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Social Legislation and Social Activity
Being Addresses delivered at the Sixth Annual Meeting of the American Academy of Political and Social Science of Philadelphia

❦

Published for the American Academy of Political and Social Science of Philadelphia, by

McClure, Phillips & Company

New York

1902

CONTENTS

I. The Annual Address

SOCIAL EFFECTS OF TRANSPORTATION

By Honorable Martin A. Knapp

Chairman of Interstate Commerce Commission, Washington, D. C.

The progress of mankind in devising means of transportation embraces three distinctive stages. The primitive man traveled on foot and moved his scanty belongings with his own muscle; and we can only imagine the ages that elapsed before he secured any aid for the transfer of his person or his property other than his own bodily powers.

Probably the first contrivance for carriage was a rough-hewn plank or pole dragged upon the ground. Two connected planks doubtless formed the original sled. Finally the idea was conceived—some accident suggesting it—of lessening friction by the use of rollers. The rollers gradually developed into wheels, and when at last the wheels were made in pairs which revolved upon an axle the essential feature of all subsequent vehicles was devised and employed.

The earliest movement on water, we may suppose, was equally crude and simple. Some observant savage noticed that wood did not sink, and later found out by experiment that a floating log would remain on the surface even when his own weight was added. The rude dug-out followed the discovery. The stick or limb by which the dug-out was pushed and turned shaped itself at length into the lighter and more effective paddle; the hollowed log was succeeded by a framed and covered structure, the paddles became oars; and thus was evolved in prehistoric times the type of all later boats on lake and stream. It was centuries after this—no one knows how many—before the force of wind was utilized by the invention of sails, and when that immense advance was achieved the enduring era of ship-building commenced.

Roughly speaking, then, we may assign to the first stage in the development of transport such results as were obtained by the muscular strength of man, whether applied directly to the articles carried or used in propelling the clumsy vehicles and water craft which he had constructed. The motive power in all cases was the unaided energy of his own body. And no later addition to the resources then at his command, it should be observed, has wholly displaced the original method. The natural powers of locomotion have not only remained unabated, but have greatly increased by experience and training. Indeed, the manual handling of articles of property must always be an important incident of ownership and exchange, since no mechanical device can meet all the needs of transfer or equal the delicacy and dexterity of our bodily organs. Nor should we overlook in this connection the many-sided ingenuity which has been displayed in constructing and perfecting a great variety of vehicles for hand propulsion. The latest examples of this ingenuity are the light racing shells which can be rowed with such remarkable rapidity, and that unique and fascinating machine, the up-to-date bicycle. These are at once the survival and the consummation of primitive transportation, that is to say, transportation where human energy is the motive power.

To the second stage of this development belongs the great increase of force which was obtained by the subjugation of animals and their employment for land transportation, and by the use of sails and rudders which multiplied many times the efficiency of water carriage. When these two results were secured, man had added to his own bodily powers the superior strength of beasts of burden and the enormous energy derived from the winds of heaven. This was an immeasurable gain and marked the beginning of that wonderful civilization which slowly followed. The animal kingdom was brought into service for the varied functions of land distribution, and the ship which could be sailed and guided made every waterway subservient to man’s requirements.

This hasty and imperfect outline brings us to a fact of history which seems to me not merely significant but profoundly impressive. With the subjection of animals and the use of wind-propelled vessels, both of which achievements reached a high degree of perfection in the unknown past, the means of transportation, broadly speaking, remained unchanged and unaugmented until a period not much prior to the present time. It is a long stretch of years from the savage cave-dweller to the twentieth century man, and this wonderful world of ours had quite a career before the present generation was born. Long before other agencies of conveyance were dreamed of, while ox and horse, oar and sail, were the only means of transport, the race had occupied most of the habitable globe and advanced to lofty heights of national greatness. Strong governments were established, vast populations engaged in varied pursuits, and opulent cities crowded with every luxury. The institutions of society had acquired strength and permanence, the arts of leisure and refinement had approached the limits of perfection, and inductive science had laid firm grasp on the secrets of nature. Great inventions and discoveries had widened the fields of activity, furnished the means and incentive for multiplied vocations and opened up in every direction alluring vistas of advancement. In a word, there was the developed and splendid civilization of little more than threescore years ago, before any new or different motive power was utilized for commercial intercourse.

And the weighty fact is that this immense and complex organism, with all its accumulations of wealth and wisdom, its diversified employments, its agriculture, manufactures, business affairs, financial systems, commercial and political relations, civil and social order—its very life and potency—was not only fitted to but dependent upon means of transportation which, as respects their expense, speed and capacity, had not essentially altered since the earliest tribes began to barter! Enormous growth of enterprise and enlightenment, amazing progress in every other sphere of human effort, with motive power, which lies at the foundation of every activity, remaining from first to last a constant quantity! Before the earliest recorded transaction—when Abraham purchased the field of Ephron and paid for it his “400 shekels of silver current with the merchant”—the horse and the ox were the established agencies of land distribution; and what better agencies, bear in mind, became available at any time thereafter until well along in the nineteenth century? Yet the ox was as strong and the horse as fleet, and their powers were as effectively employed, in the days of the Pharaohs as they are at the present time. Indeed, no history is so ancient as not to disclose the general use of animals for the purposes of carriage, while the vehicles to which they were harnessed had then been developed, in point of convenience and usefulness, to a degree not much exceeded in any subsequent period. Though differing considerably in appearance from the wagons with which we are familiar, yet they were constructed upon the same principles and performed the same functions as those now employed.

Similar progress was made in ship-building and seamanship as far back as history affords proof or tradition. There were oar and sail, tides and currents, and the inconstant winds, long before the ships of the Phœnicians brought back from the East the gold of Ophir; and what more was there than oar and sail, winds and currents—for all the purposes of navigation—until, almost within the memory of men yet living, the little steamboat of Robert Fulton ascended the Hudson River! In this long span of time, it is true, bridges were built, highways improved, vehicles finer fashioned, sailing craft increased in size, and the mariner’s compass led to longer voyages; but, nevertheless, the forces by which movement is effected, the actual means of distribution on land and sea, continued without substantial change in character or efficiency age after age and century after century until the recent, the very recent, era of steam locomotion.

To my mind it is a matter of fascinating import that the long procession of the world’s advancement down to the century just ended was conditioned by and dependent upon agencies of transportation which were themselves essentially unprogressive and incapable of important betterment. True, there were minor modifications from time to time in the line of mechanical adjustment, but the general methods employed, and the results obtained, showed no marked improvement or material alteration from those applied in the earliest days of commerce. Reduced to the forms in ordinary use there were at the last as at the first the beast of burden on land and the oar and sail on water. Yet thus hampered and restricted in the means of transportation, which is the basis of all commercial activity, there was built up in the long process of years the varied and advanced civilization which the last century inherited.

Then all at once, as it were, into and through this social and industrial structure, so highly organized, so complex in character, so vast in its ramifications, yet so adjusted and adapted to the fixed limitations of animal power, was thrust the new mode of conveyance by mechanical force, and the third stage of transportation was suddenly ushered in by the employment of steam as its principal motive power. The advent of this new and marvelous agency was the greatest and most transforming event in the history of mankind. It wrought an immediate and radical change in the elemental need of society, the means of distribution. The primary function was altered both in essence and relations. The conditions of commercial intercourse were abruptly and completely altered, and a veritable new world of energy and opportunity invited the conquest of the race.

As time goes, this revolution has been phenomenally rapid. But yesterday, as it seems, and the first iron track had not been laid, and even the idea of steam as an available motive power had hardly been conceived; yet already, within the limits of an ordinary lifetime, long lines of railway—which sprung into being as if born of enchantment—have stretched out in every direction from one end of the land to the other. They have bridged the rivers, penetrated the wilderness, climbed over mountains and traversed the deserts with their highways of steel. There is scarce a hamlet so remote as not to hear the shrill whistle of the locomotive, and the clang of its warning bell is everywhere a familiar sound. In the passing of a generation the railroad and the steamship have transformed the whole realm of commerce, of industry and of social life. They have enriched every occupation, given multiplied value to every pursuit, added incalculably to the means of human enjoyment, and made our vast wealth possible; they are at once the greatest achievement and the greatest necessity of modern civilization.

It is little more than sixty years since the first steam road was constructed, yet at this time, within the limits of the United States alone, nearly 200,000 miles of railway are in active operation; and of this immense mileage—enough to put eight girdles around the globe—fifty per cent has been built in the last two decades and more than eighty per cent since the close of our civil war, only thirty-seven years ago. Elsewhere similar activity has prevailed during the same period, until animal power the world over has been almost wholly displaced for the purposes of transportation. Not only has the railroad become the chief agency by which inland commerce is carried on, but its influence upon all pursuits is so powerful, and its relation to every phase of activity so intimate and vital, that its effects upon social welfare and industrial progress present an inquiry of the gravest moment.

No other triumph over the forces of nature compares with this in its influence upon human environment. It has directly and powerfully affected the direction and volume of commercial currents, the location and movements of population, the occupations and pursuits in which the masses of men are engaged, the division of labor, the conditions under which wealth is accumulated, the social and industrial habits of the world, all the surroundings and characteristics of the associated life of to-day. The world has seen no change so sudden and so amazing.

The next fact to be noted is hardly less remarkable. Not only are the new methods of transportation incomparably superior in speed, cheapness and capacity, but, unlike those which have been superseded, these new methods are themselves capable of indefinite increase and expansion. The maximum efficiency of an animal is so well known as to amount to a constant quantity, and this unit of power is practically unchangeable. Substantially the same thing is true of a vessel of given dimensions and given spread of canvas. For this reason distribution remained, as I have said, the one fixed and inflexible element to which other activities, however elastic and progressive, were necessarily adjusted and by which they were limited.

Now, a special and most suggestive feature of transportation by steam, electricity or other kinds of mechanical force is that its capacity is not only unmeasured and unknown, but will doubtless prove to be virtually inexhaustible. That is to say, no certain limits can be assigned to the operation or effect of these new agencies as compared with those which have been supplanted. Therefore, speed may reach many times the rate now attained, the size of vehicles may be greatly increased and the cost of carriage for the longest distances reduced to an astonishing minimum; so that, as progress goes on in developing the means and methods of distribution, the habits and needs of men will be more and more modified, with consequences to social order and the general conditions of life which may be far greater than have yet been imagined.

Among the results already realized, which directly forecast what will further happen, some of the more obvious may be briefly mentioned. For well understood reasons the speed and capacity of water craft are much superior to those of vehicles drawn by animals, while the cheapness of the former gives them a great advantage over the latter. While the old conditions prevailed, the waterways were mainly relied upon for the conveyance of bulky products. Commercial movements on land were, of course, considerable, but the transfer of heavy goods, such as enter most largely into ordinary consumption, was principally effected by sailing vessels. Therefore, the fertile lands along the river-banks and the indented shores of the sea were the first to be occupied for agricultural pursuits, the exchange of produce for merchandise being accomplished by water carriage. The great cities founded prior to our time were for the most part located upon or near navigable streams while the masses of population outside the towns dwelt within easy reach of these natural channels.

But the building of railroads has often deflected and sometimes wholly altered the routes of distribution. In our own country, for example, notwithstanding it is penetrated by numerous rivers which flow, generally speaking, from north to south, the great volume of traffic is carried by railways running east and west across valleys and mountains. Even where the rail lines are parallel with river courses they absorb the greater share of freight and passenger movement. In short, the routes of land transportation in all the principal countries of the world have been largely recast in the last fifty years by the changes from river to rail conveyance.

The next most noticeable effect, as it seems to me, is the prodigious increase of commerce under the stimulus of modern agencies. It is estimated by Mulhall that as late as 1820 the carrying capacity of all the sailing vessels of the world—and there were then no others—did not much exceed 3,000,000 tons; yet this is less than one-sixteenth of the tonnage actually moved last year by the railroads of our New England states. This astonishing growth in the quantity of transported articles, and in so short a time, is sufficient to produce, as it certainly has produced, the most important and significant results; since the fact itself indicates a current volume of transport business compared with which the commerce of our grandfathers seems like the idle play of children. Because of this wonderful speed and cheapness of distribution, the average prices of food, fuel, clothing, building material and other necessary supplies have been greatly reduced, independent of the standard by which prices are measured. And this cheapening of most commodities has in turn brought a marked alteration, within a very brief period, in the style of living, dress, home-furnishings and the like, which makes the present conditions of life far more desirable and attractive than ever was known before.

The effect of this cheap conveyance is also seen in the commonness of pleasure travel, the extent of immigration, the spread of population over new territories, and in all the employments and surroundings of the people everywhere. The railway is not only the chief means of developing uninhabited or thinly settled regions, but the same line may operate in both sparsely and thickly populated districts, since an indefinite number of trains can be moved on the same track. For instance, the 200,000 miles of railroads of the United States serve some 75,000,000 persons, distributed through an area, excluding Alaska, of more than 3,000,000 square miles; while in Great Britain about 22,000 miles of railway serve at least 45,000,000 persons, located within a mainland area of less than 117,000 square miles. Thus, in Great Britain as compared with the United States, one-ninth as much railway mileage reaches more than half as many persons, because of the density of a population confined within a territory not larger than one-twenty-fifth of the land surface of the United States.

Again, the railway at once causes the concentration of people in cities and at the same time is the prime factor in the creation of cities. It is impossible that such inland towns as Atlanta and Denver, for example, could have acquired their present importance without the facilities for carriage and intercourse which railroads provide. In 1870 nearly forty-seven per cent of all our people employed in gainful occupations were engaged in farming; while only twenty years later barely thirty-six per cent were following that pursuit. And what is still more suggestive, the recent census shows that more than one-third of our entire population live in towns of 5,000 inhabitants and upwards, as against less than seven per cent in 1830. That so great a change has taken place in so short a time in the geographic distribution of our people can only be explained by the potent force of steam transportation, while the fact itself has a social significance which can hardly be overstated.

