mni' 
 
 HC 106.B7 
 
 l^Qrneli Univefiily Library 
 
 Business — a profess 
 
 3 1924 002 234 387 
 
 mi 
 
 m 
 
 Mtttttttt 
 
THE LIBRARY 
 
 OF THE 
 
 NEW YORK STATE SCHOOL 
 
 OF 
 
 INDUSTRIAL AND LABOR 
 
 RELATIONS 
 
 AT 
 CORNELL UNIVERSITY 
 
Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924002234387 
 
BUSINESS- A PROFESSION 
 
BUSINESS -A PROFESSION 
 
 BY 
 
 LOUIS D. BRANDEIS 
 
 WITH A FOREWORD BY 
 ERNEST POOLE 
 
 BOSTON 
 SMALL, MAYNARD & COMPANY 
 
 PUBLISHERS 
 
Copyright, 1914 
 By Small, Maynard & Company 
 
 (incorporated) 
 
 THE UNIVERSITY PRESS, CAMBRIDGE, U.S.A. 
 
PUBLISHERS' NOTE 
 
 In response to a demand that there be brought 
 together in one volume the chief public utterances 
 of Mr. Louis D. Brandeis, and because they feel 
 that this demand is the natural outgrowth of Mr. 
 Brandeis's vital interest in matters of large public 
 importance, his success in pointing out the logical 
 outcome of greatly confused conditions, his ability 
 and wisdom in making a sound diagnosis and formu- 
 lating a hopeful treatment of problems of peculiar 
 difficulty, and his unselfishness and untiring devotion 
 at all times to the common good, the publishers 
 present the papers here compiled, in the belief that 
 they will be of unique interest and of permanent 
 value. 
 
 Of the papers here gathered, Mr. Poole 's foreword 
 appeared in shorter form in The American Magazine; 
 "Business — A Profession," in System; "Organized 
 Labor and Efficiency," in The Survey; "The Road 
 to Social Efficiency," in The Outlook; "Our New 
 Peonage: Discretionary Pensions," in The Independ- 
 ent; "The Incorporation of Trades Unions," in The 
 Green Bag; "How Boston Solved the Gas Problem," 
 in The American Review of Reviews; "Savings Bank 
 Insurance," "Trusts and Efficiency," and "Trusts 
 and the Export Trade," in Collier's; "Competition 
 
vi PUBLISHERS' NOTE 
 
 that Kills," in Harper's Weekly; "The New Haven 
 — An Unregulated Monopoly," in the Boston Journal; 
 "An Aid to Railroad Efficiency," in The Engineering 
 Magazine; and "The Opportunity in the Law," in 
 The American Law Review. Grateful acknowledgment 
 is made to the editors of these publications for their 
 kind permission to reprint. 
 
CONTENTS 
 
 Page 
 
 "Beandeis." By Ernest Poole ix 
 
 Business — A Profession i 
 
 The Employer and Trades Unions .... 13 
 
 Hours of Labor 28 
 
 Organized Labor and Efficiency .... 37 
 
 The Road to Social Efficiency 51 
 
 Our New Peonage : Discretionary Pensions . 65 
 
 The Incorporation of Trades Unions . . 82 
 
 Sow Boston Solved the Gas Problem ... 93 
 
 Like Insurance : The Abuses and the Remedies 109 
 
 Sa^gs Bank Insurance 154 
 
 Successes of Savings Bank Life Insurance . 182 
 
 Trusts and Efficiency 198 
 
 Trusts and the Export Trade 21?^ 
 
 Competition that Kills 236 
 
 The New England Transportation Monopoly 255 
 
 The New Haven — An Unregulated Monopoly 279 
 
 An Aid to Railroad Efficiency 306 
 
 The Opportunity in the Law 313 
 
BRANDEIS^ 
 
 A REMARKABLE RECORD OF UNSELFISH WORK DONE 
 
 in the public interest 
 By Ernest Poole 
 
 Dtjrikg the Ballinger investigation, in which 
 he was the driving force, he frequently began 
 his day at four o'clock in the morning. His 
 pitiless examinations of witnesses and the start- 
 ling disclosures he made are widely known. But 
 the man himself is little known, for the man is 
 self-effacing. 
 
 He is fifty-seven years old, over medium height, 
 his rugged figure slightly stooped. His face, 
 with its high forehead, prominent cheek bones, 
 deep-set eyes and heavy lines about the broad 
 and sensitive mouth, gives an impression of 
 immense force, of a mind keen, subtle, trained, 
 a mind of large vision, big ideals. And yet it is 
 a likable face; his manner is kindly and he has 
 many devoted friends. His private practice is 
 one of the largest in New England, but more 
 than half his time is spent in public legal work. 
 
 ' Published in the " American Magazine " in February, igii, and 
 now revised. 
 
X BRANDEIS 
 
 And for this work he takes no fees. In an 
 address some years ago he said : 
 
 "It is true that at the present time the lawyer does 
 not hold that position with the people which he held 
 fifty years ago; but the reason is in my opinion not 
 lack of opportunity. It is because, instead of holding 
 a position of independence between the wealthy and 
 the people, prepared to curb the excesses of either, the 
 able lawyers have to a great extent allowed them- 
 selves to become an adjunct of the great corporations, 
 and have neglected their obligation to use their powers 
 for the protection of the people. If we are to solve 
 the important economic, social and industrial ques- 
 tions which have become political questions also, it 
 seems to me clear that the attitude of the lawyer in 
 this respect must be materially changed. . . . The 
 great opportunity of the American Bar is and will be 
 to stand again as it did in the past, ready to protect 
 also the interests of the people." 
 
 Of this work in the people's service, his story 
 is a unique example: 
 
 THE ORIGIN OF BRANDEIS 
 
 He was born in 1856, in Louisville, Ky. He is 
 a Jew. For a century back his family was made 
 up of men of means, education, social ideals. 
 His maternal grandfather took an active part in 
 Poland's struggle of 1830. His father sympa- 
 thized deeply with the Bohemian movement of 
 
BRANDEIS xi 
 
 1848. And in Kentucky, before the war, his 
 father and his uncle were both intense aboli- 
 tionists. "My earliest memories," he told me, 
 "were of the war. One exceedingly painful 
 memory is of a licking I got in school on the 
 morning after Bull Run. I remember helping 
 my mother carry out food and cofEee to the men 
 from the North. The streets seemed full of 
 them always. But there were times when the 
 rebels came so near that we could hear the firing. 
 At one such time my father moved us over the 
 river. Those were my first memories." 
 
 Later the family went abroad, and he was 
 placed in a Dresden school. His father sug- 
 gested that he remain in Europe and take up an 
 academic career. But the son refused. "I was 
 a terrible little individualist in those days," he 
 said, "and the German paternalism got on my 
 nerves. One night, for instance, coming home 
 late and finding I had forgotten my key, I 
 whistled up to awaken my roommate; and for 
 this I was reprimanded by the police. This 
 made me homesick. In Kentucky you could 
 whistle. ... I wanted to go back to America, 
 and I wanted to study law. My uncle, the abo- 
 litionist, was a lawyer; and to me nothing else 
 seemed really worth while." 
 
 When the panic of 1873 brought to his father 
 
xii BRANDEIS 
 
 heavy losses in business, he still held to his 
 course. He entered the Harvard Law School, 
 working his way; he did his eyes an injury 
 from which they have never fully recovered; 
 and at the end of two years the authorities sus- 
 pended the rules to let him take his degree at 
 twenty. "Those years," he said, "were among 
 the happiest of my life. I worked! For me the 
 world's center was Cambridge." This enthusi- 
 asm he retained, becoming the organizer, in 
 1886, of the Harvard Law School Association. 
 
 At twenty- two he began practice in Boston. 
 Before he was thirty his practice was large, and 
 since then it has steadily grown. "I had my 
 share of big corporation work," he told me. 
 "I even worked for a trust or two. Perhaps 
 that is one reason why I'm not a corporation 
 lawyer now."- 
 
 He had many friends in the literary and mu- 
 sical circles of Boston. But his deeper interest 
 was in social economic problems. " As a whole," 
 he said, "I have not got as much from books as 
 I have from tackling concrete problems. I have 
 generally run up against a problem, have pain- 
 fully tried to think it out, with a measure of 
 success, and have then read a book and found 
 to my surprise that some other chap was be- 
 fore me. 
 
BRANDEIS xiii 
 
 "I first went through the stage of charitable 
 work." He served on his district committee, 
 visiting in person the applicants for relief. In 
 the late eighties he acted as counsel in a move- 
 ment to reform certain state relief institutions, 
 and early in the nineties he took the lead in a 
 long and thorough investigation into the public 
 charitable institutions of Boston. 
 
 When he married in 1891, he had already 
 made up his mind to give more and more time 
 to public work, and with this purpose his wife 
 was in thorough accord. Though his income 
 was large, they agreed from the start upon a 
 most simple scale of living, so leaving time and 
 money free for the series of public struggles in 
 which he has engaged ever since. 
 
 In one of his early efforts there is a certain 
 grim humor. In 1897 he went tp Washington 
 to appear for the consumer in the Dingley Tariff 
 hearing. I quote from a paper of that date: 
 "Mr. Louis D. Brandeis, the brilliant young 
 Bostonian who appeared before the Ways and 
 Means Committee to-day on behalf of the con- 
 sumers of the United States, did not receive a 
 very cordial welcome. ... 'I desire,' he said, 
 'to speak in behalf of those who form a far 
 larger part of the people of this country than 
 any who have found representation here.' . . . 
 
xiv BRANDEIS 
 
 At this point there were signs of restlessness. 
 Chairman Dingley felt called upon to tell the 
 gentleman that this was not an appropriate 
 time for a speech on free trade. A Democratic 
 member said he supposed it would be in order 
 for one man to appear for the consumer. Mr. 
 Brandeis continued, and was again interrupted 
 by laughter and jeers. But Mr. Dalzell re- 
 marked, 'Oh, let him run down.'" And so this 
 lone representative of the consumer was allowed 
 five minutes more. 
 
 HIS PIRST BIG FIGHT FOR THE PUBLIC 
 
 But his first important public struggle was 
 over the traction system in Boston. On the one 
 side were big financial interests, the political 
 machine and the press; on the other, a handful 
 of citizens creating public opinion. Brandeis 
 was their counsel, and admittedly the brains of 
 the fight. 
 
 For years he had felt that franchises were 
 public property which should not be given away. 
 He had seen the situation grow worse. In the 
 heart of the city the streets available for trolley 
 lines were few, narrow and crooked, and became 
 frightfully jammed. To relieve the congestion, 
 'in 1896 the Tremont Street subway was built by 
 the city. This subway the West End Company, 
 
BRANDEIS XV 
 
 controlling most of the surface lines, undertook 
 to lease, and it was over this lease that the first 
 struggle came. A small group of citizens forced 
 a hearing. Brandeis appeared as their counsel. 
 The fight was carried on into the Legislature, 
 and finally the lease was granted — not for fifty 
 years, but for twenty years, with a rental to the 
 city of 4^^ per cent of the cost of construction. 
 A Adctory for the people. 
 
 "When I asked Mr. Brandeis for his bill," 
 the man at the head of this movement told me, 
 "I expected to pay a fee of five thousand dollars 
 at least. 'There is no fee,' he said. 'This is 
 part of a plan of mine.' And he added that as 
 soon as he could do so he intended giving the 
 larger part of his time freely to public work." 
 
 The work came soon. In 1897 certain New 
 York financiers acquired the Boston Elevated 
 Railway Company. Having bought an old and 
 impracticable elevated charter, they secured 
 amendments granting them almost perpetual 
 rights. They also secured authority to lease 
 the West End Company's surface lines, and 
 they asked for a lease of ninety-nine years. Had 
 this been granted, they would have been in 
 complete control of the transportation system. 
 But with a group of vigilant citizens, Brandeis 
 renewed the contest. The lease was reduced 
 
xvi BRANDEIS 
 
 to twenty-five years, and in other ways the new 
 company's powers were cut down. The com- 
 pany, moreover, had one vulnerable point. 
 The Tremont Street subway, the only connect- 
 ing link between the two parts of the elevated 
 system, was still under strong municipal control. 
 Accordingly, when to meet the increasing 
 trafl&c another subway was asked for in 1900, the 
 company tried to secure the right to build it and 
 own it practically in perpetuity, and also to 
 secure an extension on their Tremont Street 
 subway lease for another twenty years. Over 
 this key to the situation came the main struggle. 
 And here again on the side of the people Bran- 
 deis took the lead. When the Public Franchise 
 League was formed, he became its counsel. He 
 was active in winning over the Associated 
 Board of Trade, and in its name a bill which he 
 drafted was introduced providing for the con- 
 struction of the new subway by the city, with 
 a lease on the same terms as the old one. In 
 support of this biU he appeared at all hearings. 
 He went in person repeatedly to the editors of 
 the hostile press. "It was here," he told me, 
 "that we had our first lessons in making public 
 opinion." Slowly the public sentiment grew. 
 And finally, after a bitter three years' contest, 
 an act almost identical with his original bill was 
 
BRANDEIS xvii 
 
 passed, providing for the construction of one 
 or more subways by the city, to be leased for a 
 term not exceeding twenty-five years, at a rental 
 of 43^ per cent of the cost. 
 
 In 19 1 1 the contest over the subway leases 
 broke out anew. With a "strap-hanging" pub- 
 lic clamoring for new subways, the Elevated 
 Company announced that it could assume no 
 further burdens without assured possession of 
 both the new and the old subways and tunnels 
 for about fifty years. The Railroad and Transit 
 Commissions indorsed this position, and many 
 timid citizens, eager for relief from congestion, 
 were ready to yield. The Public Franchise 
 League, however, with Brandeis once more lead- 
 ing the fight, opposed this attempt to fasten the 
 company's grip upon the city, and argued that 
 the best guarantee such a company "can have is 
 the good will of the public induced by its own 
 good behavior. This view was speedily cham- 
 pioned by the press, and an act, drawn under 
 the guidance of Mr. Brandeis, with the ap- 
 proval of Governor Foss, was finally passed by 
 the Legislature and accepted by the company, 
 which provided for the new subways and for 
 leases subject to termination by either the 
 city or the company at the end of twenty-five 
 years. 
 
xviii BRANDEIS 
 
 "Boston has thus established," he writes, 
 "the policy of retaining control of its transpor- 
 tation system. The city will own all the sub- 
 ways, and through this ownership and the right 
 to revoke surface locations, will control the en- 
 tire traction system, with power to compel cor- 
 porations to pay what may seem from time to 
 time adequate compensation for the use of the 
 streets." 
 
 A STRUGGLE FOR CHEAPER GAS 
 
 The next struggle, to secure cheaper gas for 
 Boston, was won in its crisis, not by fighting the 
 company, but by working with it. And for this 
 change of policy Brandeis was responsible. 
 
 For twenty years the city's gas companies 
 had been involved in endless scandals. The 
 service was poor and the price was high, one 
 dollar a thousand feet. But all Massachusetts 
 gas companies are subject to strict state con- 
 trol; and, when in 1903 the Boston companies 
 applied for leave to consolidate, the Public 
 Franchise League saw its opportunity. A 
 long and strenuotis contest took place over the 
 issue of capital, the Franchise League contend- 
 ing that, if the company were allowed the high 
 capitalization it asked for, lower prices of gas 
 in future would be made impossible. When 
 
BRANDEIS xk 
 
 things had come to a crisis, Brandeis proposed 
 his plan of co-operation. It startled many in 
 the League; some even withdrew, accusing him 
 of being in secret alliance with the trust. But 
 he held to his course, and after earnest discus- 
 sion the plan was finally carried out. Its main 
 provisions were these: 
 
 The company's capital was fixed practically 
 at the limit set by the League at the start. 
 Ninety cents per thousand feet was made the 
 "standard price" of gas. And a "standard 
 dividend" was fixed at seven per cent. This 
 meant a return of less than 4^^ per cent on the 
 physical value of the property and on its cost 
 to the, present owners. But the act further pro- 
 vided that for every five-cent reduction in the price 
 of gas, the dividend might be increased one per 
 cent. 
 
 This gave a strong incentive to concentrate 
 all the energy, formerly used in financial and 
 political intrigue, on the making of gas at the 
 lowest possible cost. As a result, the price has 
 been reduced to eighty cents. From 1905 to 
 1913, $6,247,923.35 in the aggregate has been 
 saved to the consumers, and yet dividends have 
 been increased some two per cent. 
 
 "It has been proved," he says, "that a pub- 
 lic-service corporation may be managed with 
 
XX BRANDEIS 
 
 political honesty and yet successfully. To re- 
 duce the price of gas we need not only honesty 
 but also skill, energy and initiative; And this 
 may be best secured by following those lines of 
 intelligent self-interest upon which the remark- 
 able industrial advance of America has pro- 
 ceeded. Those who manage our public-service 
 corporations should be permitted, subject to 
 proper safeguards, to conduct the enterprise 
 under, the conditions which in ordinary busi- 
 ness have proved a sufficient incentive to attract 
 men of large ability and to insure from them 
 their utmost efforts for its advancement." 
 
 THE NEW HAVEN RAILROAD 
 
 Brandeis has led one other fight in New Eng- 
 land against a big corporation. 
 
 Before 1906 the New York, New Haven & 
 Hartford Railroad had been steadily gaining 
 control of transportation in New England. 
 Among other things it had acquired about 
 five hundred miles of trolley lines in Massa- 
 chusetts contrary to the law of the state. And 
 in 1906 the governor warned the legislature 
 of the New Haven's encroaching power, urging 
 legislation to prevent it. The New Haven com- 
 pany- contended' that having a Connecticut 
 charter it was not subject to Massachusetts laws. 
 
BRANDEIS xxi 
 
 It invited the state's attorney general to test 
 the validity of this claim, and agreed pending a 
 d^ision to make no further acquisitions in the 
 state. On this understanding the legislature 
 adjourned without taking action and the at- 
 torney general began proceedings. While these 
 were pending, however, the New Haven com- 
 pany, regardless of its promise, acqiuired more 
 than one- third of the stock of the Boston & 
 Maine Railroad. The legislature then passed 
 an act restraining the New Haven, until July, 
 1908, from acquiring additional stock in the 
 Boston & Maine or from voting on that already 
 acquired. 
 
 Meanwhile public feeling rose high. The 
 Anti- Merger X-eague was formed, with Brandeis 
 for its counsel. The support of thousands'of 
 Massachusetts merchants and of commercial 
 and civic organizations and labor unions was 
 secured. Their campaign was pushed with 
 enepgy, Brandeis engaging in a long series of 
 public debates with the New Haven's vice- 
 president. The railroad, too, had strong sup- 
 port. People were sick of the Boston & Maine's 
 poor service; they believed its management un- 
 progressive and its financial condition weak, 
 and that if the New Haven could gain control it 
 would bring up the service. The danger of mo- 
 
xxii BRANDEIS 
 
 nopoly they proposed to remove by legislative 
 control. 
 
 Brandeis, however, contended that the Boston 
 & Maine was recovering from its financial weak- 
 ness and could soon provide needed improve- 
 ments, but , that the New Haven had by its 
 recent excessive expansion become perilously 
 weak, and that the burdens thus assumed must 
 not only prevent its making large improvements, 
 but would create a heavy charge upon all future 
 trafl&c. Moreover, he cited the scores of rail- 
 roads, trolley and steamship lines which it had 
 already acquired, and claimed that if the Bos- 
 ton & Maine be added to these, the result must 
 be a monopoly of all transportation by land or 
 water within New England and also between 
 New England and the rest of the country. To 
 control a monopoly so enormous, he declared, 
 would be impossible. One small group of New 
 York financiers would govern absolutely New 
 England's future growth. 
 
 Meanwhile the New Haven had presented a 
 bill legalizing the purchase of its Boston Si Maine 
 stock. This bill was defeated. In the same year 
 the state Supreme Court, in the case brought by 
 the attorney general, decided that the New 
 Haven was subject to Massachusetts laws and 
 that in acquiring Boston & Maine stock it had 
 
BRANDEIS xxiii 
 
 violated the statute. Shortly after this, with 
 the approval of President Roosevelt, Attorney 
 General Bonaparte began suit against the New 
 Haven under the Sherman act. The opponents 
 of the merger therefore ceased their work, be- 
 lieving that their fight was won. 
 
 But in 1909 in Washington a new administra- 
 tion came into power; and in Massachusetts 
 a new governor was elected, who was favorable 
 to the New Haven. Late in the session this 
 governor sent in a special message paving the 
 way for a bill which empowered the New Haven 
 to acquire through a holding company all the 
 stock of the Boston & Maine. Tremendous 
 pressure was brought to bear, and the bill was 
 passed. "The passage of this bill," said French, 
 the federal district attorney, "does not change 
 matters in the slightest degree regarding the 
 federal government's merger suits against the 
 New Haven road." But four days later,, on the 
 same day that Frencji was pressing the court 
 to set down the case for argument. Attorney 
 General Wickersham ordered the suit dropped. 
 
 With all legal obstacles thus removed, the 
 holding company was formed, and by this means 
 the control of New England's transportation 
 was delivered to the New Haven. 
 
 Brandeis predicted an increase in rates if the 
 
XKIV 
 
 BRANDEIS 
 
 merger were allowed. Taking the two roads' 
 own estimates, their passenger rates were soon 
 increased by about $1,500,000 a year, and they 
 applied for increases in freight rates which ex- 
 ceeded $2,000,000 more. "The need for more 
 revenue was caused," Brandeis maintained, 
 "not so much by increase in operating expenses 
 as by the financial burdens assumed in their 
 sudden excessive expansion, purchasing prop- 
 erties at high values, borrowing money at high 
 rates." 
 
 In no controversy in which he has engaged 
 has his judgment been so emphatically and 
 dramatically vindicated as here. Month by 
 month the operation of what he calls the "in- 
 exorable law of arithmetic" made itself felt — 
 until railroad service in New England, especially 
 upon the Boston & Maine, became intoler- 
 able. Frightful accidents took place. And 
 complaints multiplied to such an extent that 
 the Interstate Commerce Commission finally 
 ordered a thorough investigation of the whole 
 sitiiation. The results of this investigation and 
 Commissioner Prouty's report are now well 
 known. The criticisms of the New Haven's 
 financial policy made by Brandeis six years be- 
 fore were more than sustained; and at the pres- 
 ent time the Department of Justice in Wash- 
 
BRANDEIS XXV 
 
 ington and the Governor of Massachusetts are 
 trying to undo the work of their predecessors in 
 office, break the New England transportation 
 monopoly and restore sane and healthy con- 
 ditions. 
 
 A BRILLIANT SUCCESS 
 
 Meanwhile Mr. Brandeis had undertaken a 
 project which has since met with brilliant 
 success. 
 
 In 1905, in the investigation into the Equi- 
 table Life Assurance Society, as unpaid counsel 
 for the protective committee of policy holders, 
 he drafted recommendations urging radical 
 changes to reduce the enormous waste of the 
 system and provide safeguards against abuse. 
 It is said that Grover Cleveland, one of the 
 newly appointed trustees, gave these recom- 
 mendations to Paul Morton, the incoming 
 president of the Equitable, and told him that 
 on these principles the reorganization should 
 proceed. They are, in the main, the same prin- 
 ciples later insisted upon by Charles E. Hughes 
 and embodied in the Armstrong bill. 
 
 This work led Brandeis to a close study of the 
 insurance business. The total amount of in- 
 surance in the ninety leading companies he 
 found to be nearly thirteen billions of dollars. 
 
xxvi BRANDEIS 
 
 more in amount than the value of all the rail- 
 roads in the country at that time, their total 
 income exceeding the revenues of the federal 
 government. Nearly half the total assets were 
 in the hands of three Wall Street companies; 
 and this vast accumulation of quick capital gave 
 them an ever-tightening grip on the business of 
 the country. "The economic menace of past 
 ages," he said in an address at that time, "was 
 the dead hand, which gradually acquired a large 
 part of all available lands. The greatest eco- 
 nomic menace of to-day is a very live hand, 
 these great insurance companies which control 
 so large a part of our quick capital." 
 
 On the one hand a prodigious concentration 
 of money power; on the other, an intimate con- 
 cern of every man. In the ninety companies 
 there were outstanding over 21,000,000 policies 
 affecting directly or indirectly about 30,000,000 
 men, women and children. And through the 
 waste and abuses inherent in the system the cost 
 of insurance was terribly high. This was doubly 
 true of "industrial insurance," purchased mainly 
 by the poor, the policies being for small amounts 
 and the premiums collected weekly from house 
 to house. Mainly through this extravagant 
 method, about two-fifths of the policy-holders' 
 money went into running expenses. 
 
BRANDEIS xxvii 
 
 Brandeis undertook to work out some plan 
 by which the wage-earners of the country might 
 get cheaper insurance, and by which in the 
 course of time the business might be taken out 
 of the hands of a few and placed in social insti- 
 tutions all over the land. In Massachusetts 
 such institutions already existed. There were 
 in that state 189 savings banks, managed by 
 about three thousand men who regarded them 
 as quasi-public trusts and so gave their services. 
 The cost of management was less than one-tenth 
 of that in insurance companies. Why not add 
 insurance departments to these banks? He drew 
 up a tentative plan, for months he lectured and 
 wrote on the subject, the Savings Bank Insurance 
 League was formed, and a bill which he drafted 
 was introduced, empowering savings banks of 
 the state to establish insurance departments. 
 
 This bill was bitterly opposed by the old in- 
 dustrial companies. But the League was hard" 
 at work. Volunteer speakers stumped the 
 entire state; for six months Brandeis spoke 
 from two to six nights every week; a petition 
 of 150,000 names was presented, and tens of 
 thousands of letters poured in on the legisla- 
 ture. In 1907 the bill passed. And by the 
 end of 1908, in two banks the system was 
 established. ^ 
 
xxviii BRANDEIS 
 
 From their earnings, after paying all charges 
 and setting aside all possible reserves, they de^ 
 clared at the end of the first year an 8}^ per 
 cent dividend to the policy holders — a sum equal 
 to one month's premium. And besides, the 
 policy holders got a rate twenty-two per cent 
 less than that given by the old industrial 
 companies. 
 
 Since then two more banks have adopted the 
 system, and their reports in January, 19 14, 
 showed more than eight thousand policies in 
 force, representing more than $3,000,000 of in- 
 surance. A fifth-year dividend has been declared 
 on the monthly premium policies, equalling 
 twenty per cent of a year's premiums. 
 
 This reduction has resulted from radical 
 changes. In place of the old wasteful method 
 of house-to-house solicitation, the League be- 
 gan a campaign of insurance education. Vol- 
 unteer speakers, together with paid insurance 
 instructors, spoke in factory towns, and the 
 manufacturers gave cordial support. Through 
 their aid meetings were held, literature was 
 distributed, and finally the instructor went 
 through the factory talking in person to each 
 employee. In this way the business has been 
 secured with little expense. And the old method 
 of house-to-house collection has been also 
 
BRANDEIS xxix 
 
 done away with. Premiums are paid either 
 through the employer or at the bank. 
 
 Two hundred employers of labor throughout 
 the state are now co-operating with the banks 
 and with the state by becoming unpaid agencies 
 for the receipt of applications and the transmis- 
 sion of premiums of their employees. 
 
 Far more significant than the success of these 
 banks has been the effect on the old industrial 
 companies. There is space here for but one of 
 the concessions made. For more than twenty 
 years they had made no reduction in premiums; 
 but since the new movement started their pre- 
 miums have been reduced on an average of 
 about twenty per cent. This means a saving to 
 Massachusetts wage-earners of over $1,000,000 
 a year, and to the people of the country it will 
 probably mean within a few years an annual 
 saving of from fifteen to twenty millions. 
 
 "Our work so far," said Brandeis, "has af- 
 fected only industrial insurance, but I believe 
 that workingmen's insurance in America is 
 soon to assume gigantic proportions and be- 
 come the bulk of all insurance. Shall these 
 wage-earners be served by an exploiting busi- 
 ness, with dangerous power in a few hands, or 
 by public and quasi-public institutions all over 
 the country?" 
 
XXX BRANDEIS 
 
 SHORTER HOURS FOR WOMEN WORKERS 
 
 In other big struggles affecting wage-earners, 
 Brandeis has taken a leading part. One was 
 in behalf of our millions of women factory 
 workers. 
 
 In 1907, in Oregon, a law restricting women's 
 work in factories and laundries to ten hours in 
 one day was contested and carried to the United 
 States Supreme Court. And through the Na- 
 tional Consumers' League, Brandeis undertook 
 its defence. 
 
 The law had been attacked as against the 
 constitutional right of freedom of contract. 
 This freedom, however, is subject to the police 
 poWeifS"of the states. If it could be proved that 
 the legislature in passing the' law had reason- 
 able grounds for believing that a day longer than 
 ten hours is so injurious to women as to be a 
 danger to the community, the court must hold 
 the law constitutional. 
 
 Brandeis saw that the crux of the case lay in 
 the human facts involved. He accordingly 
 outlined a brief and called upon the Consumers' 
 League to collect and arrange the facts. Miss 
 Josephine Goldmark of the League undertook 
 the work. All available evidence was collected. 
 With this he went before the court, and the 
 
BRANDEIS xxxi 
 
 result was a un3,nimous decision upholding the 
 law. 
 
 But he saw that the fight was not over, and 
 he determined to strengthen the evidence. 
 Under his guidance Miss Goldmark again set 
 to work, with a large corps of assistants, to 
 prepare an exhaustive brief on the subject. It 
 was ready none too soon. In 1909, in Illinois, 
 a similar law was contested before the Supreme 
 Court of the state, and again Brandeis led the 
 defence. The manufacturer's claim, that a cer- 
 tain woman thirty-five years in his employ 
 could not earn a living wage unless she worked 
 over ten hours a day, acted as a boomerang. 
 And the result was again a victory. 
 
 In 191 1 Brandeis was invited by the attorney 
 general of Ohio to assist in the defence of a 
 somewhat similar Ohio statute regulating hours 
 for women. He submitted a brief in this case 
 before the Supreme Court of the state, which 
 held the law constitutional. The case was 
 carried on appeal to the Supreme Court of the 
 United States. Brandeis again filed a brief and 
 took part in the oral argument. And the Su- 
 preme Court, in 19 14, upheld the law. In 19 12 
 he was again active in the defence of the Illinois 
 law, which was again the subject of attack, its 
 scope having been widely extended. 
 
xxxii BRANDEIS 
 
 V 
 
 In November, 19 13, a request for assistance 
 came from a new source. This was in regard to 
 the minimum Wlge rulings of the Oregon Indus- 
 trial Welfare Commission. The commission was 
 established by statute in 19 13 and empowered 
 to establish such wages, hours of labor and 
 conditions of work as appeared, after investiga- 
 tion, to be necessary for preservation of the 
 health and welfare of the employees. The 
 minimum wages for women employed in fac- 
 tories and stores were promulgated by the com- 
 mission in September, 1913. Constitutionality 
 of the act under which these orders were issued 
 was contested in the courts, and at the com- 
 mission's request Brandeis again, with Miss 
 Goldmark's aid, filed a brief showing the rela- 
 tion of "Paiges to health, morals and efficiency. 
 In March, 19 14, a unanimous decision was 
 handed down sustaining the law. 
 
 In his work in these labor cases there are 
 two points of especial significance. 
 
 First, the method of argument marks a revolu- 
 tionary change. Hitherto such cases had been 
 argued deductively, from the legal precedents, 
 upon abstract theories of what is right and what 
 is wrong. But the method used here is in- 
 ductive. The first Illinois brief contains only four 
 pages of strictly legal argument; the remaining 
 
BRANDEIS xxxiii 
 
 605 pages go straight to the medical, social and 
 economic facts involved. And the spirit of 
 modern science thus successfully brought into 
 court will doubtless have a far-reaching effect on 
 future court decisions. 
 
 Second, the brief is significant for what it 
 proves beyond its point. For the knowledge of 
 the whole civilized world on the subject of 
 overwork is assembled here. It is shown that 
 in this tense machine age an hour's work means 
 far more than it did a century back; that ex- 
 cessive work not only weakens the body and 
 opens the way to diseases, but itself produces 
 an actual poison, "the toxin of fatigue"; that 
 fatigue weakens self-control and leads to the 
 use of drink and drugs; that overwork tends 
 to exhaust the central nervous system upon 
 which the vital functions depend; and finally 
 that through overwork the danger of accidents 
 is increased, the greatest number of accidents 
 coming between eleven and twelve in the morn- 
 ing and between four and six in the afternoon, 
 when the senses are dulled by fatigue. 
 
 Overwork is especially fatal to women. By a 
 terrific array of evidence it is shown that work- 
 ing women are sick far more often than men, 
 that their mortality is higher, and that in 
 thousands of cases the child-bearing function is 
 
xxxiv BRANDEIS 
 
 impaired. Sterility, miscarriage, stillbirth — 
 each is common; and children born to exhausted 
 women are at birth below normal weight and 
 size. Through the mother's weakness and her 
 absence from her baby, the infant death rate 
 is terribly high, while thousands grow up weak- 
 lings. And the danger is not to health alone. 
 For a mother returning exhausted at night, with 
 the cooking and washing still to be done, has 
 little will or energy left; and the moral hold of 
 the home is lost. The very preservation of a 
 people, therefore, is threatened by such over- 
 work. In districts where it has long existed 
 actual race degeneration has set in. 
 
 The evidence shows, on the other hand, that 
 shorter hours have resulted in vastly improving 
 the whole tone of the community; that they 
 have worked no injury to the employer, for by 
 the increased efficiency as much work was done 
 as before, generally more; and that, instead of 
 lowering wages, with the resulting increase of 
 output wages also have increased. 
 
 In the face of such evidence it becomes plain 
 that a ten-hour law hardly touches this intricate 
 problem. Hours of labor both for women and 
 men will undoubtedly be stUl further shortened. 
 And as a sound scientific basis for future legis- 
 lation, this brief has been still further expanded. 
 
BRANDEIS 
 
 "1 
 
 'In every public job that Brandeis has 
 tackled," said one of his friends, "you will find 
 this same long-headed view. Out of the thick 
 of each fight he is in, he seems to look into the 
 future." 
 
 A GREAT TASK ACHIEVED 
 
 This is true of his work in settling strikes. 
 
 The cloakmakers' strike in New York, in the 
 summer of 19 lo, involved some seventy thousand 
 employees and a business of $180,000,000 a year. 
 Conditions were bad. The hours were long and 
 irregular, and through a system of subcontract- 
 ing the pay for most workers was wretchedly 
 low. The strike was bitter, sudden, chaotic; 
 men starved on $1.50 a week, and refused to 
 hear of compromise. The dispute had cen- 
 tred around the "closed shop." The union 
 would listen to no terms without it; employers 
 were equally set against it; two attempts at 
 conference had split upon this rock. 
 
 Then Brandejs was called in. It was mid- 
 summer, his time for vacation; but he came at 
 once to New York, as usual giving his services. 
 He soon won the confidence of both sides. 
 
 "He was a man," said the union's socialist 
 lawyer, "to whom we did not hesitate to talk 
 openly from the start. He showed a broad mind 
 
xxxvi BRANDEIS 
 
 and a fine sense of fairness. It was the most 
 wonderful handling of a strike situation that 
 I've ever seen." 
 
 This is shown by the minutes of the confer- 
 ence. For the class struggle was* here deep, 
 fundamental, made bitter by the chaos of the 
 past. Repeatedly the two sides clashed. But 
 repeatedly, with sound reasoning and demand 
 for the facts, the arbitrator came between. 
 Knowing the closed-shop issue to be the danger- 
 point, he persistently put it off, in order that 
 first both sides might see that on all other points 
 they could agree. When it came up at last he 
 offered a compromise plan (his invention) "the 
 preferential union shop." This was refused, 
 and the strike went on. But a month later an 
 agreement was reached. Wages were raised, 
 hours reduced, the system of subcontracting 
 abolished, and many other improvements made. 
 But by far the most important result was the 
 adoption, in a more definite form, of the Bran- 
 deis plan for a preferential union shop. The 
 final agreement describes it as follows: 
 
 "A shop where union standards as to working 
 conditions, hours of labor and rates of wages 
 prevail, and where, when hiring help, union 
 men are preferred;" it being recognized that 
 since there are differences in degree of skill 
 
BRANDEIS xxxvii 
 
 among those employed in the trade, employers 
 shall have freedom of selection as between one 
 union man and another, and shall not be con- 
 fined to any list nor bound to foUow any pre- 
 scribed order whatever. . . . The Manufac- 
 turers' Association, however, declare their belief 
 in the union, and that all who desire its benefits 
 should share in its burdens." 
 
 To make it effective, provisions were added 
 for a price committee, a shop chairman, a com- 
 mittee on grievances, a board of sanitary con- 
 trol and a board of arbitration. On this board, 
 Brandeis was chosen as the third man. 
 
