing the net income of those engaged in the less profitable industries to the point which drove them into the more profitable, and therefore into those to which the natural producing capacity of the country was best adapted. Any tax falling directly upon industry, or upon capital in active use in manufacturing or transportation, even though the net amount exacted from a given individual or corporation were not greater than under the income tax, might give a harmful tendency to the natural direction of capital and industry by falling too lightly on some and too heavily on others.

In the field of finance, the necessity of unfettered movement for the money market and the people who expect to compete successfully with powerful rivals suggests that the fewest possible restrictions should be imposed upon the movement of capital. Taxes upon corporations should be levied upon their net profits rather than upon the transfer of their securities, and the laws regulating the money market should impose no more than a nominal tax upon its transactions. The wisdom of this rule has been demonstrated within three or four years by the experience of several European money markets. Germany, under the influence of agrarian prejudice against the kings of finance, attempted to crush dealings in futures on the stock exchange and the transfer of securities upon margins. France, under the influence of the official agents of exchange who have for a century had the nominal monopoly of stock exchange operations, imposed restrictions upon the traffic of the unofficial brokers. The result in both cases has been to send a great volume of business to Brussels, where freedom of economic movement is unhampered by restrictive laws. The great Parisian banks have enlarged their branches in Belgium or established new ones, the National Bank of Belgium has become one of the greatest custodians in Europe of private holdings of securities, and the railway systems which are equipping Russia and China have been financed by Belgian stock companies.

The organization of credit is also a part of the mechanism of competition in which economy combined with the highest efficiency are important elements. The nation which maintains a currency that is needlessly expensive hampers every part of the machinery of production and exchange. A high rental for currency and for the use of capital imposes needless charges upon the conduct of all enterprises. Enterprises which might have paid a reasonable profit under a lower money rate cease to pay such a profit, and may be driven to the wall by foreign competitors. This stifling of production, by the lack of the tools of exchange or an excessive price for them, may throw its pall over whole communities, as is the case in the South to-day, from the absence of an elastic banking currency. It is obvious that the absence of any such thing as money would greatly hamper the exchange of products, cripple production, diminish the means for employing labor and the demand for it, and hopelessly handicap the nation in such a position. It should be equally obvious, with a little thought, that an insufficiency of the tools of exchange would cause the same embarrassments in somewhat less degree. It is not additional quantities of “primary money“ that are needed in industrial communities, but simply such an organization of the system of credit as shall afford an adequate equipment of credit money at the times when it is needed for special purposes, without any other restrictions than such as are necessary to insure uniformity and safety. From this point of view, greater freedom of banking issues, within the limits of safety, may be as vital for keeping labor employed to its maximum capacity as for affording an indispensable tool to the capitalist.

One of the remarkable phases of modern capitalism is the development of nations whose preëminent functions seem to be those of lenders, bankers, and carriers. The position which they occupy in the scheme of international trade has become so radically different from that of the borrowing nations that the entire theory of “ the balance of trade,” as once understood, has been upset. Great Britain, the most conspicious of the lending nations, shows annually an excess of imports of merchandise over exports, approaching a thousand millions of dollars, and this balance is far from rectified by the movement of the precious metals. This condition, according to the old mercantile theories, should have denuded England of her gold and driven her people into bankruptcy. That nothing of the kind has occurred is not an impeachment of these theories under all conditions, but simply a proof that conditions have arisen to which they are no longer applicable. Great Britain for many years sent her surplus products abroad, without receiving payment in anything but printed pieces of paper representing government bonds and corporate securities. The loan which she then made, trusting to the future for its repayment, is coming back in a shower of the world’s riches, in payment of the interest upon the capital she advanced to her colonies, and other struggling young peoples. To - day, while some of her writers bemoan her agricultural and manufacturing decline, she continues to grow rich by her three functions of lender, banker, and carrier.

Whether a nation can safely substitute these intermediary functions for independent production may be a subject for reasonable debate. The process may be carried too far, and may produce a stationary condition of industry and invention which will finally relegate the capitalistic nations to the rear in the competition with the poorer industrial nations, just as the great capitalist may cease to exercise the energy and thought which were necessary to his earlier achievements, and enabled him finally to distance his older rivals. But for many years, at least, the capitalistic nations, with a large fund of surplus capital loaned abroad, will occupy a commanding position in the world’s finance. It is by a natural evolution of events that they have become bankers, brokers, merchants, and carriers for other peoples. The nation, like the individual, as already pointed out, first provides for its most pressing needs, and in marketing its raw materials and surplus products avails itself of the capital and carrying resources of other peoples. It is only when capital becomes redundant that competition can be carried on upon equal terms with those who are content with a low return upon it. Under this disadvantage of scarcity of capital and high rates for it, the United States long labored in its effort to build up a carrying and banking trade outside its own limits in competition with nations content with a low return upon their saved capital. Whether great political and economic ends will be served by levying taxes upon the community to create a merchant marine may be a subject for debate, but even the demand for such action is not likely to be seriously made until the surplus of capital and low rates for money are upon the eve of bringing the natural equipment of the country up to the point where such investments might profitably be made out of private savings.