In the region west of the Alleghanies the railroad has been the pioneer in opening up unoccupied lands for settlement, while the lines upon which railroads were there built and the points they reached determined the location and growth of numerous towns and cities in that great section of country. On the other hemisphere, as is well known, a wonderful railway is now pushing to completion across the vast stretches of Siberia, a territory larger than the United States and Europe combined, connecting the capital of Russia with the Pacific Ocean. The consummation of that project cannot but have immense effect upon the commerce, industries, social welfare and military power of a large portion of the world’s inhabitants.

In connection with this should be observed the rapid increase in stationary steam power which has been coincident with and primarily caused by steam locomotion. Taken together they make up the colossal forces now exerted in the fields of commerce and industry, in comparison with which all the power of all the beasts of burden is hardly worth the mention. And this in turn reminds us of the mutual action of production, shipping and land transportation in producing the stupendous results we everywhere observe. It is impossible that these gigantic agencies should come into such active operation without the most vital consequences to every phase of human life.

Take into account, also, the new and wonderful means of transmitting intelligence. The obstacles of time and distance, hitherto so formidable, are swept away by telegraph and telephone. We send our thought and speech with lightning swiftness to the four quarters of the globe, and hold all lands and peoples within the sphere of instant intercourse. So recent is this miracle that we are still dazzled by its marvels and fail to realize how powerfully it aids the unification of world-wide interests.

That this substitution of steam and electricity as the instruments of commerce has been an immeasurable gain is witnessed here and everywhere by half a century of unparalleled progress. Along these modern pathways the world has literally leaped. No longer tied to beasts of burden, the entire realm of industry has been quickened and enlarged; productive energy has been invigorated by new and limitless means of distribution; the products of the whole earth are embraced in wide circles of exchange; all the luxuries of all lands are brought to every household; wealth has multiplied until we are almost surfeited with its abundance; the genius of invention has been stimulated to larger exercise, the sphere of thought grandly extended, the impulses of charity awakened to nobler activity, while keener sympathy through closer contact is leading the race to real brotherhood.

But these manifold benefits have not been secured without many and serious dangers. The potent energy which produced such marvels of utility and convenience has generated an array of forces which test with severe strain the structure of organized society. So radical a change in the methods of distribution, and consequently of production, was sure to be attended with peril as well as beneficence, and to entail a series of results, immense and far-reaching. Passing by the acute abuses which are incident to the process of development, for they are transitory and must gradually disappear, we may well consider the more profound and permanent effects, what I venture to call the economic effects, of present and future methods of transportation upon the whole range of industrial activity. This brings into view again the impressive fact I mentioned at the outset, and suggests some graver consequences than those that appear on the surface and appeal to ordinary observation.

When transportation was measured by the strength and endurance of animals, only a limited area could be reached from a given centre. Its slowness and expense confined all inland distribution within narrow bounds. Only eighty years ago it cost $125 to move a ton of freight from Philadelphia to Pittsburg, and the average price for carrying the necessaries of life was not less than twenty cents a ton for every mile of haul. On such a basis most commodities were shut off from distant markets, and farm products would seldom permit of conveyance more than 100 or 150 miles. Only such articles as were of small bulk and weight compared with their value were moved to any considerable distance from the place of production. For this reason the requirements of an ordinary family were almost wholly supplied from nearby sources. And this means—without amplifying the statement—that productive energy, for the most part, was restricted by the consuming capacity of the surrounding neighborhood. The forces outside each separate circle were but feebly felt and had little influence upon its daily affairs. Broadly speaking, the activities of each locality were adjusted to its own conditions and were practically undisturbed by like operations in other places. What we call competition was held in check by slow and costly means of conveyance; its effects were moderate and limited, its friction seldom severe.

But the use of steam for motive power and electricity for communication increased enormously the range of accessible markets, and at once intensified competition by the celerity and cheapness of distribution. Industrial strife has already become world-wide in extent, and distance an ineffectual barrier against its destructive assaults. For the commercial factor of distance is not at all a matter of miles, it is merely a question of time and money. The fact that the cost of moving a hundred pounds of goods a single mile by wagon transports a ton of the same goods by rail more than three times further is some indication of the effect of cheap and rapid conveyance in bringing remote places closer together. Our grandparents got their supplies mainly in the localities where they resided and only a few persons were concerned in their production. To-day it may safely be said that five millions of people and five hundred millions of capital are directly or indirectly employed in furnishing an ordinary dinner. When merchandise of every description is carried at great speed from one end of the land to the other, and at an average cost of less than three-quarters of a cent a ton a mile, as is now the case, the expense of transport is but a trifling impediment to the widest distribution.

Nor should we forget that it was the opening up of new and ever enlarging markets, by the cheapness of steam transportation, which gave the first opportunity for the extensive use of machinery; and this in turn quadrupled the capacity of labor and greatly reduced the cost of large-scale production. By this revolution in the methods of manufacture—caused by the railroad and steamship—the mechanic was supplanted by the operative, and the skilled and independent craftsman of former days found his occupation gone. For what chance now have hand-made articles when the factory-made product is carried across the continent at nominal cost? But the factory without the railroad would be only a toy-shop. If its wares had to be hauled over country roads by mules and horses, the points they could reach would be few and nearby, and thus contracted sales would limit the size of the plant and the volume of its business. It is simply because transportation is now so speedy, so cheap and so abundant that great establishments have become profitable and driven their smaller rivals from the field.

These facts—which might be multiplied without limit—bear directly, as I think, and with a force not fully perceived, upon the whole problem of industrial competition. For, as the means by which industrial products are distributed become more convenient, quicker in action and less expensive, the area of distribution rapidly enlarges, and as the area of distribution enlarges the competition of industrial forces increases in something like geometrical ratio. The movement of property by rail in the United States alone already exceeds three millions of tons every twenty-four hours. Think of the rivalry of products, the strife of labor, the strain and struggle of trade, which such a movement implies. With the constant acceleration of that movement, which is certain to happen, how long can the friction be endured? How soon will it become unbearable?

When Adam Smith wrote “The Wealth of Nations,” it took two weeks to haul a wagon-load of goods from London to Edinburgh, and such a thing as a business or industrial corporation was virtually unknown. To-day the great enterprises of the world are in the hands of corporations, and the time is fast approaching when they will absorb all important undertakings. Why? Simply because the railroad and the steamship—cheap and rapid transportation, all the while growing cheaper and quicker—ever widening the area of profitable distribution, furnish the opportunity, otherwise lacking, for the employment of larger and still larger capital. This opportunity permits and encourages the concentration of financial resources; so that, within limits not yet ascertained, the larger the business the greater its possibilities of gain. But the legitimate, the inevitable offspring of corporations is monopoly. Why? Simply because the operation of these massive forces—impinging and grinding upon each other in every market—begets an extremity of mutual danger which always invites and often compels a common agreement as to prices and production; that is, a trust. Just as the implements of warfare may become so devastating in their effects that nations will be forced to live in amity, so the destructiveness and exhaustion of commercial strife in these larger spheres of action may make combination a necessity.

Thus the potent agencies by which distribution is more and more rapidly and cheaply effected, which so unite and intensify the forces of production, are fast altering the conditions and changing the character of industrial development. And the end is not yet; it outruns imagination. What will be the ultimate effect of these methods of conveyance when brought to higher perfection and employed with still greater efficiency? When these agencies of commerce are increased in number and capacity, as they will be; when cost is still further and greatly reduced, as it will be; when speed is doubled, as it will be, and quadrupled, as it may be; when the whole United States shall have reached the density of population now existing in Great Britain, how can industrial competition possibly survive?

So, in the measureless and transforming effects of modern transportation, and the ends to which it resistlessly tends, I find the primary cause of the economic revolution upon which we have entered. The incoming of these new and unfettered forces not only changed the basic function of society, but disturbed its industrial order. In the effort to restore a working equilibrium the gravest difficulties are encountered, and we do not clearly see how they are to be overcome. Already we are compelled to doubt the infallibility of many inherited precepts and to reopen many controversies which our grandsires regarded as finally settled. The ponderous engine that moves twice-a-thousand tons across an empire of states, the ocean steamer that carries the population of a village on its decks and the products of a township in its hold, are indeed splendid evidences of constructive skill, but more than this they are economic problems as well which challenge and dismay the present generation. They force us to discredit the venerable maxim that “competition is the life of trade,” and warn us, I think, that the political economy of the future must be built on a nobler hypothesis. If it be true in the long run, as I believe experience teaches, that where combination is possible competition is impossible, is it not equally true that combination becomes possible just in proportion as transportation becomes ampler, speedier and cheaper? So the opportunity, if not the necessity, for combination has already come in many lines of activity and will certainly come in many more. The circumstance that permits competition, its sine qua non, is mainly difference of conditions. Practically speaking, this difference is chiefly found in the means of distribution. As that difference disappears, with the constantly diminishing time and cost of transport, the ability to combine will enlarge and the inducement to do so become overwhelming. That seems to me the obvious tendency of our industrial and social forces to-day, and that tendency, I predict, will be more and more marked as time goes on.

In the unrest and discontent around us, deep-seated and alarming here and there, I read the desperate attempt to avoid the effects of industrial competition and a tremendous protest against its savage reprisals. Every trust and combination, whether organized by capitalists or by artisans, is a repudiation of its teachings and a denial of its pretensions. The competitive theory may have answered the age of mules and sail-boats and spinning-wheels, but it fails to satisfy the interlacing needs or to sustain the interdependent activities which are founded on modern methods of intercourse and distribution; it is a theory unsuited to the era of railways and wireless telegraphy, this era of ours, so restless in thought, so resistless in action.

This, then, as I conceive, is the underlying question. Shall we continue to enforce with precept and penalty the rule of competition, whose cruel creed is “every man for himself,” or shall the effort and industry of the world be hereafter conducted on a more humane and fraternal principle? That is to say, is society—stripped of its polish and altruistic pretences—is society after all only a mass of struggling brutes fighting for the best places and the biggest bones, and is government simply an armed referee standing by to see that every dog has fair play? In short, is personal selfishness the ultimate force and individual greed the bottom fact? For myself, I disbelieve the doctrine. I am not terrified by the cry of paternalism nor dismayed by unreasoning clamor at the dangers of monopoly. The trusts and the unions are here, in money, in labor, in production and in distribution—they came with the railroad and the steamship—and they have come to stay.

When population was scattered and sparse, when movement was difficult and costly, when communities were isolated by distance and by dissimilarity, and bonds of relationship were feeble and few, the attrition of rivalry was complacently endured. But now, when seas are spanned with steamships and netted with electric wires; when city and forest, farm and factory, mine and counting-room are joined together by innumerable pathways of steel, and the swift locomotive, rushing across continents—like the shuttle through the loom—weaves this majestic fabric of commerce which covers the globe; when life is no longer localized in effort or achievement, and the thought of one man is the instantaneous possession of all men, the friction of unbridled competition has become irksome and intolerable. It is folly to shut our eyes to unmistakable facts or to stand in the way of inevitable events. Doubters may deride, demagogues denounce, and ignorant lawmakers strive to build up legal barriers; but neither agitation, nor protestation, nor legislation can stop the growth or prevent the advance of industrial federation.

I much mistake, therefore, if we are not entering upon a period of great transitions, a period of difficulty and many dangers. The whole structure of industry and social life is liable to be subjected to a strain—possibly to a shock—for which experience furnishes no guiding precedent. We have settled the administrative questions; we can collect taxes, build court-houses and pay the policeman. We have settled the political questions; for the nation lives and will live, the greatest and grandest in all the earth. But the further test is now to come, the test of the ocean liner and the limited express. Can we settle the economic questions? Can we raise this wide realm of industry from selfishness to charity, from strife to friendship, from competition to co-operation, from the warring instincts of the savage state to the larger and nobler needs of associated life? This is the problem which steam and electricity present for solution.

Will there be a fourth stage and another revolution in the methods of transportation? That is to ask, I suppose, will the puzzle of aerial navigation find a practical solution? Whether it does, or whenever it does, of this we may be certain, that the varied products of labor and skill, the endless commodities that supply our ever growing wants, will always seek their passage from producer to consumer along the routes of least resistance. Therefore, it may happen, in some bright and wonderful to-morrow, nearer to us perhaps than we imagine, that the stubborn land over which our ponderous vehicles are now dragged will be abandoned, even the liquid waterways discarded, and the vast commerce of the future be borne swiftly and noiselessly through the yielding air. If that marvelous day shall come, assuredly will it bring its harder questions and press us with its weightier demands.

II. Industrial Conciliation and Arbitration

INDUSTRIAL CONCILIATION AND ARBITRATION

By Honorable Marcus A. Hanna

United States Senator from Ohio

When I received the kind invitation of this society to come to this meeting, I confess I did not know what I was coming to. I like to talk upon practical things, and there is no subject to-day that is nearer my heart than is this question of the relation between capital and labor.

The subject assigned to me was “Arbitration,” which I consider only introductory in entering upon the discussion of a subject as broad as the one under consideration this evening. The matter of arbitration might be considered under two heads. Arbitration in business circles, by business men, whom we may call employers or capitalists, if you please, is one phase of it, but arbitration to settle differences between employers and employees is an advanced stage of it. It is a progressive form of arbitration.

To have success in conciliation, or arbitration, there must be thorough and effective organization on both sides. The large aggregations of capital, feared at first by labor, may prove to be labor’s best friend, in that, control of a trade being thus centralized, there is opportunity to establish friendly relations which shall make uniform conditions throughout the country, or large sections thereof, and reduce the basis of competition to the quality of the product rather than to the concessions forced from labor.

The growth of sentiment for arbitration and conciliation has been reflected in the legislation of the various states. While foreign countries made the earlier attempts by legislation to promote the formation of local boards of arbitration, some of the states of the Union were first to establish permanent central bodies with authority to mediate in labor disputes and to arbitrate matters referred to them. Sixteen states have established such central boards, beginning with Massachusetts and New York in 1866 and following, in succeeding years, with California, Colorado, Idaho, Illinois, Louisiana, Montana, Minnesota, Ohio. Utah, Wisconsin, New Jersey, Michigan, Connecticut and Indiana. These central boards usually consist of three members, an employer, an employee and a neutral.

Massachusetts, New York, Ohio, Indiana, Illinois and Wisconsin seem to be the only states within which tangible results have been accomplished, doubtless due to the highly developed industries prevailing and the frequency of labor disputes therein. In this as in all other matters of enforcement of public laws, successful results depend upon the strong impelling influence of an enlightened public sentiment.