 During the three years since then, the develop- 
 ment of the industry has completely justified 
 his anticipations.. There has been no general 
 strike. The rate of wages, increased in 19 lo, 
 has been maintained, and concerns which for 
 some time paid below the union scale have been 
 compelled to conform to it. In August, 19 13, 
 a demand having been made for higher wages 
 and the matter referred to the^Board of .^jbi- 
 trafl5n7 the board caused an intensive study 
 of the whole subject to be made, the report of 
 which will soon appear. The industry has been 
 more and more stabilized. The forty-eight-hour 
 week has been more strictly adhered to, over- 
 time has been paid double and there has been 
 
xxxviii BRANDEIS 
 
 an enormous improvement in the sanitary condi- 
 tions of the shop, a continual raising of the 
 standards of health. The machinery of the 
 Protocol, or working agreement, has been 
 enormously facilitated and improved. A Jjody 
 of; industrial laws and precedents has grown up 
 based on justice to both sides. Of eight thousand 
 cases arising in two years, only nine had to be 
 referred finally to the Board of Arbitration, the 
 others having been settled by the parties them- 
 selves. Of course there has been agitation and 
 misunderstanding; but, where such excitement 
 formerly would have led to disastrous strikes, it 
 now passes harmlessly over the industry. The 
 Board of Arbitration has become a supreme 
 industrial court to which great problems of 
 fundamental policy alone have been referred. 
 A better spirit has prevailed between the two 
 parties, a spirit of conciliation. The leaders on 
 both sides have been educated to the stand- 
 point which Brandeis had originally taken, that 
 of considering the industry as a whole. It is 
 still an experiment, imperfect and full of the 
 difficulties inherent in industrial relations. It 
 demands the greatest possible self-control on 
 both sides. But it contains the germ of a great 
 idea; an element of industrial statesmanship. 
 "Prolonged peace and prosperity," Brandeis 
 
BBANDEIS xxxix 
 
 maintains, "can rest only on the foundation of 
 industrial liberty. Industrial democracy should 
 ultimately attend political democracy. Indus- 
 trial absolutism is not merely impossible in this 
 country at the present time, but is most un- 
 desirable. Our employers can no more afford 
 to be absolute masters of their employees than 
 they can afford to submit to the mastery of 
 their employees. Bluff and bluster have no 
 place here. The spirit must be 'Come, let us 
 reason together.' Such conferences are neces- 
 sarily time-consuming, but the time cannot be 
 better spent. There are no short cuts to evolu- 
 tion." 
 
 THE LAWYER IN THE BALLINGER CASE 
 
 Until his . appearance before the Interstate 
 Commerce Commission as counsel for ship- 
 pers in the Freight Rate Advance Case, the 
 most widely known of all his work in the 
 people's service was done in the BaUinger 
 investigation. 
 
 About two weeks before the investigation 
 began, he became counsel for Glavis. Those two 
 weeks he spent delving into the mass of details 
 involved. It was an amazing instance of swift 
 absorption. The committee, it was feared, 
 would make short work of Glavis; but if this 
 
xl BRANDEIS 
 
 were intended, it was made impossible by the 
 brilliant history of the whole matter which 
 Brandeis gave at the start. 
 
 His task was hard; for the whole administra- 
 tion was set against the investigation. To the 
 requests for records there were delays, and later 
 even denials. But over what records he could 
 secure, he used to work in his room late at night, 
 and he was often at work again at four o'clock 
 in the morning. Out of these dry records he 
 tried to buUd up the part each man had played, 
 to visualize the story. And out of tjiis patient 
 searching came two disclosures which startled 
 the country. 
 
 For their understanding a few dates are 
 needed. On August i8, 1909, Glavis submitted 
 his charges. On September 6 Ballinger sub- 
 mitted a mass of documents in reply. On Sep- 
 tember 13 the President exonerated Ballinger 
 and dismissed Glavis. Two months later Glavis 
 appealed to the country. On December 21 . the 
 Senate requested the President to transmit to 
 Congress any reports, statements, papers or docu- 
 ments upon which he had relied in reaching his 
 conclusion. And the President complied. 
 Among the papers submitted were a summary 
 and a report by Attorney General Wickersham, 
 dated September 11. 
 
BRANDEIS xli 
 
 In the course of time Brandeis began to sus- 
 pect that these Wickersham papers had not 
 been written on September ii. If so, why had 
 not the President referred to them in his letter 
 of September 13? Moreover, they were dated 
 only five days after Ballinger had submitted 
 his mass of evidence. How could the Attorney 
 General have made in five days so careful an 
 analysis of the huge mass of confused and intri- 
 cate papers submitted, so unfair an analysis, 
 adroitly keeping back some facts and giving un- 
 due weight to others? Finally he found definite 
 proof. The report referred to a certain statute 
 as mentioned by Glavis in his letter. Glavis 
 had not mentioned it in his letter to the Presi- 
 dent. But he had mentioned it in his Collier's 
 article over two months later. 
 
 Still Brandeis hesitated. The ofl&cials in- 
 volved were so high. If he failed to completely 
 prove his point, the recoil woxild be terrific. 
 But when Finney, a subordinate to Wickersham, 
 was on the stand, Brandeis asked him such 
 questions as these: "What do you know of that 
 report? When did you first see it? When did 
 you first hear of it?" And though Finney's 
 answers were evasive, from the startled expres- 
 sion on his face and on certain other faces, 
 Brandeis finally made up his mind. He put 
 
xlii BRANDEIS 
 
 the question that afternoon. Had not the At- 
 torney General antedated his report? 
 
 "The silence in that room," said one, "was 
 instant, terribly intense. For everyone knew 
 that before risking such a question, Brandeis 
 must have proof of his facts." Finney evaded 
 the question. Two days later Brandeis called 
 for a statement from Wickersham. The com- 
 mittee refused to make the request. But a reso- 
 lution making a like request was introduced 
 into Congress, and in a communication to the 
 Committee of the House the Attorney General 
 admitted that his report was not written until 
 long after the day of its date, long after the 
 President's decision. A similar admission was 
 made later by the President. 
 
 At the time of this admission Ballinger was 
 on the stand. Brandeis had long been insist- 
 ing that this chief witness be called. He knew 
 the risk he ran of turning the public against him 
 if he pressed his man too hard; but he took the 
 risk. "I have never heard," said one lawyer, 
 "so relentless an examination. When any other 
 man would have stopped out of sheer pity, still 
 he kept on." But the bursts of rage from the 
 witness, his misstatements and self-contradic- 
 tions, had a fatally damaging effect. Repeat- 
 edly he made denials, which a series of keen, 
 
BRANDEIS xliii 
 
 quiet questions broke down. These questions 
 showed a disturbingly accurate knowledge of 
 Ballinger's every move from August 26 to Sep- 
 tember 13, his itinerary in minutest detail, 
 down to the trains he took, exact hours of ar- 
 rival, who met him at stations, where they went. 
 At one point Senator Root intervened. "Mr. 
 Brandeis," he asked indignantly, "were you 
 having this man followed by a detective?" 
 Brandeis smiled and answered, "No." 
 
 "As a matter of fact," as he later told the 
 committee, " this wonderful detective work was 
 quite simply done. I knew Ballinger's main 
 itinerary. I then secured back copies of the 
 local newspapers in the places he visited; and 
 in them, quite naturally, I acquired my mar- 
 vellous knowledge." 
 
 When Wickersham had made his admission, 
 Brandeis began pressing Ballinger upon another 
 matter. He knew that Ballinger's subordinate, 
 Lawler, had drafted a letter on which the Presi- 
 dent had largely based his letter of exoneration. 
 This Lawler letter had never been mentioned. 
 Brandeis knew of it from Kerby, Lawler's ste- 
 nographer, who had refused to come out with 
 a statement. He now questioned Ballinger on 
 the same subject. And it was when the latter 
 showed by his answers his resolve to keep back 
 
xliv BRANDEIS 
 
 the truth that Kerby decided to state what he 
 knew. Further, he said he had found the note- 
 book in which he had taken Lawler's dictation, 
 and had had photographs made of the pages 
 containing the letter. Here at last was definite 
 proof. 
 
 Close on the Ballinger denial, the Kerby 
 statement appeared in a Western paper. The 
 telegraphic report, which reached the White 
 House at noon, failed to include the fact that 
 Kerby had proof. The White House issued a 
 denial. Later in the day the full report, in- 
 cluding the proof, appeared in a Washington 
 paper. The next day the President sent to the 
 Investigating Committee a long statement ad- 
 mitting the truth of what Kerby had said. The 
 President stated among other things that he 
 had asked Mr. Lawler "to prepare an opinion 
 as if he were President." 
 
 From these two exposures it was plain that 
 the President, in response to the Senate's re- 
 quest, had sent to Congress an important paper 
 on which he had not relied in reaching his con- 
 clusions, because it was not in existence; and 
 also that he had omitted to send another import- 
 ant paper on which he did rely, from which he 
 copied portions. These disclosures did much to 
 convince the public. For if the administration 
 
BRANDEIS xlv 
 
 must^o shield a man, how unfit must he be to 
 continue in office! 
 
 Of the work of Brandeis here, the most inter- 
 esting part to me is his handling of the reporters. 
 From the start, knowing how little he had to 
 hope for from the majority of the committee, 
 he presented his case direct to the American 
 people. Night after night in his room he worked 
 with the newspaper men, explaining the day's 
 significant points. And the result of this work 
 was great. For Mr. Ballinger's resignation was 
 mainly due to the strong public sentiment made 
 through the press. ''' 
 
 In his closing argument, Brandeis- stated 
 what he believed to be the real significance of 
 the work. "This investigation," he said, "has 
 been referred to as a struggle for conservation, 
 a struggle against the special interests. It is 
 that: but it is far more. In its essence, it is the 
 struggle for democracy, the struggle of the small 
 man against the overpowering influence of the 
 big; politically as well as financially, the struggle 
 to establish the right of every American to equal 
 justice in the public service as well as in the 
 courts, that no official is so highly stationed that 
 he may trample ruthlessly and unjustly upon 
 even the humblest American citizen. The cause 
 of Glavis is the cause of the common people, 
 
xlvi BRANDEIS 
 
 and more especially the cause of the hundreds 
 of thousands of government officials." 
 
 BRANDEIS AND THE RAILROADS 
 
 Not long after this, Brandeis entered a con- 
 test of greater magnitude than any in which he 
 had ever before engaged. He became counsel 
 for all the trade organizations of the Atlantic 
 seaboard in the hearing on the proposed ad- 
 vance in railroad rates before the Interstate 
 Commerce Commission. 
 
 "I opposed these rates," he told me, "both 
 because the method of raising them, by hori- 
 zontal, arbitrary and undiscriminating increase, 
 was a departure from all previous practice in 
 rate making, disregarding the effect of the in- 
 crease upon the business affected; and also on 
 the ground that many of the railroads, if they 
 needed additional income at all, needed it be- 
 cause of a reckless policy of aggrandizement and 
 other financial excesses. 
 
 "But the point that struck me most was this: 
 While the railroads' were seeking to increase 
 rates in order to overcome the increase of operat- 
 ing cost, largely due to increased wages which 
 would amount to a small per cent, there were 
 immense possibilities of introducing economies 
 of many times the amount. For the railroads, 
 
BRANDEIS xlvii 
 
 during the last ten years, through the practical 
 elimination of competition and through their 
 increase beyond the unit of greatest efficiency, 
 had come to be even less economically operated 
 than before. The main economies of operation 
 they had made were those resulting from the 
 levelling of grades, elimination of curves, intro- 
 duction of larger cars and engines — in short, 
 improvement in plant. They had left practi- 
 cally unworked the field of attaining greater 
 efficiency through the new science of management 
 — a science which in other industries was al- 
 ready being developed with wonderful results, 
 a science by which the efficiency of the individ- 
 ual workman was often more than doubled, re- 
 sulting in both largely; increased compensation 
 to the worker and increased profit to the 
 employer, • 
 
 "I therefore urged that if the roads needed 
 greater income they should resort to increase 
 of managerial efficiency, and that it would but 
 put a premium on uneconomical management 
 to permit an increase of rates simply because 
 there appeared to be need of greater income. 
 This policy was particularly dangerous because 
 of the open declaration of the railroad presi- 
 dents that the increases sought were but the 
 beginnings of demands for still higher rates, and 
 
xlviii BRANDEIS 
 
 that the community must accustom itself to 
 the idea that rates generally would continue to 
 increase." 
 
 The outcome of this controversy is well 
 known. The commission refused to allow the 
 increase in both the eastern and the western 
 divisions of the railroads of the country. Mr. 
 Brandeis's activity not only had the effect of 
 concentrating public attention upon the case 
 and the real issues involved, but also of creat- 
 ing widespread and unusal interest in the ques- 
 tion of scientific management. As one of the 
 engineers said: "By a single stroke Brandeis 
 created a greater advance in scientific manage- 
 ment than would otherwise have come in the 
 next quarter of a century." 
 
 "The great fact to remember is this," he told 
 me. "The coming science of management, in 
 this century, marks an advance comparable 
 only to that made by the coming of the machine 
 in the last. The profits from the machine were 
 absorbed by capital. But we have developed 
 a social sense. And now of the profits that are 
 to come from the new scientific management, 
 the people are to have their share. These prof- 
 its are to be immense. On our railroads alone 
 at least a million dollars a day might be saved 
 by this kind of management. Not all the mate- 
 
BRANDEIS xlk 
 
 rial resources in our land can compare to this 
 prodigious field, the possibilities of the science 
 which will increase the efl&ciency of man. And 
 this public domain must not be preempted." 
 
 What the commission thought of Mr. Bran- 
 deis's work in this case is indicated by the fact 
 that in the summer of 19 13 they engaged him as 
 counsel for the commission itself in the matter 
 of the renewed application of the railroads for 
 a similar general increase in rates, the case which 
 is now going on in Washington. 
 
 BRANDEIS AND THE " MONEY TRUST " 
 
 His most recent work, at the time of this 
 writing, has been his attack on the "money 
 trust," a work which has had a large share in 
 bringing forward important bills which deal 
 with the trusts of the country. 
 
 "On nothing has he ever worked harder," 
 writes Mr. Norman Hapgood, "than on his 
 diagnosis of the money trust, and when his life 
 comes to be written (I hope many years hence) 
 this wiU be ranked with his railroad work for its 
 effect in accelerating industrial changes. It is 
 indeed more than a coincidence that so many 
 of the things he has been contending for have 
 come to pass. It is seldom that one man puts 
 one idea, not to say many ideas, effectively be- 
 
1 BRANDEIS 
 
 fore the world, but it is no exaggeration to say 
 that Mr. Brandeis is responsible for the now 
 widespread recognition of the inherent weak- 
 ness of great size. He was the first person who 
 set forth effectively the doctrine that there is 
 a limit to the size of greatest efl&ciency, and the 
 successful demonstration of that truth is a pro- 
 found contribution to the subject of trusts. 
 The demonstration is powerfully put in his 
 testimony before the Senate Committee in 191 1. 
 In destroying the delusion that efl&ciency was 
 a common incident of size, he emphasized the 
 possibility of efficiency through intensive de- 
 velopment of the individual, thus connecting 
 this principle with his whole study of efficiency, 
 and pointing the way to industrial democracy." 
 Such, in brief, is the public work of this man 
 in a little over twenty years. For such work he 
 has urged the importance of big successful 
 lawyers keeping themselves free. He has kept 
 himself free : striving to hold a position of abso- 
 lute independence "between the wealthy and 
 the people." On the one hand, he has no close 
 political ties: he has declined every proffer of 
 office, has occasiofially even refused to work for 
 or against any candidate. On the other, he has 
 no connection with any big corporation. "I 
 would rather have clients," he told me, "than 
 
BRANDEIS li 
 
 be somebody's lawyer." He has steadily tried 
 to rid himself of all property influence; he has 
 no investments in the Boston public utilities, 
 and made it a rule not to take a financial inter- 
 est in a business for which he was counsel. His 
 income is large, but he spends little. He is a 
 generous giver. "I have only one life, and it's 
 short enough," he said. "Why waste it on 
 things that I don't want most? And I don't 
 want money or property most. I want to be 
 free." 
 
 In his home, the standard set about twenty 
 years back has remained the same. Hp lives in 
 a simple house and he has few material wants — 
 keeping himself free from the encumbrance of 
 things. In his house you at once feel at home. 
 He has many warm friends and a wide acquaint- 
 ance; he is a keen appreciator of men. " It's 
 hard to interview Brandeis," said a well-known 
 writer. "He wastes your time interviewing 
 you." 
 
 Each year more of his time is given freely to 
 pubUc work. Each year certain big special 
 interests grow more bitter against him, for he 
 is a patient, pitiless antagonist, and the reforms 
 he proposes go deep. 
 
 "We are sure to have for the next generation 
 an ever-increasing contest between those who 
 
lii BRANDEIS 
 
 have and those who have not. There are vital 
 economic, social and industrial problems to be 
 solved. And for these we need our ablest men. 
 The reason why we have not made more progress 
 in social matters is that these problems have 
 not been tackled by the practical men of high 
 ability, like those who have worked on industrial 
 inventions and enterprises. We need social in- 
 ventions, each of many able men adding his 
 work until the invention is perfected. 
 
 "I have no rigid social philosophy. I have 
 been too intense on concrete problems of practi- 
 cal justice. And yet I can see that the tendency 
 is steadily toward governmental control. The 
 government must keep order not only physically 
 but socially. In old times the law was meant to 
 protect each citizen from oppression by physical 
 force. But we have passed to a subtler civiliza- 
 tion; from oppression by force we have come 
 to oppression in other ways. And the law must 
 still protect a man from the things that rob him 
 of his freedom, whethef the oppressing force 
 be physical or of a subtler kind. 
 
 "There is no such thing as freedom for a man 
 who under normal conditions is not financially 
 free. We must therefore find means to create 
 in the individual financial independence against 
 sickness, accidents, unemployment, old age and 
 
BRANDEIS liii 
 
 the dread oWeaving his family destitute, if he 
 suffer premature d^ath. For we have become 
 practically a world of employees; and, if a man 
 is to have real freedom of contract in dealing with 
 his employer, he must be financially independent 
 of these ordinary contingencies. Unless we pro- 
 tect him from this oppression, it is foolish to call 
 him free. Moreover, since most men are em- 
 ployees and since men must work to live, the 
 law should see that they are protected from op- 
 pression in their work, from excessive hours of 
 labor and other conditions injurious not only 
 to them alone but through them to the com- 
 mon good. 
 
 "This principle applies in general to the whole 
 question of property rights. Property must be 
 subject to that control of property which is 
 essential to the enjoyment by every man of a 
 free individual life. And when property is used 
 to interfere with that fundamental freedom of 
 Ufe for which property is only a means, then 
 property must be controlled. This applies to the 
 regulation of trusts and railroads, public utili- 
 ties and all the big industries that control the 
 necessities of life. Laws regulating them, far 
 from being infringements on liberty, are in 
 reality protections against infringements on 
 liberty. 
 
liv BRANDEIS 
 
 "Property is only a means. It has been a 
 frequent error of our courts that they have made 
 the means an end. Once correct that error, put 
 property back into its right place, and the whole 
 social-legal conception becomes at once consist- 
 ent. I see no need to amend our Constitution. 
 It has not lost its capacity for expansion to meet 
 new conditions, unless it be interpreted by rigid 
 minds which have no such capacity. Instead 
 of amending the Constitution, I would amend 
 men's economic and social ideals. I believe that 
 our judges are as honest as you can make men. 
 But like all the rest of us they are subject to 
 their environment. And law has always been a 
 narrowing, conservatizing profession. In Eng- 
 land it was always easy for a Tory government 
 to find great lawyers for judicial office, but for 
 a Liberal government it was hard. And so it 
 has been throughout history. Nearly all of 
 England's great lawyers were Tories. 
 
 "What we must do in America is not to at- 
 tack our judges, but to educate them. All judges 
 should be made to feel, as many judges already 
 do, that the things needed to protect liberty are 
 radically different from what they were fifty 
 years back. In some courts the judges' con- 
 ceptions of their own powers must also change. 
 Some judges have decided a law unconstitu- 
 
BRANDEIS Iv 
 
 tional simply because they considered the law 
 unwise. These judges should be made to feel 
 that they have no such right, that their busi- 
 ness is not to decide whether the view taken by 
 the legislature is a wise view, but whether a 
 body of men could reasonably hold such a view. 
 In the past the courts have reached their con- 
 clusions largely deductively from preconceived 
 notions and precedents. The method I have 
 tried to employ in arguing cases before them has 
 been inductive, reasoning from the facts. 
 
 " In general, I believe that the courts and the 
 people have been too far apart. There is no 
 subject so complex that the people cannot be 
 interested in it and made to see the truth about 
 it if pains enough be taken; and I believe that a 
 common agreement of public sentiment should 
 influence the court's decision on many a question. 
 
 "For the aspirations of the people must have 
 adequate legal expression. Otherwise we shall 
 have a revolt. The whole industrial world is in 
 a state of ferment. It is in the main peaceful, 
 and to a considerable extent silent; but there 
 is felt to-day very widely the inconsistency in 
 this condition of political democracy and in- 
 dustrial absolutism. The people are beginning 
 to doubt whether in the long run democracy and 
 absolutism can coexist in the same community; 
 
Ivi BRANDEIS 
 
 beginning to doubt whether there is really a 
 justification for the great inequalities in the 
 distribution of wealth. This movement must 
 necessarily progress; the people's thought will 
 take shape in action. And it lies with our lawyers 
 to say in what lines that action shall be ex- 
 pressed: wisely and temperately or wildly and 
 intemperately; in lines of evolution or in lines 
 of revolution. 
 
 "Young men -yv^ho feel drawn to the legal pro- 
 fession may rest assured that they will find in it 
 an opportunity for usefulness which is probably 
 unequalled elsewhere. There is and there will be 
 a call upon the legal profession to do a great 
 work for this country." 
 
 He is fond of quoting these lines from Eu- 
 ripides, written over two thousand years back, 
 but which have a pregnant meaning for us now: 
 
 /Thou hast heard men scorn thy city, call her wild 
 Of counsel, mad; thou hast seen the fire of morn 
 Flash from her eyes in answer to their scorn! 
 Come toil on toil, 't is this that makes her grand, 
 Peril on peril! And common states that stand 
 In caution, twiUght cities, dimly wise — 
 Ye know them, for no light is in their eyes ! 
 Go forth, my son, and help! 
 
BUSINESS -A PROFESSION 
 
 BUSINESS — A PROFESSION! 
 
 Each commencement season we are told by 
 the college reports the number of graduates who 
 have selected the professions as their occupa- 
 tions and the number of those who will enter 
 business. The time has come for abandoning 
 such a classification. Business should be, and 
 to some extent already is, one of the profes- 
 sions. The once meagre list of the learned 
 professions is being constantly enlarged. Engi- 
 neering in its many branches already takes rank 
 beside law, medicine and theology. Forestry 
 and scientific agriculture are securing places of 
 honor. The new professions of manufacturing, 
 of merchandising, of transportation and of 
 finance must soon gain recognition. The estab-. 
 lishment of business schools in our universities,, 
 is a manifestation of the mode rn conception of 
 business^ 
 
 ^ An address delivered at Brown University Commencement Day, 
 1912. Published in " System," October, 1912. 
 
2 BUSINESS — A PROFESSION 
 
 The peculiar characteristics of a profession 
 as distinguished from other occupations, I take 
 to be these: 
 ^ First. A profession is an occupation for which 
 the necessary preliminary training is intellec- 
 tual in character, involving knowledge and to 
 some extent learning, as distinguished from 
 niere skill. 
 
 0Second. It is an occupation which is pursued 
 largely for others and not merely for one's 
 
 Q/Third. It is an occupation in which the 
 amount of financial return is not the accepted 
 measure of success. 
 
 Is not each of these characteristics found to- 
 day in business worthily pursued? 
 
 The field of knowledge requisite to the more 
 successful conduct of business has been greatly 
 widened by the application to industry not 
 only of chemical, mechanical and electrical 
 science, but also the new science of mana ge- 
 jnent ; by the increasing difficulties involved 
 in a djusting t he relations of labor to capital ; 
 by the necessary intertwining of social with in- 
 dustrial problems; by the ever extending scope 
 of state and federal regulation of business. 
 Indeed, mere size and territorial expansion 
 have compelled the business man to enter upon 
 
BUSINESS — A PROFESSION 3 
 
 new and broader fields of knowledge in order to 
 match his achievements with his opportunities. 
 
 This new development is tending to make 
 business an applied science. Through this de- 
 velopment the relative value in business of the 
 trading instinct and of mere shrewdness have, 
 as compared with other faculties, largely di- 
 minished. The conception of trade itself has 
 changed. The old idea of a good bargain was a 
 transaction in which one man got the better of 
 another. TTtpjpw j dea of a good contract is a 
 transaction which is g ood for both parties to it. 
 
 Under these new conditions, success in busi- 
 ness must mean something very diflferent from 
 mere money-making. In business the able man 
 ordinarily earns a larger income than one less 
 able. So does the able man in the recognized 
 professions — in law, medicine or engineering; 
 and even in those professions more remote from 
 money-making, like the ministry, teaching or 
 social work. The world's demand for efficiency 
 is so great and the supply so small, that the 
 price of efficiency is high in every field of human 
 activity. 
 
 The recognized professions, however, defi- 
 nitely reject the size of the financial return as 
 the measure of success. They select as their 
 test, excellence of performance in the broadest 
 
4 BUSINESS — A PROFESSION 
 
 sense — and include, among other things, ad- 
 vance in the particular occupation and service to 
 the community. These are the basis of all worthy 
 reputations in the recognized professions. In 
 them a large income is the ordinary incident of 
 success; but he who exaggerates the value of the 
 incident is apt to fail of real success. 
 
 To the business of to-day a similar test must 
 be applied. True, in business the e arning of 
 ^pr££t4s something more than an incident of 
 success. Vj t is an essential condition of success; 
 because the continued a fesen ce of profat - otseif 
 jpells fai lure. But while loss spells failure, 
 large profits do not connote success. Success 
 must be sought in business also in excellence 
 of performance; and in business, excellence of 
 performance manifests itself, among other things, 
 in the advancing of methods and processes; 
 in the improvement of products; in more perfect 
 organization, eliminating friction as well as 
 waste; in bettering the condition of the work- 
 ingmen, developing their faculties and promot- 
 ing their happiness; and in the establishment 
 of right relations with customers and with the 
 community. 
 
 In the field of modern business, so rich in 
 opportunity for the exercise of man's finest and 
 most varied mental faculties and moral quali- 
 
BUSINESS — A PROFESSION 5 
 
 ties, mere money-making cannot be regarded as 
 the legitimate end. Neither can mere growth in 
 bulk or power be admitted as a worthy ambition. 
 Nor can a man nobly mindful of his serious 
 responsibilities to society, view business as a 
 game; since with the conduct of business human 
 happiness or misery is inextricably interwoven. 
 
 Real success in business is to be found in 
 achievements comparable rather with those of 
 the artist or the scientist, of the inventor or the 
 statesman. And the joys sought in the profes- 
 sion of business must be like their joys and not 
 the mere vulgar satisfaction which is experi- 
 enced in the acquisition of money, in the exer- 
 cise of power or in the frivolous pleasure of 
 mere winning. 
 
 It was such real success, comparable with the 
 scientist's, the inventor's, the statesman's, which 
 marked the career of William H. McElwain of 
 Boston, who died in 1908 at the age of forty-one. 
 He had been in business on his own account 
 but thirteen years. Starting without means, 
 he left a fortune, all of which had been earned 
 in the competitive business of shoe manufac- 
 turing, without the aid of either patent or trade- 
 mark. That shows McElwain did not lack the 
 money-making faculty. His company's sales 
 grew from $75,957 in 1895 to $8,691,274 in 1908. 
 
6 BUSINESS — A PROFESSION 
 
 He became thus one of the largest shoe 
 manufacturers in the world. That shows he 
 did not lack either ambition or organizing abil- 
 ity. The working capital required for this 
 rapidly growing business was obtained by him 
 without surrendering to outside investors or to 
 bankers any share in the profits of business: all 
 the stock in his company being owned either by 
 himself or his active associates. That shows 
 he did not lack financial skill. 
 
 But this money-making faculty, organizing 
 ability and financial skill were with him serv- 
 ants, not masters. He worked for nobler ends 
 than mere accumulation or lust of power. In 
 those thirteen years McElwain made so many 
 i advances in the methods and practices of the 
 long-established and prosperous branch of in- 
 dustry in which he was engaged, that he may be 
 said to have revolutionized shoe manufacturing. 
 , Hfi jound it a trad e ; he left it an applied science. 
 
 This is the kind of thing he did: In 1902 the 
 irregularity in the employment of the shoe 
 worker was brought to his attention. .He be- 
 came greatly impressed witn ixs ^onomic waste, 
 
 the mi sery to the workers and tVie dRmnralj- 
 
 zation which att e nded it. Irregularity of em- 
 plbyment is the worst and most extended of 
 industrial evils. Even in fairly prosperous 
 
BUSINESS — A PROFESSION 7 
 
 times the workingmen of America are subjected 
 to enforced idleness and loss of earnings, on the 
 average, probably ten to twenty per cent of their 
 working time. The irregularity o f emp loyment 
 was no greater in the TVIcEl wain factories thair* 
 in other shoe factories. The condition was 
 not so bad in shoe manufacturing as in many 
 other branches of industry. But it was_Jiad 
 enough; for shoe_ manufa^ tu ri'n f< ; was a.^asonaI 
 indus try. Most manufacturers closed their fac- 
 tories twice a year. Some manufacturers had 
 two additional slack periods. 
 
 This irregularity had been accepted by the 
 trade — by manufacturers and workingmen 
 alike — as inevitable. It had been bowed to as 
 if it were a law of nature — a cross to be borne 
 with resignation. But with McElwain an evil 
 recognized was a condition to be remedied; and 
 he set his great mind to solving the problem of 
 irregularity of employment in his own factories; 
 just as Wilbur Wright applied his mind to the 
 aeroplane, as Bell, his mind to the telephone, 
 and as Edison, his mind to the problems of elec- 
 tric light. Wj^j2!lL fl fr"^ yptarc I'rrPgqilan'ty nf 
 
 employment had ceased in the McElwain fac- 
 tp ri V^ and before his death every one of his 
 many thousand employees could find work three 
 hundred and five days in the year. 
 
8 BUSINESS — A PROFESSION 
 
 Closely allied with the establishment of reg- 
 ularity of employment was the advance made 
 by McElwain in introducing punctual delivery 
 of goods manufactured by his company. Shoes 
 are manufactured mainly upon orders; and the 
 orders are taken on samples submitted. The 
 samples are made nearly a year before the goods 
 are sold to the consumer. Samples for the 
 shoes which will be bought in the spring and 
 summer of 1913 were made in the early summer 
 of 191 2. The solicitation of orders on these 
 samples began in the late summer. The manu- 
 facture of the shoes commences in November; 
 and the order is filled before July. 
 
 Dates of delivery are fixed, of course, when 
 orders are taken; but the dates fixed had not 
 been taken very seriously by the manufac- 
 turers; and the trade was greatly annoyed by 
 irregularities in delivery. McElwain recog- 
 nized the business waste and inconvenience at- 
 tendant upon such unfulfilled promises. He 
 insisted j jiat an agreement to deliver on a certain 
 day was as b inding as aiT agrg 5mgirt~ttrt5av |a 
 note on a certain day. ~ " J" ''^- 
 
 He knew that to make^ ^punctiial delivery 
 possible, careful study and changes in the m'eth- 
 ods of manufacture and of distribution were 
 necessary. He made the study; he introduced 
 
BUSINESS — A PROFESSION 9 
 
 the radical changes found necessary; and he so 
 perfected his organization that customers could 
 rely absolutely upon delivery on the day fixed. 
 Scientifi c manage me nt p ra.ct.iV.a11v eliminated 
 the 'feciming o bstacles ot the unex gecteg] To" 
 attamthis result business invention of a high 
 order was of course necessary — invention di- 
 rected to the departments both of production 
 and of distribution. 
 
 The career of the Filenes of Boston affords 
 another example of success in professionalized 
 business. In 1891 the Filenes occupied two 
 tiny retail stores in Boston. The floor space 
 of each was only twenty feet square. One was 
 a glove stand, the other a women's specialty 
 store. Twenty years later their sales were nearly 
 $5,000,000 a year. In September, 19 12, they 
 moved into a new building with more than nine 
 acres of floor space. But the significant thing 
 about their success is not their growth in size or 
 in profits. The trade offers many other exam- 
 ples of similar growth. The pre-eminence of 
 the Filenes lies in the advance which has been 
 made in the nature, the aims and the ideals of 
 retailing, due to their courage, initiative, per- 
 sistence and fine spirit. They have applied 
 minds of a high order and a fine ethical sense to 
 the prosaic and seemingly uninteresting busi- 
 
10 BUSINESS — A PROFESSION 
 
 ness of selling women's garments. Instead of 
 remaining petty tradesmen, they have become, 
 in every sense of the word, great merchants. 
 
 The Filenes recognized that the function of 
 retail distribution should be' undertaken as a 
 social service, equal in dignity and responsi- 
 bility to the function of production; and that 
 it should be studied with equal intensity in 
 order that the service may be performed with 
 high efficiency, with great economy and with 
 nothing more than a fair profit to the retailer. 
 They recognized that to serve their own cus- 
 tomers properly, the relations of the retailer to 
 the producer must be fairly and scientifically 
 adjusted; and, among other things, that it was 
 the concern of the retailer to know whether the 
 goods which he sold were manufactured under 
 conditions >Jidiich w^j fair to the wp^ers — 
 iSrmses, hours of work and Mnitar 
 
 But the Filenes recognized particularly their 
 obligations to their own employees. They 
 found as the common and accepted condi- 
 tions in large retail stores, that the employees 
 had no voice as to the conditions or rules 
 under which they were to work; that the 
 employees had no appeal from policies pre- 
 scribed by the management; and that in the 
 
BUSINESS — A PROFESSION 11 
 
 main they were paid the lowest rate of wages 
 possible under competitive conditions. 
 
 In order to insure a more just arrangement 
 for those working in their establishment, the 
 Filenes provided three devices: 
 
 First. A system of self-government .for em- 
 ployees, administered by the store co-opera- 
 tive association. Working through this asso- 
 ciation, the employees have the right to appeal 
 from and to veto policies laid down by the man- 
 agement. They may adjust the conditions 
 under which employees are to work, and, in 
 ^effect, prescribe conditions for themselves. 
 
 Second. A system of arbitration, through the 
 operation of which individual employees can 
 call for an adjustment of differences that may 
 exist between themselves and the management 
 as to the permanence of employment, wages, 
 promotion or conditions of work. 
 
 Third. A minimum wage scale, which pro- 
 vides that no woman or girl shall work in their 
 store at a wage less than eight dollars a week, no 
 matter what her age may be or what grade of 
 position she may fill. 
 
 The Filenes have thus accepted and applied 
 the principles of industrial democracy and of 
 social justice. But they have done more — 
 they have demonstrated that the introduction 
 
12 
 
 BUSINESS — A PROFESSION 
 
 of in di\strial_de in ocrac-y and of soda 
 — aJ^ leasf^onBiaL'ent_witff*lnarked fiS^clal sue 
 
 cess. THey asserTthat the greater efficiency of 
 their employees shows industrial democracy and 
 social justice to be money-makers. The so- 
 called "practical business man," the narrow 
 money-maker without either vision or ideals, 
 who hurled against the Filenes, as against Mc- 
 Elwain, the silly charge of being "theorists," 
 has been answered even on his own low plane 
 of material success. 
 
 McElwain and the Filenes are of course ex- 
 ceptional men; but there are in America to-day 
 many with like perception and like spirit. The 
 paths broken by such pioneers will become the 
 -pptylfi^l Kiighwavs . Their exceptional methods 
 win become accepted methods. Then the term 
 "Big business" will lose its sinister meaning, 
 and will take on a new significance. "Big busi- 
 ness" will then mean business big not in Ja ulk — > 
 or power, but gre at in s ervice an d grand in 
 maniiei\ " Ki^r^_jTiisinpc;fi"'~wiii me an prrd es- — 
 sionMl'zed bu siness, as distinguished from the 
 occupation ot petty trafficking or mere money- 
 making. And as the profession of business 
 develops, the great industrial and social prob- 
 lems expressed in the present social unrest will 
 one by one find solution. 
 
THE EMPLOYER AND TRADES 
 UNIONS 1 
 
 Mr. Chairman and, Gentlemen: — 
 
 I AM glad to be with you. A reunion of vet- 
 erans is enjoyable, particularly so if the war has 
 been successful — properly so if the right has 
 triumphed, as in the recent struggle in which 
 we were engaged. 
 
 Let me review the facts: — 
 
 Prior to February i, 1901, the minimum 
 wage of compositors in Boston was $15 per 
 week. A three years' agreement then entered 
 into between your association and the Boston 
 Typographical Union No. 13 fixed the minimum 
 weekly wage at $16 for the first year, and $16.50 
 for the two succeeding years. Shortly before 
 February i, 1904, the Union demanded that the 
 minimum wage be further increased to $18. 
 You offered an increase to $17 for the first year, 
 and $18 thereafter. The Union rejected your 
 offer, and ordered a general strike. On February 
 I, 1904, the compositors went out. 
 
 No principle of trade unionism was involved, 
 
 1 An address delivered at the annual banquet of the Boston Typo- 
 thetse, April 21, 1904, for whom Mr. Brandeis had acted as counsel 
 in a memorable struggle with the Typographical Union. 
 