The average judgment of the unlearned, directed by the instinct of selfinterest, is sometimes wiser than the reasoning that clings to abstract dogmas without regard to changes in conditions. It has been the fashion for many years to rail at the supporters of the mercantile theory as though they were the most unreasoning and foolish of men. The mercantilists did, in fact, put the cart before the horse, to a large degree, by treating as a cause of prosperity what was in reality only its symbol. They saw that the communities that accumulated gold were those which were the most prosperous. Instead of reasoning, therefore, that prosperity should be invoked in order to attract gold, they sometimes appeared to reason as though every effort should be made to obtain gold, upon the theory that prosperity would be dragged at the chariot wheels of the yellow metal. It is doubtful if the more intelligent supporters of the theory took so crude a view, even if they failed to grasp all the bearings of the problem. The element of soundness in their position, which is generally ignored by modern economists, lies in the fact that the precious metals are the most exchangeable of commodities. It is this that has led to their selection by a process of evolution, and not by mere convention, as the material for money. Under the modern system, with the laws extending over nearly every land the protection of the sanctity of contracts and permitting a steady current of industry and wealth through the various forms of raw material, labor, and finished product, gold seems to have become almost the least important thing in the complicated mechanism of economic life. But at a time when contracts could be violated with impunity, when production was arrested by wars and by the interference of official tyranny, when persecution drove the Jew, the Protestant, or the Catholic in turn into exile, there was a preëminent quality in the possession of gold which justified the preference for it shown by individuals and communities. It was the one form of wealth that could be readily transported, that could be securely hidden in small compass without injury by rust or time, and never lost the characteristic of the highest form of value, in spite of fluctuations in its purchasing power. The holder of gold saw his wealth appreciating when other things were depreciating, and if it depreciated when other things were rising in price, the fact was concealed by the feeling of abounding prosperity which reigned in industry.

The lesson that changed conditions give a new aspect to economic problems, even though they do not falsify old laws, cannot be ignored in the wonderful period of economic revolution through which the world is passing. The doctrines of laissez faire, consecrated as they are by their association with the emancipation of industry from mediæval fetters, must be adapted to modern conditions. They will never lose their value as the fundamental principles of political economy, but the time has passed when the functions of the state can be limited to those which were thought sufficient in the infancy of industry.

The real problem for every modern state that hopes to compete for supremacy in the world’s markets is the old one of so adjusting every part of the mechanism of its industrial and moral life as to obtain the greatest results from the smallest expenditure of labor. The classical political economy declared that this result was best attained by leaving free play to every individual will and genius in the struggle for existence. Within certain limits this great principle can never be impeached. It is the underlying principle of all economic life. But the principle of association and coöperation also has a place in political economy, and a place which has grown larger as the family has been absorbed into the tribe, the tribe into the nation, and the nation into the empire.

This principle of association declares that there are some things, many things, which can be better done by union among men than by the man acting alone. The modern tendency is toward the specialization of talent, — the assignment to one man of the work for which he is best fitted. The community in which this specialization is most perfect will produce the largest results with the least effort. Consolidation in politics and industry contributes to this end by concentrating work enough of a special class for one man or group of men to do, instead of leaving each to perform indifferently a variety of functions. In the most primitive community, if distribution and credit could be organized, better results would be obtained if one set of men devoted all their time to fishing, others to hunting, and others to boatbuilding, than if each worked indifferently at all these vocations. If this is true under primitive conditions, it is infinitely more important under the severe conditions of modern competition.

This necessity for specialization and consolidation, in order to equip a people for successful competition in the markets of the world, is the explanation of many of the tendencies of the last few years. The importance of reducing competing production to its most efficient basis is the reason for the consolidation of industries, the growth of trusts, the abolition of middlemen, and for appeals to the state to clear the path of production and exchange of every needless obstacle. Larger freight cars, heavier locomotives, freight tariffs which discriminate neither against individuals, classes of goods, nor communities ; public docks and harbors deep enough for the largest and most economical transports, with adequate lighting and safeguarding of the coasts, reducing losses and the cost of marine insurance ; the adoption of a single monetary standard and the proper organization of credit ; innumerable measures to protect and make definite business contracts, — all these are only steps in this process of complete industrial equipment. Even those expenditures by the state which seem to have the character of luxuries serve the same controlling purpose, when they do not impose undue burdens upon production. Technical schools, works of art which serve as the constant model for skill and beauty in industrial work, and even the higher education which gives breadth of view, keenness of insight, and accuracy of judgment, may all contribute toward the creation and perpetuation of a producing and industrial state whose competition will be irresistible in the struggle for commercial supremacy.

Charles A. Conant.

  1. See article by the present writer on The Economic Basis of Imperialism, North American Review (September, 1898), vol. clxvii. p. 326.
  2. Can New Openings be found for Capital ? The Atlantic Monthly (November, 1899), vol. lxxxiv. p. 600.