The United States Government has established a method for arbitration and mediation in strikes and lock-outs upon interstate transportation lines, by virtue of its constitutional authority over interstate commerce. The act of 1888 provided for a voluntary board, but had no provision for enforcement of awards, and seems to have fallen into disuse. In 1898 a new act was passed under the terms of which either party to a dispute upon any interstate transportation line might request the intervention of the chairman of the Interstate Commerce Commission, and the United States Commissioner of Labor. These officers have no specific authority to intervene on their own motion, but apparently have the right to attempt conciliation even in the absence of an application from either party. There has been no case of arbitration under the act, so its effect in application is yet to be demonstrated.

The compulsory law of New Zealand has found no favor in this country. The hearings before the recent Industrial Commission show that the representatives of both employers and workingmen gave testimony against compulsory arbitration. The employers object because, they claim, it would be one-sided owing to the lack of responsibility on the part of the workingmen, while the workingmen object because, they claim, it would be manipulated to suit the employers, and, if enforcement carried imprisonment, it would provide for a species of slavery intolerable in a free country. Many state boards, however, while not advocating as a whole compulsory arbitration, urge further legislation which shall prevent public inconvenience and loss resulting from strikes and lock-outs involving public service corporations and means of transit.

This condensed summary of the general features of the question brings us logically to a consideration of the method or methods best suited to our time and country. Since the great majority interested on both sides, employer and employed, reject any system of arbitration which includes compulsion in its composition, experiments must be along the line of mutual concession and tactful persuasion. Such results may be hoped for, and, perhaps, confidently expected in the system of mediation and conciliation promulgated by the Industrial Department of the National Civic Federation.

That brings me up to date. I do not propose to treat this question from an academic standpoint, but to give an expression of my own experience, having been a large employer of labor for more than thirty years, and having studied that question from the standpoint of mutual interest. My attention was strongly directed to this subject as far back as 1874, at the end of one of the most severe and destructive strikes that ever occurred in Northern Ohio, in the coal mines, long and protracted, bitter and destructive. When it was over both sides had suffered, and it occurred to me that there ought to be some other way to settle these differences, and as a result of that we organized in Northern Ohio an organization of employers, the mine owners, and the men organized what was known then as the National Bituminous Coal Miners’ Association, the first of that character ever organized in the United States. Their constitution and by-laws provided that no strikes should occur until every other effort in the right should fail, and the employers covenanted that they would give hearings and consideration to any committees sent to them by the union.

As a result, during the life of the organization on the part of the men, there never was a serious strike. All differences, which with small beginnings very often lead to disastrous strikes, were settled by the employer and employee coming together with a proper spirit, with a determination to do right. Upon that hypothesis I have been working ever since, and from that day to this I have never had a serious strike.

The Civic Federation is the outgrowth of the evolution to which your chairman has referred. This country has grown greatly. Our industries have multiplied, and the opportunities for labor equally with it. Great undertakings are claiming the attention of the people, and this question of labor and capital has approached a crisis. This Civic Federation has adopted a constitution and by-laws covering simply the methods of procedure, and has also adopted a principle, and that principle is the Golden Rule.

Now, Mr. Chairman, the great productive capacity of this country has forced upon us the aggregation of capital and the creation of great material wealth seeking opportunity for investment. This rapidly increasing wealth must find investment, and to make the investment in industrials secure we must have industrial peace.

The Civic Federation is beginning to lay the foundation for such results, with the hope that it will appeal to the whole country and to all classes of the people. We are simply placing before the American people the opportunity to unite with us in the accomplishment of this purpose, as necessary to our social conditions as to our industrial conditions. Of course, it is not an easy task; the conditions in the United States differ from those in any other country in the world. This great cosmopolitan people, coming to our shores by thousands every year from every country and from every clime, this coming together of all classes and all kinds of people from the four quarters of the globe, produces a condition of things not found in any other country. It is not an easy matter to assimilate such a large number of foreign immigrants; they do not understand our language, they are not abreast with the education of a self-governing people; they do not understand our institutions. Therefore, it must necessarily be a work of education, and the Civic Federation is merely a nucleus to begin this educational work.

When I make the appeal to all persons and all classes in the United States to join with us, I believe that in their hands ultimately rests the future of that question. We may have arbitration and we may have meetings of our conciliatory committees, but unless we have the sympathy of the people, who in the end are the final arbiters on this question, we cannot hope to succeed.

The Civic Federation is only two years old, and the Industrial Bureau of the Civic Federation has been scarcely organized, but seven strikes have already been settled in three months. It has prevented the occurrence of two strikes which would have brought from the labor ranks more than two hundred and fifty thousand people, and that has been accomplished, my friends, by simply finding out to start with what the differences were, and who were right and who wrong. When men get together with the determination to treat each side of the question fairly, and when the public feels that the men connected with this enterprise are thoroughly acquainted with details, men of prominence in the country, well known and well understood, and are men giving their time for the love of the work and the good they may accomplish, the public realizes that it means something.

In adjusting the relations of labor and capital, appeal must be made to the sympathies of the people. Opportunities like this to-night must be embraced to inform intelligent audiences of the character of the work to be done and to give them an opportunity to contribute their mite and influence to help the cause along. I know no city in the United States where we can look for more aid and comfort than in this great industrial centre of Philadelphia. Indeed, it was because of this that I was induced to come here to-night and discuss this question of capital and labor before people who in every day of their lives can put into execution and effect the principles for which we are contending.

My experience has taught me, my friends, that the employer because of his position has the most to do, and it must be expected that the employers, at least in the beginning of this educational work, should go more than half way. They provide work, and are responsible for the conduct of business, and upon them rests the responsibility of seeing that the men receive their share of its benefits. We must rise to a higher level, where we can have a broader view of this question, where we can tear ourselves away from the prejudices which have heretofore stood between capital and labor.

I believe in organized labor, and I have for thirty years. I believe in it because it is a demonstrated fact that where the concerns and interests of labor are entrusted to able and honest leadership, it is much easier for those who represent the employers to come into close contact with the laborer, and, by dealing with fewer persons, to accomplish results quicker and better.

The trusts have come to stay. Organized labor and organized capital are but forward steps in the great industrial evolution that is taking place. We would just as soon think of going back to primitive methods of manufacturing as we would primitive methods of doing business, and it is our duty, those of us who represent the employers, from this time on to make up our minds that this question is one that must be heard.

You are well aware that there has been a tendency in this country, from the very nature of things, to what is called socialism. Everything that is American is primarily opposed to socialism. We talk about it and regret that these conditions exist, regret that there are extremists who are teaching the semi-ignorant classes labor theories, that proceed upon the principle that liberty is license. This is a condition which must be met. It is the duty of every American citizen to assume his responsibilities in this educational work, and to assist any organization which can correct these theories and these ideas. There is no question concerning our body politic to-day that should command deeper or more serious thought. There is nothing in the organization of society in this country that can afford to permit the growth of socialistic ideas. They are un-American and unnatural to us as a people.

In the beginning of this work I received great encouragement from an address which Samuel Gompers made in Cooper Union Institute, in New York, about a year and a half ago, when he took the broad ground that in the interests of labor there was no room for the socialist or the anarchist, no room for men who undertook to disturb the principles of our society and government. When such words came from a man leading the largest labor organization in the world, a man of advanced thought and of honest intent, I knew that now is the time to strike, now is the time to proclaim to the American people that in the consideration of this question, which sooner or later must be forced upon us, we must consider what is for the best interests of society as well as for our material development.

If I can impress these principles upon the people of this country, either by word or action; if I can hold the attention of the American people away from all selfish and political interests long enough to have them study and investigate this great question, I shall feel that of all the efforts I have ever made to serve my country and society in any way, that has been the best.

THE LIMITATIONS OF CONCILIATION AND ARBITRATION

By Samuel Gompers

President American Federation of Labor

The subject under consideration involves the difference between the isolated bargain made by workmen acting as individuals and the joint or collective bargain made by an aggregation of workers. The individual bargain made by a workman with his employer is practically based upon the condition of the poorest situated among the applicants for the position, and the conditions of employment, accepted or imposed, are fixed by the immediate and dire necessities of the poorest conditioned worker who makes application for the job. The collective bargain is made upon the basis of about the average economic condition or situation of those who desire to fill the position.

The individual bargain is made at the entrance to the factory, the shop, the mill, or the mine; the collective bargain is made usually in the office of the employer.

When the period covered by the collective bargain has expired and the conditions under which labor has been carried on for a specific period become unsatisfactory to either or both, a conference is held and a new agreement endeavored to be reached under which industry and commerce may be continued. When there is failure to agree, a strike occurs.

The effort at best in the joint bargaining or in the strike is the effort to secure the best possible conditions for the wage-earners. Much as we deplore strikes and endeavor to avoid them, they are the highest civilized expression of discontent of the workers in any part of the world. China has no strikes. The people of India have no strikes, but in the highest developed and most highly civilized countries strikes do occur. In China, when discontent arises, we see it manifested in revolution against constituted authority, the venting of prejudice against the foreigner; the stiletto, the bludgeon, war brutality are the manifestations of the discontent of the poor and of the workers of those countries.

I am not here to defend strikes, nor to find an excuse for them, but that we may more clearly understand the subject to which we are giving attention, it may not be amiss to at least set ourselves right concerning strikes. Our forefathers, when establishing our government, wisely reserved to the popular branch of our federal government the right to control revenue and expenditure, a right which had been struggled for and secured by the House of Commons of Great Britain. The strike of labor is in another form the holding of the purse-strings of the nation, to protest against injustice and wrong being meted out to the laborers. It is the determination of the workers that in the last analysis, if there be no other means by which their rights may be accorded and their wrongs righted, they may say with Lincoln, “Thank God, we live in a country where the people may strike!” Nevertheless a strike ought to be avoided by every means within the power of every man, capitalist, laborer, or the neutral citizen, and he who would not give his best efforts and thought to prevent a strike is scarcely doing justice to his fellow-men, nor is he loyal to the institutions under which we live. But I re-assert that there are some things which are worse than strikes, and among them I include a degraded, a debased, or a demoralized manhood.

Labor insists upon and will never surrender the right to free locomotion, the right to move at will, the right to go from Philadelphia to Camden or California, or vice versa, at will. To achieve that right it has cost centuries of struggles and sacrifices and burdens. Laborers, moreover, will insist upon the right freely to change their employment, a right which they have secured through centuries of travail and sacrifices. That right three-fourths of the nation was up in arms a little more than forty years ago to achieve for the black man, and the white laborers of America will not surrender that prerogative. Laborers are aiming at freedom through organization and intelligence.

The Industrial Department of the National Civic Federation is erroneously thought by some to be an arbitration committee, whereas the first purpose is to endeavor to bring about a conference between employers and employees before any acute state of feeling shall occur relative to their diverse interests. If a rupture occurs, the committee endeavors to bring about a conference so that arbitration may be resorted to if both parties to the controversy shall so request.

As a rule, men do not care to refer matters in which they are particularly and financially interested to what are usually termed disinterested parties. They prefer to meet with those whose interests may be opposite to theirs, and, each conceding something in a conciliatory spirit, endeavor to come to an adjustment and agreement.

Unorganized workmen have a notion that they are absolutely impotent, that the employers are omnipotent, almighty. This is typified in the thought or expression, “What can labor do against capital?” Likewise the employers of unorganized workmen usually regard themselves as “monarchs of all they survey,” and brook no interference. If any workman has the temerity to question the justice or sense of fairness of the employer or the wages paid, he is dismissed and a strike frequently results.

No strikes are conducted more bitterly than strikes of previously unorganized workmen. As soon as such men become desperate enough to strike, they are transformed; they no longer believe the employer all-powerful, but attribute to themselves that function and faculty; the touching of shoulders brings a newfound power to their minds, of which they never dreamed before, and they look upon their employers against whom they went on strike as absolutely at their mercy.

The employers, in these cases, usually regard the matter of request to be heard upon the question of wages, hours or other conditions of employment, as dictation by their workmen; but whether the strike is won or lost, if the workmen but maintain their organization, the initial step has been taken for a joint bargain and a conciliatory policy in the future. Both parties have learned a severe but a profitable lesson, that neither party is impotent, and neither all-powerful. The organized labor movement in our day is an assertion of the principle that there is no hope that the workers can protect their interests or promote their welfare unless they organize; unless they advocate conciliation to adjust whatever controversies may arise between themselves and their employers and declare for arbitration with their employers upon any disputed points upon which they cannot agree. There are some who advocate compulsory arbitration. I concur with Senator Hanna, who does not believe in compulsory arbitration. Indeed, voluntary arbitration cannot be successfully carried out unless both parties are equally strong and powerful or nearly so. This is true between nations as well as between individuals. Russia never arbitrated the question of the nationality of Poland. England did not arbitrate the question with Afghanistan, but simply bombarded her. England in her dispute with Venezuela proposed to bombard her, and only when the United States said, “Hold on, this is of very serious consequence to us,” did England consent to arbitrate. There has never yet been in the history of the world successful arbitration between those who were powerful and those who were absolutely at their mercy. There has never yet been arbitration between the man who lay prone upon his back and the man who had a heel upon his throat and a sabre at his breast. Arbitration is possible, but only when capital and labor are well organized. Labor is beginning to organize, and when labor shall be better organized than it is to-day we shall have fewer disputes than we have now.

Of the agreements made between employers and employed, two-thirds, if not more, of the violations, of the failures to abide by the awards of arbitrators, are on the part of the employers. But if it were not so, if the awards were broken by either one or the other side or by both sides in equal proportion, it would be better, it would make for human progress and economic advantage, to have an award violated than to have the award forced by government upon either one side or the other. The employer if he chose could close his business, and that would mean his enforced idleness. On the other hand, if the state entered and forced workmen to accept an award and to work under conditions which were onerous to him or to them, you can imagine the result. Men work with a will when they work of their own volition, then they work to the greatest advantage of all. On the other hand, if men were compelled to work by order of the state, with the representatives of the state entering with whip in hand or a commitment to the jail, it would create a nation of sullen, unwilling and resentful workers; a condition that we do not wish to encourage; a condition which would be most hurtful to our industrial and commercial greatness and success. It is strange how some men desire law to govern all other men in all their actions and doings in life. The organized labor movement endeavors to give opportunities to the workers so that their habits and customs shall change by reason of new and better conditions.