14 BUSINESS — A PROFESSION 
 
 nor the question of increased wages for an in- 
 definite period in the future. It was at most a 
 matter of $i a week for one year — the equiva- 
 lent of what would be lost by each man in wages 
 if the strike lasted just three weeks. To strike 
 for such a stake was shockingly bad business. 
 It was followed quickly by acts which also 
 shocked the conscience. 
 
 The United Typothetse had made a four 
 years' contract with the International Printing 
 Pressmen and Assistants' Union. This con- 
 tract provided for arbitration of grievances, 
 provided expressly against sympathetic strikes, 
 and recognized expressly the open shop. In 
 defiance of this agreement and in the face of the 
 protest of Martin P. Higgins, the President of 
 that Union, the Boston Typographical Union 
 No. 13 undertook, by the promise of strike ben- 
 efits, which in many cases exceeded the wages 
 the men were receiving, to induce pressmen and 
 feeders, who had no grievance whatever, to 
 leave your employ. That was morally wrong. 
 We believed it to be also illegal. You applied 
 to the Supreme Judicial Court of Massachu- 
 setts for redress, and were accorded the pro- 
 tection of an injunction. 
 
 This was the beginning of the end; but the 
 end itself came in a manner even more desira- 
 
THE EMPLOYER AND TRADES UNIONS 15 
 
 ble. After the strike had continued five weeks, 
 and the men had lost twice the paltry sum for 
 which alone they struck, Mr. Lynch, the Presi- 
 dent of the International Typographical Union, 
 and other members of its Executive Committee, 
 came to Boston. They investigated the facts. 
 They doubtless realized the hopelessness of the 
 contest. They certainly realized the wrong- 
 fulness of inducing pressmen and feeders who 
 had no grievance to go out in defiance of their 
 contract. The strike was declared off — uncon- 
 ditionally. No promise of any kind was made 
 to the compositors, pressmen and feeders who 
 went out. The open shop was formally de- 
 clared in every office. Many of the men who 
 went out are still without work, and the strike 
 benefits have ceased. The dynasty which for 
 years has governed the Boston Typographical 
 Union with unwisdom is tottering. The secre- 
 tary has already resigned. The president, it is 
 said, wiU not seek re-election. 
 
 So much for the past: what shall the future 
 be? What should you do to make it an era of 
 peace and prosperity? The answer involves 
 a discussion of certain broad principles which, 
 in my opinion, should govern the relations of 
 employer and employee in all branches of in- 
 dustry, though in their application they would. 
 
16 BUSINESS — A PROFESSION 
 
 like every rule, be subject to exceptions more 
 or less temporary, dependent upon the peculiar 
 facts of the individual case. 
 / First. Prolonged peace and prosperity can 
 rest only upon the foundation of ir 
 ^grty;. The peace which employers sh^u"ra~s^ 
 isnot the peace of fifty years ago, when the em- 
 ployers were absolute masters of the situation. 
 The peace which the employees should seek is 
 not the peace of mediaeval guilds, with their 
 ^numberless restrictions. TprlnstT];^] li'Kprty mn^ 
 attend polit ical liberty . The lead which Amer- 
 ica takes in the industrial world is no doubt due 
 to our unbounded resources; but of these re- 
 sources none are so great as the spirit and the 
 ability incident to a free people. We lead the 
 world industrially, not so much because the re- 
 sources of nature are unbounded, as because the 
 faculties and aspirations of men are compara- 
 tively unfettered. The prosperity of New Eng- 
 land — this poor rich country — is ample evi- 
 dence of this. We must have, therefore, for the 
 development of our industries, as for the devel- 
 opment of our citizens, the highest degree of lib- 
 /erty attainable. Industrial democracy should 
 ultimately attend political democracy. Indus- 
 trial absolutism is not merely impossible in this 
 country at the present time, but is most unde- 
 
THE EMPLOYER AND TRADES UNIONS 17 
 
 sirable. We must avoid industrial despotism, 
 even though it be benevolent despotism. Our 
 employers can no more afford to be absolute 
 masters of their employees than they can afford 
 to submit to the mastery of their employees, 
 than the individual employees can afford to have 
 their own abilities or aspirations hampered by 
 the limitations of their fellows. Some way must 
 be worked out by which employer and employee, 
 each recognizing the proper sphere of the other, 
 will each be free to work for his own and for 
 the common good, and that the powers of the 
 individual employee may be developed to the 
 utmost. To attain that end, it is essential that 
 neither should feel that he stands in the power 
 — at the mercy — of the other. The sense of 
 un restricted power is iust g,? (]^.mn ra]\7.\r\^ fnr 
 j ^^employer as i<" jg f"i" t he emplovee. N ^^ther 
 
 our irit e ]1igp"rPL- j im . ^^2]2^y^^2]igi!irl^'''' 7^2^^ ^ '^^^ 
 stand thfvjt fam nf u TV!T r . t . rir; t , Rd n mnrpr F-^^^ry 
 JusihessT requires for its continued health the 
 memento mori of competition from without. 
 It requires, Ukewise, a certain competition within, 
 which can exist only where the ownership and 
 management on one hand, and the employees 
 on the other, shall each be alert, hopeful, self- 
 respecting, and free to work out for themselves 
 the best conceivable conditions. 
 
18 BUSINESS — A PROFESSION 
 
 Second. The right of labor to organize is 
 v /recognized by law, and snouid be tulivrecog- 
 niz^d hv e m ployers. There will be in most 
 trades little probability of attaining the best 
 conceivable conditions unless in some form a 
 union of the employees exists. It is no answer 
 to this proposition to point to instances of trade- 
 union excesses and of the disasters which at- 
 tended them. We believe in democracy despite 
 the excesses of the French Revolution. Nor are 
 claims of the trades unions disproved by point- 
 ing to the instances where the best results have 
 been attained in businesses in which no trace of 
 unionism existed. Wise, far-seeing employers 
 act upon the spirit or the hint of union demands 
 instead of waiting to have them enforced. "A 
 word to the wise is sufficient." The steps in 
 advance have been taken often for the express 
 purpose of preventing trades-unionism from 
 finding a lodgment, often, unconsciously, as a 
 result merely of the enlightenment which comes 
 with the necessary thinking that trade-union 
 agitation compels. Such suc cessful bus]'npssp; g_^ 
 are, indeed, the p freatest triumphs of unionism : 
 and their marked success is due in large part to 
 the fact that they have had all the advantages 
 of unionism without having to bear the disad- 
 vantages which, in their imperfect state, attend 
 
THE EMPLOYER AND TRADES UNIONS 19 
 
 the unions. We must not forget the merits of 
 unionism in our righteous indignation against 
 certain abuses of particular unionists. 
 
 Most people admit the immense service which 
 the labor unions have rendered to the commu- 
 nity during the last twenty-five years in raising 
 of wages, shortening of the hours of labor, bet- 
 tering of conditions under which labor is per- 
 formed, and protecting women and children from 
 excessive or ill-timed work; but the services 
 which the labor unions can render in the future 
 are even greater than they have rendered in the 
 past. The employer needs the unions "to sta y 
 him fro m the fall of va.mty " : the employ ees need 
 them for their own protection; the community 
 needs them to raise the level of the citizen. 
 
 Strong, stable trades unions can best serve 
 these ends. The leaders of strong unions only 
 will adequately feel the terrible responsibility 
 resting upon them. The leaders of stable unions 
 only can get the experience essential to an ade- 
 quate performance of their duties; and experi- 
 ence almost invariably makes the leaders rea- 
 sonable and conservative. Only long service as 
 a labor leader can give that knowledge of the 
 employer's side of the controversy which is es- 
 sential to its just and proper settlement. Peace , 
 and prosperity, therefore, are not to be attained 
 
•X CO 
 
 20 BUSINESS — A PROFESSION 
 
 by any attempt to weaken trades unions. Our 
 hope lies rather in their growing strength and 
 stability. 
 
 At all events, the employer, whether he wills 
 it or not, has in most trades to reckon with the 
 union. What shall his attitude be? 
 
 Third. Employees are entitled to be repre- 
 sented by union officers. A short time ago it 
 was common for an employer not to "recognize 
 the union." That is, although he knew a large 
 number of his employees were members of the 
 union, he refused to negotiate in matters relat- 
 ing to the employees with its officers, on the 
 
 /theory that the employer should deal directly 
 and only with his employees, and may not brook 
 the interference of an outsider. This plausible 
 but unsound theory has yielded generally to 
 facts and to reason. One hears little now of 
 employers arbitrarily refusing to deal with the 
 chosen representatives of union employees. 
 
 j But, of course, recognizing that union officers 
 are the proper representatives of the employees 
 in any matter requiring consideration by the em- 
 ployer does not mean yielding to union demands, 
 any more than recognizing a customer means 
 conceding his demands. 
 
 How, then, shall the employer deal with the 
 union's representative when a demand is made 
 
THE EMPLOYER AND TRADES UNIONS 21 
 
 to which he feels he cannot accede, or when a 
 controversy has already arisen? Many are ready 
 with the answer: Arbitration; others again say: 
 Conciliation. Arbitration and conciliation are 
 e ach at times^mseg-^^t^each involves the inter~ 
 cession oi th^a^Q^Mgs? ^n arbitration it is the 
 referee^ Ub CQaciliklig^— tj^e common friend. 
 Ordinarily, neith^Janeedgd^ 
 
 Fourth. Employers and employees should try 
 to agree. A very able man, who taught the law 
 of partnership at Harvard, once asked the class, 
 "What shall be done if a controversy arises be- 
 tween partners?" The students suggested one 
 legal remedy after another, — a receiver, an in- 
 junction, a dissolution. "No," said he, "they, 
 should try to agree." In the most important 
 sense, employer and employee are also partners. 
 They, too, should try to agree; and the attempt 
 made in a properly conducted conference will 
 generally be successful. 
 
 Nine-tenths of the serious controversies which 
 arise in life result from misunderstanding, re- 
 sult from one man not knowing the facts which 
 to the other man seem important, or otherwise 
 faiUng to appreciate his point of view. A 
 properly conducted conference involves a frank 
 disclosure of such facts — patient, careful argu- 
 ment, willingness to listen and to consider. 
 
22 BUSINESS — A PROFESSION 
 
 Bluff and bluster have no place there. The 
 spirit must be, " Come, let us reason together." 
 Such a conference is impossible where the em- 
 
 ^ployer clings to the archaic belief commonly ex- 
 pressed in the words, " This is my business, an d 
 
 • fVill run it as I please.'^ It is impossible where 
 the labor representative, swaggering in his 
 power to inflict injury by strike and boycott, is 
 seeking an unfair advantage of the employers, 
 or would seek to maintain even a proper position 
 by improper means. Such conferences will suc- 
 ceed only if employer and employee recognize 
 that, even if there be no so-called system of 
 profit-sharing, they are in a most important 
 sense partners, and that each is entitled to a 
 patient hearing, with a mind as open as the 
 prejudice of self-interest permits. 
 
 The potent force of right reasoning in such 
 conferences can hardly be overestimated. If 
 applied with tact and in the aid of right action, 
 it is almost irresistible. But it must be used 
 only in the right spirit and in the aid of right 
 action. 
 
 / Fifth. Ttj?; jiprpifigary t^^at the nwnprs or the_ 
 real manager s of th e business should themsel ves 
 
 -pa iticipate in the confe rences, partly because 
 the labor problem requires the best thought 
 available and the most delicate treatment, and 
 
THE EMPLOYEE AND TRADES UNIONS 23 
 
 partly because the employees feel better satisfied 
 and are apt to receive better treatment when 
 they are dealing with the ultimate authority and 
 not with an intermediary. Such conferences are 
 necessarily time-consuming, but the time cannot 
 be better spent. They are as instructive to the 
 employer as to the employees. We must re- 
 member that there are no short cuts in evolution. 
 
 The greatest obstacle to the success of such 
 conferences is the suspicion of the labor repre- 
 sentatives — a suspicion due partly to igno- 
 rance of the employer's actual attitude, partly 
 to. knowledge of individual acts of unfairness of 
 other employers, and partly also to a belief, 
 which is frequently erroneous, that the employer 
 wiU get some advantage through his supposed 
 superior skill and ability. Suspicion yields only 
 to experience ; and for this reason, among others, 
 the conferences are most successful when par- 
 ticipated in by labor leaders of long standing. 
 The more experienced the representative, the 
 better. 
 
 But conferences, though wisely conducted 
 and with the best of intentions on either side, 
 do not always result in agreement. Men fail 
 at times to see the right; and, indeed, what is 
 right is often in doubt. For such cases arbitra- 
 tion affords frequently an appropriate remedy. 
 
24 BUSINESS — A PROFESSION 
 
 This remedy deserves to take its place among 
 the honorable means of settling those questions 
 to which it properly applies. Questions arise 
 however, which may not be arbitrated. Differ- 
 ences are sometimes fundamental. Demands 
 may be made which the employer, after the full- 
 est consideration, believes would, if yielded to, 
 destroy the business. Such differences cannot be 
 submitted to the decision of others. Again, the 
 action of the union may appear to have been 
 lawless or arbitrary, a substitution of force for 
 law or for reason. 
 
 What, then, should be the attitude of the 
 employer? 
 / Sixth. Lawless or arbitrary claims of organ- 
 ized labor should be resisted at whatever cost. I 
 have said that it is essential in dealing with these 
 problems that the employer should strive only 
 for the right. It is equally as important that 
 he should suffer no wrong to be done unto him. 
 The history of Anglo-Saxon and of American 
 liberty rests upon that struggle to resist wrong — 
 to resist it at any cost when first offered rather 
 than to pay the penalty of ignominious surrender. 
 It is the old story of the "ship money," of "the 
 writs of assistance," and of "taxation without 
 representation." The, f ^tniffgle fois -ind ustrial 
 liberty must follow the^saaae-luiea* 
 
THE EMPLOYER AND TRADES UNIONS 25 
 
 If labor unions are arbitrary or lawless, it is 
 largely because employers have ignominiously 
 submitted to arbitrariness or lawlessness as a 
 temporizing policy or under a mistaken belief 
 as to their own immediate interests. You hear 
 complaint, too, of lawless strikers in the legis- 
 lature and in the city council; but, if lawless- 
 ness and corruption exist there, it is largely 
 because the great corporations and moneyed in- 
 terests have forgotten the good old maxim, "Not 
 one cent for tribute, but millions for defence." 
 
 The world was aghast last summer at the dis- 
 closure of Sam Parks's corruption. The dese- 
 cration of Labor Day by his glorification, after 
 he had been sentenced to Sing Sing, was shock- 
 ing to every sense of decency. This false loy- 
 alty of the unionists very properly alienated 
 from trades unions much of the public favor 
 which John Mitchell had gained for them. But, 
 after all, Sam Parks's corruption and the terri- 
 ble losses and suffering which attended the pro- 
 longed strike were largely the fruit of the em- 
 ployers' wrong-doing. Who bribed Sam Parks? 
 The rich contractors, — pre-eminently the huge 
 corporations on whose boards of directors sat 
 many of the leading financiers of the country. 
 They corrupted Sam Parks or fed his corrup- 
 tion, corrupted him either to get an undue ad- 
 
26 BUSINESS — A PROFESSION 
 
 vantage over their employees or over their com- 
 petitors, or as a seemingly inexpensive way of 
 meeting what they deemed to be unreasonable 
 and extortionate demands. At last employers, 
 employees, and a large part of the community 
 paid the penalty. Fortunately, the world is so 
 ordered that we must pay the penalty for our 
 sins, be they sins of commission or omission, 
 of doing wrong or of suffering wrong to be done 
 unto us. 
 
 You may cornpromise a matter of wages, 
 you may compromise a matter of hours — if 
 the margin of profit will permit. No man can 
 say with certainty that his opinion is the right 
 one on such a question. But you may not com- 
 promise on a question of morals, or where there 
 is lawlessness or even arbitrariness. Industrial 
 liberty, like civil liberty, must rest upon the 
 solid foundation of law. Disregard the law in 
 either, however good your motives, and you 
 have anarchy. The plea of trades unions for 
 immunity, be it from injunction or from liability 
 for damages, is as fallacious as the plea of the 
 lynchers. If lawless methods are pursued by 
 trades unions, whether it be by violence, by in- 
 timidation, or by the more peaceful infringe- 
 ment of legal rights, that lawlessness must be 
 put down at once and at any cost. 
 
THE EMPLOYER AND TRADES UNIONS 27 
 
 j^;u^.„T,Vp ^v» ^ j istrial liberty must rest upon y 
 reasonablenes s. We^gauiJiQth ^g^P ^ exchang- 
 in^ ^^i tyranii^y of capital for the tyranny of 
 
 laEor; Arbitrary demands must be met by de- 
 
 termined refusals, also at any cost. 
 
 In our international relations we are told that 
 the best assurance of peace lies in preparedness 
 for war. This is equally true in the industrial 
 world. The union has its strike fund. The 
 employer milst also pay in some form the pre- 
 mium for insuring an honorable peace. He has 
 adopted long since the guaranty fund for his 
 credits, the depreciation fund for his machinery. 
 He should now adopt another reserve fund to 
 guard him against the losses attendant upon 
 strikes, and, above all, should so organize his 
 business as to be less vulnerable to them. Known 
 weakness invites arbitrary attack, as oppor- 
 tunity makes the thief. 
 
 These are the principles by which alone the 
 labor problem can be satisfactorily solved. They 
 are broad, indeed; for they are the eternal prin- 
 ciples of 
 
 Liberty, Fraternity, Justice, Honor. 
 
HOURS OF LABORS 
 
 Mr. Chairman and Gentlemen: — 
 
 Whether in a particular business at a par- 
 ticular time the hours of labor should be mate- 
 rially shortened presents usually a grave ques- 
 tion. Such a change, owing to competition, 
 direct or indirect, may seriously threaten the 
 prosperity or even the life of the business; or 
 the demand for the reduction of hours may be 
 coupled with other terms or conditions clearly 
 inadmissible. In such cases strenuous resist- 
 ance becomes the duty of the employer. But, 
 however commendable the resistance of the 
 employer to a reduction of hours may be in a 
 particular case, we should all recognize that a 
 short working day is in general essential to the 
 attainment of American economic, social and 
 political ideals, and our efforts should be 
 directed to that end. 
 
 Mr. Gompers quoted some time ago the say- 
 ing of Heine that "Bread is Freedom." The 
 ancient Greeks, recognizing that "Man can- 
 
 • An address delivered at the first Annual meeting of the Civic 
 Federation of New England, January ii, 1906. 
 
HOURS OF LABOR 29 
 
 not live by bread alone," declared that "Leisure 
 is Freedom." Undoubtedly " A full dinner pail " 
 is a great achievement as compared with an 
 empty one, but no people ever did or ever can 
 attain a worthy civilization by the satisfac- 
 tion merely of material needs, however high 
 these needs are raised. The American stand- 
 ard of living demands not only a high minimum 
 wage, but a high minimum of leisure, because we 
 must meet also needs other than material ones. 
 The welfare of our country demands that 
 leisure be provided for. This is not a plea for 
 indolence. Leisure does not imp lv idleness. 
 The prnvisinn^ for Jf Tsnre does not rnntprnplatp; 
 working less hard. <1> r peans ability to wor k 
 not less- but more — ability to work at som e- 
 ' ihing besides bread-winning — ability to work 
 harder w h ile working at bread-winning, and 
 ability t o work more years at bread w inning.^ 
 We needleisure, among otherreasons, because 
 with us every man is of the ruling class. Our 
 education and condition of life must be such 
 as become a ruler. Our great beneficent ex- 
 periment in democracy will fail unless the 
 people, our rulers, are developed in character 
 and intelligence. 
 
 Now consider what, particularly in our 
 large cities, the chance for such development 
 
30 BUSINESS — A PROFESSION 
 
 is for men and women who are required regu- 
 larly to work ten or even nine hours a day. 
 A nine-hour work-day means, including the 
 noon hour, ten hours at the factory or work- 
 shop. That means in Boston for most of those 
 who live in the suburbs eleven or twelve hours 
 devoted to the workshop and getting to and 
 from it. When you add the time necessarily 
 spent at breakfast and supper, dressing and 
 undressing, house work, shopping and sleep, 
 -^ou find that at least twenty-one of the twenty- 
 four hours are devoted to subsistence and a 
 small fraction of the day is left for living, even 
 if after the long work day one is in a condition 
 mentally and physically to really live. 
 
 To attain proper development of character, 
 mind and body, a short working day is essen- 
 tial, and the eight-hour day is in most occu- 
 pations and for most people not too short. For 
 the exceptional occupation and for the excep- 
 tional man in any occupation, no general rule 
 is required; and right thinking on this subject 
 cannot be aided by reference to such excep- 
 tional instances. Most professions, many posi- 
 tions in business, and some in trades fall within 
 the class of excepted occupations. Good work 
 in such occupations almost necessarily brings 
 with it joy, because it implies development of 
 
HOURS OF LABOR 31 
 
 faculties and, ordinarily, pecuniary advance- 
 ment. In every occupation there are such pos- 
 sibilities for the exceptional man. But in most 
 industrial occupations — in the unskilled trades 
 and in many so-caUed skilled trades — the 
 limits of development and of financial success 
 for any individual are soon reached, and conse- 
 quently there is little joy in such work except 
 as compared with the hours of idleness, or such 
 satisfaction as comes to the needy in securing 
 the means of subsistence. 
 
 And what is necessary to living as distin- 
 guished from subsisting? 
 
 In the first place, bodily health is neces- 
 sary; t hat is, not nicicly-4ieeduiil fium Illness, 
 but continued p hysical ability to work hard. 
 For those engaged in the more favored occupa- 
 tions, like the professions, and the higher posi- 
 tions in business and some trades, such health, 
 including the postponement of old age, has been 
 measurably attained by better conditions of 
 living, and notably by outdoor recreation. 
 What has been found necessary for continued 
 health and working capacity for those engaged 
 in these favored occupations we should seek 
 to make attainable for all our citizens. The 
 burden and waste to the community and to the 
 individual, and the suffering attendant upon 
 
/ 
 
 32 BUSINESS — A PROFESSION 
 
 sickness and premature superannuation, may 
 be and should be lessened by a shortening of 
 the hours of labor so as to permit of proper 
 ut-door recreation. 
 In the second place, gieiital- d e velo pm ent is 
 necessary. Massachusetts, recognizing the ed- 
 ucation of her citizens to be an essential con- 
 dition of a free and prosperous people, has 
 made compulsory the schooling of her children 
 to the age of fourteen, has prohibited their 
 working in manufacturing or mercantile estab- 
 lishments under the age of fourteen, and has 
 withheld the right to vote from illiterate adults 
 as inexorably as from idiots. But tlie intellec- 
 tual development of citizens may not be al- 
 lowed to end at fourteen. With most people 
 whose minds have really developed, the age of 
 fourteen is rather the beginning than the end 
 of the educational period. The educational 
 standard required of a democracy is obviously 
 high. The citizen should be able to compre- 
 hend among other things the many great and 
 difficult problems of industry, commerce and 
 finance, which with us necessarily become 
 political questions. He must learn about men 
 as well as things. 
 
 In this way only can the Commonwealth be 
 J saved from the pitfalls of financial schemers on 
 
HOURS OF LABOR 33 
 
 the one hand or of ambitious demagogues on the 
 other. But for the attainment of such an edu- 
 cation, such mental development, it is essential 
 that the education shaU be continuous through- 
 out life; and an essential condition of such con- 
 tinuous education is free time, that is, leisure — 
 and leisure does not imply merely a time for 
 rest, but free time when body and mind are 
 sufl&ciently fresh to permit of mental effort. 
 There is full justification for the common prac- 
 tice in trades of charging at the rate of fifty 
 per cent additional for work in excess of the 
 regular hours. Indeed, I doubt whether that 
 rate of pay is not often grossly inadequate to 
 compensate for what it takes out of the employee. 
 An extra hour of labor may render useless those 
 other hours which might have been devoted 
 to development, or to the performance of other 
 duties, or to pleasure. The excess load is waste- 
 ful with man as well as with horses or vehicles 
 or machinery. Whether the needed education 
 of the citizens is to be given in classes or from 
 the political platform, in the discussion of the 
 lodges or in the trades unions, or is to be gained 
 from the reading of papeig^ pprinrL|cals, or books, 
 freshness of -minri is (^ jji pera tive?) and to the 
 preservation of freshnessofmina a short work 
 day is for most people essential. 
 
34 BUSINESS — A PROFESSION 
 
 J Bodily and mental health and development 
 will furthermore tend to promote innocent, ra- 
 tional pleasures and, in general, better habits of 
 living. Such conditions will tend to lessen the 
 great curse of drink, and with it some of the 
 greatest burdens of the individual and of society. 
 
 It is, of course, no answer to the plea for a 
 shorter work day to say that the leisure result- 
 ing from shorter hours may not be profitably 
 employed. The art of using leisure time, like 
 any other, must be learned; but it is certain 
 that the proper use of leisure, as of liberty, can 
 never be attained except by those who have 
 the opportunity of leisure or of liberty. 
 
 Nor is it an answer to the plea for a shorter 
 work day to say that most workingmen secure 
 a certain amount of free time through the irreg- 
 ularity of their work. Such free time is liter- 
 ally time lost. Such irregular excessive free 
 time presents an even greater evil than that of 
 excessive work. 
 
 ' Although the reduction of the hours of labor 
 is clearly desirable, it may, as already stated, 
 be impossible, on account of competition or 
 other cause, to grant the reduction at a partic- 
 ular time in a particular business. But in my 
 opinion employers are apt to exaggerate the 
 resulting loss of earnings, at least in the long 
 
HOURS OF LABOR 85 
 
 run. Greater freshness, better health and men- 
 tal development that go with shorter hours may 
 be relied upon within reasonable limits to make 
 up, in many businesses at least, in part, for a 
 shortening of working time, where the em- 
 ployer receives, as he should, the full co-oper- 
 ation of the employees to secure the largest 
 possible production. 
 
 Obviously no limitation should be imposed 
 upon the output of the individual, nor any rule 
 be insisted upon by the employees which would 
 hamper the most efficient use of machinery. 
 Such arbitrary restrictions are wasteful and 
 uneconomic at all times, and necessarily act as 
 a brake on the movement towards shorter hours. 
 The natural gain in vigor and working effi- 
 ciency on the part of the employee should be 
 allowed to show itself in the shop results. If 
 this gain in potential efficiency is nullified by 
 artificial limitations on what and how much a 
 man shall do, with the facilities placed at his 
 disposal, the decrease in working time must 
 inevitably mean increased cost, without either 
 economic or moral justification, and under such 
 circumstances the employer has no other course 
 open to him than that of resistance to any 
 attempt to reduce the working time. 
 
 If in any case we should find that, despite 
 
36 BUSINESS — A PROFESSION 
 
 the fullest co-operation of employees, the re- 
 duced working time results in immediate eco- 
 nomic loss, the welfare of our democratic com- 
 munity compels us to work nevertheless for a 
 reasonably short work day as a condition essen- 
 tial to the making of good citizens. 
 
ORGANIZED LABOR AND 
 EFFICIENCY^ 
 
 The assertion that American prosperity is 
 due to our great natural resources is only partly 
 true. The fertile fields of the West would 
 have brought us little wealth, but for mechan- 
 ical science, and the development of agri- 
 cultural machinery which eliminates waste in 
 human labor. 
 
 In New England, particularly, our necessi- 
 ties and not our resources were the real cause 
 of our prosperity. A poor soU drove us to 
 manufacturing. High wages necessitated the 
 saving of human labor and became the mother 
 of our inventions, giving us labor-saving ma- 
 chinery. That the people of the East have 
 not attained even greater general well-being 
 is due, in large part, to the fact that the sup- 
 ply of foreign low-priced workingmen made 
 it possible to meet the demand for higher 
 wages by means other than the elimination 
 of labor waste. Human nature, like the in- 
 
 ' An Address before The Boston Central Labor Union on April 2, 
 1911. Published in " The Survey," April 22, 1911. 
 
38^/^ Bt^INESS — A PROFESSION 
 
 anmme, seeks the path of least resistance. To 
 mik hard and persistently is painful. The 
 path of the pioneer is beset with obstacles. 
 It was easier to tap the inexhaustible foreign 
 labor supply than to devise and to introduce 
 better methods and better management. In- 
 stead of keeping down the labor cost by elim- 
 inating unnecessary human effort and increas- 
 ing the productivity of the individual, we met 
 the workingman's demand for higher wages 
 by increasing the supply of workers. Instead 
 of conserving the workingmen, we accepted the 
 substitutes for those who had been incapacitated 
 by disease or accident resulting from excessive 
 toil or improper conditions of employment. 
 
 Fortunately a new necessity has intervened: 
 the Qiwakened social sense of the community , 
 with its J ^ngmg lor a true r democracy . This 
 great ethical movement lor real brouierhood 
 of man reinforces the demand of the work- 
 ingman for wages, hours and conditions which 
 will permit of his living according to those higher 
 standards essential to life, health and the 
 performance of the duties of citizenship in a 
 democracy. These new and increasing demands 
 have created a new necessity for economy 
 in production. And 9.ripnt\{ jc, managemeg ,t 
 comes prepared to relieve that necessity by 
 
ORGANIZED LABOR AND EFFICIENCY 39 
 
 a r evolution in industry comparable only to 
 ■that tSe.r±e.(\ in the transition from hand 
 labor to ma.rhinery. 
 
 It is important that the scope and incidents 
 of scientific management be not misunderstood. 
 
 So much has been said of increasing the 
 efficiency of labor that the importance of in- 
 creasing the efficiency of materials, of plant, 
 of working capital, and of improving service 
 has not been fully appreciated. And yet 
 the economies and the profits arising from the 
 scientific handling of those factors in business 
 are probably, in the aggregate at least, as great 
 as from the increased efficiency of labor itself. 
 
 Saving the waste in materials is attained 
 in part through securing that article which is 
 determined by scientific tests to be best adapted 
 to the needs; and incidentally proper tests tend 
 to eliminate dishonesty in purchasing. Saving 
 of waste in material is attained in part by so 
 utilizing it that a lower cost results, even if the 
 article was purchased at a higher price. It is 
 attained in part through proper methods of 
 storage and accounting, which prevent actual 
 waste of the material itself and dishonesty in 
 its use. 
 
 Saving in plant is attained not only by 
 adopting the best, but by so equalizing, plac^ 
 
40 BUSINESS — A PROFESSION 
 
 ing and using the equipment through careful 
 planning as to secure practically its full use 
 all the time; thus reducing the capital in- 
 vested upon which charges for depreciation, 
 interest or rental, taxes and insurance, must be 
 earned. 
 
 Saving in working capital is attained by 
 so controlling and linking the quantity of 
 supplies necessarily carried, and so eliminat- 
 ing delays in the process of manufacture, 
 as to reduce materially the amount invested 
 in raw material and supplies and in work in 
 process. 
 
 Improving the service so as to secure cer- 
 tainty and prompt deliveries reduces expense 
 and annoyances, and vastly increases the suc- 
 cesses and profits of the sales department. 
 
 Scientific management seeks to do for in- 
 dustry systematically and comprehensively in 
 conserving effort, materials and capital, what 
 heretofore has been done sporadically and par- 
 tially. Its engineers refuse to recognize that 
 there is any legitimate sphere in industry for 
 ignorance or lack of skill. Ignorance and un- 
 skilfulness necessarily spell waste, — and waste 
 is sinful, whether it be due to lack of train- 
 ing, of selection, of equipment or of planning. 
 
 In discussing the efficiency of labor a con- 
 
ORGANIZED LABOR AND EFFICIENCY 41 
 
 struction altogether too narrow has been given 
 by some to the term "labor." The labor to be 
 made more effective is that of the managers 
 and high-salaried ofl&cials quite as much as 
 that of the wage-earners. Indeed, the in- 
 creased efficiency of the wage-earner is not 
 possible until the heavy demands which scien- 
 tific management makes upon those control- 
 ling and directing the business, including 
 superintendents and foremen, are fully met. 
 Increased efl&ciency must begin with those 
 higher up. This is of the essence of scientific 
 management. 
 
 Some persons unfamiliar with the princi- 
 ples and application of scientific management 
 have assumed that there is in it something 
 hostile to labor, and particularly to organized 
 labor. This is absolutely unfounded. 
 
 First: They have assumed that the aim of 
 scientific management is "speeding up"; that 
 it seeks to make the men work harder, thus 
 exhausting the workingmen. Such criticism 
 slows complete misconception of scientific 
 managemenit^' Cnnserving r human effort^ and __ 
 t he man, is a fundamental tenet _jofscientific 
 managpofint. Among other thmgspTE 3? 
 mand ^arefiil t:raining of the w ork ingman: an d 
 the employer's investment involved in that 
 
42 BUSINESS — A PROFESSION 
 
 training creates a special incentive to the em- 
 ployer to retain his employee and to conserve 
 his powers. 
 
 When Fred W. Taylor, with infinite pa- 
 tience and genius, discovered the laws by 
 which a given quantity of pig iron might be 
 loaded into a car or a given quantity of coal 
 be shovelled by hand in a third or fourth of 
 the time ordinarily taken, he was protecting his 
 workmen, not exhausting them. 
 
 The larger production incident to scientific 
 management is not attained by "speeding up." 
 It comes largely from removing the obstacles 
 which annoy and exhaust the workman — ob- 
 stacles for which he is not, or should not be 
 made, responsible. The management sees to it 
 that the best possible way of doing the job is 
 shown the worker; that is, the way which takes 
 least time, which takes least effort, and which 
 produces the best result. The management 
 sees to it that the worker's machine is always 
 in perfect order. The management sees to it 
 that he is always supplied with the necessary 
 materials. The management sees to it that 
 the work comes to him at proper times, with 
 proper instructions and in proper condition. 
 Relieved of every unnecessary effort, of every 
 unnecessary interruption and annoyance, the 
 
ORGANIZED LABOR AND EFFICIENCY 43 
 
 worker is enabled without greater strain to 
 furnish much more in production. And under 
 the exhilaration of achievement he develops his 
 capacity. 
 
 Second: Closely associated with the errone- 
 ous idea that scientific management means 
 "speeding up" is the objection to scientific 
 management because of the bonus system. 
 That objection assumes that scientific man- 
 agement is the bonus system. The protest 
 of labor against the bonus system is in part 
 weU founded; because the bonus is apt to do 
 more harm than good when applied other- 
 wise than as a part of the system of scientific 
 management. The bonus system is a common 
 incident under scientific management; but it 
 must not be supposed that it is scientific man- 
 agement. There has been a great deal of scien- 
 tific management without the application of 
 the bonus system at all. But it is an integral 
 part of scientific management that the work- 
 ingman should get a "square deal," that he 
 should get a proper share of the profit which 
 he aids in producing, that his achievement 
 should secure an appropriate reward. And in 
 practice it has been found that this can be done 
 usually more fairly through the bonus system 
 than by any other available method of compen- 
 
44 BUSINESS — A PROFESSION 
 
 sation. But by the bonus system must be 
 understood something very different from the 
 bonus system which has been applied in many 
 establishments to produce "speeding up." It 
 involves these essential conditions: 
 
 1. A scientific investigation in detail of each 
 piece of work, and the determination of the 
 best method and the shortest time in which 
 the work can be done. 
 
 2. A teacher capable of teaching the best 
 method and the shortest time. 
 
 3. Reward for both teacher and pupil when 
 the latter is successful. 
 
 Has anybody ever heard of the bonus sys- 
 tem operating unfavorably to labor where 
 these conditions have existed? 
 
 Higher wages, to be provided by the bonus 
 system or otherwise, constitute but one of the 
 ways in which scientific management will ad- 
 vance the condition of the laborer. The work- 
 ingman needs, besides higher wages, among 
 other things, shorter hours of work. What 
 greater hope can there be for shorter hours 
 than that afforded by scientific management, 
 the purpose of which is to eliminate, in every 
 way, waste of human labor? If the produc- 
 tivity of the individual man is increased, per- 
 haps even doubled or trebled, there will come 
 
ORGANIZED LABOR AND EFFICIENCY 45 
 
 with it the possibility of largely reducing the 
 hours of work. 
 
 We are agitating now for the eight-hour 
 day already introduced in many industries and 
 in the public service. We are far from at- 
 taining the ideal; but we should not forget 
 that it is due to science in business, to the 
 labor-saving machines which have already so 
 largely increased the productivity of man, that 
 we have been able to make some progress 
 toward our ideal working day. A hundred 
 or even fifty years ago the working day was 
 from twelve to fifteen hou^s long in many 
 industries in which it is now but eight or 
 nine. 
 
 With hip;>ipr wa.p es a nd shorter hours, t he, 
 g reatest need of the working man is regu1ar.=-, 
 fhy nf pmplnyrppnt Irregularity of employ- 
 ment creates hardships and demoralization of 
 every kind. It is the most sinful waste. 
 
 T he introdu ction of scientific management 
 _''ti b l isjpp'i'i TtjT ^ wherSver-gpplieH^ made regu- 
 l arity of emp ln Yment it-S prime aim. It could 
 not be otherwise; because irregularity is the 
 most potent cause of waste, not only of labor, 
 but of plant and of capital. The existence of 
 irregularity of employment is one of the great- 
 est reproaches to modern business. It proves 
 
46 BUSINESS — A PROFESSION 
 
 that the management has not done its part; 
 and the very essence of scientific management 
 is to reUeve the workingman from these con- 
 ditions and hardships which arise from the 
 failure of the management to do its duty. 
 
