MR. C. EMORY BROADBACK, President of the National Cogwheel Company, is at his desk on a busy morning. Make it in 1929, if you wish. Mr. Broadback, as his untiring exertions in the sphere of after-dinner oratory and business conventions prove, is unalterably opposed to anything which smacks of socialism, collectivism, or government interference with industry. He is strangely, almost fanatically moved when, his dress shirt gleaming beneath a square, dependable jaw, he defends sturdy individualism, self-help, and private enterprise against the sinister encroachments of politicians, professors, long-haired visionaries, and their breed. His audience, too, is moved, and applauds his message as sincerely as he delivers it.
On this particular morning, two urgent decisions confront him. Ways and means must be found, and that quickly, to present to the proper Congressional subcommittees the dangers of the low tariff rates now obtaining on the importation of foreign cogwheels. Shall he leave his busy desk and head a delegation to Washington? He shall — indeed he must. ‘Miss Graham, reserve a stateroom for next Thursday night on the Federal Limited.’ That is that.
Secondly, what is to be done about this confounded Brisk and Company, openly defying the strict understandings of the American Cogwheel Founders Association — understandings that are almost sacredly strict? They have kicked over the apple cart, and are cutting prices on No. 2’s and No. 5’s. Jim Brisk is a man one simply cannot trust. This is the second time he has threatened a structure reared patiently, and with vast legal outlays, over the years . . . just as the Federal Trade Commission was beginning to see the light. Damn Brisk! The proper place for a price cutter is jail. Mr. Broadback reaches for the telephone and inaugurates the machinery which will either bring Brisk into line or throw him summarily out of the American Cogwheel Founders Association.
It appears that Mr. Broadback’s honestly held evening opinions and his morning business behavior have little in common. He is an idealist after 6 P.M., but from 9 A.M. to 4.30 he has to decide real issues in a real world. His case is all too common. Mr. Broadback and his — shall we say? — breed are suffering from a serious attack of what anthropologists call cultural lag. Their ideas are a generation behind their tangible behavior. It makes for extraordinary confusion in Mr. Broadback’s mind, and in the minds of millions of his fellow citizens. It makes the problem of clearing up the economic mess infinitely harder. The purpose of this little essay is to try to untangle some of the confusion.
Not only is the current depression the most severe we have ever experienced, from many points of view, but never before has there been such general agreement that drastic steps must be taken to control the business cycle in the future. Men and women from all walks of life are willing and eager to promote such control. Millions who have never before cerebrated beyond their own front fences are now pathetically trying to grasp the essentials of national and international economics. Because of the cultural lag I have described, the only clear-cut economic philosophies presented to them are two: they can take their choice between Mr. Broadback’s 8 P.M. pure competition and Mr. Redbonnet’s pure state socialism. Private profit is the holy gunpowder which keeps mankind alert, inventing, progressing; the profit system must be destroyed before social progress or security is possible. The government must keep out of everything or we are doomed; the government must run everything or we are doomed.
In juxtaposition these philosophies sound absurd, and indeed are absurd, but the fact remains that both have deep, quasi-religious roots, and are capable of releasing immense stores of emotional energy. If you wantonly destroy a clay idol in the cornfield of a hill Indian in Mexico, he may do his best to kill you. We cannot sneer away these economic ideologies, these emotional symbols. But we can, without undue profanation, analyze them, and perhaps help certain agnostics who have never cherished either dogma and who are now trying terribly hard to find some economic gods in which to believe. First, let us state the opposing creeds as nakedly and briefly as possible.
Pure, free competition leaves the entire economic scene to the unfettered activity of the business man, tolerating no monopolies, no subsidies, no special privileges, no labor unions, no social legislation, no barriers whatever to the free exchange of goods. The only function of the government is to maintain order, enforce contracts, punish offenders, provide for the national defense. (Certain high priests, like Herbert Spencer, would make schools and libraries purely private enterprises.) Buy in the cheapest market and sell in the dearest, let supply and demand automatically regulate the flow of commodities from producer to consumer. Each entrepreneur working — always within the law — for the maximum profit for himself will, all unconsciously, prove a social benefactor. Private profit is a sacred thing, the engine which drives the whole community forward to freedom, happiness, and plenty.