We have our combinations of capital, our organizations and federations of labor. These are now working on parallel lines and have evolved the National Civic Federation. Through the efforts of men noted for their ability, for their straightforwardness, noted for the interest they take in public affairs, an effort is being made to bring about the greatest possible success industrially and commercially for our country with the least possible friction.

One of the greatest causes of the disturbance of industry, the severance of friendly relations between employer and employees, is the fact that the employers assume to themselves the absolute right to dictate and direct the terms under which workers shall toil, the wages, hours and other conditions of employment, without permitting the voice of the workmen to be raised in their own behalf. The workers insist upon the right of being heard; not heard alone at mass-meeting, but heard by counsel, heard by their committees, heard through their business agent, or heard, if you please, through the much-abused walking delegate. They insist upon the right to be heard by counsel; the Constitution of our country declares that the people of our country may be heard through counsel. It is a saying in law, and I repeat it, though not a lawyer, that he who is his own lawyer has a fool for a client. The organized workmen have long realized this truism and have preferred to be heard by counsel, and we say that the political and civil right guaranteed to us by the constitutions of our country and our states ought to be extended; the principle of it ought to be extended to protect and advance our industrial rights.

One of the representatives of the Illinois Board of Arbitration recently said to me that there were so many cases of employers who refused to recognize the committees of the organizations of their employees that the Board was in doubt whether it ought to name each individual employer or simply group such employers together and give their number in round figures. No man in this world is absolutely right and no man absolutely wrong. If this be so, men ought, as organized labor has for half a century demanded, and as the National Civic Federation has emphasized, to meet in conference and be helpful in allowing common-sense and fair dealing and justice and equity and the needs of the people to determine what shall be the conditions under which industry and commerce shall continue to advance until we shall be in truth producers for the whole world.

The movement for which we stand tends to foster education, not only among the workmen, but among the educated; for of all those possessing crass ignorance and prejudice regarding industrial matters, the educated man who takes his cue regarding the labor question from those who are always opposed to the labor movement and who never takes the trouble to find out the laborer’s side of the labor question, is in the most deplorable condition.

RESULTS ACCOMPLISHED BY THE INDUSTRIAL DEPARTMENT, NATIONAL CIVIC FEDERATION

By Honorable Oscar S. Straus

The contest between capital and labor is as old as the human race, and very likely will continue as long as there is employer and workman. Early in the history of our country, that rugged reformer, who stood for much of the liberty we enjoy to-day, Roger Williams, said: “What are all the wars and contentions about, except for larger bowls and dishes of porridge?” That is putting the question in a very graphic form. This struggle for the dishes of porridge is still going on, and unfortunately very often through clash and strikes the dish gets broken and neither side gets any of the porridge. We want to save the porridge; we want the dishes to be so large that labor will get its full share, we know that capital will take care of itself. In these industrial contests there are other interests at stake than labor and capital—the general public, greater in numbers than either of these. The Civic Federation believed that if it organized a machinery which contained within itself the representatives of both the laborers and the employers, and associated with these two the representatives of the general public, it would have the true basis for the solution of the labor question. You have heard from capital and labor. I am here as the representative of the general public.

The Industrial Department of the National Civic Federation is composed of twelve men representing the employers, twelve men representing labor, and twelve men representing the general public. At the head of these three groups of the Civic Federation stand Grover Cleveland, Senator Hanna, and Samuel Gompers. This is the only semi-public office ex-President Cleveland has accepted since he retired from the office of President of the United States. The purpose and the objects of the National Civic Federation appealed to his heart. His acceptance and co-operation have been to us a tower of strength and an inspiration for our difficult task.

The Civic Federation feels there is a possibility of inaugurating a great work, of promoting a better feeling and better relations between the employers and the workmen, and thereby removing some of the chief obstacles militating against industrial peace. We have been criticised; peacemakers always are. I want to answer one or two criticisms that have been made in reference to our organization. One of the misconceptions is that the Civic Federation is a board of arbitration. Its purpose is to mediate, to conciliate, and only in very exceptional cases, when requested by both sides, to arbitrate between capital and labor. It has been said that the existence of such a body would stimulate laborers to threaten to strike or to strike or to make demands which otherwise they would not make, with the hope that the subject might be brought before this body, and that they might thereby gain concessions which otherwise they could not hope to secure. It might as well be said that preventives and curatives stimulate disease. It has also been stated that we promote the organization of labor, and that organized labor stimulates strikes. The Civic Federation’s platform or statement of objects distinctly provided that its province would embrace unorganized as well as organized labor. The scope of the Federation is embodied in the By-Laws:

“The scope and province of this Department shall be to do what may seem best to promote industrial peace and prosperity; to be helpful in establishing rightful relations between employers and workers; by its good offices to endeavor to obviate and prevent strikes and lock-outs, to aid in renewing industrial relations where a rupture has occurred.

“That at all times representatives of employers and workers, organized or unorganized, should confer for the adjustment of differences or disputes before an acute stage is reached, and thus avoid or minimize the number of strikes or lock-outs.

“That mutual agreements as to conditions under which labor shall be performed should be encouraged, and that when agreements are made, the terms thereof should be faithfully adhered to, both in letter and spirit, by both parties.

“This Department, either as a whole or a sub-committee by it appointed, shall, when requested by both parties to a dispute, act as a forum to adjust and decide upon questions at issue between workers and their employers, provided, in its opinion, the subject is one of sufficient importance.

“This Department will not consider abstract industrial problems.

“This Department assumes no powers of arbitration unless such powers be conferred by both parties to a dispute.”

The Civic Federation recognizes conditions and aims to improve them in the interest of the public welfare. Railroad accidents do not argue for the stage-coach, but that the railroad should be better constructed so that accidents may be more and more eliminated. Education upon this great question of labor and capital is not entirely confined to the labor side. We have found in our short experience that education is needed upon the other side as well, and if the Civic Federation succeeds in bringing out a more conciliatory spirit on both sides and thereby contributes to a better understanding of such principles as have been laid down to-night by Senator Hanna and Mr. Gompers, it will be doing a very great public service.

It will perhaps surprise some of you, I confess, that before I became more familiar with this subject, I was agreeably surprised, to hear, in the conferences recently held in the rooms of the National Civic Federation, one of the most important officers of organized labor, state, that he wished it to be understood, that organized labor does not approve of sympathetic strikes, and that organized labor has come to the conclusion that restrictions of output should not be permitted, as all such efforts were uneconomical.

The chances for industrial peace in this country are greater than they are in any other country. The fact that this conflict and antagonism have existed and now exist in the countries of Europe, is no reason why the same conditions should obtain in the United States, and the reason is very evident. In the first place, we are not divided in this country into permanently distinct classes. There is no fixed gap between the laboring and capitalistic classes. The most successful capitalists in this country to-day are men who have themselves risen from the ranks of labor, men who have been the architects of their own fortune. The large fortunes of to-day are to a great extent held by the men who achieved them, and for that reason there is a natural and closer contact between capitalists and laborers in this country than in any other. In America, as a rule, the great fortunes are not as yet in the hands of the second, third and fourth generations and are never likely to be to any considerable extent.

I will refer but briefly to the work the Industrial Department of the National Civic Federation has performed since its organization in December last: The first contest that came up before it was the threatened clothing cutters’ strike. This strike affected forty thousand hands in the clothing trade. It was announced in October before the organization of this committee, and was to go into effect on the first of January. On our committee we had the chief representatives both of the clothing cutters and of the manufacturers. A meeting was called of a section of the committee of the Civic Federation, and when the two chiefs of the rival interests came together, the trouble was satisfactorily adjusted in the course of ten minutes. The next matter that claimed our help was the Dayton Cash Register strike. It began nine months ago, or more, and consequently before our committee was formed. We were asked to mediate by the Cash Register people, and we are gratified to state that that great trouble after we had been called in was very speedily adjusted.

The third matter was the Union Iron Workers’ strike in San Francisco. It began nine months ago, six months before our committee was organized. Our committee was called in and the adjustment was largely, if not entirely, due to our mediation.

A number of other questions have come before us; one was that of the paper manufacturers; a general strike had been decided upon and we brought the workmen and paper manufacturers together and they had a conference, and as a result postponed the question of their differences for further consideration.

Then there was the Boston’ Freight Handlers’ trouble. The Civic Federation came into that upon the invitation of the Mayor of Boston and the Massachusetts Board of Arbitration; and without arrogating to ourselves too much credit, I think both of those bodies concede that we were of material help in adjusting those difficulties.

The anthracite coal controversy has been before us. You know that the springtime always produces a great many labor troubles. They are called the spring crop of strikes. I do not know whether we can uproot all the seed; in fact, I know we cannot. I think there has been rather less of it thus far this spring than usual. Still the entire spring has not gone by, and we cannot yet tell what may happen. At any rate, we have brought together the leading coal operators and the leading representatives of the coal miners; brought them face to face, and that is a thing that had not been done before. They discussed their various grievances, and the whole matter has been adjourned for a month in order that each side may consider and deliberate.[^[1]]

There are other important matters before us. We are happy to say up to the present time, which we think is rather remarkable, we have as yet had no failure to report.[^[2]] I am proud to say this because I am afraid in another year, should you have Senator Hanna and Mr. Gompers before you, they may not be able to bear witness to so good a report. I will say, however, that at the conference in December, where there were present the representatives of two million organized laborers and of the leading employers of the country, we were impressed with the desire of these men to endeavor to find a common ground upon which they might arrive at a better understanding. The representatives of labor in their treatment of the subject were highminded and liberal in their views; I think I am voicing the sentiments of everyone of my colleagues in the Civic Federation when I say that such men as Gompers, Mitchell, Sargent and Duncan have given every evidence of being conservative, patriotic and considerate of the public welfare.

In conclusion, permit me to say that the powers of the Civic Federation are entirely voluntary, and that its effective force is public opinion. We can advise, endeavor to conciliate, remove misunderstandings, and invite both sides of the controversy to come together and confer. We cannot compel, except by the force of reason and public opinion. We may invite to arbitration; we may upon request of both sides arbitrate. Arbitration is a powerful weapon, and experience has shown that the side in the wrong is the first to object, upon the ground, “There is nothing to arbitrate.” That answer is itself a confession of wrong. It was Penn’s famous maxim, “We must concede the liberties we demand.” If both sides to this controversy will bear that maxim in mind, much trouble can be avoided. That maxim implies that organization on the one side justifies, if it does not compel, organization on the other side; and each side must concede the rights which it claims for itself, and any contest waged upon principles which conflict with such concessions the public will not justify. The refusal to recognize conditions does not change those conditions, and often embitters the relations that exist between the respective sides. The mission of the Civic Federation is one of peace, and like all peacemakers will doubtless, as time runs on, come in for abuse and misinterpretation of its purposes. We are prepared for this reward, and so long as we remain true to our mission, and that we will so remain our membership is a guarantee, no amount of abuse will cause us to flinch from the duty that is before us.

CO-OPERATION OF LABOR AND CAPITAL

By W. H. Pfahler

National Association of Iron Founders

There is no subject of greater general importance before the world to-day, none more simple in its character, and yet none so handicapped by fanaticism, as that of the relation of employer and employee.

Remove the curtain between the two real parties to the controversy, which is often held by men of selfish purpose on both sides, and you behold two simple factors, the wage-payer and the wage-earner, each dependent upon the other and both serving the same master, the great consuming public, of which they are also equal and very important parts.

The wage-payer, being directly in contact with the purchasing consumer, claims that he must have a result in production equal in every way to the wages paid, while the wage-earner contends that he must have a wage equivalent to his contribution in time, energy and skill, to the article produced.

Every visible article of use, for food, clothing or shelter, of necessity, luxury or culture, represents three component parts, and the production of each such article depends upon the proper combining of these parts, which are: 1st. Raw material. 2d. Capital. 3d. Labor.

Raw material, supplied by nature, is controlled only by the law of supply and demand, except when by legislation the natural law is for a time superseded, and it then becomes a matter of political action, in which the entire community, except the few who are directly interested in profit, join to abolish the corrupt legislation and restore the natural condition. Raw material is, therefore, the basis of cost in determining the price of every product to the public.

Labor, whether skilled or unskilled, engaged in the reduction of the raw material to the finished product, is also dependent upon the law of supply and demand to fix its value or wage; and any effort to change this value brings the wage-earner in direct conflict with the consumer, through his representative, the employer, whose duty it is to know, and who usually does know, what proportion of the entire cost of any article can be distributed in wage so as to retain the value of the article at a price not in excess of the ability of the consumer to purchase, and yet within limits which will prevent a more favored nation or district from furnishing the same article in competition, and thereby cause idleness for the wage-earner and loss to the employer.

Capital represents plant, machinery, transportation, interest, and all the factors known as unproductive, and yet absolutely essential for the combination of material and labor. Capital is usually, though not always, the owner of material and the direct employer of labor, and therefore must stand for the silent partner in the combination. What is so frequently called a war between capital and labor is simply an effort on the part of the wage-earner and wage-payer to determine what part of the product of labor, as distinct from material, is represented in the price to the public, and after deducting the proper charge for plant, etc., how the balance, which is profit, shall be divided between the employer and the employee,—or wage-payer and wage-earner.

The growth of prosperity in this country has always been in ratio to increased production, and until a recent period such increased production has been the direct result of the co-operation of the wage-earner and the wage-payer. In the beginning of our commercial history it was only necessary for one man to exchange the product of his own industry for that of other men to obtain the necessities of life, and then the results of labor were not measured by a unit of value or wage, but by the amount of energy expended in production.

When the rapid growth of the country required greater productiveness, and the enlargement of territory made necessary a change in the distribution of the products of labor, the factory system was introduced, whereby capital, or unproductive labor, was joined with productive labor to accomplish greater results than had heretofore been attained by individual labor.