 Third: Again, some persons have expressed 
 their apprehension of scientific management, as 
 if it were inconsistent with, or at least hostile 
 to, unionism. This rests upon an entire mis- 
 conception. 
 
 The essence of unionism is collective bar- 
 gaining; that is, instead of the employer deal- 
 ing individually with each employee, he deals 
 with a large body through their representa- 
 tives, in respect to the rate of wages and the 
 hours and conditions of employment. Is there 
 not just as broad a sphere for collective bar- 
 gaining in shops where scientific management 
 has been introduced as where it has not? Col- 
 lective bargaining may fix the minimum wage, 
 be it by the day or by the piece; collective 
 bargaining may fix the bonus, if any: where 
 it shall begin; its rate of increase; and how 
 it shall be applied; may fix the hours of labor 
 and all the other conditions of employment 
 just as much as if the management were of 
 the old rule-of-thumb, chaotic type. Surely 
 it is not inconsistent with the principles of 
 
ORGANIZED LABOR AND EFFICIENCY 47 
 
 collective bargaining that one worker may- 
 earn more than another; for in most success- 
 ful unions, like the cigarmakers and the boot 
 and shoe workers, most of the operatives are 
 on piece work, and the earnings of some work- 
 ers are double or treble those of others doing 
 like work in the same shop. 
 
 Fourth: Again, some persons have objected to 
 scientific management on the ground that it 
 would throw workmen out of employment. This 
 has not been the result, and will rarely be. 
 
 Scientific management undertakes to secure 
 greater production for the same or less effort; 
 but that does not mean that less people will 
 have work to do. If only the same amount 
 were to be produced, the same number of per- 
 sons might well be employed to do it, if they 
 worked less hours or less hard. But a more 
 satisfactory answer is found in the fact that 
 the amount of products which can be con- 
 sumed will depend practically upon the ability 
 to buy. 
 
 If goods can be purchased cheaper, more 
 can be bought for the same money. And 
 more will be bought; at least if wages remain 
 the same or increase. The problem is exactly 
 the same which was presented when the cost 
 of transportation was reduced by substituting 
 
48 BUSINESS — A PROFESSION 
 
 railroads for the stage coach, and the cost of 
 goods was lowered by substituting machinery 
 for hand labor. Has anyone ever known the 
 demand for labor to decrease when profits 
 were large? The demand for labor grows be- 
 cause the demands of the people grow with 
 the ability to supply them. 
 
 Fifth: It has been suggested by some that 
 scientific management will displace the ineffici- 
 ent. On the contrary, it helps the "inefficient" 
 most. 
 
 Sgen tific management recognizes the right,, 
 nf thos e less e xpert in the work to advance 
 ' lu grcttt e]:.^fficiency, and the importance to 
 the emplo yer of training his \yorkoaen to be 
 jcoingtetent] It theretore providfes through the 
 most practical teachers for careful training of 
 men to work in the best manner and to de- 
 velop habits of industry, instead of letting the 
 "devil take the hindmost" and exposing the 
 lessxQm£ete»t-te-4j;e probability of discharge. 
 
 It(supp1i^g i^gtrnrtirm^gnrl offerS tO the teach- 
 
 ers special incentives if they succeed in bring- 
 ing up the hindmost. 
 
 The social gains to the workingman through 
 scientific management are greater even -than 
 the financial. He secures the development and 
 rise in self-respect, the satisfaction with his 
 
ORGANIZED LABOR AND EFFICIENCY 49 
 
 work, which in almost every line of human 
 activity accompany great accomplishment by 
 the individual. Eagerness and interest take 
 the place of indifference, both because the 
 workman is called upon to do the highest 
 work of which he is capable, and also because 
 in doing this better work he secures appro- 
 priate and substantial recognition and reward. 
 Under scientific management men are led, not 
 driven. Instead of working unwillingly for 
 their employer, they work in co-operation with 
 the management for themselves and their em- 
 ployer in what is a "square deal." 
 
 As stated above, scientific management of- 
 fers the means of meeting our social demands. 
 The great advance created by the introduc- 
 tion of machinery we permitted, in large 
 measure, to be dissipated socially — instead of 
 utilizing the opportunity fully to raise the 
 standard of our civilization. Another great 
 opportunity is offered us. Shall we seize it? 
 And I think that means primarily, will organ- 
 ized labor seize it? 
 
 If the fruits of scientific management are 
 directed into the proper channels, the work- 
 ingman will get not only a fair share, but 
 a very large share of the additional profits 
 arising from improved industry. In order 
 
50 BUSINESS — A PROFESSION 
 
 that the workingman may get this large share 
 of the benefits through higher wages, shorter 
 hours and better working conditions, the labor 
 unions must participate in fixing those wages, 
 hours and conditions, and in determining the 
 application to the various businesses of the 
 principles of scientific management. Unless 
 the workingman is so represented, there must 
 be danger that his interest will not be properly 
 cared for; and he cannot be properly repre- 
 sented except through organized labor. This, 
 then, is the supreme opportunity for organized 
 labor. 
 
 Will you utilize it to the full? 
 
THE ROAD TO SOCIAL EFFICIENCY ^ 
 
 Throughout the civilized world a devel- 
 oping sense of social responsibility has com- 
 pelled the community to support in some 
 manner its needy members, whatsoever the 
 cause of their inability to support themselves. 
 
 In granting this aid we are passing from 
 sporadic, emotional charity to organized chari- 
 ties, and from mere relief to preventive meas- 
 ures. We have learned that financial depend- 
 ence among the wage-earners is due, in large 
 part, to sickness, accident, invalidity, super- 
 annuation, unemployment or to premature 
 death of the breadwinner of the family. Con- 
 tingencies like these, referred to in the indi- 
 vidual case as a misfortune, are now recog- 
 nized as ordinary incidents of the lives of the 
 wage-earners. And since our existing indus- 
 trial system is converting an ever-increasing 
 percentage of the population into wage-earners, 
 the need of providing indemnity against finan- 
 cial losses from such ordinary contiiigencies in 
 
 1 An address before the National Congress of Charities and Cor- 
 rection at Boston on June 8, 1911, Published in "The Outlook," 
 June 10, 1911. 
 
52 BUSINESS — A PROFESSION 
 
 the workingman's life has become apparent. 
 So sickness and death benefits and methods of 
 compensation for accidents have been resorted 
 to. But this partial workingman's insurance 
 has served mainly in making clear the need 
 of a comprehensive system which shall extend 
 protection also to the wage-earners in case of 
 invalidity, superannuation or unemployment, 
 and to the widows and orphans left helpless by 
 the premature death of husband or father. 
 In this movement to establish a comprehensive 
 system of workingmen's insurance, Germany, 
 France, and latterly England have already 
 advanced far. 
 
 The United States must follow on the same 
 path, for the conditions which have led to 
 the introduction of workingmen's insurance 
 abroad are universal in their operation. Be- 
 sides, the form and aims of our Government 
 should lead us to action, as well as the sense 
 of social responsibility. American democracy 
 rests upon the basis of the free citizen. We 
 accord (to the men) universal suffrage. We 
 urge strenuously upon every voter the duty of 
 exercising this right. We insist that the voter 
 should exercise it in the interest of others as 
 well as of himself. We give thus to the citizen 
 the rights of a free man. We impose upon him 
 
THE ROAD TO SOCIAL EFFICIENCY 53 
 
 a duty that can be intrusted with safety only 
 to free men. Politically, the American work- 
 ingman is free — so far as law can make him 
 so. But is he really free? Can any man be 
 really free who is consta ntly in da nger ot be- 
 coming dependent for mere subsistence upon 
 s omebody and something else than his own 
 exertion and conduct? Men are not free while 
 
 financially dependent upon the will of other in- 
 dividuals. Financial dependence is consist- 
 ent with freedom only where claim to sup- 
 port rests upon right, and not upon favor. 
 
 President Cleveland's epigram that "it is the 
 duty of the citizen to support the Government, 
 not of the Government to support the citizen," 
 is only qualifiedly true. Universal suffrage 
 necessarily imposes upon the State the obli- 
 gation of fitting its governors — the voters — 
 for their task; and the freedom of the indi- 
 vidual is as much an essential condition of suc- 
 cessful democracy as his education. If the 
 Government permits conditions to exist which 
 make large classes of citizens financially de- 
 pendent, the great evil of dependence should at 
 least be minimized by the State's assuming, or 
 causing to be assumed by others, in some form 
 the burden incident to its own shortcomings. 
 
 The cost of attaining freedom is usually 
 
54 BUSINESS — A PROFESSION 
 
 high; and the cost of providing for the work- 
 ingman, as an essential of freedom, a compre- 
 hensive and adequate system of insurance will 
 prove to be no exception to this general rule. 
 But, however large the cost, it should be 
 fairly faced and courageously met. For the 
 expense of securing indemnity against the finan- 
 cial losses attending accident, sickness, inva- 
 lidity, premature death, superannuation and 
 unemployment should be recognized as a part 
 of the daily cost of living, like the more imme- 
 diate demands for rent, for food and for 
 clothing. So far as it is a necessary charge, 
 it should be met now as a current expense, in- 
 stead of being allowed to accumulate as a debt 
 with compound interest to plague us hereafter. 
 Few intelligent property owners omit to in- 
 sure against fire. Everybody recognizes the 
 fire insurance premium as a current expense. 
 And yet the chance of loss by fire is very slight 
 as compared with the chance of loss of earn- 
 ings by sickness, accident or premature death. 
 Every intelligent manufacturer makes in some 
 form a regular charge for depreciation of ma- 
 chinery and plant. And yet the depreciation of 
 man through invalidity and superannuation is no 
 less certain, and frequently more severe, than 
 the depreciation of machinery. Every in- 
 
THE ROAD TO SOCIAL EFFICIENCY 55 
 
 telUgent manufacturer recognizes rent, inter- 
 est and taxes as current daily charges which 
 continue although his plant is shut down or 
 operates at less than full capacity. The man- 
 ufacturer makes allowance for this in calcu- 
 lating the cost of production as an extra charge 
 to be met from the earnings of active days. 
 But the cost to the employer of carrying an 
 unused plant is not as great relatively as the 
 cost to the employee of carrying himself and 
 family while unemployed. The manufacturer 
 who fails to recognize fire insurance, depre- 
 ciation, interest and taxes as current charges 
 of the business treads the path to bankruptcy. 
 And that nation does the like which fails to 
 recognize and provide against the economic, 
 social and political conditions which impose 
 upon the workingman so large a degree of 
 financial dependence. 
 
 What sum would be required annually to 
 provide an adequate system of workingmen's 
 insurance cannot be determined from existing 
 data. The cost would obviously vary greatly 
 in different occupations and in different commu- 
 nities. An amount equal to ten per cent of cur- 
 rent wages would go far towards relieving in 
 many industries the distress now incident to 
 sickness, accident, invalidity, premature death. 
 
56 BUSINESS — A PROFESSION 
 
 superannuation and unemployment of the 
 wage-earner. But it is certain that the pro- 
 ceeds of even so large a charge as ten per cent 
 of the average daily wage would, under present 
 conditions, afford merely alleviation of, and 
 not indemnity for, the losses now attendant 
 upon those contingencies in the life of the 
 workingman. The cost of providing complete 
 indemnity would probably reach an amount 
 equal to twenty-five per cent of the average 
 daily wage. For the premiums requisite to 
 secure indemnity from losses incident to sick- 
 ness, accident, invalidity, premature death or 
 superannuation would probably aggregate fif- 
 teen per cent of the daily wage; while the 
 average percentage required to indemnify for 
 unemployment due to lack of work would 
 probably rise above ten per cent. 
 
 This huge and apparently prohibitive expense 
 should not, however, deter us from taking 
 action now. It should, on the contrary, incite 
 us to immediate and vigorous measures. In- 
 deed, it has in it elements of great encour- 
 agement. It will disclose how vast the waste 
 incident to present social and industrial condi- 
 tions is. And when the extent of that waste 
 shall have been determined and made clear to 
 our people, a long step forward will have been 
 
THE ROAD TO SOCIAL EFFICIENCY 57 
 
 taken on the road to improvement and re- 
 sulting social economy. 
 
 Some idea of the possibilities of improve- 
 ment in this connection are indicated by the 
 following data. 
 
 Professor Irving Fisher has compared the 
 mortality record of the industrial life insurance 
 companies, which provide life insurance to the 
 workingmen in amounts of less than $500 on 
 the weekly premium plan, with the mortality 
 in the ordinary life insurance companies, in 
 which the policies average $1,000 or more. 
 The figures of deaths per year for each 1,000 
 persons insured are these: 
 
 Age. 
 
 Industrial Life 
 
 Insurance Mortality 
 
 (Metropolitan Life 
 
 Experience). 
 
 Ordinary Life 
 Insurance Mortality 
 (English Experience). 
 
 20 
 
 lo.S 
 
 7-3 
 
 25 
 
 14.1 
 
 7.8 
 
 35 
 
 17.2 
 
 9-3 
 
 55 
 
 35 
 
 21.7 
 
 The conditions under which that portion of 
 our population live and work who are insured 
 in the ordinary life companies are far from 
 ideal, and leave open a great opportunity for 
 reduction of the death rate. But here we have 
 an average death rate among the working- 
 men at their most productive age — twenty- 
 five to thirty-five years — which is nearly 
 
58 BUSINESS — A PROFESSION 
 
 twice as great as the death rate among those 
 engaged in other occupations. And this high 
 death rate of the workingman is that of the 
 average insured workingman, not the death 
 rate of those engaged in extra-hazardous trades. 
 
 Can there be any doubt that, if this heavier 
 mortality had to be adequately compensated 
 for by the State or the industries, and the 
 insurance cost paid from current earnings, its 
 causes would be adequately investigated and 
 the evil conditions of living and working which 
 produce it would be remedied? Society and 
 industry would find how much cheaper it is to 
 conserve than to destroy. 
 
 How near at hand the remedy for high mor- 
 tality lies is illustrated by the experience of 
 the model factory village at Bourneville, near 
 Birmingham. While the average death rate 
 for all ages in England and Wales in the years 
 1902 to 1907 was 15.7, the death rate at Bourne- 
 ville was 6.3; and yet the occupations of the 
 inhabitants of Bourneville were fairly repre- 
 sentative of the whole country. Over fifty 
 per cent of the workers were factory hands; 
 thirty-six per cent were mechanics, carpen- 
 ters, bricklayers and others of unclassified 
 occupations; and about thirteen per cent- 
 clerks and travellers. 
 
THE ROAD TO SOCIAL EFFICIENCY 59 
 
 Professor Fisher concludes also that, on the 
 average, every American is sick thirteen days 
 in the year. 
 
 Possibilities of lengthening lives and of avoid- 
 ing sickness and invalidity, like the possibili- 
 ties of preventing accidents, will be availed of 
 when business as well as humanity demands 
 that this be done. 
 
 William Hard quoted Edgar T. Da vies, the 
 Factory Inspector of Illinois, as saying that in 
 the year 1906 one hundred men were killed or 
 crippled in the factories of Illinois by the set- 
 screw, and that for thirty-five cents in each in- 
 stance this danger device could have been 
 recast into a safety device. The set-screw 
 stands up from the surface of the rapidly re- 
 volving shaft, and as it turns catches danger- 
 ously hands and clothes. For thirty-five cents 
 the projecting top of the set-screw could be sunk 
 flush with the rest of the whirling surface of 
 the shaft, and then no sleeve coidd be entangled 
 by it, and no human body could be swung and 
 thrown by it. 
 
 The South Metropolitan Gas Company, which 
 established, in connection with its system of 
 compensation for accidents, a system of inquiry 
 i'tio all accidents with a view to their preven- 
 tion, reduced the number of accidents per 
 
60 BUSINESS — A PROFESSION 
 
 thousand in seven years from sixty-nine to 
 forty. 
 
 John Calder, of Ilion, New York, tells of the 
 reduction of accidents in an American plant 
 from a yearly average of two hundred to 
 sixty-four. 
 
 Can there be any doubt that if every acci- 
 dent had to be carefully investigated and 
 adequately compensated for, the number of 
 accidents would be reduced to a half or a 
 third? 
 
 And undoubtedly the paramount evil in the 
 workingman's life — irregularity of employ- 
 ment — would yield in large measure to like 
 treatment. 
 
 The New York Commission, in its recent 
 report on unemployment, gives data from the 
 trades unions showing that "organized workers 
 lose, on the average, twenty per cent of their 
 possible income through unemployment," and 
 data from the charitable societies showing that 
 "from twenty-five to thirty-five per cent of 
 those who apply to them for relief every year 
 have been brought to their destitute condition 
 primarily through lack of work." 
 
 Some irr egularity in emplovment is d oubt- 
 less inevi table; but in the main jri^Q^A^rrPy:^ ,js 
 r»anediable. It has been overcome with great 
 
THE ROAD TO SOCIAL EFFICIENCY 61 
 
 profit to both employer and employee in im- 
 portant businesses which have recognized the 
 problem as one seriously demanding solution. 
 Society and industry need only the necessary 
 incentive to secure a great reduction in irregu- 
 larity of employment. Jn thp srientifirallv 
 Tnan^fTP-fl busines s irregularity tends to disap- 
 peaL- So far as it is irremediable it should be 
 compensated for like the inevitable accident. 
 
 The social and industrial engineers will find 
 much of inspiration and encouragement in the 
 achievement of their fellow-engineers of the 
 factory mutual fire insurance companies of 
 New England. 
 
 The huge fire waste in America is a matter 
 of common knowledge. The loss in 1910 was 
 estimated at $234,000,000; and yet there is 
 one class of property, in its nature peculiarly 
 subject to fire risks, which was practically 
 immune. Some 2,600 factories and their con- 
 tents, valued together at about $2,220,000,000, 
 and scattered throughout twenty-four States 
 and the Dominion of Canada, suffered in the 
 aggregate fire losses of about one-fortieth of one 
 per cent of the value insured. The factories 
 so immune were those owned by members of 
 the so-caUed "factory mutuals'" of New Eng- 
 land. The cost to these factories for fire in- 
 
62 BUSINESS — A PROFESSION 
 
 surance and fire prevention in the year 1910 
 was only forty-three cents for each one thou- 
 sand dollars of property insurance. Half a 
 century before, the cost of insurance to the 
 New England factories was $4.30, or ten times 
 as great. The record of the "factory mutuals" 
 of Rhode Island and of some other States is 
 similar. 
 
 Now, how has this reduction of fire insur- 
 ance cost been accomplished? It was done by 
 recognizing that the purpose of these so-called 
 fire insurance companies is not to pay losses 
 but to prevent fires. These mutual companies 
 might more appropriately have been called 
 Fire Prevention Companies; for the losses paid 
 represent merely instances of failures in their 
 main purpose. In these corporations the im- 
 portant officials are not the financiers but the 
 engineers — men who rank among the leaders 
 in the engineering profession of America — 
 and aiding them is a most efficient corps of 
 inspectors. 
 
 The achievement of these factory mutuals — 
 the elimination of ninety per cent of the fire 
 risks — is the result of sixty years of unre- 
 mitting effort in ascertaining and removing 
 causes of fires, and incidentally educating fac- 
 tory owners and their employees in the im- 
 
THE ROAD TO SOCIAL EFFICIENCY 63 
 
 portance of providing against these causes. 
 The premiums paid represent the cost of this 
 advice, inspection and education as much as the 
 cost of what is ordinarily termed " insurance." 
 The progress of the factory mutuals in re- 
 ducing fire losses was relatively slow; but it 
 has been steady, as is shown in the following 
 table of net cost of fire insurance per $i,ooo 
 per year in two representative companies: 
 
 
 Boston Manufacturers 
 
 Arkwright 
 
 Years. 
 
 Mutual Fire 
 
 Mutual Fire 
 
 
 Insurance Co. 
 
 Insurance Co. 
 
 1850-60 
 
 $4-37 
 
 
 1861-70 
 
 2.79 
 
 $3-37 
 
 1871-80 
 
 2-54 
 
 3.00 
 
 1881-90 
 
 2.27 
 
 2.16 
 
 1891-1900 
 
 1.44 
 
 1-54 
 
 1901-1910 
 
 0.68 
 
 0.69 
 
 Year 1910 
 
 0.44 
 
 0-43 
 
 Possibilities no less alluring are open to the 
 social and industrial engineer. Will the com- 
 munity support their efforts? 
 
 Consider how great would be the incentive 
 to humanize social and industrial conditions 
 if the cost of inhuman conditions were not 
 only made manifest, but had to be borne from 
 day to day unless the inhuman conditions 
 themselves were removed! 
 
 Mere description of the misery unnecessarily 
 entailed by the inhuman conditions, mere 
 
64 BUSINESS — A PROFESSION 
 
 statements of cost, however clear and forceful, 
 will fail to secure the removal of these inhuman 
 conditions in industry and in the life of our 
 people from which this misery springs. But 
 if society and industry and the individual were 
 made to pay from day to day the actual cost 
 of the sickness, accident, invalidity, prema- 
 ture death or premature old age consequent 
 upon excessive hours of labor, of unhygienic 
 conditions of work, of unnecessary risks, and 
 of irregularity in employment, those evils 
 would be rapidly reduced. 
 
 We need a comprehensive system of work- 
 ingmen's insurance as an incentive to justice. 
 We need it, "lest we forget." 
 
OUR NEW PEONAGE ;! 
 DISCRETIONARY PENSIONS 
 
 Half a century ago nearly every American 
 boy could look forward to becoming inde- 
 pendent as a farmer or mechanic, in business or 
 in professional life; and nearly every Ameri- 
 can girl might expect to become the wife of 
 such a man. To-day most American boys 
 have reason to believe, that throughout life 
 they will work in some capacity as employees 
 of others, either in private or public business; 
 and a large percentage of the women occupy 
 like positions. This revolutionary change has 
 residted from the great growth of manufac- 
 turing and mining as compared with farming; 
 from the formation of trusts and other large 
 business concerns; from the development of our 
 transportation and other public utility corpo- 
 rations; from the marked increase in gov- 
 ernmental functions; and, finally, from the 
 invasion of women into industry. 
 
 ^s soon as we awakened to the fact that 
 
 Ain^ica had become la,t§^f a natton @f employ^ 
 
 lice oi a discussion Deiore the Stanley Oonnnittee, 
 Suaiy, 1912; published in "The Independent," July 25, 1912. 
 
66 BUSINESS — A PROFESSION 
 
 eesj the need of a comprehensive provision for 
 superannuated -^gifi-teafners secured attention. 
 Given the status of employee for life, and 
 the need of an old age pension ^ is obvious. 
 The employe^ ©ee^s the pension because he 
 cannot — or at least does iMt -^ provide ade- 
 quately fro m, his wages for the period of super- 
 annuation. 'The employers need a comprehen- 
 sive pension system because, while the presence 
 of the superannuated employees in a business 
 seriously impairs its efficiency, the dictates 
 both of humanity and of policy prevent dis- 
 charge unless their financial necessities are pro- 
 vided for. The demand for a pension system 
 grows more pressing as businesses grow more 
 stable; for in older businesses there is a con- 
 stant tendency to accumulate superannuated 
 employees. The demand becomes particu- 
 larly acute when businesses grow large as well 
 as old; for then it becomes difficult to provide 
 for the individual needs of the abnormal 
 employee. • 
 
 As stated by the Massachusetts Commis- 
 sion on Old Age Pensions (January, 1910): 
 
 "The problem of dealing with the aged employee 
 is an urgent one in the modern business world. The 
 
 ' The term "pension" is used tlirougliout in its popular sense as 
 including old age annuities. 
 
DISCRETIONARY PENSIONS 67 
 
 use of machinery and the stress of industrial employ- 
 ment have made it increasingly difficult for aged em- 
 ployees to hold the pace. The universal demand 
 nowadays is for yoimg men. Many concerns refuse 
 to take on inexperienced men over thirty-five years 
 of age. Moreover, i!n^„^pr out fa^er under the 
 
 increased strain. 'W^j^itihr^rr-arlfh t1^pwr>rn-fiiit wftrlr- 
 
 "^fl^-^h at. is_the ^ essence of the pension problem. 
 'I'o carry them on the pay roU at tBefr regular em- 
 ployment means waste and disorganization of the 
 working force; to turn them adrift is not humane. In 
 the past, large employers of labor have tried to meet 
 this difficulty in piecemeal fashion, by retiring aged 
 employees on pensions in certain cases, or giving them 
 light work, each case being provided for separately, 
 on its own merits; now they are beginning to deal 
 with the problem in a systematic fashion, by adopt- 
 ing a uniform method of retirement with pension. 
 
 "The motives that have induced large corporate 
 employers to provide retirement pensions are partly 
 economic and partly humanitarian or philanthropic. 
 Economic motives play the leading part. This thing 
 has been done because it has been foimd to be good 
 bu siness policy. The ecan aBHeigaABwfaeafcthe pension 
 sysfSB'IPI^^^ff^'IPBBfciafiglglllLSS^te j,nd de- 
 mcaafealjon aifcti ^d^ll, upgB ttejWj^ued employ- 
 
 ^^ ^ithfflt Sinfulness; 
 
 anj|t helps^to proipote t^w^stry, contentment and 
 loyalty «n ^g^p^|jg|^!|§w@$Mng force." 
 
 Economically, the superannuation provision 
 may be considered as a depreciation charge. 
 
68 BUSINESS— A PROFESSION 
 
 Every prudent manufacturer makes an annual 
 charge for the depreciation of his machines, 
 recognizing not merely physical depreciation, 
 but lessened value through obsolescence. He 
 looks forward to the time when the machine, 
 though still in existence and in perfect repair, 
 will be unprofitable, and hence must be aban- 
 doned. This annual charge for depreciation 
 he treats as a necessary expense of the 
 business. 
 
 From the point of view of the workingman 
 the expense of providing old age pensions is a 
 part of the daily cost of living. He should con- 
 tribute while able to work to a fund which will 
 sustain him when he ceases to earn. From the 
 point of view of the employer, the expense of 
 providing old age pensions is a part of the 
 current expense of his business. He should 
 pay as he goes the accruing cost of retiring 
 employees who will become superannuated. 
 If the wage is insufficient to enable the work- 
 ingman to provide himself with a pension, it is 
 not a living wage. So far as the cost of the old 
 age pension is paid by the employer for the 
 employees' benefit, it is in substance a part of 
 the wage. So far as such a payment by the 
 employer is for insurance against that waste 
 and inefficiency in his establishment which 
 
DISCRETIONARY PENSIONS 69 
 
 would result from retaining superannuated em- 
 ployees, and for protection against that dis- 
 content which would result from discharging 
 the superannuated without providing for them 
 financially, it is a part of the business expense. 
 Since the cost of making old age provision is 
 thus either a part of the employees' daily cost 
 of living or of the employer's daily business 
 expense, it should be treated as a current ex- 
 pense, and may be likened to the premium for 
 fire or accident insurance. Whether in the ad- 
 justment of relations between the employer 
 and the employee this current cost of provid- 
 ing old age pensions should be borne wholly 
 by the employer, or wholly by the employee, or 
 jointly by both, is an open question; but Eu- 
 ropean and American experience makes it clear 
 that under our present industrial system some 
 comprehensive financial provision for the su- 
 perannuated worker is essential to social if not 
 to industrial solvency. To neglect such a re- 
 quirement is as dangerous as it is for the man- 
 ufacturer to ignore the depreciation of his 
 machines. 
 
 For the protection of the wage-earner it is 
 obviously necessary that the right to a pension 
 shall not depend upon his being in the employ 
 of a particular concern. If his right to an an- 
 
70 BUSINESS — A PROFESSION 
 
 nuity is dependent upon his remaining in a 
 particular employ he loses all protection when- 
 ever he ceases to be so employed, whether he 
 leaves voluntarily, or is discharged, or in case 
 the concern discontinues business by failure or 
 for other cause. 
 
 Adequate old age protection, therefore, can- 
 not be secured to the wage-earner through the 
 promise of a pension from a particular con- 
 cern. He should have old age insurance which 
 will protect the wage-earner in whosesoever 
 employ he may happen to be when he reaches 
 the period of superannuation. For the protec- 
 tion of the wage-earner it is likewise necessary 
 that the pension system should confer an abso- 
 lute right. No pension system can be satisfac- 
 tory which makes the granting — or the con- 
 tinuance of a pension after it has been granted 
 — a matter of discretion. 
 
 Germany, France, England and other Euro- 
 pean countries have undertaken to secure 
 through government action old age pensions 
 for those who work in private businesses. The 
 system adopted in each of these countries differs 
 in some respects from that prevailing in each 
 of the others; but each system embodies the 
 essential requirements referred to above; namely, 
 the pension is not dependent upon the workingman 
 
DISCRETIONARY PENSIONS 71 
 
 remaining in any particular employ, nor is it de- 
 pendent upon the discretion of any individuals. 
 
 In America the providing of old age pen- 
 sions for wage-earners in private businesses is 
 left wholly to private initiative. Many large 
 concerns — railroads, public utilities, indus- 
 trial and financial concerns — have established 
 their own pension systems. Under substan- 
 tially all of these systems the wage-earner re- 
 ceives no protection unless he remains in the 
 company's employ until the age of retirement 
 is reached, and even in that event the original 
 grant and the continuance of the pension are, 
 in large measure, discretionary. 
 
 Thus, the p«HBaigni)^|||^|i|lJj|te, United States 
 SS^s^^^feation, which took effect January 
 I, 1911, provides peagfiiWW!^ f or those who 
 hav^ been~in ibe, e^j^g^^;^^.!<aom.-pa,ny at 
 l^t tweij^'i^'^rs, and remain until the time 
 for retirement; bu« no i^e has ijie t«%i^> to re- 
 M&in in 4i£li employ: 
 
 Article 26. "Neither the creation of this fund nor 
 any other action at any time taken by any corporation 
 included under the provisions of the fund, or by the 
 board of trustees, shall give to any employee the right 
 to be retained in the service, and aU employees remain 
 subject to discharge to the same extent as if this pen- 
 sion fund had never been created." 
 
72 BUSINESS — A PROFESSION 
 
 Even if the worker has remained in the em- 
 ploy until the time fixed for retirement, and 
 has served faithfully, he has "no" right to a 
 pension : 
 
 Article 24. ^Th^ pension (jakj^jsj^purely volun- 
 tzr^ provision for the ^B'^WoTemployees superan- 
 nuated or totaljyjj incapacitated lifter long and faithful 
 ser y| , M j a.nfl rnS ilfe^'^s no 1;ontract and confers no 
 legal Tighls upon any employee." 
 
 And a board of trustees, in whose selection 
 the workers have no voice, and on which they 
 have no representation, may refuse to grant 
 them a pension or may terminate it after it 
 has been grafted, for what they in their dis- 
 cretion deem adequate cause: 
 
 y be -Withheld or ter- 
 ij^Qin^uct on the part of the bene- 
 cause sufficient m^the judgment 
 .tswi^ees to 'warrant such action." 
 
 The pension plan -of most other corporations 
 embodies similar provisions. Thus, the pen- 
 sion plan of the International Harvester Com- 
 pany provides: 
 
 Article 14. "Neither the establishment of this 
 system nor the granting of a pension nor any other 
 action now or hereafter taken by the pension board 
 
DISCRETIONARY PENSIONS 73 
 
 or by the ofBcers of the company shall be held or 
 construed as creating a contract or giving to any offi- 
 cer, agent or employee the right to be retained in the 
 service, or any right to any pension allowance, and 
 the company expressly reserves imaffected hereby, 
 its right to discharge without liabihty, other than 
 for salary or wages due and unpaid, any employee, 
 whenever the interests of the company may, in its 
 judgment, so require." 
 
 It has often be en said by the corporations 
 that nnp nf ^S^pTTcposetfin eslablisHmg"^ , 
 pelsi@a syste m ^ t® "develop Joya lty. " B ut _ 
 prfSvisions like those quoted above |)i,|gigt a 
 purpose Hitt^. to ciWM^&s^^[^ deDeloi? "loy - 
 altyvl' The systmn is in ettect a lorm of strike 
 insurance. The pension is made dependent 
 upon continuity of employment for a :^ed 
 period. The worker cannot receive a pension 
 unless he remains in the company's employ 
 until the date for retirement, and he has no 
 rigM to remain in its employ, since the com- 
 pany reserves the full power to discharge him 
 at any time, with or without cause. After a 
 wage-earner has Served a number of years 
 and feels himself growing older, the prospect 
 of a pension becomes a potent influence. He 
 real^^that if he abandons his position of 'is 
 discharged, he loses not only immediate em- 
 ployment, but protection for old age. He re- 
 
74 BUSINESS — A PROFESSION 
 
 alizes also that the chance of securing other 
 employment is greatly diminished by reason of 
 his advancing years; diminished not because 
 he is already old and less efficient, but because 
 he will become superannuated sooner than. a 
 younger man, so that his employment by an- 
 other concern will impose upon it or its pension 
 system a superannuation burden sooner than if 
 a younger man were selected. 
 
 Features in a pension system like those 
 quoted above tead^giJj^j^a^th^wage-earner 
 compliant. He can bemore rSmly rellM ttpon 
 to prove "loyal" and not to "go out" even if 
 others strike for higher wages and better work- 
 ing conditions. The "continuous employment 
 feature" of the pension system tends thus to 
 rivet the wage-earner to his employer, and the 
 provision by which the allowance of a pension 
 is made discretionary further insures "loyalty" 
 of the wage-earner during his employment. 
 An employee of the United States Steel Corpora- 
 tion advancing in years might well be deterred 
 from hazarding the prospect of a pension by 
 trade-union activity, or even by joining a 
 union. 
 
 The tendency of such provisions in a pension 
 system to destroy industrial liberty is the 
 more potent because the system is being 
 
DISCRETIONARY PENSIONS 75 
 
 adopted quite generally by those trusts and 
 other powerful corporations which are deter- 
 mined to eliminate trade-unionism. Indeed, 
 in many cases the pension system was intro- 
 duced as an aid to carrying out that labor 
 policy. Individual employees, working under 
 conditions which preclude collective bargain- 
 ing, obviously lack industrial liberty so long as 
 they are so employed; for they have no part in 
 determining the conditions under which they 
 work. After entering such employment, the 
 only remnant of liberty remaining to them is 
 the liberty of leaving it; and the features of the 
 pension system just referred to undermine that 
 remnant of liberty. 
 
 A pension system with such features must 
 either prove a delusive protection or operate 
 as a bribe to induce the wage-earner to submit 
 to a new form of subjection to the corporation. 
 A frank employer recently said: "By provid- 
 ing so liberal a pension we have bo ught f rom 
 the employee the right to leave us.'^'^rch a 
 ase of the pension 'is ©bviously illegitimate. 
 The legitimate* need ;@| fe^igi aplitigper for a pen- 
 sion'system is satisfied Jf *EBF provisions protect 
 him from the necessity* of "keeping superannu- 
 ate* employees on_Jhe_pay roll. This need of 
 the employer is equally satisfied whether the 
 
76 BUSINESS — A PROFESSION 
 
 employee retires on a pension or leaves the 
 employ before the age of retirement. In other 
 words, whatt; thg ^mployer sho uld seek to ac- 
 .complish bvtTT ^r''^'^^"^^^ merely t o prot ect 
 his bu siness from the incubus of superannuated 
 ~ £mpTr)YLla. gud tlil b pillrpbse is accomplislied 
 
 ..£LS tjT^parTi pmplnypp U hp Ip.a.vps tIih HiilHlirjj-4»P- 
 
 forehTBec^^meii jupefaiiimale d. IT the work- 
 ingman so leaves, he should in'^ome form carry 
 with him the accrued right to a pension — the 
 proportionate value of the time service — 
 which would ripen into a pension if the work- 
 ingman or his new employer paid the premiums 
 of later years. Under these private pension sys- 
 tems that part of the pension earned by years 
 of service is wholly lost when he leaves the 
 company's employ, whatever the cause. 
 
 Employers seek to justify provisions in the 
 pension systems like those quoted above by 
 the fact that the pension fund is contributed 
 wholly by the employer. But this fact furnishes 
 no justification. The employer should not be 
 permitted, even at his own expense, to establish 
 a pension system which t^ds to rob the work- 
 ingman of his little remaining industrial lib- 
 erty. A practice bearing such fruits is clearly 
 against public policy. Many of our States 
 have, in aid of industrial liberty, prohibited 
 
DISCRETIONARY PENSIONS 77 
 
 the employers from making it a condition of 
 employment that their employees should agree 
 not to join a labor union. It may become nec- 
 essary to apply a similar prohibition against 
 features in private pension schemes which have 
 a tendency to unduly abridge the liberty of the 
 individual workingman. 
 
 an^ several of the. life insurance companies, 
 afEord employers facilities for establishing pen- 
 sion systems which are free from the objections 
 discussed above. From such insurance concerns 
 there can be purchased for each employee an 
 old age annuity which (subject to due pre- 
 mium payments) confers upon the holder an 
 absolute right to the annuity, and which is 
 equally effective in whosesoever employ the 
 annuitant is, or if he be without an employer. 
 