Pure state socialism abolishes private profit altogether. It abolishes rent, interest, royalties, speculation, every form of unearned income. The government becomes the owner of the entire capital structure of the nation — land, buildings, equipment., transportation systems. It is the sole landowner, the sole employer of labor. It rents at cost and sells at cost, reserving only enough to finance necessary capital improvements. Everybody willing to work is guaranteed a job. Old age is provided for by pensions. The idle rich and the hobo pass out of the picture. Nobody is poor and nobody is wealthy. The entire product of industry passes back to those who have created it.
Pretty pictures both, and both woven of the stuff of dreams. Never on land or sea has either obtained, and neither probably ever will obtain. If either does, the second is the better sporting chance. The Inca Empire came pretty near it once, and Russia is not a million miles away from it to-day. England between 1790 and the Reform Laws of 1832 provides us with the least remote approach to pure, free competition, and for a portrait of the happiness of that epoch I must refer you to J. L. and Barbara Hammond. It is one of the most horrendous periods through which poor old humanity has ever struggled.
No. The tangible economic facts have never fitted either of these pictures, and do not fit them by vast margins to-day, whether in the United States, Russia, Western Europe, or where you will.
What are the facts? If we can state them accurately and intelligently, it should help those not too far conditioned to understand the present crisis and thus lay the foundation for building a sounder economic future. To state them accurately and intelligently in any detail would require a considerable period of intensive research by a group of skilled social scientists. I shall attempt here only an outline of the more obvious facts, a kind of cruising survey. With your permission, I shall confine it primarily to the United States.
It is my contention that the country is broken up into great economic zones, in certain of which a corrupt competition flourishes, in others a collectivism of varying dilutions, and in still others a most unseemly hodgepodge of both. It is my contention, further, that the zones of collectivism are steadily gaining on the zones of competition. It is understood that both terms are employed in the impure sense as contrasted with the 100 per cent article described above.
Suppose we first run a chain and compass over the collective area. Let us define ‘collectivism’ as economic activity carried on, not by the entrepreneur, the private business man, but by a social group, to serve the collective ends of that group. Both governmental and non-governmental agencies are here contemplated. A farmers’ coöperative association is obviously a form of collectivism, and frequently it has nothing to do with the government.
To begin with, there are two broad philosophic principles to lay down — though the first might better perhaps be called biological, and the second technological. Collectivism starts with one tremendous advantage over competition. Man is a social animal like the bee, and not a purely competitive animal like the tiger. So far as his history is known, he has always lived in groups — often small, to be sure, but genuine coöperative groups with a division of labor. He may, and does, war with other groups; individuals may, and do, compete within the group; but, failing the group, he ceases to be Homo sapiens. Spencer and Company sought to evade this fact, but with more enthusiasm than scientific accuracy.
Again, the terrific specialization of the machine age has greatly widened the geographic area of any given group. A handicraft village was often completely self-supporting. Without rubber, sugar, phosphates from overseas, the economic life of any town in the United States would be seriously jeopardized. Without millions of tons of foodstuffs from overseas, most of the population of England would shortly starve to death. Machine technology demands a price for the increase it brings in output per man hour. The price is technological tenuousness: what hurts one hurts all; no man can act for himself alone; mass production demands mass consumption; a million delicate gears must mesh if food, shelter, and clothing are to be forthcoming. Only a collective supervision can keep them meshed. The machine has widened the zone of collectivism, both actually and potentially.
