Ethics of Democracy

Part 4, Economic Tendencies
Chap. 6, The Trust and Socialism

A great change is going on all over the civilized world similar to that infeudation which, in Europe, during the rise of the feudal system, converted free proprietors into vassals, and brought all society into subordination to a hierarchy of wealth and privilege. Whether the new aristocracy is hereditary or not makes little difference. Chance alone may determine who will get the few prizes of a lottery. But it is not the less certain that the vast majority of all who take part in it must draw blanks. The forces of the new era have not yet had time to make status hereditary, but we may clearly see that when the industrial organization compels a thousand workmen to take service under one master, the proportion of masters to men will be but as one to a thousand, though the one may come from the ranks of the thousand. "Master"! We don't like the word. It is not American! But what is the use of objecting to the word when we have the thing?

- HENRY GEORGE, in Social Problems Ch. V.

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The Ethics of Democracy

by Louis F. Post

Part 4, Economic Tendencies
Chapter 6, The Trust and Socialism

HE who thinks of the socialist political parties, of socialist speeches, of socialist literature, or of all these combined, as socialism, has but a dim perception of some of the most important phenomena in the history of his own time. Though socialist organizations, speeches and literature have to do with socialism, they are no more socialism than maps are geography, or mile posts the highway. The most influential school of socialists regards socialism as a social evolution, and that conception of the subject is being impressively confirmed by events. It can be best understood, not through socialist literature, for there is no gospel of socialism and its literature is a bewildering maze of confusions and contradictions, but through the modern phenomenon of trusts, studied in the light of the theory of historical evolution.

Not that the trust is a socialist ideal. Far from it. In all socialism there is a democratic aspiration, and trusts are not democratic. Yet they are believed by socialists to secrete democratic germs, which will eventually develop out of the autocratic trust an industrial democracy, somewhat as political democracy has been developed out of feudalism and monarchy.

However this may prove to be, doubtless the economic, as distinguished from the ethical, principles of socialism, are already in process of more or less imperfect exemplification by the trusts, the most perfect of which in that respect is the United States Steel Corporation, mentioned in the fifth chapter of this Part. This trust owns not only the natural sources of production upon which it depends, but also all the related artificial machinery of production and distribution. It is a gigantic socialistic embryo. So at least it distinctly appears to be from a vivid pen sketch by Mr. Ray Stannard Baker,* a sketch which is valuable as a socialistic study because, besides being vivid, it is evidently a true account, as far as it goes, of the business methods of the steel trust.

Mr. Baker describes the organization of the steel trust as "a republican form of government, not unlike that of the United States, with a president; a cabinet, or executive committee, which is likewise a supreme court, having practically all the power of the board of directors; a treasury department, or finance committee; a legal department (the general counsel); and a congress (board of directors), elected to office by individual voters or stockholders."

The government of the trust, besides being republican in form, is federal in principle; for, writes Mr. Baker, "it is a general though erroneous impression that when the steel corporation was organized all of the ten absorbed companies lost their identity, being merged in a single huge concern managed from New York City. But the United States Steel Corporation is rather a federation of independent companies, a combination of combinations, each with its own distinct government, officers, sphere of influence, and particular products. The Carnegie Steel Company, for instance, is still independent of the Federal Steel Company, and yet both are a part of the United States Steel Corporation in the same way that Pennsylvania and Illinois, while separate States, each with its own government, are part of the United States."

But this government is primarily industrial, as distinguished from political. Its purpose is the production and distribution of steel commodities, from the ore and the coal in the mine, through all the 'processes of manufacture and transportation, to the finished and delivered article. In this particular it differs from the Socialist Commonwealth only in the fact that its field of operations is limited to the steel industry, whereas the Socialist Commonwealth would be expected to monopolize even more completely and to operate even more perfectly, all branches of industry.

Still in analogy to the theory of the American government, the steel trust distinguishes between common functions and those pertaining to the constituent companies respectively:

"While each subsidiary company retains the entire management of its own manufacturing plants, it has been the policy of the new corporation to combine in great general departments those factories of production common to all the companies. For instance, most of the subsidiary companies owned their own iron mines, their own coke ovens, and controlled their own ships on the lakes, and each had a department to care for these interests. Now the ore and transportation interests are gathered in one great department."

The economy effected by this concentration of common interests into one central department is thus described:

"The coke interests, the export department, the foreign offices in London, and certain branches of the sales departments, are each grouped under a single head. By this method a single agency distributes iron ore, coal and coke, between the various plants as needed, avoiding cross shipments, and supplying plants always from the nearest sources, thereby saving freight charges. Much of the economy of production depends on the efficacy of distribution. Formerly serious delays resulted from the inability to obtain vessel tonnage at the right time, or to load the ships with the right kind of ore when wanted, for many companies, while owning plenty of one kind of ore, were compelled to purchase other kinds to make the proper mixtures. Under the new system, however, the splendid fleet of 115 vessels on the Great Lakes is all under the control of one man,... and the ore-distributing system is all under another chief. The ships can thus be directed by telegraph to the ore-docks in Minnesota, Michigan or Wisconsin, where each immediately secures a full load and carries it to the dock or mill where that particular kind of ore is most needed.... Coke and coal are distributed much in the same manner by a central department."