 The premiums on such an annuity policy could 
 be made payable at frequent intervals, say 
 monthly, so that if payable by the employee 
 they would not be too large to be borne, and if 
 payable by the employer, they may be figured 
 as a part of the current wage or expense. The 
 policy should preferably be taken out while the 
 wage-earner is young, so that the current pre- 
 miurn may be small; for the annual cost of old 
 age insurance, like that of life insurance, be- 
 
78 BUSINESS — A PROFESSION 
 
 comes almost prohibitive when the policy is 
 not taken out until the insured is advanced in 
 years. If the policy is not taken out until the 
 wage-earner grows old, the premium will be so 
 large that, if payable by the wage-earner, it 
 could not be borne, and if payable by the em- 
 ployer, might discourage the annuitant's being 
 employed. Under the Massachusetts system a 
 separate annuity policy is issued for each em- 
 ployee, so that the employee can take the policy 
 with him when he leaves a concern. The em- 
 ployee can then pay the premiums himself until 
 another employer is found who is willing to 
 assume the charge as a part of his own sys- 
 tem of providing against superannuation. The 
 workingman possessing such an annuity policy 
 taken out when young should meet with no 
 difl&culty in securing employment solely on 
 account of advancing years; for the burden 
 on the new employer of providing against his 
 superannuation would be no greater than in the 
 case of a younger employee. 
 
 Every pension system should be contribu- 
 tory and co-operative; that is, the cost should 
 be borne partly by the employer and partly by 
 the employee, and preferably in equal shares. 
 The.&anagemenf'tfrtHe pension system, should 
 likewise be shared in by both employ errand 
 
DISCRETIONARY PENSIONS 
 
 79 
 
 tnry] tl^!;f,|; J[s. whcii a system has bee n estab- 
 
 Usl ied, all employees should, so far as possiBI e7 
 
 Jier.ome .siibiect to its provisions; and both 
 
 ■^ployer and employee should be bound to 
 continue the system once established. For the 
 present, however, it should be optional with 
 the employer and his employees to establish a 
 pension system. 
 
 The Boston and Maine Pension Act,^ passed 
 by the Massachusetts Legislature in 1909, con- 
 tains suggestions for such an elective obliga- 
 tory co-operative system. That act provides, 
 among other things: 
 Firsi. A ^pension system is established only 
 ■ hy a " maJuiiL_y vuLu-<=> iita^ 
 thirds v o te of th^ -empLoyees 
 (■ktildtii I III In ill I i^irii irlnptrr] 
 
 ay such votes the system beconies operative 
 \^^the force of law upon all persons then or 
 t^^'^ter .employed, except such as voted 
 against establishing the system, and also within 
 three months thereafter filed their written 
 objections thereto. 
 
 ' The act, which embodies the results of long negotiations be- 
 tween the company and the employees, was enacted May 29, igog. 
 On June 18, igog, the Legislature of Massachusetts authorized the 
 New York, New Haven and Hartford Railroad Company to acquire 
 control of the Boston and Maine system. The New Haven manage- 
 ment being opposed to the establishment of the pension plan, the 
 Boston and Maine pension system has not yet become operative. 
 
80 BUSINESS — A PROFESSION 
 
 Second. The pension fund is, supplied by 
 monthly contribu tions from employer and em- 
 ployees in equal shares, the employees' share 
 being deducted from wages and transmitted by 
 the company to the pension fund. 
 
 Third. The :iinanagement of the pension sys- 
 tem, is vested in a board of seven trustees, three 
 of whom are selected by the company, three by 
 the employees (who are formed into a pension 
 association), and the seventh by the six so 
 chosen. 
 
 Fourth. The iffl@i*i^i^jL£j&^§|^tions to the 
 pension fund is "fixeW as^Tpercentage of wages. 
 What percentage shall be assessed is determined 
 by the trustees (subject to the approval of the 
 directors of the company) up to an amount 
 equal to three per cent of the wages, and can be 
 fixed at a higher amount if approved by the 
 directors and the pension association. 
 
 Fifth, ^s^^e nl^reniains in^e employ of 
 the' co;^aayTrp to the time of retirement has 
 an absolute rigbt to a pension. Any person 
 who cei^^tS bt'lii employee prior to the time 
 fixe^for re tiremen t retains the right to a part 
 only of the accrued pension; that is, a person 
 who leaves the employ voluntarily, or who is 
 discharged, receives not the full accrued value 
 of the pension at the time of so leaving, but 
 
DISCRETIONARY PENSIONS 
 
 81 
 
 only an amount equal to his own contribu- 
 tions. The act embodies in this respect a very 
 objectionable feature, which was reluctantly 
 assented to by the committee of the employees, 
 as necessary to secure the consent of the com- 
 pany to the support of the bill, and in the 
 hope that a more just provision might be later 
 substitjj^d 
 Itls upon "th^ese^eli^ri 
 
 onsistent with 
 
 i ndustnal democr acy, 
 id! 
 
 developed. 
 
THE INCORPORATION OF TRADES 
 UNIONS 1 
 
 Lest what I say on the advisability of in- 
 corporating trade unions be misunderstood, it 
 seems wise to state at the outset my views of 
 their value to the community. 
 
 They have been largely instrumental " in 
 securing reasonable hours of labor and proper 
 conditions of work; in raising materially the 
 scale of wages, and in protecting women and 
 children from industrial oppression. fN 
 
 T he trade ^ i mions ha ve done t his, > not i^ t. — , 
 the workingm en alone , but for all of ua; since 
 t. hf; rnndit.inns unrier wh irh so large a part of 
 x) ur fellow citizens work a nd live will deter- 
 r nine, in great meas ure, the* future of nnr_ _ 
 rnrmtry fpf gnr>d nr for Pvil 
 
 This improvement in the condition of the 
 workingmen has been almost a net profit to 
 jthe community. Here and there individuals 
 P).afve been sacrificed to the movement; but the 
 instances have been comparatively few, and 
 
 1 An address delivered at a meeting of the Economic Club of 
 Boston, December 4, 1902, and published in the " Green Bag," 
 January, 1903. 
 
INCORPORATION OF TRADES UNIONS 83 
 
 the gain to the employees has not been at- 
 tended by a corresponding loss to the em- 
 ployer. In many instances, the employer's 
 interests have been directly advanced as an 
 incident to improving the conditions of labor; 
 and perhaps in no respect more than in that 
 expressed by a very wise and able railroad 
 president in a neighboring State, who said: 
 "I need the labor union to protect me from 
 my own arbitrariness." 
 
 It is true that the struggle to attain these 
 great ends has often been attended by intoler- 
 able acts of violence, intimidation and op- 
 pression; but the spirit which underlies the 
 labor movement has been essentially noble. 
 The spirit which subordinates the interests 
 of the individual to that of the class is the 
 spirit of brotherhood — a near approach to 
 altruism; it reaches pure altruism when it 
 involves a sacrifice of present interests for the 
 welfare of others in the distant future. 
 
 Modern civilization affords no instance of 
 enlightened self-sacrifice on so large a scale 
 as that presented when great bodies of men 
 calmly and voluntarily give up steady work, 
 at satisfactory wages and under proper con- 
 ditions, for the sole reason that the employer 
 refuses the recognition of their union, which 
 
84 
 
 BUSINESS — A PROFESSION 
 
 they believe to be essential to the ultimate 
 good of the workingmen. If you search for 
 the heroes of peace, you wUl find many of 
 them among those obscure and humble work- 
 men who have braved idleness and poverty 
 in devotion to the principle for which their 
 union stands. 
 
 And because the trade unions have ac- 
 complished much, and because their funda- 
 mental principle is noble, it is our duty, where 
 the unions misconduct themselves, not to 
 attack the unions, not — ostrich-like — to re- 
 fuse to recognize them, but to attack the 
 abuses to which the unions, in common with 
 other human institutions, are subject, and 
 with which they are afflicted; to remember 
 that a bad act is no worse, as it is no better, 
 because it has been done by a labor union and 
 not by a partnership or a business corporation. 
 If unior ^'n arp Ip yless, restrain and punish 
 their lawlessness; if they are arbitrary, 
 picbS'liEe ir arlTitraripess -^ if their demand^ 
 unr ea sonable or unjust, resist them; but do 
 joseth« unions as such. 
 
 Now, the best friends of labor unions must 
 and should admit that their action is fre- 
 quently hasty and ill-considered, the result of 
 emotion rather than of reason; that their 
 
INCORPORATION OF TRADES UNIONS 85 
 
 action is frequently arbitrary, the natural re- 
 sult of the possession of great power by per- 
 sons not accustomed to its use; and that the 
 unions frequently ignore laws which seem to 
 hamper them in their efforts, and which they 
 therefore regard as unjust. For these defects, 
 being but human, no complete remedy can be 
 found; but the incorporation of labor unions 
 would, among other things, tend in some mea- 
 sure to correct them. 
 
 The general experience in this country, in 
 respect at least to the great strikes, has 
 been that success or failure depended mainly 
 upon whether public opinion was with or 
 against the strikers. Nearly every American 
 who is not prejudiced by his own peculiar in- 
 terests recognizes the value of labor unions. 
 Nearly every American who is not himself 
 financially interested in a particular contro- 
 versy sympathizes thoroughly with every strug- 
 gle of the workingmen to better their own 
 condition. But this sympathy for the working- 
 men is quickly forfeited whenever the conduct 
 of the strikers is unreasonable, arbitrary, lawless 
 or unjust. The American people with theii^ 
 common sense, their desire for fair play and? 
 their respect for law, resent such conduct. ' 
 The growth and success of labor unions,^ 
 
86 BUSINESS — A PROFESSION 
 
 therefore, as well as their usefulness to the 
 community at large, would be much advanced 
 by any measures which tend to make them 
 more deliberate, less arbitrary, and more pa- 
 tient with the trammels of a civilized com- 
 munity. They need, like the wise railroad 
 president to whom I referred, something to 
 protect them from their own arbitrariness. 
 The employer and the community also require 
 this protection. Incorporation would in some 
 measure help to this end. 
 
 When, in the course of a strike, illegal acts 
 are committed, such as acts of violence or of 
 undue oppression, the individual committing 
 the wrong is, of course, legally liable. If the 
 act is a crime, the perpetrator may be arrested 
 and punished; if it is a mere trespass, he may be 
 made to pay damages, provided he is financially 
 responsible; and if money damages appear not 
 to be an adequate remedy, an injunction 
 against the wrongful acts may be granted by 
 a court of equity. If the injunction is diso- 
 beyed, the defendant may be imprisoned for 
 contempt. 
 
 Now, it seems to be a common belief in this 
 country that while the individual may be thus 
 proceeded against in any of these ways, the 
 labor union, as such, being unincorporated, 
 
INCORPORATION OF TRADES UNIONS 87 
 
 that is, being a mere voluntary association, can- 
 not be made legally responsible for its acts. 
 The rules of law established by the courts 
 of this country afford, it is true, no justifica- 
 tion for this opinion. A union, although a 
 voluntary unincorporated association, is legally 
 responsible for its acts in much the same way 
 that an individual, a partnership or a cor- 
 poration is responsible. If a union, through 
 its constituted agents, commits a wrong, or is 
 guilty of violence or of illegal oppression, the 
 union, and not merely the individuals who are 
 the direct instruments of the wrong, can be 
 enjoined or made liable for damages to the same 
 extent that the union could be if it were in- 
 corporated; and the funds belonging to the 
 unincorporated union can be reached to satisfy 
 any damages which might be recovered for the 
 wrong done. The Taff Vale Railway case, 
 decided last year in England, in which it was 
 held that the Amalgamated Society of Railway 
 Servants could, as a union, be enjoined and be 
 made liable in damages for wrongs perpetrated 
 in the course of a strike, created consternation 
 among labor unions there, but it laid down no 
 principle of law new to this country. 
 
 Numerous instances may be found in our 
 courts where labor unions have been enjoined, 
 
88 BUSINESS — A PROFESSION 
 
 and in our own State, more than thirty years 
 ago, an action was maintained against a union 
 for wrongfully extorting from an employer a 
 penalty for having used the product of "scab" 
 labor. But while the rules of legal liability 
 apply fully to the unions, though unincorpo- 
 rated, it is, as a practical matter, more difficult 
 for the plaintiff to conduct the litigation, and 
 it is particularly difficult to reach the funds 
 of the union with which to satisfy any judg- 
 ment that may be recovered. There has con- 
 sequently arisen, not a legal, but a practical 
 immunity of the unions, as such, for most 
 wrongs committed. 
 
 This practical immunity of the unions from 
 legal liability is deemed by many labor leaders 
 a great advantage. To me it appears to be 
 just the reverse. It tends to make officers and 
 members reckless and lawless, and thereby to 
 alienate public sympathy and bring failure upon 
 their efforts. It creates on the part of the em- 
 ployers, also, a bitter antagonism, not so much 
 on account of lawless acts as from a deep- 
 rooted sense of injustice, arising from the feeling 
 that while the employer is subject to law, the 
 union holds a position of legal irresponsibility. 
 
 This practical immunity of the labor unions 
 from suit or legal liability is probably largely 
 
INCORPORATION OF TRADES UNIONS 89 
 
 responsible for the existence of the greatest 
 grievances which labor unions consider they 
 have suffered at the hands of the courts; 
 that is, the so-called "government by injunc- 
 tion." It has come about in this way: An 
 act believed to be illegal is committed during 
 a strike. If that act is a crime, a man 
 may be arrested, but in no case can he be con- 
 victed of a crime except on proof beyond a 
 reasonable doubt and a verdict of the jury, 
 and on every jury there is apt to be some one 
 favorable to the defendant. Many acts, how- 
 ever, may be illegal which are not criminal, and 
 for these the only remedy at law is a civil action 
 for damages; but as the defendant is usually 
 financially irresponsible, such action would 
 afford no remedy. 
 
 The courts, therefore, finding acts com- 
 mitted or threatened, for which the guilty 
 parties cannot be punished as for a crime, 
 and cannot be made to pay damages by way 
 of compensation, have been induced to apply 
 freely, perhaps too freely, the writ of injunc- 
 tion. They have granted, in many instances, 
 this writ according to the practices of the 
 court of equity upon preliminary application, 
 wholly ex parte, and upon affidavits, without 
 any chance of cross-examination. If the courts 
 
90 BUSINESS — A PROFESSION 
 
 had been dealing with a responsible union 
 instead of with irresponsible defendants, they 
 would, doubtless in many of the cases, have 
 refused to interfere by injunction and have 
 resolved any doubts in favor of the defendants 
 instead of the plaintiffs. 
 
 In another respect, also, this practical im- 
 munity of the unions has been very dearly 
 bought: Nearly every large strike is attended 
 by acts of flagrant lawlessness. The employers, 
 and a large part of the public, charge these acts 
 to the unions. In very many instances the 
 unions are entirely innocent. Hoodlums, or 
 habitual criminals, have merely availed them- 
 selves of a convenient opportunity for breaking 
 the law, in some instances even incited thereto 
 by employers desiring to turn public opinion 
 against the strikers. What an immense gain 
 would come to the unions from a full and fair 
 trial of such charges if the innocence of the 
 unions were established, and perhaps even the 
 guilt of an employer! And such a trial would 
 almost necessarily be had before a jury, upon 
 oral testimony, with full opportunity of cross- 
 examination; whereas now, nearly every im- 
 portant adjudication involving the alleged 
 action of unions is made upon application 
 to a judge sitting alone, and upon written 
 
INCORPORATION OF TRADES UNIONS 91 
 
 afl&davits, without the opportunity of cross- 
 examination. 
 
 It has been objected by some of the labor 
 leaders that incorporation of the unions would 
 expose to loss the funds which have been 
 collected as insurance against sickness, accident 
 and enforced idleness; that these funds might 
 be reached to satisfy claims made for wrongs 
 alleged to have been committed by the union. 
 I can conceive of no expenditure of money by 
 a union which could bring so large a return as 
 the payment of compensation for some wrong 
 actually committed by it. Any such payment 
 would go far in curbing the ofi&cers and mem- 
 bers of the union from future transgression of 
 the law, and it would, above all, establish the 
 position of the union as a responsible agent 
 in the community, ready to abide by the law. 
 This would be of immense advantage to the 
 union in all its operations. 
 
 Again, it has been urged that the incor- 
 poration of the union would lead to a multi- 
 plication of lawsuits, which would involve 
 the union in great expense; but the expense 
 of conducting such litigation would be insignifi- 
 cant as compared with the benefits which would 
 result to the union from holding a recognized 
 and responsible position in the community. 
 
92 BUSINESS — A PROFESSION 
 
 Again, it has been urged that the unions 
 would not fear litigation if justice were promptly 
 administered; but that it was the dragging out 
 of litigation which was to be apprehended. 
 I take it that, so far as the unions have suf- 
 fered from the administration of the law, it 
 has not been from delays but from precipi- 
 tancy. They have suffered at times in the 
 granting of preliminary injunctions, injunc- 
 tions which have been more readily granted 
 because of the irresponsible position of the 
 defendants. 
 
 Again, it has been urged that the unions 
 might be willing to submit themselves readily 
 to suit if the rules of law, as now adminis- 
 tered by the courts, were not unjust to labor. 
 I am inclined to think that there have been 
 rendered in this country many decisions which 
 do unduly restrict the activity of the unions. 
 But the way to correct the evil of an unjust 
 decision is not to evade the law but to amend 
 it. The unions should take the position squarely 
 that they are amenable to law, prepared to take 
 the consequences if they transgress, and thus 
 show that they are in full sympathy with the 
 spirit of our people, whose political system 
 rests upon the proposition that this is a gov- 
 ernment of law, and not of men. 
 
 ^ 
 
HOW BOSTON SOLVED THE GAS 
 PROBLEM 1 
 
 Shall the pubHc utilities be owned by the 
 public? — is a question pressing for decision 
 in nearly every American city. 
 
 To aid in its proper solution the National 
 Civic Federation began about two years ago 
 a comprehensive investigation of representa- 
 tive American and British gas, water, electric 
 light and street railway plants, with a view to 
 comparing the advantages and disadvantages 
 of private and public ownership. The opinions 
 of the< experts upon the data so collected ap- 
 pear to be widely divergent and to indicate, so 
 far as they can be reconciled at aU, that neither 
 private nor public ownership, as ordinarily 
 practiced, is wholly satisfactory. 
 
 While this investigation was proceeding, 
 Massachusetts entered, in connection with the 
 Boston gas supply, upon an experiment, new in 
 America, which may lead to the best practical 
 solution of the public-utilities problem. The 
 new Boston system creates substantially a 
 
 • Published in "American Review of Reviews," November, 1907. 
 
94 BUSINESS — A PROFESSION 
 
 partnership between the pubKc and the stock- 
 holders of the gas company — a partnership in 
 which the public will secure an ever-increasing 
 share of the profits of the business. 
 
 This system has already given to Boston 
 eighty-cent gas, although Boston is located many 
 hundred miles from the mines which supply its 
 coal. Eighty cents is a lower price for gas than 
 is actually enjoyed by any other city in the 
 United States, except a few within the coal 
 and oil region, like Cleveland or Wheeling, and 
 Redlands and Santa Ana, Cal. Even in those 
 cities the price is not lower than seventy-five 
 cents — a price which Boston may reasonably 
 expect to attain soon. For, during the two years 
 ending July i, 1907, four reductions in price each 
 of five cents have been made. To have reduced 
 the price of gas twenty per cent during that 
 period of generally rising prices in labor and 
 materials is certainly a notable achievement. 
 The most recent reductions in price were the 
 wholly voluntary acts of the company, made 
 under wise laws framed in the interest both of 
 the public and of the stockholders. The saving 
 to the gas consumer by these reductions was in 
 the first year $265,404.55, in the second year 
 $565,725.60, and will be in the third (the cur- 
 rent) year about $800,000. 
 
BOSTON AND THE GAS PROBLEM 95 
 
 That this saving to the consumer was not at- 
 tained by a sacrifice of the interests of the 
 stockholder may be inferred from the market 
 price of the stock of the association which con- 
 trols the gas company. In the two years fol- 
 lowing the legislation of 1905, a period in which 
 most other stocks depreciated largely, the 
 common stock of the Massachusetts Gas Com- 
 panies rose from 44^^ to 573^; and even in 
 the severe stock depression of September, 1907, 
 this stock was firm at 52. 
 
 Compare with the results of the Boston ex- 
 periment the attempt in New York City made 
 at about the same time to rediice the price of gas 
 from one dollar to eighty cents by legislative fiat 
 and the compulsory orders of the State com- 
 mission. The New York company contended 
 that the law was unconstitutional; the federal 
 court issued an injunction; the consumer stUl 
 pays out one dollar for each one thousand feet 
 of gas; and the market price of the stock of 
 the Consolidated Gas Company of New York 
 fell during the same period of two years from 200 
 to 118, and in September, 1907, to 96 ^. 
 
 But Boston has reaped from the sliding-scale 
 system as applied under President Richards' 
 administration of the company far more than 
 cheaper gas and higher security values. It has 
 
96 BUSINESS — A PROFESSION 
 
 been proved that a public-service corporation 
 may be managed with political honesty, and 
 yet successfully, and that its head may become 
 a valuable public servant. The officers and 
 employees of the gas company now devote them- 
 selves strictly to the business of making and dis- 
 tributing gas, instead of dissipating their abili- 
 ties, as heretofore, in lobbying and political 
 intrigue. As a result, gas properties which 
 throughout the greater part of twenty years 
 had been the subject of financial and political 
 scandals, developing ultimately bitter hostility 
 on the part of the people, are now conducted 
 in a manner so honorable as to deserve and to 
 secure the highest public commendation. 
 
 The passage of the Sliding Scale Act of 1906 
 marked the close of the campaign upon which 
 the Public Franchise League entered in 1903. 
 All Massachusetts gas companies had since 
 1885 been subject to the supervision of a State 
 commission with very broad powers, including 
 that of fixing prices. New securities could be 
 issued only with the commission's approval. 
 For many years stringent laws prohibiting 
 stock-watering had been in force. While these 
 laws are of great value and have protected 
 Massachusetts from many of the evils of cor- 
 porate management from which other States 
 
BOSTON AND THE GAS PROBLEM 97 
 
 have suffered, dissatisfaction with conditions 
 from time to time prevailing in connection with 
 the Boston gas supply was persistent and well 
 founded. Boston tried successively " regulated " 
 monopoly, competition and the combination of 
 gas companies. The service was poor and the 
 management unprogressive. The price of gas, 
 which after a strenuous contest had been re- 
 duced in parts of Boston to one dollar in 1893, 
 appeared to be immutable. 
 
 The application to the legislature made in 
 1903 for leave to consolidate the several Boston 
 companies then in combination afforded the 
 Public Franchise League its opportunity. Sev- 
 eral minor provisions were inserted in the 
 consolidation act designed to protect thepeople's 
 rights, and the issue of capital by the united 
 company was limited to the net "fair value of 
 the plants and property of the several corpora- 
 tions as the same shall be determined" by the 
 gas and electric light commissioners, "with- 
 out enhancement on account of the value of 
 franchises or earning capacity or on account of 
 exclusive privileges derived from rights in the 
 public streets." 
 
 The aggregate outstanding securities of the 
 constituent companies had a par value of only 
 $15,124,121 (of which $9,309,600 was stock and 
 
98 BUSINESS — A PROFESSION 
 
 $5,814,521 funded debt). But when, in 1904, 
 application was made under the act to fix the 
 capital, the companies claimed that the prop- 
 erties had recently cost the then owners over 
 $24,000,000, that their replacement value was 
 about the same amount, and that the fair value 
 for capitalization should be not less than $20,- 
 609,989.99. The Public Franchise League, on 
 the other hand, contended that substantially 
 any excess in value over the $15,124,121 rep- 
 resented not contributions by stockholders, but 
 accumulations from excessive payments exacted 
 from gas consumers; that in the reorganization 
 of the business such value should not be capi- 
 talized; and that the Consolidated Company's 
 capital stock should therefore be limited to the 
 aggregate of the capital of the constituent com- 
 panies then outstanding, plus such additional 
 amount of stock as it might be necessary to issue 
 at its estimated market value (which was above 
 the par value) to provide funds for paying off 
 all existing indebtedness. The league deemed 
 the retention of the original capital so aug- 
 mented of fundamental importance, mainly be- 
 cause the payment of a high rate of dividend 
 on a small capital issue would tend to keep the 
 public vigilant. 
 
 After a long and bitter struggle the gas com- 
 
BOSTON AND THE GAS PROBLEM 99 
 
 panics, acting under the enlightened and able 
 leadership of Mr. Richards, agreed, in 1905, 
 with the Public Franchise League upon legis- 
 lation which provided that the capital of the 
 consolidated company should be limited to the 
 aggregate par value of the outstanding stock 
 and funded indebtedness . of the constituent 
 companies, to wit: $15,124,000; that the maxi- 
 mum price of gas in Boston should be reduced 
 to ninety cents within twelve months after 
 the consolidation was effected; and that the 
 governor should appoint a commission to con- 
 sider and report to the next legislature whether 
 the adoption in Boston of the so-called London 
 sUding scale system for "the automatic and 
 interdependent adjustment of the price of gas to 
 consumers and the rate of dividends to stock- 
 holders of gas companies" was expedient. The 
 favorable recommendation of the minority of 
 this commission, Messrs. James E. Cotter and 
 Charles P. Hall, was supported by the Public 
 Franchise League and the gas company, and on 
 May 26, 1906, the Sliding Scale Act received 
 Governor Guild's approval in spite of the 
 strenuous opposition of both conservatives and 
 radicals. 
 
 The Boston Sliding Scale Act, which embodies 
 with some modifications the main provisions 
 
100 BUSINESS — A PROFESSION 
 
 of the system widely used in England, provides 
 as follows: 
 
 First. Ninety cents per thousand feet of gas 
 (that is, the maximum price then actually 
 charged by the Boston company) is made the 
 "standard price" of gas. 
 
 Second. Seven per cent (that is, one per cent 
 less than the dividend which was then being 
 paid by the Boston company) is made the 
 "standard dividend." 
 
 Third. The company is prohibited from pay- 
 ing more than seven per cent dividend unless 
 and until one year after it shall have reduced 
 the price of gas below ninety cents, and then 
 may increase its dividend at the rate of one 
 per cent for every five cents reduction in the 
 price of gas. 
 
 Fourth. New stock can be issued only with 
 the consent of the Gas and Electric Light 
 Commissioners, and must be sold at auction 
 at such minimum price and under such other 
 conditions as the Commissioners prescribe. 
 
 Fifth. Provision is made for determining 
 annually, and publishing in detail in the news- 
 papers, the cost of manufacturing and distribut- 
 ing gas. 
 
 Sixth. After the expiration of ten years, the 
 Gas and Electric Light Commissioners may. 
 
BOSTON AND THE GAS PROBLEM 101 
 
 upon petition, "lower or raise the standard price 
 per thousand feet to such extent as may justly 
 be reqmred by reason of greater or less burden 
 which may be imposed upon the company by 
 reason of improved methods in the art of manu- 
 facture, by reason of changes in prices of mate- 
 rials and labor, or by reason of changes in other 
 conditions affecting the general cost of manu- 
 facture or distribution of gas." 
 
 A seven per cent dividend upon the capital of 
 the consolidated company was equivalent to a 
 return of about 4.35 per cent on the replace- 
 ment value of the gas properties as testified 
 to, and of their cost to the then owners. The 
 "standard dividend," therefore, though nomi- 
 nally seven per cent, represented but a modest 
 return upon the capital then recently invested, 
 and was about $150,000 less than the aggre- 
 gate amount then being paid by the several 
 companies as return upon capital. Neverthe- 
 less strenuous opposition was made to the 
 Sliding Scale bill on the ground that successive 
 reductions in price would enable the gas com- 
 pany to pay very large dividends. The Public 
 Franchise League recognized fully that after a 
 few years' operation under the act much larger 
 dividends would probably be paid than capital 
 as capital is entitled to when employed in a 
 
102 BUSINESS — A PROFESSION 
 
 business which is not only safe because it enjoys 
 a substantial monopoly, but which also receives 
 from the community without the payment of 
 any compensation the license to lay and main- 
 tain its pipes in the public streets. The League 
 insisted, however, that the proper aim of the 
 public must be not to limit dividends, but to 
 secure gas of good quality at low prices; that 
 a limitation of dividends was desirable only 
 when it conduced to that end; and that under 
 proper conditions a reasonable assurance of the 
 undisturbed enjoyment of large dividends might 
 be the best method of attaining cheap gas. 
 
 The League therefore urged that the possi- 
 bility of a large return upon capital offered 
 under the sliding scale system should be re- 
 garded merely as an incentive to securing for 
 the gas business the kind of management most 
 likely to produce and distribute gas at the 
 lowest possible cost, and thus supply an essen- 
 tial prerequisite to cheap gas. Protection 
 against corporate abuses demands for gas 
 companies strict supervision and publicity. 
 Fairness demands that proper compensation 
 be made in some form for the use of our streets. 
 But no self-sustaining system of supplying 
 gas can give to the people cheap gas unless it 
 rests upon high efficiency in management. 
 
BOSTON AND THE GAS PROBLEM 103 
 
 The gas business has many of the charac- 
 teristics of both manufacturing and merchan- 
 dizing. Like other manufacturing businesses, 
 it produces an article for sale. The cost of its 
 produce is dependent largely upon the char- 
 acter and condition of the plant j upon the 
 extent to which labor and waste-saving devices 
 are adopted; upon the skill with which raw ma- 
 terials and supplies are purchased and waste or 
 residual products are disposed of; and whether 
 the plant is operated to its full capacity. 
 
 To an even greater extent than in most mer- 
 cantile businesses, the pro rata cost of distri- 
 bution of gas is dependent upon large volume. 
 The distributing plant requires an exceptionally 
 large investment. But the mains or pipes are 
 rarely used to their full capacity. The interest, 
 depreciation and maintenance charges are the 
 same whatever the volume of sales. The in- 
 spection of meter, and many other charges, in- 
 crease but slightly with the increase of sales. 
 The pro rata cost of distributing gas dimin- 
 ishes largely, therefore, with the increase in the 
 quantity sold. But, as in most mercantile 
 businesses, the quantity of gas which can be sold 
 in any of our large cities is dependent mainly 
 upon the skill, energy, initiative and intelli- 
 gence with which the business is conducted. 
 
104 BUSINESS — A PROFESSION 
 
 The demand for gas is not a fixed quantity. 
 There is, undoubtedly, a minimum quantity 
 which will be used under almost any conceivable 
 circumstances. But limits can scarcely be set 
 to the possible increase of its use in our large 
 cities. Not only is there an ever-growing de- 
 mand for intense artificial lighting of public 
 places, stores and residences, but there is an 
 almost limitless field now occupied by electric 
 light, coal and oil, of which gas is the natural 
 competitor. The limits of the use of gas in any 
 city, therefore, will be set mainly by the skill, 
 energy and initiative of those who manage the 
 business and by the extent to which they ap- 
 preciate the fact that increased use of gas will 
 result from reduction in price, bettering of ap- 
 pliances and improving facilities. 
 
 A management possessing the requisite ability 
 and skill for such a business and which would 
 exercise the requisite vigilance and energy 
 may be best secured by following those lines 
 upon which the remarkable industrial advance of 
 America has proceeded, the lines of intelligent 
 self-interest. Those who manage our gas com- 
 panies and other public-service corporations 
 should be permitted, subject to the limitations 
 stated above, to conduct the enterprise under 
 the conditions which in ordinary business 
 
BOSTON AND THE GAS PROBLEM 105 
 
 have proved a sufi&cient incentive to attract 
 men of large ability, and to insure from them 
 their utmost efforts for its advancement. These 
 essential conditions are: 
 
 (a) TJie_rightto enjoy a fair share of the 
 fruits of successfuFefforET"" ' ~- — — _ 
 
 '^t'!) "i ^ie op poftrnrit y-oLxigyoting one's whole 
 efforts to developm jgJtFie bugiripgg 
 
 (c) The probabilitv of p urs uing for ^ rpasnn- 
 
 able time without interruption s u ch busine ss 
 policy as may b e adopted. 
 
 The Public Franchise League believed that 
 the sliding scale system supplies in large meas- 
 ure these conditions essential to the success- 
 ful conduct of our public services — condi- 
 tions which are in no respect inconsistent 
 with the restrictions demanded for a proper 
 protection of the public interests. It believed 
 also that the Boston company possessed in its 
 president, Mr. Richards, a man of the character 
 and ability required to make the sliding scale 
 system a pronounced success. The results of 
 the new law under his administration have 
 happily confirmed the judgment of the League. 
 
 The rate of increase in savings to the gas 
 consumer noted above — that is, from $265,- 
 404.55 in the first year to $800,000 (estimated) 
 for the third year — is due in large measure to 
 
106 BUSINESS — A PROFESSION 
 
 the rapid successive reductions in the price of 
 gas; and, obviously, further reductions will 
 come more slowly. But further reductions may 
 be expected, both because of the growing effi- 
 ciency of the management, and the rapidly 
 increasing consumption of gas. 
 
 The efficiency of the management is being 
 promoted largely through the voluntary ex- 
 tension by the company of the sliding scale 
 principle to its employees. Under this wise 
 provision 68 1 employees receive, in addition 
 to regular wages, a dividend on their wages, at 
 the same rate as the dividend on capital stock 
 paid to stockholders. And these 68i em- 
 ployees have either already become stock- 
 holders, or under the operation of the system 
 will soon be such. 
 
 Even without further reductions in price, 
 some increase in the saving to the people 
 may be expected each year. For it is one of 
 the great merits of the sliding scale system 
 that while, upon reduction in price, the in- 
 creased dividend is figured from year to year 
 upon the same or substantially the same capi- 
 tal, the saving in price is practically certain 
 to be figured upon an ever-increasing quantity 
 sold. The reduction in price increases sales; 
 and the increase of sales renders further re- 
 
BOSTON AND THE GAS PROBLEM 107 
 
 ductions in price possible. The sales of the 
 Boston company to consumers in the year end- 
 ing June 30, 1907, were 23.73 per cent greater 
 than in the year ending June 30, 1905 — the 
 first reduction in price having been made as of 
 July I, 1905. The sales from July i, 1907 (when 
 the price was reduced to eighty cents), to October 
 I, 1907, were 16.6 per cent greater than that of 
 the corresponding period of the preceding year. 
 It is expected that the company will this year 
 increase its dividend rate one per cent, calling 
 for an additional payment to stockholders of 
 $151,240; but the people will save in the cur- 
 rent year (as compared with the standard price 
 of ninety-cent gas) about $400,000. When the 
 eighty-cent rate shall have been in force twelve 
 months the company may increase its dividends, 
 if earned, by another one per cent. But it cannot 
 be so earned without a further increase in con- 
 sumption of gas, which in turn must result in 
 further reduction of cost and further increase 
 of the amount saved by the people. The expe- 
 rience of the English companies under the 
 sliding scale system shows that while, at the 
 outset, the saving to the community and the 
 amount paid on the increase of dividend were 
 about equal, after a series of years the savings 
 to the consumer were from three to seven times 
 
108 BUSINESS — A PROFESSION 
 
 as great as the increase of dividends to stock- 
 holders. 
 
 If the demand for municipal ownership in 
 America can be stayed, it will be by such wise 
 legislation as the Public Franchise League has 
 promoted and by such public service as Mr. 
 Richards and his associates are rendering in 
 the management of a private corporation. 
 
LIFE INSURANCE: THE ABUSES AND 
 THE REMEDIES 1 
 
 Mr. President and Gentlemen: — 
 
 Eight months ago dissension among guilty- 
 officers of the Equitable Life Assurance So- 
 ciety first directed public attention to the 
 conduct of the life insurance business. Since 
 then the disclosures of financial depravity have 
 aroused widespread indignation; but even now 
 the importance of the subject is not generally 
 realized. 
 
 OUR HUGE LIFE INSURANCE INVESTMENT 
 
 On January i, 1905, there were outstanding 
 in the ninety principal legal reserve or old line 
 Ufe insurance companies of the United States 
 21,082,352 policies. By these policies the 
 lives of at least 10,000,000 of our people are 
 insured. As these policies were taken out 
 largely on the lives of husbands, intending to 
 provide for widow and children, it is estimated 
 that, on the average, more than four people 
 
 ' Delivered before the Commercial Club of Boston, October 26, 
 190S. 
 
no BUSINESS — A PROFESSION 
 
 are interested in each life insured. So we 
 have in all about 40,000,000 people, nearly 
 one-half of the total population of the United 
 States, directly interested in the conduct of these 
 ninety companies. The aggregate amount of in- 
 surance represented by these 21,082,352 poli- 
 cies was $12,928,493,754. That sum is more 
 than the supposed value of all the steam rail- 
 roads in the United States which on June 30, 
 1904, was only $11,244,852,000. It is far more 
 than the par value of their aggregate bonds 
 and stocks held by the public, which was only 
 $9,585,467,711. 
 
 To provide for that insurance these com- 
 panies received during the year 1904 new 
 money in the form of premiums aggregating 
 $498,303,279. That is, more than the aggre- 
 gate interest and dividends paid on all bonds 
 and stocks of our steam railroads held by the 
 public, which, during the year ending June 30, 
 1904, was only $465,872,674. 
 
 On January i, 1905, these ninety insurance 
 companies held assets aggregating $2,573,- 
 186,639. That is, more than three times the 
 aggregate capital of all the 5,331 national 
 banks in the United States reporting June 30, 
 1904, which was only $767,378,148. The assets 
 of these insurance companies were nearly four- 
 
LIFE INSURANCE 111 
 
 fifths as large as the aggregate deposits in all 
 the national banks, which were only $3,312,- 
 439,841. 
 