This brought with it the employment of a number of wage-earners under the direction of one or more employers, or wage-payers, and made it necessary to determine the relation of one to the other, or rather the share each should have in the division of profits.

All conflicts which have ever arisen between men upon any subject, whether social, political or religious, have been based, not upon difference in conditions really existing, but upon difference of opinion as to the relation which existed between the parties to the conflict; and strife, to a greater or less extent, has been brought into use to determine such position.

An excess of power on one side or the other succeeded in establishing for a time the opinion of the victor, but never removed the cause of dispute; and so the organization of wage-earners into associations or unions enabled them to establish from time to time, by power which they never hesitated to exercise, such wages and conditions as in their opinion were fair to them, but not always in accord with the condition of supply and demand.

From their struggle arose the continual change of wages in ratio to the power of either party, the employer lowering wages when by reason of limited demand he could limit production, and the employee raising wages when his services were in sufficient demand to enable him to do so.

The union was able in many cases,—I may say in all cases,—to enforce its demands because of the combined power it could exercise against the individual employer, and, as is usual in such cases, soon began to exercise a power which was unnatural and unwarranted. The result of this was the necessity of forming an organized opposition to their force by creating an opposing force in the organization of the employer class, and this brings me to the history of two organizations of this character with which I have been closely identified during the past fifteen years, and which have been successful in establishing a new basis of relation between the employer and employee.

Fifteen years ago the industry in which I am engaged was in perpetual conflict, involving three or four strikes or lock-outs every year, causing great loss in time and money to employer and employee. Unable longer to endure the strain, an association was formed of about fifty of the leading firms engaged in the business, for the sole purpose of defending the members against the unjust demands of their employees. It was decided to create a large fund for the purpose of carrying on a warfare against the union to which our men belonged. Within a year from the organization a strike occurred which resulted in every member of the Defence Association closing his shop, and the consequent defeat of the union. A second strike occurred in which, after many weeks of severe struggle, the union was again defeated by the united action of the Defence Association. In the third year of its existence, the Defence Association was invited by the officers of the union to appoint a committee to meet a similar committee from their organization for the purpose of discussing some plan by which strikes and lock-outs could be avoided. Frequent meetings were held; many attempts at forming a plan were abandoned, until finally it was agreed that all questions of difference between any employer, member of our association, and his employee, member of the union, should be referred to a committee of three from each association for arbitration and that, pending such action, no strike or lock-out should occur. As a result of this agreement, during the past ten years no strike has occurred in this industry, and every point of difference has been amicably adjusted by conference. Each year a general conference is held, at which the wages are fixed for the ensuing year, and such other changes as may be of mutual advantage are adopted.

It is true that at first the members of local unions, led by some wild agitator, would make a demand upon their employer, and, failing to enforce the demand, would quit work; but the national officers of the union would require them to return to work at once and await the usual and proper means of adjustment.

The Arbitration Board is composed of an even number of men because then an agreement when reached becomes unanimous, and a failure to agree (although no such failure has ever occurred) will not result in the enforcing of the opinion of either side by the decision of a third party. We prefer rather to adjourn from time to time, under the agreement to have no strike or lock-out, and let time and reason aid in finding some common ground upon which we can agree. These agreements made from time to time have been signed for the members of the union by their officers, and it gives me the highest pleasure, as a tribute to human nature, and in reply to those who deny the responsibility on the part of workingmen to a contract, to say that in the history of our organization no agreement has ever been violated in any manner.

The success of this organization led to the formation of a larger and more powerful one, known as the National Founders’ Association, of which I had the honor to be the first president. It required a long time to convince many of the larger employers of men that the formation of such an association was not dangerous, because in the negotiations it would be a virtual recognition of the union; but we at last succeeded in organizing with about fifty members.

Within six months the president of the union in which most of our men are employed addressed a letter to our body requesting a conference to devise a plan for conducting negotiations on lines similar to those of the Stove Defence Association. This conference resulted in what has ever since been known as the New York Agreement, which is as follows:

Whereas, The past experience of the members of the National Founders’ Association and the Iron Molders’ Union of North America justifies them in the opinion that any arrangement entered into that will conduce to greater harmony of their relations as employers and employees will be to their mutual advantage; therefore,

Resolved, That this Committee of Conference indorse the principle of arbitration in the settlement of trade disputes, and recommend the same for adoption by the members of the National Founders’ Association and the Iron Molders’ Union of North America on the following lines:

That, in the event of a dispute arising between members of the respective organizations, a reasonable effort shall be made by the parties directly at interest to effect a satisfactory adjustment of the difficulty, failing to do which either party shall have the right to ask its reference to a Committee of Arbitration, which shall consist of the presidents of the National Founders’ Association and the Iron Molders’ Union of North America or their representatives, and two other representatives from each association appointed by the respective presidents.

The finding of this Committee of Arbitration, by a majority vote, shall be considered final so far as the future action of the respective organizations is concerned.

Pending adjudication by this Committee of Arbitration there shall be no cessation of work at the instance of either party to the dispute.

The Committee of Arbitration shall meet within two weeks after reference of the dispute to them.

This agreement to go into effect Monday, March 4, 1901.

Occurring at a time when we were passing from extreme depression to a revival of business activity, when there was an enormous demand for good workmen, when wages were moving upward and when strikes were of almost daily occurrence in every industry, this agreement was observed in letter and in spirit, and, as a result, both employer and employee enjoyed industrial peace and prosperity.

Because of a failure to agree on certain demands made by the union, which would have resulted in reduction of production, a strike was commenced in the city of Cleveland by the union about two years ago, which lasted over seven months and cost upwards of a million dollars, but at the end resulted in a conference lasting some days, in which both parties to the conference agreed to prevent a recurrence of warfare and united in an agreement which marked greater progress in the labor situation than had ever been reached before.

The resolution was as follows:

Whereas, The N. F. A. and the I. M. U. of N. A., through their duly accredited representatives, at a joint conference held in Detroit, Mich., June, 1900, each formulated a declaration of principles to which they still adhere and which they have been unable to harmonize after careful consideration; and

Whereas, The consensus of enlightened opinion points to conciliatory methods and the principles of arbitration as the most desirable and equitable policy to be pursued when disputes arise between any employer and his employees; and as this is a policy to which both the N. F. A. and the I. M. U. of N. A. most heartily subscribe, they entered into an agreement, the one with the other, since known as the New York Agreement, by virtue of which their representatives have been enabled to meet and harmoniously discuss important matters affecting their mutual interests, and to endeavor to settle them in accord with the more enlightened and equitable policy referred to; and,

Whereas, These efforts have discovered the fact that wide differences of opinion, upon certain vital and essential principles, exist between the members of the N. F. A. and the I. M. U. of N. A., which their representatives have hitherto failed to harmonize by the method provided in the New York Agreement, thus seriously endangering the high purposes to which they stand committed, and in one instance leading to a serious conflict between the members of the two associations in an important section of the joint jurisdiction; be it therefore

Resolved, That it is the earnest opinion of this Joint Conference Committee, composed of representatives of the N. F. A. and the I. M. U. of N. A., that agreement upon the essential points of difference can only be secured by the slow evolutionary processes begotten of friendly intercourse and the more intelligent understanding of mutual interests, which time and the influences of education alone can bring. And be it further

Resolved, That we hereby reaffirm our adherence to the New York Agreement, whose beneficent provisions we will continue to invoke, until by joint agreement we are enabled to reach a more defined code of conciliation and arbitration.

The National Founders’ Association now numbers nearly 500 members, having a combined capital of over $400,000,000, and employing nearly 30,000 molders and more than 100,000 workingmen in other departments, and is daily adding to the number because the manufacturer has seen that it is the best—in fact, the only—method of dealing with organized labor.

On the other hand, the labor organization, recognizing the strength and fair dealing of the employers’ association, is from time to time so modifying its plans and methods as to make it possible to work in harmony with the employer, and together secure results for both that have heretofore been impossible.

This brief history enables me to declare not only as a conviction, but as an axiom, that there is a common ground upon which the wage-payer and the wage-earner can safely unite to form a community of interest in the great industrial problem, and that negotiation for the adjustment of their several interests can be conducted without strife, to the mutual advantage of both.

The history of all associations of manufacturers formed for the purpose of establishing and maintaining just and fair business relations between their employees and themselves, proves beyond doubt that better results can be obtained in this way than in any other.

Following the conference resolution adopted at Cleveland, the first agreement entered into as a result of the conference involves so many points of imaginary difference between employer and employee, and shows the possibility of arranging even the smallest difference by conference, that it is worthy of, careful study by both the employer and employee.

This agreement was made in the city of Philadelphia, March 4, 1901, is still in force, and I believe has never been violated by either party to the contract.

Agreement between the National Founders’ Association (on behalf of its Philadelphia members), and the Iron Molders’ Union of North America (on behalf of its Philadelphia members):

Article 1. In view of the fact that there has been an agreement entered into at the recent conference in Cleveland, Ohio, between representatives of both associations, on the question of equitable wage rates for molders, and in view of the mutual understanding that there is to be a further conference on the subject within a reasonable time—as may be agreed upon by the presidents of the respective associations—for the purpose of further perfecting the details regarding the regulation of wages of molders;

It is agreed that the temporary agreement, entered into July 16, 1900, shall be null and void, and that the agreement herein contained shall supersede the above-mentioned temporary agreement.

Art. 2. The iron molders, members of the Philadelphia Union of the Iron Molders’ Union of North America, agree to withdraw their demands that the foundrymen of Philadelphia should operate their foundries under the rules and regulations of the union.

Art. 3. In accordance with the national agreement, entered into at the recent conference in Cleveland, on the regulation of molders’ wages, the foundrymen of Philadelphia who are members of the National Founders’ Association, and the molders of Philadelphia who are members of the Iron Molders’ Union of North America, agree to the following wage scale:

The standard minimum wage rate for bench and floor molders who have learned the general trade of molding shall be twenty-seven and one-half (27½) cents per hour, or sixteen dollars and fifty cents ($16.50) per week of sixty hours, it being understood that when a molder has completed his work before regular shop-closing time such time shall not be deducted in computing the week of sixty (60) hours.

Art. 4. The standard minimum wage rate shall be subject to the following DIFFERENTIALS:

1. The young man who has completed his apprenticeship, and who, by reason of his mechanical inferiority or lack of experience, or both, in either branch of the trade of molding, shall be unfitted to receive the full wage rate provided for above, shall be free to make such arrangements as to wage with his employer for a period mutually satisfactory as may be agreeable to himself and employer.

2. The molder who, by reason of his physical incapacity or physical infirmity, cannot earn the standard minimum wage rate, is to be free to make such arrangements as to wages as may be mutually satisfactory to the employer and himself.

3. There being in some foundries a grade of work calling for less skill than is required by the ordinary molder, this grade of work being limited in quantity, it is agreed that nothing in this agreement shall be construed as prohibiting the foundrymen from employing a molder to make such work and paying for same at a rate that may be mutually agreed upon between the molder and the foundryman. It is understood that a molder who is working for and receiving a rate of wages of twenty-seven and one-half (27½) cents per hour or over, is not to be asked or expected to make the grade of work referred to above for any less wage rate than he is regularly entitled to under this agreement. This does not give the molder the right to refuse to make the work if it is offered to him at his regular wage rate.

Art. 5. It is agreed that nothing in the foregoing shall be construed as prohibiting piece or premium work, and when it is desired on the part of the foundryman that his work shall be done under the piece work or premium system, it is agreed that the wages of the molder shall be based so that he may earn a wage not less than if working by the day. This is understood as applying to molders who are competent to do an equal amount of work and of equal quality to the average molder in the foundry in which he is employed.

Where the foundryman and molder cannot agree on the piece price for a certain piece of work, the foundryman is to have the work done by the day for a period of a day or more, according to the nature of the work, in order to establish a fair and equitable wage rate on the work in question.

It is further agreed that nothing in this agreement shall be construed as preventing a molder from agreeing with his employer on a piece price as soon as he is given a pattern.

Art. 6. Time and half-time shall be paid for all overtime, excepting in cases of accident or causes beyond control consuming not more than thirty (30) minutes; and double time for Sundays and legal holidays—to wit: Fourth of July, Labor Day, Thanksgiving Day and Christmas. It being further understood that when foundries do not make a practice of running beyond bell or whistle time and are occasionally late, the “give and take” system shall apply in all such cases, it being further understood that both sides should show a spirit of fairness in adjusting matters of this kind.

Art. 7. Arbitrary limitations of output on the part of molders, or arbitrary demands for an excessive amount of output by the molders on the part of the foundryman, being contrary to the spirit of equity which should govern the relationship of employer and employee, all attempts in that direction by either party, the molder or foundryman, are to be viewed with disfavor and will not receive the support of either of the respective associations parties to this agreement.

It being further agreed that the wage rates specified herein are to be paid for a fair and honest day’s work on the part of the molder, and that in case of a molder feeling that a wrong has been done him by his employer and that his treatment has been at variance with the terms of this agreement, he shall first endeavor to have the same corrected by a personal interview with his employer, and, failing in this, then he shall report same to the proper channel of his local union for its investigation. If there is any objectionable action on the part of the molder which is in conflict with this agreement or the spirit thereof, then the employer is to endeavor to point out to the molder where he is wrong, and, failing in this, he may discharge the man for breach of discipline, or else retain him in his service and submit the case to the National Founders’ Association for investigation.

In order that there may be no misunderstanding as to the wages a molder is to receive under the above agreement, it is understood that a molder must agree with the employer on the rate of wages that he is to receive at the time he is engaged; it being further agreed that neither the molder nor the foundryman is to deviate from the terms of this agreement as to wages or deportment.

Art. 8. In conformity with the agreement adopted at the recent conference in the city of Cleveland, the National Founders’ Association and the Iron Molders’ Union of North America deprecate strikes and lock-outs, and desire to discourage such drastic measures among the members of their respective associations.

It is therefore agreed that all unfair or unjust shop practices on the part of molders or foundrymen are to be viewed with disfavor by the Iron Molders’ Union of North America and the National Founders’ Association, and any attempt on the part of either party to this agreement to force any unfair or unjust practice upon the other is to be the subject of rigid investigation by the officers of the respective associations; and if upon careful investigation such charges are sustained against the party complained of, then said party is to be subject to discipline—according to the by-laws of the respective associations.