Now as to the specific collective zones. It was the social legislation of the Reform Laws which threw the first monkey wrench into the free-competition-plus-handicraft era in early Victorian England. That monkey wrench was shortly exported westward, and has been raising hob with American free competition ever since. The regulation of hours, minimum wages, child labor, the work of women in restaurants and factories, codes of safety, sanitation, occupational diseases, are not comprehended in pure, free competition at all. They constitute an unwarrantable interference with the ‘natural rights’ of the entrepreneur. Yet we have them by the bushel basket in every state in the Republic. All decent business men, furthermore, would be horrified if this social legislation were revoked — both humanly and in contemplation of what their less decent colleagues might do in the premises.
Social insurance, like social legislation, undermines the competitive ideal. The tendency in all countries is steadily onward, with Russia leading the procession. Workmen’s compensation and accident insurance is now standard practice in the United States, universally accepted and admired. Old-age pension laws have been enacted in some fifteen states. Unemployment insurance is just around the corner; it is already operating on a voluntary basis in the men’s clothing industry. Mr. Gerard Swope, president of the General Electric Company, advocates a vast extension of this zone.
Government as employer. A great number of activities more or less economic in function are now carried on by the several governments — federal, state, and municipal. All lie completely outside the purview of pure, free competition. The bulk of them are accepted as legitimate and necessary by Mr. Broadback and everybody else. They include the carriage of mails and parcels; the public-school system, employing a million-odd teachers; public libraries, museums, galleries; public highways, bridges, ferries, airways; the operation of public lands, forests, oil reserves, parks, playgrounds; public hospitals, clinics, sanitariums, asylums, poor farms; the Alaska Railroad; the manufacture of helium; the development of waterways and the operation of tugs and barges thereon; Boulder Dam, the Hoover Dam, and the New York-St. Lawrence power project; the construction and operation of the Panama Canal; the United States Shipping Board; municipal ownership of public utilities: water supply, gas, street-car lines, subways, garbage-rendering plants, light and power companies, with excursions from time to time — not always happy, to be sure — into milk supply, Playlands, motor camps, hotels, band concerts, laundries, and even retail stores.
Government as economic regulator. In this zone, collectivism does not take the form of direct employment of labor, but lays down the rules for the business men who do the direct employing. Such a procedure is so unthinkable in a pure competition that it would make the founders of the Manchester School turn in their graves. The major rulemaking bodies are the Interstate Commerce Commission; the Federal Trade Commission; the Pure Food and Drugs Division of the Department of Agriculture; the Federal Radio Commission; the Federal Power Commission; the Federal Farm Board; the Federal Oil Conservation Board; the Federal Timber Conservation Board; the Public Health Service; state regulation of public utilities.
Government aids to business. Collectivism in this zone is well diluted, but traces are distinguishable. Pure competition scorns such activities — crutches would be, perhaps, a better term — as those of the Bureau of Standards and the untiring solicitations of the Department of Commerce in domestic and particularly in foreign fields. It would look with haughty suspicion on the avalanche of trade, market, industrial, financial statistics which the several government bureaus stand ready to release at an instant’s notice to any inquiring business man. Yet thousands of business men to-day would be at a loss to carry on their enterprises without the guidance of these figures. Self-help, they have found to their cost in a complicated industrial structure, is not enough. What shall we say, too, of the policy of modern governments to protect — by armed force if need be — the private investments of their nationals abroad ?
Government as banker. Into this sacred field of private enterprise the American people have inserted the Federal Reserve System, Farm Land Banks, Post Office Savings, and now propose sundry huge governmental institutions to take over, and hopefully warm up, frozen assets of all varieties. In a crisis, the government is confidently expected, by many of our leading bankers, to underwrite the private investor. This is utter heresy. According to the prophets of laissez faire, an economic crisis is a valuable purge which wipes out those foolish enough to invest in assets which may ultimately congeal. (I am not sure that here, at least, there is not something to be said for the Spencerian view.)
The tariff constitutes the most sublime example on record of public interference with private trade. Yet Mr. Broadback supports it unreservedly, and the higher the cogwheel schedules, the more cheery his countenance.