 The total income of these insurance com- 
 panies during the year 1904, including returns 
 from investments, was $612,896,887. That 
 is, more than the total revenue of the United 
 States Government from all sources during 
 the year ending June 30, 1905, which was only 
 $S43>423,859.24. 
 
 These figures, huge as they are, cover only a 
 part of the direct interest of the American 
 people in life insurance. Besides these ninety 
 legal reserve companies, there are in the United 
 States numberless assessment companies and 
 fraternal beneficiary societies which provide 
 life insurance. Their members are mainly 
 wage-earners who cannot pay the high pre- 
 miums exacted by the legaL reserve companies. 
 
 But even the legal reserve companies insure 
 mainly persons of small means, performing 
 essentially the function of the savings bank. 
 The large company advertises with pride its 
 million dollar policies; but in 1904 the aver- 
 age size of the policy in the Equitable was 
 $2,648; in the Mutual Life of New York, 
 $2,351; and in the New York Life, only $2,076. 
 In the Metropolitan and in the Prudential, 
 
112 BUSINESS — A PROFESSION 
 
 which join with the ordinary life insurance 
 business the specialty of insuring working 
 people, the average policy is only $183 and 
 $178 respectively. It will be seen therefore that 
 in spite of the large policies held by a few indi- 
 viduals, the life insurance of this country is in 
 the main held by what we term "the people" 
 
 — that large class which every system of busi- 
 ness and of government should seek to protect. 
 
 THE companies' CONTROL OF QUICK CAPITAL 
 
 Such is the direct interest of our people in the 
 proper conduct of the life insurance business 
 
 — the interest primarily of the home. In- 
 directly the life insurance business affects our 
 industrial and political life no less vitally and 
 with perhaps even more far-reaching effects. 
 That influence results from the control which 
 the largest life insurance companies exercise 
 over our business and our political institutions 
 by means of the vast accumulation in a few 
 hands of the assets held as insurance reserve, 
 for deferred dividends or as surplus. 
 
 The aggregate assets of these ninety legal 
 reserve companies was, on January i, 1905, 
 $2,573,186,639. Of that sum nearly one-half, 
 or $1,247,331,738, was held by the three lead- 
 ing Wall Street companies, the Mutual Life of 
 
LIFE INSURANCE 113 
 
 New York, the Equitable and the New York 
 Life, not inaptly referred to as "The Big 
 Three" and the "Racers." One billion two 
 hundred and forty-seven million three hun- 
 dred and thirty-one thousand seven hundred 
 and thirty-eight dollars is a vast sum, but the 
 control exercised by these three companies 
 does not lie mainly in the size of the aggregate 
 assets. It results from their character and 
 from the conditions under which the funds are 
 held. The $1,247,331,738 in assets held by 
 these three Wall Street companies is a trifling 
 amount as compared with the aggregate wealth 
 of the country. What gives to the managers of 
 thesfe and allied insurance companies the con- 
 trol which they exercise over business is the 
 fact that the larger part of the aggregate assets 
 is quick capital. We have in the United States 
 many other great aggregations of assets: in 
 manufacturing, mining and commerce, the 
 Steel Trust, the Oil Trust, the Beef Trust; 
 in transportation, the Northern Pacific- Great 
 Northern combination, the Pennsylvania sys- 
 tem and the New York Central system. Even 
 in combinations like these our people recognize 
 a menace to our welfare and our institutions. 
 But between the vast combinations of capital 
 in manufacturing or transportation and the 
 
114 BUSINESS — A PROFESSION 
 
 accumulation of capital by the insurance com- 
 panies there is this marked difference — the 
 capital of the manufacturing, of the mining, 
 and of the railroad companies is, in the main, 
 permanently invested in lands, buildings or 
 machinery, in rails, bridges or equipment, or 
 it is required for operating their properties. 
 The capital of the life insurance companies, on 
 the other hand, is mainly free capital. The huge 
 manufacturing and transportation companies, 
 great and powerful as they are, are directly 
 dependent for their prosperity upon the pros- 
 perity of the country and the service which 
 they render from day to day to the people. 
 Furthermore they are constant borrowers". 
 
 The situation of the life insurance companies 
 is entirely different. Except in respect to the 
 growth of their business, they are not dependent 
 for their prosperity upon that of the country. 
 Indeed, they derive certain benefits in times 
 of adversity. While the securities they already 
 hold are not of a class to be imperilled, they can 
 purchase new securities to better advantage. 
 They are the creditors of our great industries, 
 with all the power which that implies. 
 
 Of the aggregate capital of these three lead- 
 ing life insurance companies there is invested 
 in real estate only 6.8 per cent. The balance of 
 
LIFE INSURANCE 115 
 
 their assets is substantially quick capital. The 
 larger part of it is invested in bonds and stocks, 
 in collateral loans and money in bank. More^ 
 over, these three companies — the Equitable, 
 the Mutual Life and the New York Life — 
 have in important respects co-operated with 
 each other. 
 
 OTHER QUICK CAPITAL LESS 
 
 Compared with their quick capital, that of the 
 great banking institutions of the country seems 
 insignificant. The three greatest New York 
 banks — the National City, the Bank of Com- 
 merce and the First National — had on Sep- 
 tember 30, 1905, in capital and surplus together, 
 only $106,264,800. They had, it is true, in de- 
 posits $421,521,900, an aggregate about as 
 large as the assets of a single one of these three 
 insurance companies. 
 
 But over their deposits these banks have 
 only a limited control. Twenty-five per cent 
 must always be held as a reserve. Besides, sub- 
 stantially all deposits in banks and trust com- 
 panies are subject to check. This right of the 
 depositor to call for his money places a great 
 restraint upon the use which it is possible for 
 bank managers to make of the funds under 
 their control; and these insurance companies 
 
116 BUSINESS — A PROFESSION 
 
 are probably the largest depositors. On Sep- 
 tember 30, 1904, these three insurance com- 
 panies had deposited in banks and trust com- 
 panies $77,132,878. Such huge deposits secure 
 to the insurance companies an effectual control 
 over the banking institutions aside from the 
 actual control which they hold through owner- 
 ship of bank and trust company stocks. 
 
 The assets of the life insurance companies 
 are substantially in the absolute control of 
 the managers. Their officers know (except as 
 to new business) with mathematical certainty 
 approximately how much money they will be 
 required to pay out each month for years to 
 come; because the whole insurance business 
 rests upon stability in average death rates. 
 The insurance company may use most of its 
 capital without danger of its being called by 
 those for whom it is held. 
 
 Furthermore, while the amount of withdraw- 
 als from the banks from time to time is sub- 
 stantially equal to the deposits, the funds of 
 these insurance companies are increasing at an 
 alarming rate. To these three companies alone 
 there was actually paid in premiums and in- 
 come from investment in the year 1904, $254,- 
 870,441.37. Only $111,161,905.25, or 43.61 
 per cent, was paid out by them to the policy- 
 
LIFE INSURANCE 117 
 
 holders. The balance (except $7,000) was used 
 either for expenses or accumulated for the 
 future. In the four years preceding January i, 
 1905, the gross assets held by these three com- 
 panies increased $353,638,734. 
 
 The power of the financiers who control these 
 Wall Street companies is further increased by 
 close alliance with other life insurance companies. 
 The largest of these allied companies — the Met- 
 ropolitan and the Prudential — on January i, 
 1905, had assets aggregating $216,659,984, and 
 their rate of accumulation is even greater than 
 that of the three leaders; for the Metropolitan 
 and the Prudential draw from a larger public, 
 mainly from the workingmen. In five years 
 the assets of these two companies have more 
 than doubled. 
 
 The "Big Three," with their lesser but power- 
 ful allies, join together in syndicates to insure 
 the financing of the great manufacturing and 
 railroad combinations, and furnish the weapons 
 for our Napoleons of finance. The Northern 
 Securities Trust, Morgan's attempt to per- 
 fect a monopoly of the railroads in the North- 
 west; the International Mercantile Marine, 
 Morgan's attempt to monopolize a large part 
 of the shipping of the world; Harriman's and 
 Gould's ambitious plans — are made possible 
 
118 BUSINESS — A PROFESSION 
 
 largely by the gathering of the savings of the 
 people in the treasuries of these five insurance 
 companies. How this financial community of 
 interests operates in even the routine business 
 of the companies may be seen from this: The 
 Equitable held on January i, 1905, besides 
 $11,190,006 Government, State, City and 
 County bonds and $3,708,945 Russian railroad 
 securities (owned chiefly to comply with the 
 requirements of foreign governments), bonds and 
 stock of the aggregate cost of $192,849,290. 
 Of these securities $184,740,473 — that is, all 
 but $8,108,817 (or four per cent) — were of cor- 
 porations in which either one or more of the 
 directors of the Equitable were interested as 
 directors or which were parts of systems con- 
 trolled by such corporations. 
 
 When such facts are considered, it becomes 
 obvious why the financiers who control these 
 great insurance companies with their huge 
 quick capital exercise a predominating influ- 
 ence over the business of the country. The 
 economic menace of past ages was the church 
 
 — the dead hand, which gradually acquired a 
 large part of all available lands. The greatest 
 economic menace of to-day is a very live hand 
 
 — these great insurance companies which are 
 controlling so large a part of our quick capital. 
 
LIFE INSURANCE 119 
 
 HOW POWER ENTRUSTED WAS ABUSED 
 
 Such is the power which the American people 
 have intrusted to the managers of these large 
 companies. How has it been exercised? Sub- 
 stantially as all irresponsible power since the 
 beginning of the world: selfishly, dishonestly, 
 and in the long run, inefficiently. The breaches 
 of trust committed or permitted by men of high 
 financial reputation, the disclosure of the pay- 
 ment of exorbitant salaries and commissions, 
 the illegal participation in syndicate profits, 
 the persistent perversion of sacred trust funds 
 to political purposes, the co-operation of the 
 large New York companies to control the leg- 
 islatures of the country — these disclosures are 
 indeed distressing; but the practice of delib- 
 erate and persistent deception of the public 
 which the testimony discloses, though less dra- 
 matic, is even more serious. Talleyrand said. 
 
 "LangUiji-ye was made to cnnrea] thmiyrht" 
 George W. Perkins wouldtea^u^Sat"""BooE^ 
 keeping was made to conceal facts." Con- 
 sider for a moment his situation. An impor- 
 tant member of the most famous banking firm 
 in America, and next to the Rothschilds the 
 most famous in the world, confesses this: 
 The New York Life company, of which he is 
 
120 BUSINESS — A PROFESSION 
 
 the vice-president, held on December 31, 1903, 
 an investment taken through his firm, J. P. 
 Morgan & Co., of $4,000,000 in bonds of the 
 International Mercantile Marine. It was a 
 poor investment. It was deemed unwise to 
 make known to the insurance departments and 
 to present and prospective policy-holders the 
 fact that so large an investment in these unfor- 
 tunate securities was held by his company (and 
 doubtless also how much they had depreciated 
 in market value). 
 
 Perkins, the vice-president of the New York 
 Life company, and at the same time a member 
 of J. P. Morgan & Co., goes through the form 
 on December 31, 1903, of selling $800,000 of 
 these bonds to his firm at par, and then on Jan- 
 uary 2, 1904, re- transferring the same to the 
 insurance company at par and interest. This 
 was done in order that the ofl&cers of the com- 
 pany might under oath present to the insur- 
 ance departments of the several States and 
 countries an official statement which would 
 show that the insurance company did not at 
 the close of the year 1903 hold as many of 
 these bonds as was the fact, and that the value 
 of those held was par (which was not the fact). 
 
 Again, Perkins confesses that in order to pre- 
 vent the company's exclusion from Prussia by 
 
LIFE INSURANCE 121 
 
 reason of holding among its investments a large 
 amount of stocks, entries were made in the 
 books of accoimt showing a sale of these stocks. 
 The fact is that the stocks were not actually 
 sold, but that their ownership was concealed; 
 and that in order to account on the books for 
 the proceeds of this fake sale, two minor em- 
 ployees of the company — one of them a colored 
 messenger with a salary of $600 per year — 
 were made to give their notes for $3,357,000 
 with the stock as collateral; and the notes 
 were then represented among the assets. The 
 original purpose of this elaborate system of 
 fraud may have been merely to deceive the 
 Prussian government; but with a degree of 
 thrift rare in the management of these com- 
 panies, it was used also to deceive our own in- 
 surance commissioners and the policy-holders. 
 The New York Life had the effrontery up to 
 the time of Perkins's examination to declare 
 in extensive advertising that it held no stocks 
 whatever. 
 
 In the case of common criminals flight is 
 accepted as confession of guilt. With financiers 
 and business men falsification of books has 
 hitherto been considered the strongest evidence 
 of guilt. Yet the falsification of the books of 
 these companies has been a persistent practice. 
 
122 BUSINESS — A PROFESSION 
 
 Secret ledgers have been opened in which were 
 entered questionable investments and more 
 questionable expenditures. Hundreds of thou- 
 sands spent "for legislative purposes" were 
 charged up in real estate accounts. So elabo- 
 rate has been the system of fraudulent entries 
 that after months of investigation the partic- 
 ular form of rascality embodied in the Equi- 
 table's $685,000 Mercantile Trust Company, 
 so-called "yellow-dog," account has not yet 
 been detected. 
 
 The degree of guilt involved in such trans- 
 actions will be appreciated only when one re- 
 members that the life insurance business beyond 
 all other in the world rests upon confidence — 
 confidence that in the remote, indefinite future 
 the present sacrifice of the policy-holder will 
 bring protection to widow and children. 
 
 INEFFICIENCY IN MANAGEMENT 
 
 l^utthe management of these companies has 
 beenno t_ only semsn and disho nest; i t has also 
 -hfP-Pi siji gularly inefficient; and it is b y this in- 
 effici encv that the policv-holders have actually 
 suff ered most, . The losses of policy-holders 
 through exorbitant salaries and syndicate oper- 
 ations, though large in the aggregate, are small 
 as compared with the loss from bad management. 
 
LIFE INSURANCE 123 
 
 The test of success in the life insurance business 
 is of course to furnish insurance of absolute 
 safety at the minimum cost. The size of a life 
 insurance company is no evidence of success. 
 It is evidence of energy; it is evidence of busi- 
 ness skill; but the writing by the Mutual Life 
 of $1,578,931,833 of insurance and the control 
 of $442,061,529 in assets is, in itself, no more 
 evidence of success as an insurance company 
 than the display of a $12,000 rug in the office 
 of its president. In life insurance, success is 
 proved by a small pro rata expense account, a 
 large percentage of return upon absolutely 
 safe investments and a small per cent of lapsed 
 and surrendered policies. 
 
 Now what is the record of the three largest 
 life insurance companies of the world in this 
 respect? Exclusive of taxes and fees, the per- 
 centage of expense to total premium income for 
 jo^^ was this: ^ 
 
 New York Life, 22.73 P^r cent.' 
 
 Equitable, 22.78 per cent. 
 [utual Life, 24.65 per c ent. 
 
 These expense percentages are appalling; and 
 yet the companies which, besides issuing ordi- 
 nary life policies, make a specialty of insuring 
 the workingmen show an even greater percent- 
 age of expense to all premium receipts, namely: 
 
124 BUSINESS — A PROFESSION 
 
 Metropolitan Life, 37.09 per cent. 
 
 Prudential, 37.28 per cent. 
 
 This Prudential Company, which advertises 
 itself as the Rock of Gibraltar, takes for its 
 officers and other management expenses on the 
 average of all business 37.28 cents for every 
 dollar which the policy-holders deposit with 
 it. On the industrial business, the working- 
 man's insurance, the percentage taken is even 
 larger. In addition, the company pays to stock- 
 holders in dividends each year an equivalent 
 of 219.78 per cent on the cash paid into the 
 company on the capital stock. 
 
 SAVINGS BANKS BY CONTRAST 
 
 Compare these huge life insurance compa- 
 nies' charges for managing savings with the cost 
 of running the Massachusetts savings banks. 
 There are in Massachusetts 188 savings banks 
 under the management of probably about 
 3,000 different individuals acting as trustees 
 without compensation. At the close of the finan- 
 cial year, October 31, 1904, these banks held 
 assets aggregating $674,644,990.17, more than 
 half the aggregate held by the three largest life 
 insurance companies of the world. There had 
 been deposited in these 188 savings banks during 
 the year ending October 31, 1904, $105,466,- 
 
LIFE INSURANCE 125 
 
 148.68, an amount exceeding half the aggregate 
 of the year's premiums of these three companies 
 ($206,132,511.44). The aggregate expense of 
 taking care of the business of these 188 savings 
 banks for the year 1904. was $1,546,904.44, or 
 less than one-thirtieth of the aggregate expense 
 of these three insurance companies ($48,106,- 
 809.00) for the year. 
 
 To manage the 188 Massachusetts savings 
 banks cost 23-100 of one per cent of the average 
 assets held during the year, or but 1.46 per cent 
 of the year's deposits. To manage the three 
 large life insurance companies cost 4.03 per cent 
 of their aggregate average assets and 23.33 per 
 cent of the year's premium income. That 
 is, the pro rata cost of conducting the insur- 
 ance business and taking care of the savings 
 invested in these three insurance companies 
 was seventeen times as great as the expense of 
 caring for savings invested in our 188 savings 
 banks. 
 
 Compare now the service rendered by these 
 two classes of savings institutions. The high- 
 priced insurance managers with their banking 
 and trust company adjuncts and high finance 
 directorates earned for their three companies 
 during the year 1904 the following gross return 
 on investments: 
 
126 BUSINESS — A PROFESSION 
 
 New York Life 4.14 per cent. 
 
 Equitable 4.22 " 
 
 Mutual Life 4.24 " 
 
 Average 4.20 " 
 
 The faithful treasurers of the 188 modest 
 Massachusetts savings banks, supervised mainly 
 by obscure but conscientious citizens, earned 
 during the year ending October 31, 1904, 4.40 per 
 cent on the average assets. The return earned 
 by our savings banks is thus five per cent 
 greater than that of the three insurance com- 
 panies, and a comparison of net returns is even 
 more favorable to the savings banks. I do not 
 say that the income returns of the great com- 
 panies manned by the great financiers was un- 
 reasonably low, but merely that the small banks 
 with their low salaried officers earned more. 
 
 LOSS THROUGH LAPSED POLICIES 
 
 The average rate of dividends actually paid 
 or credited to the depositors in our savings banks 
 for the year ending October 31, 1904, was 3.75 
 per cent with interest compounded semi-annu- 
 ally, and in 1904 no depositor in a Massachu- 
 setts savings bank lost a dollar of the principal 
 deposited. On the other hand, the practice of 
 
LIFE mSUBANCE 127 
 
 the insurance companies in relation to forfeiture 
 and surrender of policies has resulted in a large 
 percentage of the policy-holders losing a great 
 part of all they had paid in premiums. 
 
 The whole struc ture of life ins urance rests 
 u pontEs postula te: whi le the duratio n ofUfe 
 of any individual is uncertain, the avera ge dufa - 
 liou of the lives Ot a large number is certai n. 
 You cannot tell how long any one man of say 
 twenty-five years will live, but you can say 
 with certainty that the average age which any 
 thousand men of twenty-five years now living in 
 this country will attain is 63.81 years, and that 
 on the average they will die three and one-half 
 years later than another thousand who are 
 thirty years old. If each of these men wanted 
 $1,000 insurance payable at death — the an- 
 nual premium for each — (aside from the ex- 
 pense of management) is that sum, which, in- 
 vested and compounded at the rate which it is 
 assumed the investment will pay (now taken as 
 low as 33^ per cent or 3 per cent), will at the 
 end of 38.81 years yield $1,000. Now among 
 these 1,000 persons the number of deaths in- 
 creases each year. But under the level pre- 
 mium system practised by the legal reserve 
 companies, the premium is always the same; 
 that is, in the earlier years the insured pays not 
 
128 BUSINESS — A PROFESSION 
 
 only a premium commensurate with the risk of 
 the year, but something on account of the 
 greater risk of future years. For instance, ,a 
 man at twenty-five pays a premium about 
 twice that which represents the risk of his dying 
 in that year. 
 
 Now, a life insurance policy by its terms is 
 usually forfeited unless full premiums are paid 
 for the first three years. Forfeited policies are 
 termed "lapsed" policies. The lapse of a policy 
 results in total loss to the insured of his premium, 
 except for the protection temporarily enjoyed. 
 The voluntary surrender of a policy after three 
 full years' premiums are paid results in a loss 
 of part of the premiums paid — because the 
 companies pay on surrender only a fraction of 
 its actual legal reserve value (e. g., in 1904 the 
 Mutual Life paid on surrender only 63.15 per 
 cent of such value). Experience, especially in 
 these large companies, shows that the mortality 
 of life insurance policies is very much greater 
 than the mortality among policy-holders. The 
 life of an ordinary life policy is short, not be- 
 cause life is short, but because most policies do 
 not come to their natural termination. Thus, 
 in the year 1904 the policies in the Mutual Life 
 which came to a natural termination by death, 
 maturity or expiry aggregated only 9,169 in 
 
LIFE INSURANCE 129 
 
 number and $28,278,464 in amount insured; 
 while 7,011 policies aggregating $16,896,941 
 were surrendered, and 33,215 policies aggre- 
 gating $74,909,054 lapsed. 
 i Among the companies which make a specialty 
 of insuring workingmen, the mortality of the 
 policies is very much greater. In 1904, 116,894 
 of the Metropolitan Company's industrial poli- 
 cies terminated by death and expiry; but 
 1,223,832 terminated by lapse and 61,220 by 
 surrender; that is, only one policy in twelve 
 came to a natural end. In the Prudential Com- 
 pany the condition was even worse. There 
 82,963 terminated by death and expiry; 945,- 
 640 by lapse, and 45,361 by surrender; that is, 
 only one policy in thirteen came to a natural end. 
 
 WHY POLICIES LAPSE 
 
 People who take out fire insurance policies 
 generally continue the insurance, although a 
 fire policy could be dropped after the term 
 without the insured losing anything, since the in- 
 sured has had his full protection. But in life 
 insurance, where a large premium is paid in early 
 years on account of the greater mortality of later 
 years, the policy-holder who allows his policy 
 to lapse loses the reserve which had accumulated 
 for him. What is the explanation of this huge 
 
130 BUSINESS — A PROFESSION 
 
 mortality in life insurance policies? It can be 
 only this: men are induced to take out life in- 
 surance by misrepresentation, or by promises 
 which are not realized; and the extravagant 
 conduct of the business renders the cost of the 
 life insurance so great that the insured cannot 
 continue to carry it. 
 
 THE WASTE IN SOLICITING 
 
 Consid er how ^reat this expense of solic ita- 
 tion is! In the year 1904 the New York"lSfe 
 spent in agents' commissions 11.62 per cent of 
 all premiums received; the Equitable, 11. 81 
 per cent; the Mutual Life of New York, 13.57 
 per cent; the Metropolitan, 15.01 per cent; 
 and the Prudential, 18.98 per cent. Note that 
 this is the average percentage paid for commis- 
 sions on all policies, old and new. The percent- 
 age on new business is of course much greater. 
 The Mutual Life paid in 1904 for commissions on 
 new business $6,691,016.56 out of premiums 
 aggregating $14,676,651.60, or 45.58 per cent 
 of the year's premiums on new business. Yet 
 those figures present only a part of the expense 
 of solicitation. There is, in the next place, all 
 the advertising. For that the Mutual paid in 
 1904 the greater part of the amount charged to 
 "advertising, printing and postage," which 
 
L,IFE INSURANCE 131 
 
 amounts to $1,134,833.76, or 7.73 per cent of 
 the year's premium receipts from new business; 
 and besides this, there is all the office and in- 
 spection expense directly entaUed by this ex- 
 tensive solicitation. The extent to which solici- 
 tation is carried may be inferred from the fact 
 that in the year 1904 the Equitable, the Mu- 
 tual Life and the New York Life actually wrote 
 102,314 policies carrying an aggregate insur- 
 ance of $244,862,421, which were not even 
 taken. That is, the applicant did not pay the 
 first premium. He was brought "to water," 
 but could not be made "to drink." The ag- 
 gregate expense of solicitation in these three 
 companies must approximate sixteen per cent 
 of all premium receipts. When it is borne in 
 mind how small a part of the policies come to 
 the natural end of fruition to the policy-holder, 
 and how great consequently is the loss to the 
 policy-holder from lapsed and surrendered poli- 
 cies, the extent of the economic waste resulting 
 from solicitation as practised will be realized. 
 
 SAVING THAT IS LOSING 
 
 JL^ ins urance is but a meth od of saving . The 
 savmgs banks manage the funds until such time 
 as they shall be demanded by the depositor — 
 the insurance company ordinarily until the de- 
 
132 BUSINESS — A PROFESSION 
 
 positor's death. The savings bank pays back to 
 the depositor his deposit with interest less the 
 necessary expense of management. The insur- 
 ance company in theory does the same. The 
 difference is merely that the savings bank un- 
 dertakes to repay to each individual depositor 
 the whole of his deposit with interest; while the 
 insurance company undertakes to pay to those 
 who do not reach the average age more than 
 they have deposited (including interest), and to 
 those who exceed the average age less than they 
 deposited (including interest). 
 
 How many wage-earners would insure in 
 these companies if they were told that for every 
 dollar they pay, forty cents will go to the stock- 
 holders', ofl&cers' and agents' salaries, or for 
 other running expenses? How many wage-earn- 
 ers would assume the burden of premiums if 
 they knew that there is but one chance in 
 twelve that they will carry their policies to 
 maturity? 
 
 How idle is the boast sometimes made by 
 these companies that they have returned to the 
 policy-holder the whole of his premiums. It is 
 as if the savings bank should boast of return- 
 ing to the depositor all of his deposit but with- 
 out any interest. Such practically is what the 
 Equitable, the New York Life and the Mutual 
 
LIFE mSUEANCE 133 
 
 Life do to-day. The average expense of the three 
 companies, exclusive of taxes and fees, was 4.03 
 per cent of their aggregate assets, while the 
 average of the return of the three companies on 
 investments was 4.20 per cent. It means in 
 plain English that the company takes as com- 
 pensation for the care of the policy-holder's 
 money aU that that money earns. Such were 
 the terms on which, during the troubled times 
 of the Napoleonic wars, the Duke of Hesse is 
 said to have intrusted his money to Meyer 
 Amschel Rothschild, and to have laid the foun- 
 dation for what, at least until recently, was the 
 world's greatest fortune. 
 
 CAUSES OF ABUSES GENERAL 
 
 I have referred specifically to only five of the 
 ninety principal American legal reserve com- 
 panies, five which are closely allied with Wall 
 Street, which on January i, 1905, held 56.89 
 per cent of the aggregate assets, and which dur- 
 ing the year 1904 wrote 67.42 per cent of all the 
 life insurance written by the ninety companies. 
 Of the remaining eighty-five, some are doubt- 
 less managed far less efficiently and quite as 
 dishonestly as any of the leaders; many are, 
 no doubt, managed with scrupulous honesty, 
 and some with reasonable and comparatively 
 
134 BUSINESS — A PROFESSION 
 
 great economy; but the methods of conducting 
 the business, particularly of soliciting new busi- 
 ness, adopted by the leaders, is to a greater or 
 less extent, and perhaps necessarily, followed 
 by the others at the present time. The existing 
 evils are not to be explained by the 'presence in 
 ofi&ce of dishonest or selfish men. The causes 
 which produce these rank abuses are general in 
 their operation. The flagrant dishonesty and 
 selfishness of the managers of the three leading 
 New York companies are the result, not the 
 cause, of the abuses. Men of character may 
 for a time protect other companies in large 
 part from like abuses, but the main cause of 
 the evils disclosed lies in the system, rather 
 than in the men. 
 
 It is obvious that the American people whose 
 attention has once been directed to these 
 abuses will not suffer them to continue without 
 some attempt at a remedy. What are the reme- 
 dies proposed? 
 
 FEDERAL SUPERVISION NO REMEDY 
 
 The one most prominently mentioned is Fed- 
 eral supervision. Under the decisions rendered 
 by the Supreme Court of the United States, an 
 act providing for Federal supervision would ap- 
 pear to be clearly unconstitutional. But it is 
 
LIFE INSURANCE 135 
 
 apparently believed that the Supreme Court can 
 be induced to reverse itself. Senator Dryden 
 introduced on February 27, 1905, the bill 
 known as No. 7277, to which attention is 
 invited. 
 
 Note the provisions by which this bill seeks 
 to put an end to the intolerable abuses which 
 have been disclosed. An insurance company 
 authorized to do business in the State where 
 organized may, by filing a copy of its charter 
 and a financial statement and depositing $100,- 
 000 in securities with the treasurer of the United 
 States, secure a United States license, which 
 will entitle it to do business in any State unless 
 and until the license is revoked by the Federal 
 superintendent for failure to pay a judgment, 
 or because the company is deemed by him im- 
 safe. The bill omits very many of the provi- 
 sions which, for instance in Massachusetts, have 
 been inserted for the protection of the policy- 
 holder; it adds not a single one by which he may 
 be better protected. 
 
 But even if the Federal law contained all the 
 provisions of the best of the State laws, will the 
 insured gain or lose by substituting the super- 
 vision of one man at Washington for the super- 
 vision of the several States? Assistant Attor- 
 ney-General Nash of Massachusetts, in his 
 
136 BUSINESS — A PROFESSION 
 
 able argument against Federal supervision, 
 has truly said: 
 
 "The wisdom, discretion and honesty com- 
 posite in fifty States and Territories are more 
 to be valued than the excellences of one person 
 appointed at Washington. State supervision is 
 good or bad, according to the merits of the best 
 of the commissioners. Federal supervision 
 must be good or bad, according to the qualities 
 of one man who is unchecked by the work of 
 co-ordinate ofl&cials." 
 
 The sole effect of a Federal law would be 
 
 — the purpose of the Dryden bill may have 
 been — to free the companies from the careful 
 scrutiny of the commissioners of some of the 
 States. It seeks to rob the State even of the 
 right to protect its own citizens from the legal- 
 ized robbery to which present insurance meas- 
 ures subject the citizens, for by the terms of 
 the bill a Federal license would secure the right 
 to do business within the borders of the State, re- 
 gardless of the State prohibitions, free from the 
 State's protective regulations. With a frank- 
 ness which is unusual, and an effrontery which 
 is common — among the insurance magnates 
 
 — this bill is introduced in the Senate by 
 John F. Dryden, the president of the Prudential 
 Life Insurance Company, the company which 
 
LIFE INSURANCE 137 
 
 pays to stockholders annual dividends equiv- 
 alent to 219.78 per cent for each dollar paid in 
 on the stock; the company which devotes itself 
 mainly to insuring the workingmen at an ex- 
 pense of over 37.28 cents on every dollar of pre- 
 miums paid; the company which, in 1904, made 
 the worst record of lapsed and svirrendered in- 
 dustrial policies. 
 
 The Prudential Life Insurance Company has 
 a special reason for desiring to avoid State 
 supervision. Three years ago the Massachu- 
 setts insurance commissioner insisted that the 
 policy-holders must be protected from the 
 scandalous financial relations between the Pru- 
 dential Company and its allied Fidelity Trust 
 Company — from schemes as dangerous to the 
 interest of the insured as any laid bare by the 
 investigations of the Equitable, the New York 
 Life and the Mutual Life. 
 ' Federal supervision is also advocated by Mr. 
 James M. Beck (formerly Assistant Attorney- 
 General of the United States), the counsel for 
 the Mutual Life Insurance Company, and his 
 main argument against State supervision ap- 
 pears to be that the companies pay, in the ag- 
 gregate, for fees and taxes in the several States 
 $10,000,000, which he says is twice as much as 
 is necessary to cover the expense of proper su- 
 
138 BUSINESS — A PROFESSION 
 
 pervision. Ten million dollars is a large sum in 
 itself, but a very small one compared with the 
 aggregate assets or the aggregate expense of 
 management. Mr. Beck's company paid in 
 1904 $1,138,663 in taxes and fees. Its man- 
 agement expenses were $15,517,520, or nearly 
 fourteen times as much. Our Massachusetts 
 savings banks paid in the year ending October 
 31, 1904, $1,627,794.46 in taxes to this Com- 
 monwealth; that is, $80,890.02 more than their 
 whole expense of management, which was 
 $1,546,904.44. 
 
 Doubtless the insurance departments of some 
 States are subjects for just criticism. In many 
 of the States the department is inefficient, in 
 some doubtless corrupt. But is there anything 
 in our experience of Federal supervision of other 
 departments of business which should lead us to 
 assume that it will, in the long run, be freer from 
 grounds of criticism or on the whole more efii- 
 cient than the best insurance department of any 
 of the States? For it must be remembered that 
 an efl&cient supervision by the department of any 
 State will in effect protect all the policy-holders 
 of the company wherever they may reside. 
 Federal supervision would serve only to cen- 
 tralize still further the power of our Govern- 
 ment and perhaps to increase still further the 
 
LIFE INSURANCE 139 
 
 power of the corporations. Supervision alone 
 — whether State or Federal — will not sufl&ce 
 to correct existing abuses in the life insurance 
 business. 
 
 FUNDAMENTAL CHANGES NECESSARY 
 
 In order to get rid of the abuses, the measures 
 to be applied must be radical and compre- 
 hensive. The changes must be fundamental. 
 They are, in my opinion, these : 
 
 Insurance a Method of Saving 
 
 First. The recognition of the true nature of 
 the life insurance business; namely, that its 
 sole province is to manage temporarily with 
 absolute safety and at a minimum cost the 
 savings of the people deposited to make ap- 
 propriate provision in case of death, and that 
 since its province is mainly to aid persons of 
 small means, it should be conducted as a be- 
 iieficent, not as a money-making, institution. 
 
 Abolish the Blind Pool 
 
 Second. The issuance of deferred dividend 
 policies should be discontinued. The legitimate 
 business of a life insurance company is to insure 
 the life of the individual and to issue life annui- 
 ties. It should not be used as an investment 
 
140 BUSINESS — A PROFESSION 
 
 company or as a means of gambling on the 
 misfortunes of others. The deferred dividend 
 policy with its semi-tontine provision is open 
 to these objections and to others. 
 
 The premium in life insurance is ordinarily 
 computed on a higher death rate than actually 
 prevails, and a lower return upon investment 
 than is actually earned. The profits from these 
 and other sources, unless consumed by exces- 
 sive expenses or accumulated as surplus, are 
 commonly payable as dividends to the policy- 
 holder either in cash or in reduction of future 
 premiums. Under the deferred semi-tontine 
 dividend policy the dividends are not paid over 
 annually to each policy-holder, but are accu- 
 mulated for long periods and the accumulated 
 funds distributed, so far as paid out at all, 
 among the surviving policy-holders of a par- 
 ticular class. 
 
 The dividends thus accumulated form an 
 appreciable part of the huge funds controlled 
 by the companies. Thus of the $442,061,529.16 
 assets held on January i, 1905, by the Mutual 
 Life, $71,539,311.70 consisted of what is 
 called "contingent guaranty fund" and what 
 is really deferred dividends. Of the $412,438,- 
 381 of the assets of the Equitable, it held 
 $63,800,000, which it included under the term 
 
LIFE INSURANCE 141 
 
 "surplus," but which was in fact deferred divi- 
 dends. The retention of these funds increases 
 unnecessarily the control of quick capital iu- 
 cident to a large busiaess. It promotes also 
 other evUs. It tends to extravagance and in- 
 efficient management, because it removes the 
 protection which flows from the annual ac- 
 counting. The annual dividend, the best prac- 
 tical test of the efficiency of the management, 
 is thereby denied to the policy-holders. 
 
 The managers control as a "blind pool" this 
 huge fund not required as an insurance reserve. 
 They may with impunity and without dis- 
 covery make inroads upon it to cover up" ex- 
 travagance, dishonesty, or the results of in- 
 efficient management. 
 
 Abolish Lavish Commissions 
 
 Third. Lavish payments for solicitors' and 
 agents' commissions and for advertising devices 
 should be discontinued. Such practices, com- 
 mon among the promoters of mining enter- 
 prises and of patents, have no place in the 
 business of life insurance. Savings banks have 
 no solicitors. The life-insuring habit is well 
 established. The three million people in Massa- 
 chusetts hold in the thirty-three legal reserve 
 companies doing business in the Commonwealth 
 
142 BUSINESS — A PROFESSION 
 
 1,337,795 life insurance policies, and have only 
 1,766,614 deposit accounts in our savings banks. 
 The people of the whole United States hold one 
 such policy for every four persons. Undoubt- 
 edly many a man has been led by the solicitor's 
 persistence and eloquence to make a thrifty 
 provision for his family. No doubt, also, the 
 savings bank deposits would be swelled by 
 similar exhortation. But can such missionary 
 work be justified at an expense of twelve to 
 twenty per cent of all premiums paid, when the 
 record of lapsed policies shows that the con- 
 version to that thrift is but temporary? In the 
 year 1903 the Metropolitan wrote 1,788,828 
 industrial policies; in the year 1904 1,223,832 
 of its industrial policies lapsed. In the year 
 1903 the Prudential Company wrote 1,468,230 
 industrial policies; in the year 1904, 945,640 
 of its industrial policies lapsed. No one should 
 be induced to take out a policy when the bur- 
 den is greater than he can carry, or if for other 
 reasons it is not for his interest to do so. The 
 intelligent agent with the knowledge and a 
 recognition of the proper function of the life 
 insurance business, and receiving a modest 
 compensation, has still an economic justifi- 
 cation. Many men need the impetus to thrift, 
 since wisdom often lags far in the rear of Intel- 
 
LIFE INSURANCE 143 
 
 ligence; but as the business is now conducted, 
 money paid by the insured as a result of solici- 
 tation is in large part wasted. The existing 
 abuse is not that the solicitor earns too much, 
 but that his occupation as pursued is economi- 
 cally unjustified. 
 