And it is further agreed that all disputes which cannot be settled amicably between the employer and molder shall be submitted to arbitration under the “New York Agreement.”

Art. 9. When the words “employer” or “foundryman” are used, it is understood that their foremen or representatives may carry out the provisions of this agreement and act for them.

Art. 10. It is further agreed that nothing in the foregoing shall be construed as applying to operators of molding machines who have not learned the general trade of molding, and the right of a foundryman to introduce or operate molding machines in his factory shall not be questioned.

Art. 11. This agreement shall continue in force to July 16, 1901, and thereafter to June 3, 1902, and to continue from year to year, from June 3, 1902, unless notice be given on May 1 of any year by either party to this agreement signifying their desire to change or modify the conditions of this agreement.

And it is further agreed that should any agreement be reached by a conference of representatives of the National Founders’ Association and the Iron Molders’ Union of North America upon the question of wage rates for molders, and in conflict with the terms of this agreement, that a conference of the parties hereto shall be called immediately to conform the terms of this agreement to those of the national agreement; otherwise this agreement is to continue in force as above provided.

In England, several years ago, the great strike of engineers involving 75,000 men, and extending over a period of six months, was finally settled by conference between the representatives of the associated employers and representatives of the several unions, and resulted in an agreement which established harmonious relations between both parties, and has ever since prevented strikes or lock-outs.

In Belgium, in 1899, a lock-out, probably the greatest which has ever occurred, involving almost every industry, shutting out more than 50,000 men, and extending over a period of seven months, was only settled after the employers discovered to their own great advantage that matters can be arranged more satisfactorily when the representatives of organized capital confer with the representatives of organized labor. The result of their conference was the removal of all obnoxious demands and the adjustment of wages and conditions of labor upon an equitable basis, embodied in an agreement now in force and held equally binding on employer and employee, the result of which was, in England as in the examples cited in this country, the elimination of strikes and lock-outs.

A review in detail of the results accomplished by the methods of conference and conciliation, in these cases referred to, would require more space than can be used in this paper—but warrant the following conclusions:

First.—That labor organizations are the natural result of a great movement in the business world which is replacing costly competition with profitable co-operation, and are formed primarily for the protection of their members, upon the theory that collective bargaining for the sale of their labor is more profitable than individual contract.

Second.—The accomplishment of their object requires labor organizations to secure the membership of the largest number of persons employed in any kindred trade, and (because voluntary advancement of wages rarely or never occurs) to demand a change in wages and betterment in conditions whenever it appears that the need for their labor is in excess of the supply, and therefore warrants such demand. Labor organizations are necessary also to resist collectively any movement on the part of the employer which would result in injury to the workingman.

Third.—Whenever labor organizations by reason of false leaders have made unfair demands or established conditions which were unfair to the employer, it has been because of the use of collective force against the individual employer, and this has been defeated whenever the employers have organized similar associations for their own defence.

Fourth.—That strikes for advance in wages and improvement of condition—occurring, as they do, during a period of prosperity—usually succeed, while strikes for recognition of the union, usurpation of the rights of the employer or against the reduction of wages almost invariably fail in their purpose.

Assuming that the employer is governed by honesty of purpose in dealing with labor, and that the employee is equally honest in his desire to give worth for wages, the organization of both parties must slowly but surely remove force as the means of securing results, and cause a resort to reason and conciliation as the best means to accomplish the greatest value for both.

There are two great obstacles which prevent the substitution of these means of settling the labor question at present, and which must be first removed before better conditions can be realized.

On the part of the employer there is the refusal (usually sentimental) to recognize the union, and the determination to destroy it. He forgets that his effort to destroy the union presupposes his recognition of it, else he would be fighting a nightmare, while the recognition in fact would enable him to learn its scope, purposes, and plans, and by co-operation secure a valuable ally instead of an unreasonable enemy.

In the use of the word union, I desire always to be understood to refer to such organizations of workingmen as are conducted along reasonable lines and are led by representatives worthy of the best element composing the membership, who formulate their demands in harmony with known business conditions and control their movements within the lines of law and order, because when they assume any other condition they are simply mobs, and deserve only the condemnation of every worthy citizen.

The obstacle on the part of labor is the effort to establish the idea that recognition of the union implies more than the agreement to make collective bargains between employer and employee at such times as a change in business conditions demands or permits, or to insist that it conveys the right to enforce rules and methods in the conduct of the business without the consent or co-operation of the employer.

To remove these obstacles and establish a condition of harmony and mutual prosperity, the employer must not forget that wage-earners have formed powerful associations for the purpose of advancing and protecting their interests, and have delegated their individual power to, and placed their confidence in, the officers of their unions.

That these officers are in many cases far above the average of their craftsmen, and their highest ambition is to better the condition of their fellow-workmen.

That the aggressive methods of labor unions are very frequently caused by the determination of the employer to destroy them, without giving them a chance to be heard in their own defence.

That in the conduct of business involving large investment for plant, and the employment of a large number of men, able management is required to secure the best results from machinery and power, but good government is necessary to secure the highest efficiency of men, and the best government is that which is founded on the consent of the governed.

That responsibility for the performance of such an agreement as should exist between employer and employee cannot be measured by legal or financial standard, but can be safely based on individual integrity, and in this I have found that a very large majority of the workingmen in this country hold an agreement which is made for them by the officers of their union as binding them in every sense of the word.

That the organization of associations of employers in kindred branches of industry tends to uniformity in method of regulating the employment of men, and at the same time affords protection against the demands which may be unfair or the strife which may be instigated by unwise leaders of organized labor.

The employee must not forget:

That the right to be a union man implies also the right to be a non-union man.

That no honest employer can discriminate between the men in his employ, or recognize the right of any body of men to determine whom he shall employ.

That the effort to establish a minimum rate of wage, if based upon the lowest standard of efficiency, destroys the earning power of the more competent workman and lowers the standard of all.

That the effort to limit production is false in principle, and can only succeed, if at all, when the demand is in excess of the supply, and when it succeeds, it causes the creation of methods and machines which supplant the skill of the mechanic and bring into competition a lower grade of labor at a lower wage.

That the effort to create a monopoly by attempting to retard the privilege of the American boy to acquire a trade is destructive to the best interests of a progressive nation.

That the laws, rules and methods of labor unions must be changed to conform with present conditions, if the union hopes to be recognized as a factor in the adjustment of the labor problem.

That the right to strike, or refuse to work, under certain conditions, does not involve the right to prevent others from working, if the conditions are satisfactory to them, and involves responsibility for all the damage that may arise.

That the standard of wage cannot be measured by the standard of time employed, or energy expended, but by the results attained.

These, and many other differences which might be enumerated, are the causes which make for strife and dissent, and prevent the harmony which should exist for the mutual benefit of both classes. These differences can only be removed or harmonized by honest and intelligent conferences between the employer and employee, and to bring about such conferences is the purpose and aim of the National Civic Federation. The success of the effort promises, for the employer, the markets of the world; for the employee, continued and increasing profits; for the country, industrial peace and better citizens.

HARMONIZING LABOR AND CAPITAL BY MEANS OF INDUSTRIAL PARTNERSHIP

By Alexander Purves

Treasurer, Hampton Institute, Virginia

In this age of business supremacy, when trade has become the leading science and merchandising an art; when sentiment is being pushed aside by the forward rush of commercialism, and expediency seems to be successfully competing with morality; when one is almost persuaded that the Church itself, to survive, must be conducted with business sagacity, one is compelled to acknowledge the futility of urging any plan for the reformation of the existing relations between capital and labor with serious hopes for its present consideration and possible adoption, except the same shall be able to prove its principles to be in accord with good business policy.

There are those who believe the danger to vested interests is increasing proportionately with the ever growing average of intelligence on the part of the wage-earners and that the former will eventually be overwhelmed by the latter to the demoralization of both unless capital anticipates and averts the danger by securing end maintaining a hearty co-operation of the working classes through a substantial acknowledgment of the just claims of enlightened labor to an enlarged share in the product of the two.

It seems reasonable to assume that with the advance of civilization and general intelligence, some means must be found for the treatment of the whole matter of the return for services rendered, that shall be more progressive and more humane in character than the present basis of supply and demand. As Prof. Gilman says—“We must acknowledge that the wages system, viewed in its simplest form of time wages, does not supply the necessary motives for the workman to do his best.” To which we may add, that neither does it appeal to his sense of right nor to his theory of justice.

The first advance towards a change must be made by the masters, and any movement for a revision of the existing system must take form in an apparent concession on the part of vested interests. The apparent indifference and complacency with which the dominant class regards the whole matter is most regrettable. The leaders in reform should adopt some plan whose successful operation would commend itself—from a business point of view—to the many masters. That is to say, whatever is done in that direction, let it be done primarily because it is just and right. Then if it can be shown to be profitable to capital, so much the better. Such a demonstration would be invaluable, not so much by reason of the resulting increase in the incomes of the leaders in the movement, as that such a fact would make probable the extension of the system into other enterprises where such an incentive would have the stronger influence.

The successes, moderate though they have been, which have generally attended the introduction and operation of profit-sharing plans in various forms, should encourage further developments and extensions of that system in the broadest manner possible, without, however, introducing or permitting any features that would embarrass the administration or weaken the personnel. As the successful manufacturers of the present generation are largely those who have found ways to utilize the by-products and the power which had theretofore gone to waste, so the successful masters of the future must be those who shall find some means of harmonizing the demands of capital and labor, thus saving and utilizing that large percentage of human energy which is now worse than wasted in the continual contention, passive or active, between the working classes and vested interests. Apart from every other element of advantage, can there be any question as to the increased physical capacity and staying powers of a man when led on in hopeful expectancy rather than when driven on by physical necessity?

It is justly claimed that in many instances the wage-earners would not be benefited by a distribution in cash of a percentage of the profits, that they would fritter it away either foolishly or with lack of discretion. There is nothing to which the average family can adjust itself so easily and with such alacrity as to an increase in income. Could we but save the wastes of carelessness, the losses from strikes and lock-outs, and to these add the enlarged profits resulting from a broader co-operation and greater physical ability to produce, then capitalize and conserve all of these for the benefit of those who in each case have contributed their proportion—either in capital, brains or labor—to the enlarged success of the enterprise, we would have placed within reach better homes, better clothing, better food, better schools, and have taken a step forward which should inspire individuals of both classes with higher ambitions for a larger and better life.

“Prosperity sharing,” strictly speaking, does not go, far enough, because it limits the amount awarded to labor to a small percentage of the real profits. The share must be small because “adversity sharing” does not accompany profit-sharing. In all fairness the share of labor in the margins of the business should be of such proportions that justice to all would make it alike a sharer in losses as well as in gains. By this we do not mean to say, when losses occur, that labor should contribute actual money to make good any portion of the impairment. Such a proposition would be impracticable and impossible. The share of labor in the surplus profits—that is, after the payment of standard wages and a just return to capital for its simple use—should be upon a most liberal basis, and any and all impairments suffered in years of adversity should be made good out of subsequent surplus earnings (in which, except for such impairment, labor would have been a sharer) before wages shall again be entitled to any further dividends.

Amongst the various schemes that have been put into operation in those concerns which have endeavored to make their employees sharers in the profits of the business, the most familiar plan is that of offering to wages a dividend on the total amount thereof, at the same rate of percentage as is paid on the par value of the capital stock. This proposition is unfair, since in most industries the capital stock amounts to several times the total of the annual pay-roll. After the first adjustment upon that basis, the incentive to labor to strive for larger results is almost insignificant, since the share of wages in the subsequent increased earnings would, where the capital is equal to say four times the annual pay-roll, amount to only one-fifth of the increase in net earnings, the other four-fifths thereof going to capital.

Other institutions have established a custom of presenting to their employees annually a sum of money equal to a certain percentage of their salaries. But this extra income soon becomes as much a matter of wages as the weekly or monthly pay-roll, and little real good is accomplished—the employee is still working for fixed wages. There is something in the make-up of a man that cannot be wholly satisfied, no matter how secure it may be, with a definite agreement that he shall receive a certain fixed sum of money for a given amount of work, however liberal the compensation may be. There is a positive satisfaction in having a pecuniary interest in an enterprise where the financial return is not definitely restricted and known in advance, even though there may be as an accompaniment some danger of a loss.

Any attempt to satisfy the craving of labor for justice will fail if handicapped by paternalism. A man must be acknowledged a man. His sense of independence and self-respect must be strengthened and not crushed.

Furthermore, a man is not satisfied to have even a part of his just earnings expended for him. Company kindergartens, company libraries, company churches are doubtless very estimable in their way and are doing much good. They are a step in the right direction and most valuable in the practical demonstration which they offer that it pays capital to improve the conditions and surroundings in which the operatives live. But those who are to enjoy these institutions should not be allowed to feel that they are under any obligations to the owners thereof. Rather they should be given to understand that a certain definite percentage of the net earnings of the enterprise would be expended for the public good—not as a benefaction, but as a just due—giving to the operatives, as far as possible, the administration and management of such company institutions.

Some manufacturers believe that if their employees can be induced to purchase homes adjacent to the mills the labor problem has been solved. From the manufacturer’s point of view the plan is attractive. An employee who puts the hard-earned savings of years into a small dwelling—generally situated in a community wholly dependent upon the local mill of his employer—doubtless ties himself up very effectually to the enterprise, but whether he is attached by his loyalty to and affection for the concern, or is held by the self-welded fetters of a money investment is an open question.

The actual value of an investment in any business is based primarily upon the security—the consideration of the rate of interest being secondary to the safety of the investment. This is recognized by the great exchanges where all manner of stocks and bonds are bought and sold. These compel the frequent publication of the earnings and general business of those corporations that desire to have listed any of their issues of securities. No one can say with truth that public knowledge of the affairs of any such corporation has imperiled the proper operation and legitimate success of the enterprise. On the contrary, experience has proven the wisdom of such a course from every standpoint—the public is better protected in its investments of capital and such corporations are given a standing in the financial world not accorded to those who keep their affairs secret and guarded from the public view. We are compelled to infer that the negative action on the part of these latter concerns is prompted by one of two reasons: either they are striving to secure a higher credit rating than that to which their actual condition would entitle them, or, more probably, that they fear their percentage of net profits is larger than public sentiment would regard with favor. It would seem in either case that the interested public is morally entitled to frequent and intelligible information regarding all corporations which owe their very existence to the public consent.