So much for zones of collectivism now under government direction. Charles A. Beard has recently pointed very forcefully the paradox of some of these zones. Business men’s opinion will be divided as to their usefulness, and the division will run strictly according to the usefulness in their own enterprises. Embattled groups stand solidly behind the tariff, child-labor laws, ship subsidies, the parcel post, regulation of power rates, highway construction, the public-school system, radio wave control, the Interstate Commerce Commission, or what you will. Yet the whole collection would have to be banned and ejected from a world of rugged individualism.
To their ejection most business men would demur. Perhaps one or two rare specimens can be found ready and willing to discard every vestige of the schedule. But are even these die-hards ready and willing to discard every vestige of the schedule now to follow? We pass to a consideration of non-governmental zones of collectivism.
The great corporation. This modern monster, evolved whether by internal growth (like the Ford Motor Company) or by external merging (like the General Motors Company), is an organism which transcends the contemplation of the Manchester School in at least three ways. In the first place, its sheer bulk is so vast that would-be competitors are desperately hard put to it to finance a rival organization. The free flow of new investment into those industries where profits exceed the socalled normal becomes anything but free when half a billion dollars or so is required to establish an effective competing unit. In the second place, whatever it may be in law, the monster corporation often comes perilously close to a monopoly in fact, and thus is anathema to the theory of free competition. The United States Steel Corporation, the Aluminum Corporation of America, and the Radio Corporation, with its neat bundle of patents, may be cited as horrid examples. In the third place, the entrepreneur has been all but eliminated in favor of the absentee owners — a horde of stockholders who know nothing and care nothing about operating details, and a hired management which frequently has no personal interest in profits.
Thus the keystone of the competitive arch — the driving individual capitalist, at once owner and manager, and alert to every detail — has been thrown down. A few genuine entrepreneurs survive, but, generally speaking, such gentlemen are unknown in large-scale corporate enterprise. The transformation leads to a sad conclusion. If salaried employees can run a private power plant well, why — at the same salaries — cannot they run equally well a municipal power plant? Alas, the answer is that they can. At the present time the entrepreneur does less than 5 per cent of the manufacturing business of the country. In Illinois, individual owners employed 10 per cent of all wage earners in 1909, 7.9 per cent in 1914, 5.5 per cent in 1919. The net profits of all manufacturing corporations in 1928 were $5,280,000,000; while the profits of individual manufacturers were only $210,567,000 — about 4 per cent.
During the last decade we have heard much of the ‘economy of high wages, ’ advanced not by reformers, but by officials of great corporations eager to promote a freer flow of purchasing power, and that mass consumption which is so vital to the smooth operation of mass production. Under strict laissez faire the idea of paying workmen more than the market minimum is abhorrent.
There are some seven thousand trade associations in the United States today, most of them busily at work undermining free competition. Mr. Broadback calls a price cutter a criminal, and then proceeds to a eulogy of ‘constructive competition ’ — one of those ambiguous incantations so dear to the American business heart. Yet the right to cut prices is as implicit in a real competitive régime as the entrepreneur. Mr. Broadback would be nearer the truth if he termed his tradeassociation activity ‘non-competitive competition.’ To which John Stuart Mill could only cry Amen. Trade associations not only strive for price understandings, but often pool their cost-accounting practices, their industrial processes, their patents, their trade secrets, giving that aid and comfort to one another which sturdy selfhelp cannot allow. Service clubs, chambers of commerce, come under this head, tending to smooth over the harsher surfaces of ruthless competition.
Gentlemen’s agreements. Where a formal trade association does not exist, the same collective ends are frequently served by Gary dinners, or other and less convivial forms through which minds may meet. Interlocking directorships also belong in this category.
Agreements as to restriction of output. It is difficult to pick up a newspaper without finding a story or two concerning the labors of the sugar men, the copper men, the rubber men, the petroleum men, to allocate schedules of production or markets, to the end that the impact of unrestricted competition may be rendered less destructive.