 No Forfeiture of Policies 
 
 Fourth. The forfeiture of policies should be 
 prohibited. Under the level premium system 
 everyone pays each year more than is required 
 for the protection of the single year. He pays 
 something on account of future years. That 
 something ought in every case to be preserved 
 for the insured. The excuse offered by the 
 companies for lapsing is the great initial expense 
 of writing insurance, and that arises mainly 
 from the extravagant commissions paid to 
 agents and for lavish advertising. With the 
 suggested change of method in soliciting, no 
 extraordinary expense would be involved in 
 writing insurance except the fee for medical 
 examination, and that should be paid by the 
 applicant as an initiation fee. The insured 
 should know when he enters upon the invest- 
 ment what the initial cost is. 
 
144 BUSINESS — A PROFESSION 
 
 Standard Forms of Policies 
 
 Fifth. Standard forms of policy should be 
 prescribed by law. This would go far toward 
 preventing deception. By simplifying and 
 standardizing the contracts, in connection with 
 compulsory annual dividends, the insured would 
 be enabled to compare results in the several 
 companies. To-day such a comparison is prac- 
 tically impossible. The Equitable has out- 
 standing at least 224 different forms of policy; 
 the New York Life, 316; the Mutual Life, 220. 
 Standardizing policies would also much reduce 
 the work (and hence the expense) of the business. 
 
 Restrict Investments 
 
 Sixth. The investment of the company's funds 
 should be surrounded by safeguards similar to 
 those adopted in the case of savings banks. 
 This would secure safety. This would also go 
 far in preventing the use of funds in speculative 
 enterprises, or to advance private interests, and 
 greatly limit the possibility of the companies en- 
 gaging in syndicate operations. Investments 
 should not be made in the securities of corpora- 
 tions in which any executive officer or member 
 of the investment committee of the insurance 
 company is interested. 
 
LIFE INSURANCE 145 
 
 Treasury Safeguards 
 
 Seventh. Further to protect the funds of the 
 companies and to prevent their being used 
 directly or indirectly to advance the private 
 or other interests of ofi&cers, provision should 
 be made to prohibit the executive officers from 
 engaging in any other business or holding office 
 in any other business corporations. Treasury 
 safeguards also should be adopted to pre- 
 vent payments without properly authorized 
 warrants. 
 
 Accounting and Publicity 
 
 Eighth. Methods of accounting should be in- 
 troduced which would compel the entry of all 
 transactions in a single prescribed set of books, 
 and the submission to the directors at all meet- 
 ings of reports showing in detail the condition 
 and the operations of the company. In such 
 reports the cost of every department of the 
 business and every kind of business transacted 
 should be clearly determined and disclosed, and 
 likewise the condition, character and result of 
 each investment. Publicity as to the policy- 
 holders also is essential to insure the proper con- 
 duct of the business by officers and directors. 
 
146 BUSINESS — A PROFESSION 
 
 Directors who Direct 
 
 Ninth. The board of directors must be com- 
 posed of men who recognize the proper func- 
 tion of life insurance companies, and who, like 
 the trustees of our savings banks, recognize the 
 sacred trust involved in their control; men 
 who are willing to give to the companies the 
 time and attention required for the proper per- 
 formance of a director's duty; men who, hav- 
 ing the sole responsibility for the manage- 
 ment of the company, will not delegate to the 
 executive officers or committees powers which 
 the board alone should exercise. 
 
 Such comprehensive and fundamental changes 
 must be made if existing abuses are to be erad- 
 icated; but even they will not prove effective 
 to protect the insured and the community un- 
 less in addition: 
 
 Limit the Size of Companies 
 
 Tenth. A limit must be placed upon the size 
 of the company. A company may, of course, be 
 too small to be a safe or an efficient and eco- 
 nomical unit; but it is clearly in the interest of 
 the insured that the company be not allowed to 
 expand beyond the point of greatest efficiency. 
 It is clearly in the interest of the whole people 
 
LIFE INSURANCE 147 
 
 that it be not allowed to expand beyond the 
 point of danger arising from concentration of 
 quick capital in the hands of a few individuals. 
 The constitutional right to so limit the size of 
 insurance companies is undisputed. 
 
 Throughout the early years of our history the 
 danger inherent in corporate control was so 
 well understood that in every State limits were 
 placed upon the amount of the authorized capi- 
 tal of corporations of various kinds. The fear 
 of the power of large banking and industrial 
 combinations was then general. Under influ- 
 ences, not always creditable, and under the 
 leadership of New Jersey, that limit upon the 
 amount of capital of corporations has been in 
 many States removed. Now corporations with 
 huge capital are allowed to exist almost every- 
 where for almost any purpose. Having created 
 them we try ineffectually to check their opera- 
 tions by anti- trust laws. We have tolerated 
 these monster manufacturing and mining com- 
 panies and the great railroad corporations mainly 
 because it is believed that somehow, through 
 consolidation, the public may be better served. 
 But whatever may be true in other fields of 
 business, it has been proved beyond doubt that 
 in life insurance mere increase in size does not 
 tend to lessen cost of management or to increase 
 
148 BUSINESS — A PROFESSION 
 
 returns from investment; that the largest com- 
 panies are unable to serve the public as well as 
 smaller institutions. It has also been shown 
 conclusively that many of the abuses in the life 
 insurance business, now disclosed, result di- 
 rectly from the size of the companies. Man 
 has not kept pace in growth with his works. 
 Even the executives of the "Big Three" have 
 admitted their inability adequately to super- 
 vise their companies. Perkins and other wit- 
 nesses have sought to excuse illegitimate syn- 
 dicate transactions and speculative underwrit- 
 ings by the necessities of investing the huge sums 
 pouring into the large companies. On the other 
 hand, the investigation has also made clear that 
 these large insurance companies through the 
 power which inheres in the control of quick cap- 
 ital expose the community to dangers which no 
 other kind of corporation presents to so great 
 an extent. 
 
 To eradicate abuses — to protect the com- 
 munity — therefore, it is essential that the in- 
 suring unit be kept relatively small. You must 
 limit the amount of premiums which it may 
 receive, and the assets which it may hold — as 
 well as the scope and methods of the business. 
 
 These in general are the remedies which in 
 my opinion must be adopted to avoid the 
 
LIFE INSURANCE 149 
 
 abuses incident to the life insurance business 
 as now conducted. 
 
 THE INEVITABLE ALTERNATIVE 
 
 What is the alternative? Not the discon- 
 tinuance or substantial reduction of life insur- 
 ance; for life insurance has become a prime 
 necessity. Not the continuance of the present 
 abuses; for the outraged and enlightened public 
 opinion will no longer tolerate them. If our 
 people cannot secure life insurance at a proper 
 cost and through private agencies which deal 
 fairly with them, or if they cannot procure it 
 through private agencies except at the price of 
 erecting financial monsters which dominate the 
 business world and corrupt our political insti- 
 tutions, they will discard the private agency 
 and resort to State insurance. 
 
 Despite your or my protest, the extension of 
 government activity into fields now occupied 
 by private business is urged on every side. 
 Of all services which the community requires, 
 there is none in which the State could more 
 easily engage than that of insuring the lives 
 of its citizens. Stripped of the mysteries with 
 which it has been surrounded, and the mislead- 
 ing devices by which it has been permeated, 
 the business of life insurance is one of extraor- 
 
150 BUSINESS — A PROFESSION 
 
 dinary simplicity. To conduct it successfully 
 requires neither genius nor initiative, and if 
 pursued by the State does not even call for the 
 exercise of any high degree of business judg- 
 ment. The sole requisites would be honesty, 
 accuracy, persistence and economy. 
 
 The business of life insurance, which the 
 companies now make so incomprehensible to 
 the insured, consists properly only of three 
 elements : 
 
 1. The initial medical examination. 
 
 2. The calculation of the so-called net pre- 
 mium or insurance and mortality reserve. 
 
 3. The investment of funds. 
 
 The first is the province of the physician; the 
 second a mere matter of arithmetic worked out 
 by the actuary and now actually performed in 
 large part also by our insurance departments 
 as a necessary incident of their supervision; 
 the third, the proper investment of funds, 
 would ordinarily require a high degree of judg- 
 ment. But if the business were conducted by 
 the State, the proper investment of funds would 
 not, at least in Massachusetts, present any diffi- 
 culty. The State and municipal loans would 
 take up all insurance reserve. The net indebt- 
 edness of the Commonwealth on December 31, 
 1904, was $74,335,130.12, that of our cities and 
 
LIFE INSURANCE 151 
 
 towns $141,658,601. This aggregate of $215,- 
 993,731.11 presents a fund far greater than is 
 required as the legal reserve for all the policies 
 now outstanding in this Commonwealth. The 
 net value of all outstanding legal reserve life 
 insurance in Massachusetts on January i; 1905, 
 was only $122,727,918. The aggregate pre- 
 miums paid in Massachusetts during the three 
 years ending January i, 1905, to the thirty- 
 three old line companies was $79,033,991; but 
 the increase during those years of legal reserve 
 requirement was only $23,122,089. The in- 
 crease of the net State debt and of the gross 
 municipal debt during those years aggregated 
 $34,798,132.74. If the State had done this life 
 insurance business, the three years' increase of 
 legal reserve would not have sufl&ced to meet the 
 increased borrowings of the State and the mu- 
 nicipalities. In Massachusetts at least, a safe 
 investment for our insurance funds would thus 
 be assured. 
 
 The net return from such investment of the 
 funds by the State would compare not unfa- 
 vorably with that now received by the leading 
 insurance companies. It is true that the interest 
 return on Massachusetts State and municipal 
 bonds is less than the present average return 
 of the life insurance companies on investments; 
 
152 BUSINESS — A PROFESSION 
 
 but that return in case of State insurance would 
 be net. There would, as to the reserve funds, be 
 no expense of management. Furthermore, the 
 investment return of the insurance companies 
 is being almost steadily reduced, and the insur- 
 ance reserve on new business is being calculated 
 on the basis of three and a half or three per 
 cent, which is as low as the average return on 
 State and municipal bonds. 
 
 STATE INSURANCE UNDESIRABLE 
 
 In my opinion the extension of the functions 
 of the State to life insurance is at the present 
 time highly undesirable. Our Government does 
 not yet grapple successfully with the duties 
 which it has assumed, and should not extend 
 its operations at least until it does. But what- 
 ever and however strong our conviction against 
 the extension of governmental functions may 
 be, we shall inevitably be swept farther toward 
 socialism unless we can curb the excesses of our 
 financial magnates. The talk of the agitator 
 alone does not advance socialism a step; but 
 the formation of great trusts — the huge rail- 
 road consolidations — the insurance "racers" 
 with the attendant rapacity or the dishonesty 
 of their potent managers, and their frequent 
 corruption of councils and legislatures is hasten- 
 
LIFE INSURANCE 153 
 
 ing us almost irresistibly into socialistic meas- 
 ures. The great captains of industry and of 
 finance, who profess the greatest horror of the 
 extension of governmental functions, are the 
 chief makers of socialism. Socialistic thinkers 
 smile approvingly at the operations of Morgan, 
 Perkins and Rockefeller, and of the Hydes, 
 McCaUs and McCurdys. They see approach- 
 ing the glad day when monopoly shall have 
 brought aU industry and finance under a single 
 head, so that with the cutting of a single neck, 
 as Nero vainly wished for his Christian subjects, 
 destruction of the enemy may be accomplished. 
 Our great trust-building, trust-abusing capital- 
 ists have in their selfish shortsightedness be- 
 come the makers of socialism, proclaiming by 
 their acts, like the nobles of France, "After 
 us, the Deluge!" 
 
SAVINGS BANK INSURANCE' 
 
 The average expectancy of life in the United 
 States of a man 21 years old is, according to 
 Meech's Table of Mortality, 40.25 years. In 
 other words, take any large number of men who 
 are 21 years old, and the average age which 
 they will reach is 61 3^ years.^ 
 
 If a man, beginning with his 21st birthday, 
 pays throughout life 50 cents a week into Mas- 
 sachusetts savings banks, and allows these 
 deposits to accumulate for his family, the sur- 
 vivors will, in case of his death at this average 
 age of 6i3^ years, inherit $2,265.90 if an interest 
 rate of 33^ per cent a year is maintained.^ 
 
 If this same man should, beginning at age 
 21, pay throughout his life the 50 cents a week 
 to the Prudential * Insurance Company as pre- 
 miums on a so-called "industrial" life policy 
 
 1 Published in "Collier's Weekly," September 15, 1906. 
 
 ' According to the American Experience Table of Mortality, the 
 expectancy is 41.53 years; according to Dr. Farr's General English 
 Experience Table No. 3, it is 38.80 years. 
 
 ' The average interest rate paid by the Massachusetts savings 
 banks during the ten years ending October 31, 1905, was 3.83 per cent. 
 The lowest average rate of all these banks in any one year (1903) 
 was 3.709 per cent. 
 
 * The result in other industrial life insurance companies would be 
 substantially the same. 
 
SAVINGS BANK INSIIRANCE 155 
 
 for the benefit of his family, the survivors would 
 be legally entitled to receive, upon his death 
 at the age of 6iJ^ years, only $820.^ 
 
 If this same man, having made his weekly de- 
 posit in a savings bank for 20 years, should then 
 conclude to discontinue his weekly payments 
 and withdraw the money for his own benefit, he 
 would receive $746.20. If, on the other hand, 
 having made for 20 years such weekly pay- 
 ments to the Prudential Insurance Company, 
 he should then conclude to discontinue pay- 
 ments and surrender his policy, he would be 
 legally entitled to receive only $165. 
 
 So widely different is the probable result to 
 the workingman if he selects the one or the 
 other of the two classes of savings investment 
 which are open to him; and yet life insurance 
 is but a method of saving. The savings banks 
 manage the aggregate funds made up of many 
 small deposits until such time as they shaU be 
 demanded by the depositor; the insurance 
 company, ordinarily until the depositor's death. 
 The savings bank pays back to the depositor 
 his deposit with interest less the necessary ex- 
 pense of management. The insurance com- 
 pany in theory does the same, the difference 
 
 * The payment to be made by the insurance company would be 
 increased by small amounts from time to time paid by way of ben- 
 efits or dividends if any are declared. 
 
156 BUSINESS — A PROFESSION 
 
 being merely that the savings bank undertakes 
 to repay to each individual depositor the whole 
 of his deposit with interest; while the insurance 
 company undertakes to pay to each member of 
 a class the average amount (regarding the 
 chances of life and death), so that those who 
 do not reach the average age get more than they 
 have deposited (including interest), and those 
 who exceed the average age less than they de- 
 posited (including interest). The fundamental 
 object of both savings and life insurance insti- 
 tutions is the safe and profitable investment and 
 Care, at a minimum of expense, of funds con- 
 tributed from time to time in small amounts. 
 To attain this end, the essential qualities on the 
 part of the management of both classes of in- 
 stitutions are good judgment, honesty, econ- 
 omy and accuracy. 
 
 Why, then, does the workingmen's invest- 
 ment in industrial insurance prove relatively 
 so disastrous? 
 
 What Industrial Insurance is 
 
 Industrial insurance is simply life insurance 
 in small amounts of the kind commonly taken 
 by the wage-earner. In the United States the 
 policies average now about $140. They serve 
 mainly to provide funds to meet the wage- 
 
SAVINGS BANK INSURANCE 157 
 
 earner's heavy expenses of a last illness and a 
 decent burial. They are considered a prime 
 necessity among the working people, so that of 
 the 20,936,565 level premium life insurance 
 policies outstanding in the ninety American 
 companies on January i, 1905, 15,678,310 were 
 industrial policies. 
 
 The peculiar features of industrial as distin- 
 guished from ordinary life insurance are: — 
 
 (a) That the premiums are fixed for all ages 
 at 5 cents or multiples thereof, the variations 
 for different ages being in the amount of in- 
 surance so purchased, whereas in ordinary life 
 insurance the variation is in the amount of 
 premium. 
 
 (b) That the premium is payable weekly, 
 whereas in ordinary life insurance the premium 
 is payable annually, semi-annually or quarterly. 
 
 (c) That the premium is collected from house 
 to house, whereas in ordinary life insurance the 
 payments of premium are commonly remitted 
 by mail or are made at the office of the company 
 or of its agents. 
 
 The Appalling Waste in Industrial 
 
 Insurance 
 
 In the United States about 94 per cent of all 
 industrial insurance is furnished by three com- 
 
158 
 
 BUSINESS — A PROFESSION 
 
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SAVINGS BANK INSURANCE 159 
 
 panics, the Metropolitan of New York writing 
 49 per cent, the Prudential of New Jersey 36 per 
 cent, and the John Hancock of Massachusetts 
 9 per cent. Each company issues also ordinary 
 life policies. 
 
 The Metropolitan (which alone separates in 
 any published statement the expense of its in- 
 dustrial department from its ordinary life de- 
 partment) discloses that the managing expenses 
 of its industrial department in the year 1904 
 (exclusive of real estate taxes, insurance taxes 
 and departmental fees) was 42.08 per cent of all 
 premium receipts. The expense in the John 
 Hancock is stated to be "about" 40 per cent. 
 That of the Prudential is probably higher than 
 either of the other companies. 
 
 In the year 1904 the average expense of man- 
 agement of these three companies (including 
 both the ordinary life and the industrial de- 
 partments) was 37.21 per cent of all premium 
 receipts. Premium receipts of insurance com- 
 panies correspond to deposits of savings banks. 
 In the same year the percentage of manage- 
 ment expenses to deposits made during the 
 year of the 188 Massachusetts savings banks 
 was 1.47 per cent. In other words, the percent- 
 age of expense of management to premium re- 
 ceipts of these insurance companies was twenty- 
 
160 BUSINESS — A PROFESSION 
 
 five times as great as that of the savings banks 
 to their year's deposits. Yet the percentage of 
 expense of the industrial department of these 
 insurance companies alone is even greater than 
 37.21 per cent of the premium receipts, the com- 
 panies' percentage of expense being reduced by 
 reason of the fact that the companies issue also 
 ordinary life policies. Even the extravagantly 
 managed Mutual Life, New York Life and 
 Equitable (which issue only ordinary life poli- 
 cies) took for such managing expenses in 1904, 
 on the average, only 23.33 P^r cent of the year's 
 premium receipts; while the Metropolitan, the 
 Prudential and the John Hancock (which is- 
 sued both kinds of policies) took 37.21 per cent. 
 
 It is true that the collections of premium by 
 an insurance company are partly for the purpose 
 of carrying insurance risk, as well as for that 
 of investment, while the deposits in a savings 
 bank are accepted solely for the purpose of in- 
 vestment, but this circumstance does not by 
 any means wholly destroy the significance of 
 the foregoing comparisons. 
 
 How heavy the burden is which the present 
 system of industrial life insurance imposes upon 
 the workingman can, however, be fully appre- 
 ciated only if we bear in mind the following 
 facts: — 
 
SAVINGS BANK INSURANCE 161 
 
 First — The Double Premium 
 
 The premium payable for any given amount 
 of industrial insurance is about double that 
 payable on ordinary life non-participating 
 policies. 
 
 Thus, in the Metropolitan, an industrial 
 policy-holder insuring at age 21 would pay 60 
 cents a week, or in the aggregate 31.20 a year 
 for a $984 policy, while he would pay only $16.55 
 a year for an ordinary life non-participating 
 $1,000 policy. In the Prudential a man of 40 
 would pay 50 cents a week, or in the aggregate 
 $26 a year, for a $500 policy, while he would 
 pay only $27.03 for an ordinary life non-partici- 
 pating $1,000 policy. 
 
 Second — The Quadruple Expense of 
 Management 
 
 The proportion of the premium taken for 
 management expenses in the case of industrial 
 insurance is about twice as great as in the case 
 of ordinary life non-participating policies; and, 
 since the premium also is about twice as great 
 as for an ordinary non-participating life policy 
 of like amount, it follows that the industrial 
 policy-holder pays toward expense of manage- 
 ment four times as much as even the pres- 
 
162 BUSINESS — A PROFESSION 
 
 ent expense charge borne by the ordinary life 
 policy-holder for the same amount of insurance. 
 
 Third — The High Lapse Rate 
 
 About two-thirds of all industrial policies 
 lapse and are forfeited within three years of 
 the date of issue, the premiums paid thereon 
 proving a total loss to the policy-holder. In the 
 year 1904, 87 per cent of the industrial policies 
 in the Metropolitan, the Prudential and the 
 John Hancock which terminated within the 
 year were forfeited; and only 13 per cent re- 
 sulted in any payment to the insured. 
 
 Of the 2,761,449 industrial insurance policies 
 in these three great companies which terminated 
 by death, surrender and lapse during the year 
 1904, aggregating in amount $422,633,987, pay- 
 ment was made to insured on only 347,072, or 
 about one-eighth of the policies. In other words, 
 the holders of 2,414,377 policies, with aggregate 
 insurance of $379,708,958, made a total loss of 
 all premiums paid. 
 
 The fact that more than 40 per cent of each 
 premium goes to expense of management, when 
 taken alone, fails, therefore, to show how great 
 this industrial insurance waste is. We must 
 remember that the expense is more than 40 per 
 cent of a premium which is double the ordinary 
 
SAVINGS BANK INSURANCE 163 
 
 premium. But even these facts considered to- 
 gether do not fully disclose the waste. They 
 indicate only the loss to persisting policy-holders. 
 We must remember also that those whose poli- 
 cies lapse — a great majority of all who insure 
 — lose also (except for the temporary protec- 
 tion) the whole loo per cent of their premiums. 
 
 The Causes of this Waste 
 
 What are the causes of this appalling waste of 
 the workingmen's savings? 
 
 (A) Not Financial Depravity 
 
 Financial depravity is not an important cause. 
 The recent insurance investigations have, it is 
 true, disclosed in the Metropolitan and in the 
 Prudential, as in the Equitable, the New' York 
 Life and the Mutual Life of New York, grave 
 breaches of trust. These industrial companies 
 also have paid exorbitant salaries. In them 
 also official position and policy-holders' money 
 have been used for private profit. By them 
 also illegal contributions have been made to 
 secure legislative favors. And, in addition, the 
 stockholders of the Metropolitan and of the 
 Prudential have, to a degree unknown in ordi- 
 nary life companies, received unjustifiable divi- 
 dends. The capital of the Prudential has been 
 
164 BUSINESS — A PROFESSION 
 
 swelled from $91,000 to $2,000,000 out of the 
 premiums exacted from workingmen, so that 
 now the company, while paying nominally a 
 10 per cent dividend, in fact pays to its stock- 
 holders in dividends each year an equivalent of 
 219.78 per cent on the cash actually paid in on 
 the capital stock. The capital of the Metropoli- 
 tan likewise has been swelled out of wage- 
 earners' premiums from $500,000 to $2,000,000, 
 so that now the company, while paying nomi- 
 nally a 7 per cent dividend, in fact pays to 
 stockholders each year an equivalent of 28 per 
 cent on the cash actually paid in on the capital 
 stock. The profitableness of the business to 
 stockholders and officers is further shown by the 
 fact that the Metropolitan, in order to, increase 
 its own business and to eliminate competition, 
 bought out, in 1902, a small Kentucky com- 
 pany on terms which netted its stockholders 
 nearly $400 per share for stock on which only 
 $100 had been paid in. 
 
 But the amount diverted from policy-holders 
 by financial irregularities, though large in the 
 aggregate, is small as compared with the total 
 of premiums paid. Financial depravity does 
 not explain why in fifteen years the workingmen 
 of Massachusetts have paid $55,285,744 in in- 
 dustrial premiums to these three companies, 
 
SAVINGS BANK INSURANCE 165 
 
 and received back in all only $19,881,353; that 
 is, 35.96 per cent of the aggregate premiums paid, 
 without interest.^ The John Hancock appears 
 to have been managed throughout with scru- 
 pulous honesty as a mutual company, and yet 
 in the fifteen years ending December 31, 1904, 
 it took from Massachusetts industrial policy- 
 holders in premiums $18,319,730, and paid to 
 them only $5,942,033, or 32.43 per cent, without 
 interest, of the premiums paid.^ 
 
 (B) Not Mere Extravagance 
 
 Nor is this fearful waste of workingmen's sav- 
 ings due to mere extravagance in management. 
 The working organization of these companies 
 is said to be admirable; and, aside from a few 
 exorbitant ofl&cial salaries in the Metropolitan 
 and the Prudential, the employees of the three 
 companies are certainly not overpaid on the 
 average. ^The Armstrong Report states that, of 
 the 12,000 or 13,000 agents in the Metropolitan, 
 " an enterprising man who devotes his whole time 
 to the business" received an average of $11.64 
 per week; the 2,112 clerks, an average of $15; 
 the "about 2,700 assistant superintendents," 
 
 • The figures for the United States are not available, the payments 
 to mdustrial policy-holders not being separated from those to ordinary 
 policy-holders. 
 
 ^ The insurance reserve and some surplus were, of course, accu- 
 mulated also. 
 
166 BUSINESS — A PROFESSION 
 
 $25 a week; and the "about 350 superinten- 
 dents," $50; and that the fees paid for each 
 medical examination and inspection were 50 cents 
 and 25 cents respectively: that the Prudential 
 paid to 8,582 agents on the average $14.61 per 
 week; to 1,751 assistant superintendents, $24. 24; 
 and to 223 superintendents, $95.55. Obviously, 
 therefore, mere extravagance is not the cause 
 of this waste of workingmen's savings. 
 
 (C) The System Vicious 
 
 The real cause of these meagre results to the 
 insured from industrial insurance is not finan- 
 cial depravity or extravagance, but the extraor- 
 dinary wastefulness necessarily attendant upon 
 the present system of supplying life insurance 
 for workingmen. 
 
 The principal elements of expense in indus- 
 trial insurance are: 
 
 (i) The initial expense on issue of policies, 
 taken in connection with the large percentage 
 of policies lapsed. 
 
 (2) The expense of house-to-house collection 
 of weekly premiums. 
 
 (A) The Initial Expense 
 
 The average initial expense as figured by the 
 Metropolitan was, in 1904, $2.07 per policy on 
 
SAVINGS BANK INSURANCE 167 
 
 which the average premium was 12 cents weekly. 
 It is probably about the same in other com- 
 panies. In the John Hancock the initial ex- 
 pense includes the agent's commission at the 
 rate of 48 cents for placing a policy bearing 5 
 cents weekly premium, and the physician's fee 
 of 50 cents. But the issue of each policy involves 
 besides these specific charges a large pro rata 
 for general expense, the exact amount of which 
 is not supplied by the published accounts. The 
 initial charge, while large in itself as compared 
 with the year's premiums, becomes particularly 
 burdensome to persisting policy-holders by 
 reason of the heavy lapse rate. 
 
 "From the most careful accounting made 
 time and again," says the John Hancock, "the 
 weekly premium policies do not square them- 
 selves and make good the initial and current 
 expenses and loss and provide for the State re- 
 quirement of reserve, until at least three full 
 years' premiums have been paid. . . . Not a 
 policy that lapses before at least three full 
 years' premiums have been paid but leaves 
 a greater or less deficiency for the survivors to 
 bear. . . ." 
 
 " On the average fully one-half the entrants 
 lapse their policies before the end of the first 
 year and a majority of these within the first 
 
168 BUSINESS — A PROFESSION 
 
 quarter, though no policy lapses until four 
 weekly premiums are overdue." 
 
 The experience of the John Hancock is, of 
 course, not exceptional. The Metropolitan 
 lapse rate appears to be larger, and that of the 
 Prudential still larger. The Armstrong Com- 
 mittee found that in the Metropolitan, — 
 
 " More than one- third of the policies issued do 
 not survive three months, and about one-half are 
 cancelled within a year. In 1903 the company 
 took one week's industrial issue from each month 
 in the year, and followed the issue through a period 
 of twelve months, with the following result: 
 
 Per cent. 
 
 Rate of lapses in first 3 months from date of issue . 3540 
 
 " 6 " " " " 43.57 
 
 " 9 " " " " 48.28 
 
 " 12 " " " " . 51-46 
 
 In 1904 the average time for which premiums 
 were paid on policies which lapsed within one 
 year from issue was 6.05 weeks. 
 
 The net result to the Metropolitan Company 
 from each policy so lapsed is as follows: — 
 
 Initial cost of policy $2.07 
 
 Cost of carrying policy 52 
 
 I2.59 
 Average weekly premiums at 12.004 cents for 6.05 weeks .726 
 
 Net loss to the company (i. e., to the persisting policy- 
 holders) $1,864 
 
 Net loss to the insured (12.004 cents per week for 6.05 
 
 weeks) 726 
 
SAVINGS BANK INSURANCE 169 
 
 During the second year (in which about lo per 
 cent of the policies lapse) and the third year (in 
 which about 5 per cent lapse) the net loss to the 
 company (that is, to the persisting policy- 
 holders) grows gradually less, but that to the 
 insured whose policies lapse grows very much 
 greater. For, while the average net loss to the 
 insured whose policies lapse during the first 
 year is about 73 cents, the average, figured on 
 the same basis, for those whose policies lapse 
 in the second year is approximately $8.88, and 
 the average net loss to those whose policies 
 lapse in the third year is approximately $15.12. 
 In 1904 the Metropolitan wrote 1,829,559 new 
 policies. Applying the above percentages to the 
 business of the Metropolitan for the full years 
 of 1904 and 1905, we find that 941,491 of the 
 1,829,559 policies written in 1904 must have 
 lapsed within the year 1905, and that the net 
 loss on these lapsed policies aggregated $2,438,- 
 461.68, of which the insured bore $683,522.46, 
 and the persisting policy-holders $1,754,939.22. 
 
 (B) The Collection Charge 
 
 But besides the deficit due to lapses the per- 
 sisting policy-holder bears another fearful bur- 
 den. Even in the honestly managed John Han- 
 cock the fee of the collector is 20 per cent of 
 
170 BUSINESS — A PROFESSION 
 
 each week's premium, and this 20 per cent charge 
 is only a part of the cost of collection. There 
 is in addition necessarily the large expense of 
 an elaborate system of superintendence and 
 accounting. Bear in mind that 20 per cent of 
 an industrial premium is equal to 40 per cent of 
 the sum payable as premium for a like amount 
 of ordinary insurance. 
 
 Obviously, therefore, a substantial reduction 
 of the present cost of industrial insurance is not 
 possible unless some radical change of system 
 be introduced whereby the initial expenses, the 
 cost of premium collection, and the percentage 
 of lapses is greatly lessened. 
 
 The Sacrifice of the Thrifty 
 
 The supporters of the present system of in- 
 dustrial insurance declare that such a reduction 
 of expenses and of lapses is impossible. They 
 insist that the total loss to the insured and the 
 heavy burden to the policy-holders from lapses, 
 as well as from the huge cost of premium col- 
 lection, must all be patiently borne as being the 
 unavoidable incidents of the beneficent institu- 
 tion of life insurance when applied to the work- 
 ingman. They declare that the appalling waste 
 incident to the forfeiture within three years of 
 two-thirds of all policies written is a sacrifice 
 
SAVINGS BANK INSUEANCE 171 
 
 essential to the ultimate salvation of the small 
 persisting minority, and that the huge expense 
 involved in the house-to-house collection of 
 weekly premiums is necessary to prevent still 
 more lapses on account of the workingman's 
 alleged lack of thrift. 
 
 It may be questioned whether, in view of the 
 heavy expense now attending industrial insur- 
 ance, the discontinuance of premium payments 
 which yield such slight probability of net re- 
 turns is not evidence rather of thrift than of 
 thriftlessness. It is surely difl&cult to justify a 
 system of insurance as to which it may be fore- 
 told that, of the millions who are entered each 
 year at a per capita initial expense of $2.07, a 
 majority will not only let their policies lapse 
 within the year, but will on the average pay in 
 premiums only 72 cents. Does not such a record 
 of mortality in policies prove conclusively that 
 most of the entrants had been over-persuaded 
 or misled into taking the insurance? But if, as 
 the companies contend, the discontinuance of 
 premium payments is evidence of thriftlessness, 
 surely the thrifty who persevere should not be 
 compelled to submit to a system which requires 
 such great and largely useless sacrifices in the 
 supposed interest of a small minority. 
 
 The thrifty workingman, like people of larger 
 
172 BUSINESS — A PROFESSION 
 
 means, should have the opportunity of obtain- 
 ing life insurance at more nearly its necessary 
 cost. 
 
 The Remedy 
 
 The sacrifice incident to the present industrial 
 insurance system can be avoided only by provid- 
 ing an institution for insurance which will rec- 
 ognize that its function is not to induce work- 
 ing people to take insurance regardless of 
 whether they really want it or can afford to 
 carry it, but rather to supply insurance upon 
 proper terms to those who do want it and can 
 carry it, — an institution which will recog- 
 nize that the best method of increasing the 
 demand for life insurance is not eloquent, per- 
 sistent persuasion, but, as in the case of other 
 necessaries of life, is to furnish a good article 
 at a low price. 
 
 The Savings Bank the Best Medium 
 
 Massachusetts, in its 189 savings banks, and 
 the other States with savings banks similarly 
 conducted, have institutions which, with a 
 slight enlargement of their powers, can at a 
 minimum of expense fill the great need of life 
 insurance for workingmen. 
 
 The only proper elements of the industrial 
 
SAVINGS BANK INSURANCE 173 
 
 insurance business not common to the savings 
 bank business are simple, and can be supplied 
 at a minimum of expense in connection with 
 our existing savings banks. They are : — 
 
 (o) Fixing the terms on which insurance shall 
 be given. 
 
 (b) The initial medical examination. 
 
 (c) Verifying the proof of death. 
 
 The last involves an inquiry similar in char- 
 acter to that now performed by the clerks of 
 savings banks in the identification of depositors. 
 > The second is the work of a physician, who is 
 available at no greater expense to the savings 
 bank than tq the insurance company. 
 
 The first is the work of an insurance actuary, 
 who would be equally available to the savings 
 banks as he is to insurance companies, if the 
 former undertook the insurance business. And 
 the present cost of actuarial service can be 
 greatly reduced: first, by limiting the forms of 
 insurance to two or three standard forms of 
 simple policies, uniform throughout the State; 
 and, secondly, by providing for the appoint- 
 ment of a State actuary, who, in connection 
 with the insurance commissioner, shall serve 
 all the savings insurance banks. The work of 
 such an actuary is, indeed, now necessarily per- 
 formed in large part in each State by the in- 
 
174 BUSINESS — A PROFESSION 
 
 surance department, as an incident of super- 
 vising life insurance companies. 
 
 The savings banks could thus enter upon the 
 insurance business under circumstances sin- 
 gularly conducive to extending to the working- 
 man the blessing of safe life insurance at a low 
 cost, because : — 
 
 First. The insurance department of savings 
 banks would be managed by experienced trus- 
 tees and officers who had been trained to recog- 
 nize that the business of investing the savings of 
 persons of small means is a quasi-public trust 
 which should be conducted as a beneficent and 
 not as a selfish money-making institution. 
 
 Second. The insurance department of savings 
 banks would be managed by trustees and officers 
 who in their administration of the savings of per- 
 sons of small means had already been trained 
 to the practice of the strictest economy. 
 
 Third. The insurance business of the savings 
 banks, although kept entirely distinct as a 
 matter of investment and accounting, would 
 be conducted with the same plant and the same 
 officials, without any large increase of clerical 
 force or incidental expense, except such as 
 would be required if the bank's deposits were in- 
 creased. Until the insurance business attained 
 considerable dimensions, probably the addition 
 
SAVINGS BANK INSURANCE 175 
 
 of even a single clerk might not be necessary. 
 The business of life insurance could thus be 
 established as an adjunct of a savings bank 
 without incurring that heavy expense which 
 has ordinarily proved such a burden in the 
 establishment of a new insurance company. 
 
 If the individual risks were limited at first to, 
 say, $150 on a single life, the business could be 
 begun safely on a purely mutual basis as soon as 
 a few hundred lives were insured, or earlier if a 
 guaranty fund were provided. As the business 
 increased, the limit of single risks could be cor- 
 respondingly increased, but should probably not 
 exceed $500. 
 
 Fourth. The insurance department of savings 
 banks would open with an extensive and potent 
 good will, and with the most favorable condi- 
 tions for teaching, at slight expense, the value 
 of life insurance. The safety of the institution 
 would be unquestioned. For instance, in Mas- 
 sachusetts the holders of the 1,829,487 savings 
 bank accounts, a number equal to three-fifths of 
 the whole population of the State, would at 
 once become potential policy-holders; and a 
 small amount of advertising would soon sufiice 
 to secure a reasonably large business without 
 solicitors. 
 