What is true of corporations is true of individual partnerships as well. To let the interested public have knowledge of the true state of affairs would doubtless be very distasteful to all classes of masters. And yet it is not difficult to imagine that conditions still less agreeable may confront the masters if the demands for justice to wage-earners are ignored. Would not the publication of figures covering the assets, liabilities and earnings (or losses) place all business upon a firmer foundation and exert a helpful influence on the adjustment of profits between capital, brains, skill and labor? Is the withholding of truth an established virtue and the publication of truth a dangerous experiment? And finally if the introduction of profit-sharing into a business necessitates the publication of the earnings of the business, would it not be fair to ask the few masters to make that concession to the interests of the many workers?

Business organizations are composed of two classes—those who own and control and those who operate and produce; or rather those who contribute their money and those who contribute their lives. We are not aware of any moral law that denies that the man who makes his contribution of flesh and blood in work be it in stoking a fire, running an engine, operating a type-writer, selling goods or driving a truck—is justly entitled to as full a knowledge of the pecuniary result of his labor as the man who merely loans capital to the operation.

The following principles may be set down as sufficiently well established to be used as a basis for working out plans for the reform of prevailing relations of labor and capital:

(a) That whenever there is sufficient confidence on the part of the employees a direct or an indirect dividend to labor is a good investment for capital.

(b) That with an actual dividend-earning interest in the business every participant would be prompted to individual efforts: 1st. Towards accomplishing more work in a given length of time. 2d. In the saving of waste. 3d. In seeking and suggesting improvements in the manufacture and in the conduct of the business looking to the advancement of the general welfare. 4th. In that it would naturally become the self-imposed duty of every employee to challenge a co-worker for laziness or upon the commission or omission of any act through which a loss to the business would be the likely result; and, therefore,

(c) That capital in business is best secured when every employee is pecuniarily benefited through the enlarged success of the enterprise.

It is a false theory that capital shall not accumulate, or that the return upon it shall be restricted within definite limits. There must be allowed to capital the opportunity for enlarging returns in the development of new enterprises—a chance to earn more by risking more. Otherwise there will be no incentive for its broader operations and its usefulness will be restricted. That capital is accumulated in the hands of the comparatively few is not, generally speaking, an accident, but rather that fact is a strong indication that those who control it are the men best qualified to hold it intact and make it most productive.

Besides the elements of capital and labor, the matter of brains or business sagacity must be recognized as an indispensable factor in business and must be reckoned with. The peculiar ability that a certain small percentage of men possess to conduct modern business ventures at a profit is of great value, is always in urgent demand and must be well paid for. Like everything else it will naturally seek for itself the best market and will generally go to the highest bidder. There can be little doubt that the neglect to recognize and properly care for this element as essential to success has been largely the direct cause of the many failures of purely co-operative ventures. Brains must be paid for. Sagacity must have its reward.

Amongst the many obstacles which confront any effort to arrive at some fair basis for the introduction of profit-sharing institutions, probably the most prominent is the difficulty of establishing a satisfactory system for calculating and treating the profits and losses of the business so as to avoid the element of suspicion on the part of the employees as to the fairness of the bookkeeping employed in arriving at the basis for the division to them provided for in the agreement. Many honest efforts of employers to introduce plans for a distribution amongst the employees of a percentage of the net profits of the business have been defeated solely by reason of the inability of the management to overcome the distrust on the part of the wage-earners in the bookkeeping, it being a simple enough matter so to treat the accounts of profits, losses, depreciation of plant and receivables, that the percentage actually due the employees under the agreement may be cut down or entirely obliterated at will. The plan of having a direct representative of the employees (of the watch-dog order) in the management is neither desirable nor logical. There may be individual and isolated cases of perfect faith and trust on the part of labor towards capital, but as a business proposition in the present stage of our moral development there must be something more tangible than the mere verbal assurances of the owners, endorsed by an accounting under their direction.

It is with the aim of presenting a plan for meeting in a measure this difficulty, and at the same time outlining a scheme which should operate to the mutual advantage of both capital and labor without compromising the security of vested interests, but rather strengthening it, that the suggestions herein contained are submitted—the basic principle being that the encouragement of righteous ambition with a well-grounded hope for future prosperity must surely develop the best there is in the wage-earner with benefit both to himself and to capital as the inevitable result.

In considering the proportion of the net profits which should be paid out in cash dividends to capital for its use, it may (at least for the sake of presenting this argument) be counted fair to assume that in the average legitimate enterprise the withdrawal of say 60 per centum of the actual net earnings would be the limit of safe business policy and that the remainder of such earnings should be kept in the business for the purpose of extending the enterprise and the more securely protecting the investment.

As an outline for a plan for the proposed adjustment in a concern already established, the proposition is that a binding agreement shall be entered into, which shall provide for the payment of the regular standard of cash wages to all employees of the concern, including the officials and management—and shall likewise name a definite amount which shall be determined to be a just and fair annual return to capital for its simple use; not, however, exceeding say 60 per cent of the average established net earnings; that the agreed amount shall be paid annually (in quarterly or half-yearly instalments) as a dividend upon the common stock of the corporation cumulatively; that it shall be especially understood that the company by a two-thirds vote of its common stockholders may issue for needed additional capital preferred stock; that the prior right to subscribe to such preferred stock shall be pro-rated one-half of the issue to the holders of common stock, and the other one-half to the holders of the debenture books (hereinafter particularly set forth) in proportion to the par value of the respective holdings; that wages shall be a first claim upon the assets, and that the dividends to capital stock shall have the first claim upon the net earnings, and that they shall be cumulative at a rate fixed by agreement; that after the payment of such dividends as a first charge upon the net profits of the business, 20 per cent of the net profits then remaining shall be set aside in a contingent fund (to be hereafter specifically referred to) and that the balance of the annual net profits still remaining shall be held in the business—but, one-half thereof for the benefit of the stockholders and the other one-half for the employees (under certain restrictions and agreements to be explained presently).

It will be readily seen that the above treatment of the annual net profits would continue the accumulation in the business of the surplus earnings in excess of the regular cash dividends, and so increase, as now, the security of the original investment and (as hereinafter shown) in no way diminish or endanger the present power of the stockholders to control the management of the concern.

To accomplish this, it is proposed that after the regular cash dividends have been paid to capital and the said percentage set aside for the contingent fund, annual stock dividends shall be declared covering the amount of the surplus earnings which are to be held in the business; that the certificates issued therefor shall be in the nature of deferred stock debentures which shall have no voting power and shall be subordinate in every respect to the common (and preferred) stock of the concern, both as to dividends and principal, so that said deferred stock debentures shall not be entitled to any dividend or interest whatsoever except when earned during the then current year, and not until after the dividends upon any preferred stock shall have been paid or set aside, nor until the said agreed sum (equal to 60 per centum of the established average net earnings) shall have been paid out, or set aside for the dividends upon the common stock and said contribution made to the contingent fund; that the said deferred stock debentures shall receive dividends at a rate not exceeding 6 per cent per annum when earned in the then current year, and in no sense shall said dividends be cumulative; that in the event of liquidation or dissolution, the common (and preferred) stock shall be paid in full before any payment shall be made upon the said deferred stock debentures, but said deferred stock debentures shall then receive all of the assets remaining after the payment in full of the preferred and common stock and of all outstanding indebtedness; and that the said deferred stock debentures shall always be subordinate to the general creditors of the company.[^[3]]

These deferred stock debentures shall all be issued to a trustee—one-half thereof to be held in trust for the benefit of the common stockholders, and the other one-half shall be considered as extra wages and shall be held by said trustee for the benefit of the employees. Cash dividends on all deferred stock debentures, when declared, shall be paid to said trustee, who shall disburse the same—one-half thereof to the holders of the common stock pro rata, and the other one-half to the employees in proportion to the respective amounts standing to their credit on their debenture books (hereinafter described).

That is to say, for illustration, that if the capital of the concern is $1,000,000 and the net earnings for the past several years have averaged $200,000 per annum,—60 per cent of such earnings, or $120,000, would be the amount agreed upon as the annual cash dividend to capital represented by the common stock,—that 20 per cent of the balance of such earnings, or say $16,000, would be the amount to be paid into the contingent fund, and that at the end of the first year of the operation of the plan the balance, or sum of say $64,000, would be held in the business, but that deferred stock debentures to cover said amount would be issued to the trustee—$32,000 to be held for the use of the stockholders, and $32,000 as extra wages to be held for the employees. At the end of the second year after the payment of the dividends to common stock and the percentage to contingent fund, a dividend would then be declared upon $64,000 of deferred stock debentures, and for the balance of the net profits still remaining another issue of deferred stock debentures would be made to said trustee; and so on from year to year.

The effect of the above arrangement being that after the payment of all cash dividends to common (and preferred) stock, and the setting aside of the said percentage to the contingent fund, the surplus earnings then remaining—representing the surplus assets of the company—would be capitalized in the form of deferred stock debentures and held in trust for the joint interests of the original owners (or their assigns) and the employees—it being especially provided that should the company at any time or times prefer to pay the amount of surplus earnings in cash directly to the stockholders and the holders of the debenture books instead of issuing the deferred stock debentures therefor, it shall have the right and option of so doing.

Each year the amount of the deferred stock debentures to be issued to the trustee as wages shall be calculated as above outlined, and the percentage thereof in which each individual employee is interested shall be determined by the proportion that his wages for the year shall bear to the whole salary list for that period. This amount then shall be set down in his debenture book, and upon this sum he will be entitled to receive through the trustee (when earned) dividends not exceeding 6 per cent per annum, non-cumulatively and subject to certain limitations set forth in and made a part of his debenture book as hereinafter particularly set forth. The fees of the trustee for the above and all other services to be charged to the general expense account of the concern. The said trustee shall be entitled to full statements of the condition of the company at any time, and at all times shall have access to the general books of the concern.

A debenture book shall be issued to each employee, and shall contain a full statement of the conditions upon which the same is issued, and shall be signed by each of the respective holders thereof in evidence of his understanding thereof and agreement thereto. Each debenture book shall be numbered, and the age, nationality, sex, etc., of the employee shall be stated therein. It shall provide among other things:

(a) That no employee shall be entitled to participate in these extra wages until he shall have been for one year in the continuous employ of the company.

(b) That the debenture book may be redeemed by the company at its option, at any time upon the payment of the total principal sum or sums therein set forth.

(c) That nothing therein contained shall in any way limit the power of the management in the control of the business, and that their authority to employ and discharge any employee shall not be limited in any way whatsoever, but shall be left entirely to the discretion of the board of directors and that under no circumstances shall the issuance of said debenture book entitle the holder thereof to any voice in the management of the business.

(d) That in case of losses in the business in any year or years, the impairment thereby caused shall be made up either (first) out of subsequent profits, or (second) out of the contingent fund, or both, and all accumulated dividends upon the common and preferred stock shall have been paid in full before the holder of the debenture book shall be entitled to any dividends.

(e) That the individual named in the debenture book shall, after all impairments have been made good and all dividends on the common and preferred stock due and in default, as above set forth, have been paid, be entitled to receive, through the said trustee, dividends, when earned, at a rate not exceeding 6 per cent upon the total of the amounts therein set forth, but in no sense shall the dividends upon the debenture book be cumulative.

(f) That said debenture book shall not be redeemable during the life of the employee named except at the option of the company.

(g) That in case of the death of the holder thereof, the same shall form a part of his estate and shall be convertible into cash at its par value within thirty days, upon application to the company, and the same shall be paid for out of and held by the contingent fund when the balance in said fund will so permit, otherwise to be paid for out of the general funds of the company and held in the treasury.

(h) That said debenture book shall not be transferable without the consent of the company.

(i) That it shall be especially understood and agreed that all calculations of profits and losses of the business shall be left entirely to the discretion and best judgment of the board of directors, and that their decision upon these and all matters touching the question of depreciation of plant, amounts charged to profit and loss, valuations and inventories, and all other matters affecting the business and policy of the company, shall be final, and from whose decision there shall be no right of appeal.

(j) That the “net earnings” of the concern shall comprise the amount of the profits of the business after deducting all losses and charging off an agreed percentage in the valuation of the plant account for depreciation and any other items of doubtful value, at the discretion of the board.

(k) That in case the holder thereof shall make or attempt to make any assignment of all or any part of his interest as set forth in said debenture book, the same shall, at the option of the company, be immediately forfeited as liquidated damages for violation of this contract, and shall revert to and be held as a part of the said contingent fund.

(l) That these debenture books may be attached by the company for any indebtedness due to it, in any department, by the holder thereof.

(m) That the company reserves the right to issue for capital account preferred stock with cumulative dividends, which new issues shall in every particular outrank all issues of deferred stock debentures; it being provided, however (as above set forth), that the holders of these debenture books shall have the prior right to subscribe, pro rata, to fifty (50) per cent of any and all of said new issues of stock.

The amount to be set aside to the contingent fund shall be paid in cash, and may be invested in legal and marketable securities. This fund shall be held in the first place to make good to the company any excessive business losses that cannot be met out of the current profits of the concern. It will also purchase at par the debenture books of deceased employees; and any accumulation of income therein shall be used as a basis for sick benefits, etc., upon such a uniform plan as the amounts thereof will warrant, the disposition of the available income for that purpose to be placed as largely as practicable in the hands of the employees.

The proposition is that the above treatment of profits shall be continued annually from year to year, so that at the end of the second year of its operation—after the payment of the regular cash dividends upon the common (and preferred) stock out of that year’s net profits and the payment into the contingent fund—the dividend on the deferred stock debentures shall be declared and paid upon the amount thereof held by said trustee; and for the remainder of the surplus earnings for the second year another issue of deferred stock debentures shall be made to said trustee, one-half for the use of the common stockholders and the other half as extra wages to be held for the use of the employees, and that the amount thereof to which each employee is entitled to credit shall again be determined as above set forth, and shall be entered in the respective debenture books and added to the amounts of the previous similar credit, and so on from year to year, it being provided as above set forth, that in case the company could not make advantageous use of this increase of capital it shall have the option of disbursing the amount in cash direct to the employee and stockholders.