Labor unions. Some four million Americans hold union cards and endeavor, by means of their organizations, to enforce collective bargaining in respect to wages, hours, and working conditions. A labor union has no place in a competitive régime — a sentiment which will find ready echo in many business hearts, though not in all.
Producers’ and consumers’ cooperatives. There are some 11,000 coöperative marketing organizations among American farmers, and some 1700 coöperative societies, with a membership of 500,000, among American consumers. Here private profit has been banned in favor of mutual profit, further polluting pure competition. In Europe the movement has reached enormous proportions. Denmark, for instance, is practically a coöperative state. All signs point to a rapid development in this country during the next generation.
The above exhibits do not reflect pure collectivism, in that the several voluntary groups strive for mutual profit and welfare rather than total community welfare, but they deal sledge-hammer blows at rugged individualism and the natural rights of the entrepreneur. They occupy a point halfway on the road to socialization. Thus Mr. J. M. Keynes, the distinguished British economist, following Karl Marx, views the great corporation as an institution increasingly ripe for state control or outright ownership. He finds many parallels with the state trusts of Soviet Russia.
We turn now to those areas where competition is still vital and active, remembering always that cultures of collectivism are sprinkled more or less liberally over all the territory.
Competition is keen and reasonably destructive — according to the repeated testimony of the parties involved — between great semi-collectivized commodity groups: lumber versus bricks, candy versus cigarettes, railroads versus motor trucks, coal versus oil, natural ice versus electrical refrigeration. Meanwhile a bitter battle rages between the whole cluster of industries known as necessities and those known as luxuries — though the line which divides them is often difficult to draw. In Middletown, many families were found sacrificing warm clothing, adequate housing, even milk for the children, in favor of gasoline. This rivalry of leviathans has been called the New Competition, and is a mighty breeder of high-pressure salesmanship. It is a long distance from the tidy conceptions of Spencer, with his little factories and little stores all at each other’s throats, but competition of a new and Gargantuan kind it certainly is. Nobody seems very fond of it, with the possible exception of advertising agencies.
There are some 750,000 retail shops and stores in the Republic, one to every thirty families, and here at last we find a zone of good Manchesterian competition. We also find an appalling death rate, and an almost astronomical rate of inefficiency and waste. Nor is the zone so pure as that which obtained before the chain store came charging into the arena, to be met by consolidation of independents into ‘Naborhood Stores.’ Here Herbert Spencer would perhaps heave a sigh or two, but he would at least know his way about. He would also recognize the competitive strata in the allied zone of the service trades — laundries, shoe-repair shops, tailoring shops, restaurants, hotels, filling stations, tourist houses, bootblacks, barber shops, beauty parlors, morticians.
In wholesaling and jobbing, competition tends to follow the old model when not too seriously diluted with trade associations and gentlemen’s agreements.
In the manufacture of gadgets and new commodities, rivalry tends to be more enthusiastic, more knock-downand-drag-out, than in the manufacture of commodities more adult. Thus rayon and radio rioted through the last decade, while motor cars, after rioting a decade earlier, began to take on the merging and consolidating habits of industrial middle age. I understand that competition in the manufacture of miniature golf courses was unspeakable during the year the craze lasted — little fellows, knocking each other around. It would seem, however, that when anyone succeeds in getting real money invested in an enterprise, — say ten million dollars, — the urge in the direction of ‘constructive competition’ becomes well-nigh irrepressible, and mergers, trade associations, gentlemen’s agreements, begin their ordered march.
Competition used to be lively among newspapers, but those happy days are all but gone. In many a city which once supported half a dozen dailies, — the word ‘supported’ may be overstrong, — the citizen now takes his choice between the Examiner-HeraldNews or no newspaper at all. Even the book publishers, embittered individualists since time out of mind, have set up a trade association and taken to consolidation.