Such centralization is confined, however, as already indicated, to operations of common concern. With reference to functions pertaining to the constituent companies individually, the impulse of competition (more definitely, perhaps, emulation) is encouraged. Mr. Carnegie had already made this a feature of his company, before the federation. He encouraged "friendly rivalries between his plants, spurring them on with rewards, and by firing the pride of accomplishment he succeeded surprisingly in adding to the efficiency of his force." Following Mr. Carnegie's example, the steel trust, while in absolute control, and consequently able to insure harmony through its central authority, has, nevertheless, so adjusted the relationships of the constituent companies that "one company buys of or sells to another, as formerly, and the bargains are driven just as shrewdly as ever, each president being keenly ambitious to make a good showing for his company. The disputes which naturally arise are settled by the executive committee, sitting as a sort of supreme court."

As to products which vary with the producing company, wide latitude is allowed, each company being permitted to drive the best bargain it can in the open market. But "in cases where several companies produce the same thing - steel rails, for instance - they agree on a price and appoint the same agents throughout the country."

Not only are economies secured by this system of production and distribution, but every department of the trust, says Mr. Baker, "runs smoothly, noiselessly."

In this great trust, then, we have an example, only partly developed economically and not at all ethically, but faithful and favorable as far as it goes, of socialism in the concrete.

To perfect this system economically, with reference to socialist ideals, what is needed is that the trust should encompass all great industries instead of only about twothirds of only one, and manage them in substantially the same way. To perfect it ethically, with reference to socialism, what is needed is the democratization of the trust, so that all who work in it, the day laborer at the bottom as well as the great captain of industry at the top, shall participate equally in its government and share equally in the value of its products.

Whether that is practicable is too complex a question for present discussion. One industry might be managed upon this plan with economic success, even though the plan might break down if applied to all industries. So the plan might work under a plutocratic system, the board of directors being chosen by the majority of shares, when it would not work under a democratic system, the board being chosen by a majority of the workers. The steel trust illustrates the character but does not demonstrate the practicability of the Socialist Commonwealth. It may be doubted, too, whether, when the trusts had monopolized business, the employes would be able to democratize trusts. The power that perfects the trust is a power which no workmen, other than the specially skilled, can hope to cope with by organization.

Yet there is scant room for question that socialism is the goal toward which the trust tends. Those socialists are right who see in the trust phenomena their predicted socialist evolution. If socialism comes at all, it must come in one of two ways: either by the absorption of industries by government, or by the absorption of government by industrial agencies. Both tendencies are at work. Government is reaching out, not through the influence of socialist parties, however, but under the pressure of grasping private interests, and in the form of protective tariffs, subsidies, and the like, for the regulation of functions which are distinctly individual. Concurrently, trusts are reaching out for the control of government.

It is impossible to read Mr. Baker's lucid account of the steel trust without seeing in that organization the possibilities and prophecy of an overmastering governmental machine. If there were no opposing tendency, it could be predicted with almost absolute certainty that the trust would at no distant day evolve into an autocratic, plutocratic, all-embracing and paternal socialistic state. Whether this state would in turn evolve democratic socialism, conceding the possibility of such an ideal, would not be so easy to foresee; but that the evolution will reach the point of paternalism, if unobstructed, is as certain as any human prophecy can be.

Fortunately, however, this tendency is obstructed. The sentiment of opposition to the extension of government into the sphere of private industry is not dead. During these years of advancing monopoly and imperialism it has been sleeping; but now it is awaking, as it always has and always will whenever autocratic tendencies gather momentum and begin to disclose their true character. And this same opposition to the absorption by government of individual functions is also an obstacle to the absorption of government by trusts. The tendency of trusts to develop a socialistic state cannot persist, because the only thing that perpetuates their power is monopoly of natural opportunities for production. The steel trust, for instance, is cohesive and powerful, not because of its commercial economies, but because directly and indirectly it monopolizes ore beds, coal mines and transportation terminals. Abolish these monopolies, and the steel trust would be as impotent as a monarch without the power of taxation.

This very simple but potent truth is gaining recognition. Public thought is being influenced by it more and more. It is crystallizing a popular opposition to the development of the trust idea, and consequently to socialism. It is the key to the economic problem, to the labor problem, to the political problem - in a word, to the social problem. And it is destined to define the issue over which another great struggle for liberty will be made; namely, whether we shall on the one side perpetuate monopolies of natural sites and resources, and so foster trusts and promote socialism; or shall, on the other, check those monopolies, and thereby advance and strengthen the cause of individual liberty.

*McClure's Magazine for November, 1901.

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