Could the masters manipulate the bookkeeping so as to fleece the employees of the percentage of profits to which they were actually entitled? The writer believes that this could not be, and for the following reasons:

(a) It will be seen that under the plan as suggested, whatever action the management might take regarding the valuation of the assets and calculation of the annual profits, its decision would bear equally upon the interests of the stockholders and of the employees.

(b) If the management is overly conservative and the actual surplus assets are thereby cut down, the stock dividend to the trustee, representing both the employees and the stockholders, would be for that year unduly diminished; but such action could make little or no difference in the final result, as the actual surplus assets would still be intact, and if not shown in one year would surely appear in another. So that beyond a delay in the division thereof those in control of the bookkeeping would be powerless to discriminate against the employees, and as already shown an unfair settlement would bear equally upon capital and labor. Then, too:

(c) There could be little or no object in such an attempt, as it is not intended that the surplus, whatever the amount may be, shall be withdrawn from the business and distributed, but that the whole of the same shall be retained in the business (so long as it can be used advantageously), and under the plan as outlined all of these surplus earnings shall be capitalized and subordinated to the original investment and thus acting practically as a guarantee fund to protect and secure the same; and, again,

(d) It is a part of the plan that all employees, from the lowest form of unskilled labor to the highest salaried official, shall be sharers in the dividend to wages. Under such an arrangement it would be practically impossible for the owners to equivocate or to treat the question unfairly.

It will be generally conceded that the universal publication of the assets and liabilities of all business enterprises would greatly simplify and proportionately stimulate trade. With the added security against losses that such a system would assure, a liberal extension of credits would be the natural and a safe outcome. It is more difficult, however, to meet the question as to what effect the publication of the earnings, debts and resources would have upon the credit and general business of a single concern when in direct competition with others in the same class which continued to hold to the system of secrecy. It is clearly impossible to make a conclusive statement concerning this question. Whether the publication of accounts by one concern would work to the advantage or disadvantage of its secretive competitors seems wholly problematical. So far as we can see, however, indications point with some confidence to the ultimate success of that concern which does not conceal that of which their creditors of a right should be informed.

Regarding the probable effect upon the general business of the concern, it seems reasonable to claim that the liberal and just treatment of the employees will surely appeal to the public at large and that the advantage gained through the profitable influence that such action will have upon the concern’s constituency, especially among the buying public, would largely overbalance any possible disadvantage that could come as a result of the exposition of figures regarding the condition of its affairs.

As to the effect on credit when the published earnings show a decrease in profits it is still difficult to do more than surmise, though if the liabilities of the enterprise are made up more and more each year in a growing percentage of subordinated income-debentures we believe the publication of decreased profits would not operate towards the impairment of its credit, and certainly not until the losses became so extensive as to imperil the solvency of the concern—in which latter case it seems clear to us that little can be justly said in support of the custom of concealment.

Would the plan of letting the employees generally become part owners of the concern place them in a position to give trouble to the management of the enterprise, and would they not soon demand, as stockholders, the right to a voice in the direction of its affairs and in the shaping of its policy? On the contrary, it is urged:

(a) That with the proper and timely guarding of the interests of the original investment through sufficient, clear and undeniable limitations upon the rights and powers carried with the issues of deferred stock, such issues could not be used to the detriment of vested interests, but rather:

(b) That such a pecuniary interest in the enlarged success of the business would act as a guarantee of loyalty to the management and as an incentive to the employees to further the legitimate business of the concern, and:

(c) That the employees with a money investment in the enterprise, if for no higher reason than the instinct of self-preservation, would realize the value and necessity for harmonious and sympathetic co-operation between the capital, brains and energy of the concern.

Would capital be benefited by the operation? We claim without reservation that it would—and for the following reasons:

(a) That the net profits of the business would be largely increased through the reduction of friction; the larger incentive of labor; the increase in the physical capacity of the workers to produce; the saving of useless waste; and through the absence of strikes and lock-outs; as in all of such increase in net profits the capital would be an equal sharer with its employees.

(b) That the true loyalty and support of all employees would greatly strengthen the security of the capital in the business and proportionately add to the real value of the investment.

(c) That where adverse legislation may be easy of accomplishment when it attacks the interests of one man or a small body of men, it would be quite a different matter where the interests of all employees are involved.

(d) That the surplus profits would not be paid out and distributed, but would be held in the business, subordinated to the claims of the original investment, and so very materially adding to the security thereof.

(e) That with a property interest in the business the tendency of the operatives to shift from one concern to another without real purpose would be reduced to the minimum, and that the consequent advantage to the management would result in a distinct gain in the stability of the business.

Would such a plan when perfected succeed? If it would increase the productivity of the workers, if it would tend to elevate character, to develop a greater loyalty to the concern and help to change an operative from an automaton into a man, if it would strengthen the security of vested interests and narrow the gulf between wealth and work, and finally, if it would be in the direction of righteousness and justice, it must finally succeed. It cannot be expected that at first the introduction of such a scheme would be received by the operatives with enthusiasm. It would only be through the medium of their more intelligent leaders that they could be assured of its benefits, and only after several years of successful operation could we expect it to receive the unqualified support of the workers. When, however, their capitalized extra wages show an accumulation and they begin to receive annual cash dividends upon the surplus earnings of previous years, we may be reasonably assured of a decided change of sentiment in its favor.

In the meanwhile the masters would do well in avoiding undue antagonism to labor organizations per se, so far as the large body of wage-earners is concerned, the benefits of profit-sharing are still to them unproven, while the trade union has in many ways demonstrated its usefulness in protecting the interests of its members. Whether it does more really to help the best interests of the worker than to hinder, may be an open question. However this may be, certain it is that the institution is strongly established in the mind of the workman as his strongest friend, his one means of expression and his only hope of material salvation. In its reverses as well as in its successes his heart will remain loyal to his union, until he shall have been furnished a substitute which has proven to him its larger usefulness.

In view of the increasing tendency to incorporate business, this paper has treated the question as it relates to organized capital. It is nevertheless clearly true that the same general situation obtains in the strictly partnership concerns and that the principles herein suggested could be the more readily applied in such cases, especially as the power to act is concentrated in the hands of a few individuals who have no one else to consult.

In such a case it is suggested, in place of the issue of the deferred stock debentures, that the surplus net earnings—after the payment of the agreed interest to capital, and the assignment in cash of the percentage to contingent fund—shall be credited to a “mutual reserve fund” which fund shall take the place of the proposed trustee in a stock company, and shall be entitled to receive dividends (or interest) upon the same terms and subject to the same limitations provided for the deferred stock debentures, and that said fund shall be held for the joint and equal benefit of capital and employees—the respective interests of the employees to be entered in a pass-book similar in terms to the debenture books herein particularly described.

The plan briefly outlined is offered as a suggestion. Doubtless every point made can be improved by modification or substitution. If it influences in a small degree more earnest thought on the part of those in whom the power is vested, towards the formation of a comprehensive plan looking to a more reasonable division of the product of all and a fuller acknowledgment of the humanity of man, its purpose will have been accomplished.

III. The Housing Problem

TENEMENT HOUSE REGULATION—THE REASONS FOR IT—ITS PROPER LIMITATIONS

By Robert W. De Forest

Tenement House Commissioner of the City of New York

When Theodore Roosevelt, then Governor of the State of New York, attended the opening of the Tenement House Exhibition of the Charity Organization Society of New York, and looked over the models of tenements, old and new, and the charts which showed the close connection between the housing of the vast majority of that city’s population, and health, pauperism and crime, he said to the few of us who had organized this exhibition—“Tell us at Albany what to do, and we will do it.” The result was the New York State Tenement House Commission of 1900, the enactment last year of the most advanced code of tenement house laws as yet put in force in any American city, and the creation for the first time in this country of a department directly charged with the oversight of the construction and proper maintenance of tenement houses.

The tenement house problem we had to meet in New York was the most serious of any city in the civilized world, for in New York, according to the last census, out of 3,437,202 inhabitants, 2,273,079, or more than two-thirds, lived in tenement houses, and there were 82,652 of these tenements in the city.

The interest in this particular phase of the housing question is not confined to New York. No one who has followed, even carelessly, public opinion on this subject can fail to realize the hold it has upon the public conscience. It may be that some tremble at the effect upon their own fortunes of a possible social revolution, and seek to protect themselves, for their own sake, by trying to make what they call the lower classes more comfortable in their homes. But the large body of men and women in this country who are giving to this subject attention, are doing so from love of their fellow-men, and an earnest desire to give them in their homes some of the healthful surroundings and comforts they enjoy in their own.

There are few large cities in America in which there is not some tenement regulation, and some agitation for its extension. At the moment there is an active movement in Boston for the appointment of a commission to frame a new code of tenement house laws for that city. There is a similar movement in Chicago and in Cincinnati. Nor is this activity confined to the larger cities. Kansas City in the West, Hartford in the East, Yonkers, Syracuse and Rochester in New York, are already moving in the same direction, and the subject is receiving close attention in Washington, Cleveland and Pittsburg.

The New York law of last winter was a state law applicable to all cities of the first class. It included Buffalo as well as New York, and Buffalo did its full part in securing the enactment of the law. Philadelphia is emphatically the City of Homes, and not of tenements. Fortunately for Philadelphia, its working classes are almost exclusively housed in single family dwellings. It has, as most of you know, an admirable code of tenement house laws, which has proved very useful to us at New York in preparing ours, and it has its Octavia Hill Association to advance the cause of housing reform.

In some quarters benevolent people are proposing to build model tenements. That is good as far as it goes, but if at the same time other people, not benevolent, who have no motive but gain for themselves, are permitted to build tenements which are not models, the extent of progress is very limited. What we must do, first and foremost, is to secure proper legislation, using that term in its broadest sense, to include city ordinance, as well as state law. Legislation to regulate building, so as to secure for new buildings proper air and light space and proper sanitation; legislation to regulate, in buildings old and new, their maintenance so that health conditions may be improved and at least not be impaired; legislation, moreover, that provides the means for its own enforcement, by proper inspection.

Most of us have been brought up to believe that, as owners of real estate, we could build on it what we pleased, build as high as we pleased, and sink our buildings as low as we pleased. Our ideas of what constitutes property rights and what constitutes liberty are largely conventional. They vary with time and place. They are different in different countries. Liberty, proper liberty, to-day, may, under changing conditions, become license to-morrow. I came home from Europe not long since with a French friend, who had gone home to his native country to take possession of his ancestral estates. He told me of having found the trees grown up quite thickly around his father’s country home, and of the difficulties he had encountered in obtaining permission from the public authorities to cut down some of them, which was finally only granted on condition that he replanted elsewhere. That his trees could only be cut down with the consent of the public authorities, and that he could properly be required to replant elsewhere as a condition of obtaining that consent, seemed to him a part of the eternal order of things. He no more questioned it in his mind than we, who live in cities, question the propriety of obtaining from the city building department a permit to build, based upon approval of our architect’s plans.

Lecky, in one of his later books, speaking of sanitary legislation, says: “Few things are more curious than to observe how rapidly, during the past generation, the love of individual liberty has declined; how contentedly the English race are committing great departments of their lives to the web of regulations restricting and encircling them.” It is not that love of liberty has declined, it is that the English race are meeting new conditions with the same genius with which they have evolved their great system of common law. Living, as most of them did a century ago, in separate houses, and in small villages or towns, every man could build as he pleased and could maintain his building as he pleased without seriously endangering the liberty of his neighbors, but with the steady movement of the population from the country to the city, and the marvelous growth of cities, not only horizontally but vertically, new conditions must be met, and the property rights and liberty of one neighbor must be limited to protect the property rights and liberty of another. If a man built an isolated house in the country, without light or air for the bedrooms, and kept it in such filthy condition as to breed disease, it is a fair question whether his liberty should be infringed by any building or health regulation. He may be fairly left free to suffer the consequences of his own misuse of his liberty. His death, and that of his family, from disease so caused may, as an awful example, do more to advance civilization by making his neighbors more careful, than would his life and theirs under enforced sanitary regulation. But if that same man is separated from you and me only by a board partition or twelveinch wall, and our families meet every time they go into the street or into the back yard, his liberty must be restricted in some degree in order to enable you and me to enjoy ours.

How and why has tenement house law been evolved in American cities? In the same way in which the Anglo-Saxon mind deals with any such problems. Just as it evolved common law, and for the same reasons. First a case—that is, an evil—to be remedied; afterward a decision—the application of the remedy, and the establishment of a principle or law by which similar evils shall be remedied. It is not according to the genius of our race to provide the remedy in advance of the supposed disease. Better be sure that the disease really exists, even if some few die from it, and then provide the remedy which will be sure to meet actual conditions, than to burden the community with advance remedies for diseases that after all may prove to be imaginary. Even if the disease be not imaginary, such remedies are apt to be worse than the disease itself. Thus, in Anglo-Saxon countries, a conflagration has usually preceded precautions against fire, and the evils of sunless, airless and unwholesome tenements have preceded any attempt to prevent these deplorable conditions. Eventually we act, and when we do we act practically.

It may be well to define what is meant by a tenement house, for without definition there is infinite confusion in the use of this term. In one of our recent civil service examinations in New York, a candidate, evidently “learned in the law,” or supposing himself to be so, defined it as being “That which is neither land nor hereditament.” It has its popular and its legal meaning. Popularly, it is used to designate the habitations of the poorest classes, without much thought of the number of families living under any particular roof. The National Cyclopedia significantly says: “Tenement houses, commonly speaking, are the poorest class of apartment houses. They are generally poorly built, without sufficient accommodation for light and ventilation, and are overcrowded. The middle rooms often receive no daylight, and it is not uncommon in them for several families to be crowded into one of their dark and unwholesome rooms. Bad air, want of sunlight and filthy surroundings work the physical ruin of the wretched tenants, while their mental and moral condition is equally lowered. Attempts to reform the evils of tenement life have been going on for some time in many of the great cities of the world.”