Banks compete after their fashion, but not to the extent they used to. Between the Federal Reserve System and the appalling growth in consolidations during the 1920’s, collectivism gained by leaps and bounds. But perhaps not fast enough for the wayfaring depositor. In Canada, where banks are almost completely collectivized, no depositor, it is reported, has lost a penny through a bank failure in many years.
In the growing of crops, the building of houses, the production of soft coal and petroleum, the competitive zone is broad and strong. Yet if one were to judge the four sickest industries in the country, the winning medals would fall not far from these four breasts. Agriculture and coal have been in the dumps since the war; the Big Bull Market meant nothing to them. Last year the oil industry was so badly demoralized that ‘Alfalfa Bill ’ Murray ordered out the state militia of Oklahoma summarily to halt free competition in the oil fields. He was acclaimed with the cheers of a grateful nation. The coal men are moving heaven and earth to amend the antitrust laws and allow the coördinated control of an industry which can produce 50 per cent more of its product than it can sell. Meanwhile empty skyscrapers, apartment houses, subdivisions, mock the fantastic optimism of those who built them. Indeed, the loudest roars for relief from overproduction and competition come from agriculture, coal, and oil, while federal subsidies are urged to bolster up frozen mortgages on real estate. In these industries competition is reasonably pure, and alarmingly unpopular.
In the learned professions, competition for clients is often keen, but a traditional collectivism, lodging in codes of ethics, bars upon advertising, strong professional associations, and in such terms as ‘brother lawyer,’ is still reasonably hardy.
Thus in our preliminary survey we find that modern industrialism, because of its delicate specialization and interdependence, increasingly demands the collectivism of social control to keep its several parts from jamming. We find a government meeting that demand — unconsciously and clumsily, to be sure — by continually widening the collective sector through direct ownership, operation, and regulation of economic functions. We find industry, agriculture, and business meeting that demand by more and more schemes of voluntary collectivism — the merger, the coöperative enterprise, the trade association. We find labor meeting that demand by the trade-union — a movement static at the moment, but bound to march again. We find those zones where competition functions most freely vociferously praying for deliverance, with the exception, perhaps, of the time-honored area of the small retail store.
In brief, it is a scene to make the ghosts of Cobden, Bright, Mill, and Spencer walk at midnight. Yet one wonders whether so intelligent a man as John Stuart Mill, if he lived to-day, would not revise his philosophy to meet the demands of a new technology. The mechanical horsepower abroad in his world could hardly have exceeded fifty million. To-day the total stands upward of a billion and a half. One suspects that in 1932 he would renounce the doctrine which Mr. Broadback so piously and sincerely venerates.
It would be illuminating to cast up the accounts of the collective zone against the competitive; to estimate the percentage of each in terms of man power, invested capital, energy units, and share of the national income. Alas, no clean-cut line can be drawn because of the enormous amount of overlapping, and because both are so adulterated one with the other. A great retail chain obviously moves in the direction of collectivism, but any chain-store manager can tell you his competitive troubles for hours on end. I should make a wild guess, however, that at least one half of the economic activity of the country to-day is collectivized, on a very liberal definition.
During the current year, furthermore, the zone promises wide expansion through such agencies as the Reconstruction Finance Corporation, government aids and subsidies to railroads, real estate, banks, public works. If there is a banker or a business man decrying the heresies of that two billions of collectivism known as the Reconstruction Corporation, I have not heard his voice. Yet heresy of the starkest variety it is. Let them go broke, says free competition, and let the fit survive.
I argue for a refinement of this preliminary survey, and a sharper etching of the zones, with edges bright enough that he who runs may read — sharp enough to give even Mr. Broadback pause above his empty demi-tasse. It is time we cured the cultural lag, ceased these silly nineteenth-century singsongs, recognized and faced the facts. Competition is doubtless a good thing — in its proper place. Where is its proper place? Collectivism is, beyond peradventure, on the march. Where is its upper limit of economic usefulness? Should we encourage voluntary collectivism or state? In what fields? Here are real problems, not a war of ghosts.