 Fifth. With an insurance clientele composed 
 
176 BUSINESS — A PROFESSION 
 
 largely of thrifty savings bank depositors, house- 
 to-house collection of premiums could be dis- 
 pensed with. The more economical monthly 
 payments of premiums could also probably be 
 substituted for weekly payments. 
 
 Sixth. A small initiation fee could be charged, 
 as in assessment and fraternal associations, to 
 cover necessary initial expenses of medical ex- 
 amination and issue of policy. This would 
 serve both as a deterrent to the insured against 
 allowing policies to lapse and a protection to 
 persisting policy-holders from unjust burdens 
 which the lapse of policies casts upon them. 
 
 Seventh. The safety of savings banks would, 
 of course, be in no way imperilled by extending 
 their functions to life insurance. Life insurance 
 rests upon substantial certainty, differing in 
 this respect radically from fire, accident and 
 other kinds of insurance. As Insurance Com- 
 missioner Host, of Wisconsin, said in a recent 
 address : — 
 
 "If we take a number of thousand persons of dif- 
 ferent ages, nothing is more certain in nature than 
 that their natural deaths will occur in a series not 
 differing very widely from that of other thousands of 
 persons under similar circumstances. 
 
 "The practical experience of this theory has given 
 to the world the mortahty tables upon which hfe in- 
 
SAVINGS BANK INSURANCE 177 
 
 svirance premiums are ascertained and the reserves 
 for the future needs calculated. 
 
 ''No life insirrance company has ever failed which 
 complied strictly with the law governing the calcu- 
 lation, maintenance, and investment of the legal 
 reserve. . . ." 
 
 The causes of failure in life insurance com- 
 panies since Elizur Wright established the 
 science have been excessive expense, unsound 
 investment, or rapacious or dishonest manage- 
 ment. To the risk of these abuses all financial 
 institutions are necessarily subject, but they 
 are evils from which our savings banks have 
 been remarkably free. This practical freedom 
 of our savings banks from these evils affords a 
 strong reason for utilizing them to supply the 
 kindred service of life insurance. 
 
 The theoretical risk of a mortality loss in a 
 single institution greater than that provided 
 for in the insurance reserve could be absolutely 
 guarded against, however, by providing a gen- 
 eral guaranty fund, to which all savings-insur- 
 ance banks within a State would make small 
 pro rata contributions, — a provision similar 
 to that prevailing in other countries, where all 
 banks of issue contribute to a common fund 
 which guarantees all outstanding bank notes. 
 
 Eighth. In other respects, also, co-operation 
 
178 BUSINESS — A PROFESSION 
 
 between the several savings insurance banks 
 within a State would doubtless, under appro- 
 priate legislation, be adopted; for instance, by- 
 providing that each institution could act as an 
 agent for the others to receive and forward pre- 
 mium payments. 
 
 Ninth. The law authorizing the establishment 
 of an insurance department in connection with 
 savings banks should, obviously, be permissive 
 merely. No savings bank should be required 
 to extend its functions to industrial insurance 
 until a majority of its trustees are convinced of 
 the wisdom of so doing. 
 
 The savings banks are not, however, the only 
 existing class of financial institutions which 
 could be utilized for the purpose of supplying, at 
 a low expense rate, insurance in small amounts 
 under a system requiring frequent premium 
 payments. Co-operative banks, as operated in 
 Massachusetts and in some other States, would, 
 under appropriate regulation, be admirably 
 adapted to supply a part of the required service. 
 The excellent record of these institutions in 
 Massachusetts presents a most encouraging 
 exhibit of the achievements of financial democ- 
 racy when applied to small units and when 
 operating under a wise system of supervision. 
 
 Public attention having at last been directed 
 
SAVINGS BANK INSURANCE 179 
 
 to this subject, our workingmen will not long 
 submit to the needless sacrifice of their hard- 
 earned savings, described in the following judg- 
 ment of the "Armstrong Committee" on the 
 methods of the Metropolitan Company: — 
 
 "In fine the industrial department furnishes in- 
 surance at twice the normal cost to those least able 
 to pay for it; a large porportion, if not the greater 
 number of the insured, permitting their policies to 
 lapse, receive no money return for their payments. 
 Success is made possible by thorough organization 
 on a large scale and by the employment of an army 
 of underpaid solicitors and clerks; and from margins 
 small in individual cases, but large in the aggregate, 
 enormous profits have been jealized upon insignifi- 
 cant investment." 
 
 If an opportunity for cheaper life insurance 
 is afforded by means of an extension of the func- 
 tions of our savings banks, the present industrial 
 insurance companies may be permitted to pursue 
 their efforts at inculcating thrift in accordance 
 with the system which seems to them wise, and 
 their claim that the present huge waste is 
 inevitable will be duly tested. 
 
 But if we fail to offer to workingmen some 
 opportunity for cheaper insurance through pri- 
 vate or quasi-private institutions, the ever- 
 ready remedy of State insurance is certain to 
 
180 BUSINESS — A PROFESSION 
 
 be resorted to soon; and there is no other sphere 
 of business now deemed private upon which 
 the State could so easily and so justifiably enter 
 as that of life insurance. 
 
 However great the waste in present life in- 
 surance methods, our workingmen will not be 
 induced to abandon life insurance. To them, 
 as to others, life insurance has become a prime 
 need. It must be continued. It should be en- 
 couraged. In spite of the disastrous results of 
 this form of savings investment, the industrial 
 insurance business has assumed enormous pro- 
 portions. On December 31, 1904, the number 
 of industrial life policies outstanding in the three 
 great companies (Metropolitan, Prudential and 
 John Hancock) was 14,731,463, as against a 
 total of only about 5,258,255 ordinary life poli- 
 cies outstanding in the ninety legal reserve com- 
 panies. The New York Life, with its record of 
 957,201 policies outstanding, had only one- 
 eighth as many policy-holders as the Metro- 
 politan, one-sixth as many as the Prudential 
 and three-fifths as many as the John Hancock. 
 In the year 1904 alone the Metropolitan, Pru- 
 dential and John Hancock wrote 3,742,209 
 industrial policies; that is, more than three 
 times as many as the 90 leading level premium 
 companies wrote of ordinary life policies during 
 
SAVINGS BANK INSURANCE 181 
 
 that year. In Massachusetts the predominance 
 of industrial policies is even greater than the 
 average. With a population of 3,000,680 there 
 were outstanding December 31, 1904, 1,080,003 
 industrial policies; that is, one for every three 
 inhabitants, counting men, women and chil- 
 dren, and of ordinary life policies only 257,792 
 were outstanding. 
 
 The demand of workingmen for life insurance 
 will continue and will grow; but the yearly trib- 
 ute of the workingmen to Prudential stock- 
 holders of dividends equivalent to 219.78 per 
 cent on the capital actually paid into the com- 
 pany, the yearly waste of millions in lapsed 
 policies, in fruitless solicitation and in needless 
 collections, will cease. The question is merely 
 whether the remedy shall be applied through 
 properly regulated private institutions or 
 whether the State must itself enter upon the 
 business of life insurance. 
 
SUCCESSES OF SAVINGS BANK 
 LIFE INSURANCE 
 
 The project of the Massachusetts system 
 was first published in Collier's Weekly, Septem- 
 ber 15, 1906. Its main purpose was to elim- 
 inate or to mitigate so far as possible, the evils 
 incident to the system of industrial life insur- 
 ance as then practiced by private companies. 
 The causes of these evils were investigated; and 
 it was proposed to remove them by creating a 
 competitive system upon a new plan. 
 
 In 1906 there were outstanding in the United 
 States 17,841,396 industrial life insurance poli- 
 cies, representing $2,453,603,707 of insurance. 
 Three companies, the Metropolitan, the Pru- 
 dential and the John Hancock, did together 
 94.3 per cent of this business. The rates and 
 terms to policy-holders of the three companies 
 did not vary materially the one from the 
 others. 
 
 Throughout the thirty years of American ex- 
 perience in industrial life insurance prior to 
 September, 1906, there had been substantially 
 no improvement in the position of the policy- 
 
SUCCESSES OF SAVINGS INSURANCE 183 
 
 holder. On the contrary, it had rather worsened. 
 The insured suffered mainly from three evils: 
 
 (a) The high premium. 
 
 (b) Over-persuasion leading to taking out of 
 insurance which was bound soon to lapse. 
 
 (c) Illiberal and oppressive provisions in the 
 policies. 
 
 During these thirty years the cost of insur- 
 ance to the policy-holder had gradually in- 
 creased. In 1887 the rates were on the average 
 nearly 12 per cent higher than the rates prevail- 
 ing from 1879 to 1887. In 1896 they were again 
 increased about 8 per cent on the average over 
 the rates fixed in 1887; and they remained at 
 that level until shortly after September, 1906. 
 Vice-President Haley Fiske of the Metropolitan, 
 testifying before the Armstrong Committee in 
 1905, declared that the high expense of industrial 
 life insurance was unavoidable. 
 
 During these thirty years the lapse rate had 
 not been materially reduced. Of the policies 
 written in 1903 more than one- third lapsed 
 within three months and more than one-half 
 within twelve months from the date of issue. 
 
 During these thirty years the policies, instead 
 of becoming more liberal in their provisions, 
 had been modified from time to time, so that the 
 chances of the insured receiving benefits from 
 
184 BUSINESS — A PROFESSION 
 
 the insurance were small. For instance: Until 
 shortly after September, 1906, the policies pro- 
 vided that if death occurred within three 
 months from the date of the policy nothing 
 would be payable under the contract; if death 
 occurred after three months and within the 
 first six months, only one-quarter of the face of 
 the policy would be payable; if death occurred 
 after six months and before the end of twelve 
 months, one-half the face of the policy would be 
 payable. These provisions were much less 
 favorable than those prevailing during the ear- 
 lier years of industrial life insurance in America. 
 
 Furthermore, in 1906 there was no opportu- 
 nity of getting extended insurance or paid-up 
 insurance until after the end of five years after 
 the date of the policy, and none of getting a 
 cash surrender value at any time. The policies 
 had no loan value. 
 
 The Metropolitan Life Insurance Company 
 had been quite fully investigated by the Arm- 
 strong Committee in 1905. The officials of the 
 Metropolitan company in testifying before that 
 committee could give no promise of any im- 
 provement in the position of the policy-holder; 
 the report of the Armstrong Committee con- 
 tained no recommendations for remedying the 
 evils disclosed; and the New York remedial leg- 
 
SUCCESSES OF SAVINGS INSURANCE 185 
 
 islation of 1906 was so framed as not to apply to 
 industrial insurance. 
 
 The discussions incident to the Massachusetts 
 Savings Bank Insurance plan, beginning in 
 September, 1906, the enactment of the legisla- 
 tion on June 26, 1907, and the practical intro- 
 duction of the system in June, 1908, with the 
 actual and potential competition resulting, 
 have wrought important changes in the rates, 
 methods and practices of the industrial com- 
 panies which have mitigated in large measure the 
 flagrant abuses at which the reform was aimed, 
 namely : 
 
 The Changes Wrought 
 
 1. The cost of industrial insurance furnished 
 by the Metropolitan and other private companies 
 (expressed in the amount purchased by a given 
 weekly premium) has been repeatedly reduced 
 since September, 1906; so that to-day it is (on 
 the average) about 20 per cent lower than it 
 was then. 
 
 2. The methods pursued by the private com- 
 panies in soliciting industrial insurance have 
 been improved since September, 1906, so that 
 the lapse rate is materially reduced. Thus: 
 Taking the three years 1904, 1905 and 1906 the 
 percentage of lapse of outstanding policies to 
 
186 BUSINESS — A PROFESSION 
 
 the number of policies issued during those years 
 was 65. Taking the three years 191 o, 1911 and 
 19 1 2 the percentage of lapse was only 56. Or, 
 making the comparison on the basis of the 
 amount of insurance: In the three years 1904, 
 1905 and 1906 the amount of insurance lapsed 
 was 68 per cent of the amount written; whereas 
 in the three years 1910, 1911 and 1912 the per- 
 centage of lapses was only 58 per cent of the 
 amount written. 
 
 3. The provisions of the insurance policies 
 issued by the private companies have been made 
 more just and liberal. For instance, on January 
 I, 1907, the amount payable in case of death 
 was increased from nothing, if occurring during 
 the first three months, and one-fourth, if occur- 
 ring during the second three months, to one-half 
 the face value of the policy if death occurred at 
 any time within the first six months. And the 
 amount payable in case of death during any 
 part of the second six months was increased 
 from one-half to the full face of the policy. 
 Under the changes made January i, 1907, the 
 premiums, which previously had been payable 
 throughout life, were made to cease at age 
 seventy-five. 
 
 4. Paid-up insurance is now granted by the 
 private companies after three years, whereas be- 
 
SUCCESSES OF SAVINGS INSURANCE 187 
 
 fore September, 1906, no paid-up insurance was 
 granted until after the end of five years from the 
 date of the policy. It is noteworthy that this 
 change was effected as of January i, 1907, al- 
 though Vice-President Haley Fiske had declared 
 before the Armstrong Committee in 1905 that 
 "Any law requiring the issue of paid-up policies 
 in industrial insurance after three years would be 
 most unjust" to the persisting policy-holders. 
 
 5. Since September, 1906, the private com- 
 panies have provided for cash surrender values 
 after the end of ten years, although previously 
 no cash surrender values had been granted. 
 
 6. Since September, 1906, the private com- 
 panies have made their policies incontestable 
 one year after date of issue, whereas theretofore 
 the policies had been incontestable only after 
 two years. 
 
 7. Since September, 1906, extended insurance 
 is said to be granted after three years from the 
 date of the policy, whereas none had been 
 granted theretofore. 
 
 The improvements made by the private in- 
 dustrial insurance companies as the result of 
 the Massachusetts plan, have of course been 
 extended to their entire business throughout 
 the United States. When it is remembered that 
 the aggregate premium income of the industrial 
 
188 BUSINESS — A PROFESSION 
 
 policies in the United States is now about $115,- 
 000,000 a year, it seems clear that the industrial 
 policy-holders throughout the country are to- 
 day buying their insurance for at least $20,000,- 
 000 a year less than they would have had to 
 pay for the same amount of insurance had the 
 rates prevailing prior to September, 1906, re- 
 mained in force. 
 
 Massachusetts' Gain 
 
 The weekly premiums collected by the indus- 
 trial insurance companies from Massachusetts 
 wage-earners each year exceed $10,000,000. 
 The saving to the Massachusetts policy-holders 
 in the private companies which has resulted 
 from the competition of its State-aided system is 
 nearly $2,000,000 a year: while the Common- 
 wealth's contribution to the expenses of the 
 system has averaged less than $15,000 a year. 
 But residents of Massachusetts who availed 
 themselves of the opportunity which savings 
 bank insurance affords, have had these further 
 advantages: 
 
 First. The gross rates on the monthly pre- 
 mium savings bank policies in Massachusetts 
 are on the average about 17 per cent less 
 than the now prevailing rates of the private 
 industrial companies. The Metropolitan and 
 
SUCCESSES OF SAVINGS INSURANCE 189 
 
 Prudential companies, however, issue only non- 
 participating policies, whereas the Massachu- 
 setts savings bank policies are participating. 
 The dividends declared on these savings bank 
 policies have been as follows; 
 
 Per Cent. 
 On policies completing their first anniversary 8)^ 
 
 On policies completing their second anniversary . 123^ 
 
 On policies completing their third anniversary 14 
 
 On poUcies completing their fourth anniversary . . 16% 
 On policies completing their fifth anniversary . . 20 
 
 Therefore the net cost to the insured, for in- 
 stance, in the fourth year is, on the average, 
 about 32 per cent less, and in the fifth year 35 
 per cent less than the present rates of the private 
 industrial companies. 
 
 The policies in one of the private companies, 
 the John Hancock, are participating, but only 
 after five years from the date of issue. 
 
 Second. The policies issued by the Massachu- 
 setts savings banks are far more liberal even 
 than those now written by the private indus- 
 trial companies. The full face of the policy is 
 payable in case of death at any time after the 
 issue of the policy. Cash surrender value, paid- 
 up insurance and extended insurance are granted 
 at any time after six months from the date of 
 the issue of the policy. The policies have also 
 a loan value after the end of the first year. 
 
190 BUSINESS — A PROFESSION 
 
 Third. A recent investigation of the business 
 of the banks shows that of the policies issued 
 and having twelve months' experience, 25.5 per 
 cent of the number of policies and 26.2 per cent 
 of the amount of insurance are cancelled within 
 a year, whereas in the large industrial compa- 
 nies over 50 per cent of the policies written are 
 cancelled within the first year. 
 
 Furthermore the so-called cancellations of the 
 savings insurance banks include all policies sur- 
 rendered within twelve months, whether by 
 lapse, by death or by surrender for cash. On 
 the bank policies surrendered after six months, 
 $20,336.50 in cash was returned to the policy- 
 holders, and other bank policy-holders also re- 
 ceived by way of amounts applied to purchase 
 paid-up insurance $3,924.23. This $24,260.73 
 would have been entirely lost to the policy- 
 holders had they been insured in the industrial 
 companies. 
 
 The Insurance Banks 
 
 On February 28, 19 14, the insurance depart- 
 ments of the four savings banks had out- 
 standing 8413 policies, representing $3,316,005 
 insurance and $29,482 annuities. 
 
 Five years after the Massachusetts system was 
 introduced, the banks held an accumulated sur- 
 
SUCCESSES OF SAVINGS INSURANCE 191 
 
 plus equal to nearly lo per cent of the aggre- 
 gate premium income for the five years, and 
 equal to 14.8 per cent of the aggregate legal 
 policy reserve. 
 
 The aggregate premiums collected during 
 these five years were as follows: 
 
 Premium income for the first year $25,377.29 
 
 Premium income for the second year 58,890.68 
 
 Premium income for the third year 76,348.92 
 
 Premium income for the fourth year . . . 102,832.27 
 
 Premium income for the fifth year 124,205.08 
 
 Thk Effect on the Banks 
 
 Four banks have established insurance de- 
 partments, the third not until August, 191 1, 
 and the fourth on July 5, 19 12. Fifteen other 
 savings banks and four trust companies have be- 
 come public agencies for these four banks, and 
 there are also twenty-three other public agen- 
 cies and about two hundred private agencies. 
 In two banks, the People's Savings Bank of 
 Brockton and the Whitman Savings Bank, 
 the insurance department has been conducted for 
 more than five years. The effect has been to 
 increase markedly the number of their deposi- 
 tors. Massachusetts had, in 1911, 192 savings 
 banks, of which 144 had deposits exceeding 
 $1,000,000. Both the People's Savings Bank of 
 
192 BUSINESS — A PROFESSION 
 
 Brockton and the Whitman Savings Bank were 
 among the smaller banks of that class. The 
 Whitman bank is located in a town of 7,639 
 inhabitants. 
 
 The rate of increase of deposits in these two 
 banks, as compared with the other savings banks 
 in the State, shows the marked effect which the 
 establishment of an insurance department has in 
 stimulating the business of the deposit depart- 
 ment. Of the 144 Massachusetts savings banks 
 whose deposits exceeded $1,000,000, these two 
 banks stood among the first five in the rate of 
 increase in deposits for the year ending Octo- 
 ber 31, 19 10, over the previous year; the Peo- 
 ple's Savings Bank of Brockton standing first 
 and the Whitman Savings Bank, fifth. In the 
 year ending October 31, 191 1, these two banks 
 headed this list of Massachusetts savings banks 
 in the rate of increase; the Whitman Savings 
 Bank standing first and the People's Savings 
 Bank second. That the leading position taken 
 in these two years by the Brockton and Whit- 
 man banks is due to the insurance department 
 is made more clear by the fact that the other 
 three banks which stood with them among the 
 first five in the year 19 10 lost their rank as 
 leaders in the year 191 1. 
 
 The treasurer of the Whitman bank states: 
 
SUCCESSES OF SAVINGS INSURANCE 193 
 
 "I have been unable to find that the Insurance 
 Department has been an injury to the bank in any 
 particular. On the other hand, this department has 
 brought the attention of the public to this institution, 
 with the result that for the past four years our gains 
 have been greater than any savings bank in any other 
 town in Plymouth County. 
 
 "As savings banks are organized for the purpose 
 of encouraging thrift and economy, it would seem to 
 me that we have not departed from the original pur- 
 pose in estabUshing a life insurance department, which 
 bears a close relationship to savings bank business." 
 
 And the treasurer of the People's Savings 
 Bank of Brockton states as follows: 
 
 "The writer has been of the opinion from the start 
 that it was a good thing both for the banks and the 
 public, and after observing the practical working of 
 the plan for a period of a httle over three years I can 
 say that I am more impressed now than at the be- 
 ginning. 
 
 "Many criticisms were made, as is always the case 
 with anything new, but none of them were well 
 foimded and none of the disastrous results predicted 
 have materialized. 
 
 "The banks are bigger, better and busier than they 
 were when the insurance departments were opened, 
 and pages could be written setting forth the benefits 
 derived by the policy-holders and beneficiaries. 
 
 "Now that there is no longer any doubt of the suc- 
 cess of the movement, the banks and the public are 
 voluntarily interesting themselves in the plan. 
 
194 BUSINESS — A PROFESSION 
 
 "The public now come to the bank and apply for 
 insurance and I am sure this will increase as time 
 goes on and will force all critics back to the tall 
 timber." 
 
 The establishment of an insurance department 
 is also serving to develop the habit of saving 
 in policy-holders. As to this we have striking 
 evidence in connection with the opening of new 
 deposit accounts at the times when dividends 
 are declared on the policies, and at the times 
 when policies are taken out. 
 
 How Bank Insurance is Developed 
 
 The business of the savings insurance banks 
 has been developed in large measure through 
 the educational work conducted by the Massa- 
 chusetts Savings Insurance League. This league 
 was organized on November 26, 1906, by public- 
 spirited citizens of Massachusetts to promote 
 the enactment of the savings bank insurance 
 law. Its work was educational. It undertook 
 to familiarize the people of Massachusetts with 
 the evils incident to the then existing system of 
 industrial life insurance, and to point out the 
 advantages of the Massachusetts plan of sav- 
 ings bank insurance. After the law was enacted 
 the league exerted itself to secure the establish- 
 ment of insurance departments by the People's 
 
SUCCESSES OF SAVINGS INSURANCE 195 
 
 Savings Bank of Brockton, and by the WMtman 
 Savings Bank, and also the establishment of 
 agencies. Since that time it has been engaged 
 in active educational work throughout the Com- 
 monwealth. It is largely through the medium 
 of the League that the advantages of the sys- 
 tem have been made known to the people. 
 
 The League has been instrumental in inter- 
 esting the large number of manufacturers and 
 others who have established unpaid agencies 
 through which the insurance is written. Its 
 purpose is to bring to the attention of the 
 wage-earners of Massachusetts the importance 
 of making wise provision for the future out of 
 current earnings, either through life insurance 
 or old-age pensions; to endeavor by way of 
 suggestion to encourage them to habits of thrift 
 and foresight; and to acquaint them with the 
 value of savings bank insurance as a means to 
 this end. 
 
 The Companies' Contektion 
 
 Officials of the private industrial insurance 
 companies point to the relatively small number 
 of policies issued by the Massachusetts insur- 
 ance banks as evidence that the system has not 
 succeeded. The contrary is true. The initia- 
 tion of the competitive system was so effective 
 
196 BUSINESS — A PROFESSION 
 
 in reforming the most flagrant of the abuses of 
 the industrial companies, that competition with 
 them is necessarily much more difl&cult than it 
 would have been had the old conditions per- 
 sisted. And the benefit of these reforms is now 
 enjoyed by nearly every industrial policy-holder 
 in the United States. 
 
 It has also been asserted by the Metropoli- 
 tan Company that while the great improve- 
 ments in the position of the industrial policy- 
 holder followed the initiation of the Massa- 
 chusetts plan, they were not the result of the 
 prospective and actual competition of the new 
 system. It is believed that no basis exists 
 for this contention of the company. There 
 was no indication of effort or intention on the 
 part of the industrial insurance companies to 
 improve the situation of the policy-holder until 
 after the Massachusetts campaign was com- 
 menced by the article in Collier's. On the con- 
 trary, the testimony of the Metropolitan's offi- 
 cials before the Armstrong Committee indicated 
 that improvement was believed to be impossi- 
 ble. Furthermore the improvement suddenly 
 made after the discussion incident to the pres- 
 entation of the Massachusetts plan, and its 
 potential and actual competition are not the 
 only evidence that the Massachusetts plan pro- 
 
SUCCESSES OF SAVINGS INSURANCE 197 
 
 duced the improvements. More will be found 
 by comparing the changes made by the indus- 
 trial insurance companies in the provisions of 
 of their policies enumerated above, with the 
 provisions of the policies issued under the 
 Massachusetts system. The reforms introduced 
 by the industrial companies since September, 
 1906 are clearly due, in the main, to the actual 
 and potential competition of Savings Bank 
 Insurance. 
 
TRUSTS AND EFFICIENCY^ 
 
 Leaders of the Progressive Party argue that 
 industrial monopolies should be legalized, lest 
 we lose the efficiency of large-scale production 
 and distribution. No argument could be more 
 misleading. The issue of competition versus 
 monopoly presents no such alternative as 
 "Shall we have small concerns or large?" 
 "Shall we have ill-equipped plants or well- 
 equipped?" 
 
 In the first place, neither the Sherman law 
 nor any of the proposed perfecting amend- 
 ments (La FoUette-Lenroot bill or Stanley 
 bill) contain any prohibition of mere size. 
 Under them a business may grow as large as it 
 will or can — without any restriction or with- 
 out any presumption arising against it. It is 
 only when a monopoly is attempted, or when a 
 business, instead of being allowed to grow large, 
 is made large by combining competing businesses 
 in restraint of trade, that the Sherman law and 
 the proposed perfecting amendments can have 
 any application. And even then the Sherman 
 
 • Published in "Collier's V/eekly," September 14, 191 2. 
 
TRUSTS AND EFFICIENCY 199 
 
 law and the proposed amendments would not 
 necessarily restrict size. They merely declare 
 that if there has been such a combination in 
 restraint of trade the combiners have the burden 
 of showing that it was reasonable, or, in other 
 words, consistent with the public welfare; and 
 that if such a combination controls more than 
 thirty per cent of the country's business it will, 
 in the absence of expilanation, be deemed un- 
 reasonable. 
 
 In the second place, it may safely be asserted 
 that in America there is no line of business in 
 which all or most concerns or plants must be 
 concentrated in order to attain the size of great- 
 est efficiency. For, while a business may be 
 too small to be efficient, efficiency does not 
 grow indefinitely with increasing size. There 
 is in every line of business a unit of greatest 
 efficiency. What the size of that unit is cannot 
 be determined in advance by a general rule. 
 It will vary in different lines of business and 
 with different concerns in the same line. It 
 will vary with the same concern at different 
 times because of different conditions. What 
 the most efficient size is can be learned defi- 
 nitely only by experience. The unit of greatest 
 efficiency is reached when the disadvantages 
 of size counterbalance the advantages. The 
 
200 BUSINESS — A PROFESSION 
 
 unit of greatest efficiency is exceeded when the 
 disadvantages of size outweigh the advantages. 
 For a unit of business may be too large to be 
 efl&cient as well as too small. And in no Ameri- 
 can industry is monopoly an essential condition 
 of the greatest efficiency. 
 
 The history of American trusts makes this 
 clear. That history shows: 
 
 First. No conspicuous American trust owes 
 its existence to the desire for increased efficiency. 
 "Expected economies from combination" figure 
 largely in promoters' prospectuses; but they 
 have never been a compelling motive in the 
 formation of any trust. On the contrary, the 
 purpose of combining has often been to curb 
 efficiency or even to preserve inefficiency, thus 
 frustrating the natural law of survival of the 
 fittest. 
 
 Second. No conspicuously profitable trust 
 owes its profits largely to superior efficiency. 
 Some trusts have been very efficient, as have 
 some independent concerns; but conspicuous 
 profits have been secured mainly through con- 
 trol of the market — through the power of 
 monopoly to fix prices — through this exercise 
 of the taxing power. 
 
 Third. No conspicuous trust has been efficient 
 enough to maintain long, as against the inde- 
 
TRUSTS AND EFFICIENCY 201 
 
 pendents, its proportion of the business of the 
 country without continuing to buy up, from 
 time to time, its successful competitors. 
 
 These three propositions are also true of 
 most of the lesser trusts. If there is any excep- 
 tion, the explanation will doubtless be found in 
 extraordinary abUity on the part of the man- 
 agers or unusual trade conditions. 
 
 And this further proposition may be added: 
 Fourth. Most of the trusts which did not se- 
 cure monopolistic positions have failed to show 
 marked success or efficiency, as compared with 
 independent competing concerns. 
 
 THE MOTIVES FOR TRUST BtTILDING 
 
 The first proposition is strikingly illustrated 
 by the history of the Steel Trust. The main 
 purpose in forming that trust was to eliminate 
 from the steel business the most efficient manu- 
 facturer the world has ever known — Andrew 
 Carnegie. The huge price paid for his company 
 was merely the bribe required to induce him 
 to refrain from exercising his extraordinary 
 ability to make steel cheaply. Carnegie could 
 make and sell steel several dollars a ton cheaper 
 than any other concern. Because his com- 
 petitors were unable to rise to his remarkable 
 efficiency, his business career was killed; and 
 
202 BUSINESS — A PROFESSION 
 
 the American people were deprived of his ability 
 — his genius — to produce steel cheaply. As 
 the Stanley Investigating Committee found, 
 the acquisition of the Carnegie Company by the 
 promoters of the Steel Trust was "not the 
 purchase of a mill, hut the retirement of a man." 
 
 That finding is amply sustained by the evi- 
 dence. 
 
 The commissioner of the Steel Plate Asso- 
 ciation, Mr. Temple, testified: 
 
 "They had to buy the Carnegie Steel Company. 
 Mr. Carnegie, with his then plant and his organiza- 
 tion and his natural resources, was in a position where 
 he could dominate the entire situation; and had the 
 United States Steel Corporation not have been formed 
 about the time it was — some ten years ago — the 
 steel business not only of America but of the world 
 to-day would be dominated by Andrew Carnegie." 
 
 George W. Perkins, himself a director of the 
 Steel Trust, through whose firm (J. P. Morgan 
 & Co.) the bribe to Carnegie was paid, confirms 
 Temple's statement: 
 
 "The situation was very critical. If the Steel 
 Corporation had not been organized, or something 
 had not been done to correct a very serious condition 
 at that time, in my judgment by this time Mr. Car- 
 negie would have personally owned the major part 
 of the steel industry of this country. . . ." 
 
TRUSTS AND EFFICIENCY 203 
 
 And Herbert Knox Smith, Commissioner of 
 Corporations, after elaborate investigation, de- 
 clared: 
 
 "The conclusion is inevitable, therefore, that the 
 price paid for the Carnegie Company was largely 
 determined by fear on the part of the organizers of 
 the Steel Corporation of the competition of that con- 
 cern. Mr. Carnegie's name in the steel industry 
 had been long s)Tionymous with aggressive competi- 
 tion, and there can be httle doubt that the huge price 
 paid for the Carnegie concern was, in considerable 
 measure, for the specific piuT>ose of eliminating a 
 troublesome competitor, and Mr. Carnegie in partic- 
 ular. This, it may be noted, was the interpretation 
 generally placed upon the transaction in trade and 
 financial circles at the time." 
 
 The price paid for the Carnegie Company, 
 about April i, 1901, was $492,006,160 in United 
 States Steel Corporation securities — of the 
 then market value of $447,416,640 in cash. 
 The value of the actual assets of the Carnegie 
 Company on December 31, 1899, as sworn to 
 by Carnegie, had been only $75,610,104.06. 
 The total assets of the concern on March i, 
 1900, as shown by the balance sheet, were only 
 $101,416,802.43. And Commissioner Herbert 
 Knox Smith, making a very generous estimate 
 of the net value of the tangible assets of the 
 
204 BUSINESS — A PROFESSION 
 
 Carnegie Company on April i, 1901, fixes it at 
 only $197,563,000. The bribe paid to elimi- 
 nate Carnegie's efficiency was thus at least 
 $250,000,000. It was paid, as the Stanley Com- 
 mittee finds, to prevent a contest "between 
 fabricators of steel and fabricators of securities; 
 between makers of billets and of bonds." It 
 was paid to save the huge paper values which 
 George W. Perkins and others had recently cre- 
 ated by combining into eight grossly overcapital- 
 ized corporations a large part of the steel mills of 
 America. No wonder that J. P. Morgan & Co. 
 were panic-stricken at the rumor that Carnegie 
 was to build a tube mill which might reduce the 
 cost of making tubes $10 a ton, when those 
 bankers had recently combined seventeen tube 
 mills (mostly old) of the aggregate value of 
 $19,000,000, had capitalized them at $80,000,000 
 and taken $20,000,000 of the securities for them- 
 selves as promotion fees. The seven other simi- 
 lar consolidations of steel plants floated about 
 the same time had an aggregate capitalization 
 of $437,825,800, of which $43,306,811 was 
 taken by the promoters for their fees. 
 
 As Commissioner Herbert Knox Smith re- 
 ported to the President: 
 
 "A steel war might have meant the sudden end of 
 the extraordinary period of speculative activity and 
 
TRUSTS AND EFFICIENCY 205 
 
 profit. On the other hand, an averting of this war, and 
 the coalition of the various great consolidations, if 
 successfully financed, would be a tremendous 'bull' 
 argument. It would afford its promoters an oppor- 
 tunity for enormous stock-market profits through the 
 sale of securities." 
 
 So Carnegie was eliminated, and efficiency in 
 steel making was sacrificed in the interest of 
 Wall Street; the United States Steel Corpora- 
 tion was formed; and J. P. Morgan & Co. 
 and their associates took for their services as 
 promoters the additional sum of $62,500,000 
 in cash values. 
 
 THE SOURCES OF MOST PROFITS 
 
 The second proposition — that conspicuous 
 trust profits are due mainly to monopoly control 
 of the market — is supported by abundant evi- 
 dence equally conclusive. 
 
 The Standard Oil Trust stood preeminent as 
 an excessive profit taker. 
 
 When Commissioner Herbert Knox Smith 
 made his report to President Roosevelt in 1907, 
 the trust had for a generation controlled about 
 eighty-seven per cent of the oil business of 
 America. It had throughout that period been 
 managed by men of unusual ability. And yet 
 Commissioner Smith reports: 
 
206 BUSINESS — A PROFESSION 
 
 "The conclusion is, therefore, irresistible that the 
 real source of the Standard's power is not superior 
 efficiency, but unfair and illegitimate practices. . . . 
 
 " Considering all the branches of the oil industry to- 
 gether, the difference in cost between the Standard 
 and the independent concerns is not great. . . . 
 
 "It is true, that taken as a whole, the Standard Oil 
 Company is a more efficient industrial machine than 
 any one of its competitors. Nevertheless, careful 
 estimates based upon data submitted by a number 
 of independent concerns as to the cost of pipe-line 
 transportation, refining, and distributing oil, as com- 
 pared with the Standard's cost for these operations, 
 indicate that the total difference in efficiency between 
 the Standard and the independent concerns is not 
 very great. . . . 
 
 "The difference between the operating cost of a 
 number of Standard refineries and a number of inde- 
 pendent refineries was shown to be substantially 
 nothing. It is possible, however, that some of the 
 larger Standard refineries are able to reduce their costs 
 a little further and that there may be some difference 
 in the amount required for profit per gallon. The 
 Standard may also be able to secure somewhat better 
 jdelds from the crude. It is improbable, however, as 
 already stated, that the superior efficiency of the 
 Standard with respect to both refining costs and yields 
 would on the average represent a difference of more 
 than one-fourth of a cent a gallon. The outside fig- 
 ure would be one-half cent per gallon. 
 
 "It has been shown further that the difference in 
 marketing costs between Standard and independent 
 concerns in large cities is almost negligible. . . . 
 
TRUSTS AND EFFICIENCY 207 
 
 "As already stated, moreover, the argument, from 
 a comparison between the costs of the Standard and 
 the costs of the present independent concerns, does not 
 fully show the fallacy of the Standard's claim to 
 have reduced prices by its superior efficiency. The 
 present independent concerns are by no means so 
 efficient as those which would have come into ex- 
 istence in the absence of the restraints imposed by 
 the monopolistic and unfair methods of the Stand- 
 ard. Had the oil business continued to develop nor- 
 mally, it is practically certain that there would have 
 been in the United States to-day a limited number 
 of large oil concerns, the efficiency of which would be 
 considerably greater than that of the present inde- 
 pendents." 
 
 Next to the Standard Oil, the Tobacco Trust 
 is, perhaps, the most prominent of the excessive 
 profit takers. A single one of its many con- 
 stituent companies, W. Duke's Sons & Co., 
 "valued in 1885, under competition, at $250,- 
 000," yielded to its owners "up to 1908, in 
 securities, dividends, and interest" $39,000,000, 
 or 156 times the value of this particular busi- 
 ness in 1885. In 1908 (the latest year reported 
 on by Commissioner Herbert Knox Smith) the 
 profits of the Tobacco Trust equalled 39.5 per 
 cent of its total tangible assets. But there are 
 many different departments of the tobacco 
 business; and the rate of profit was by no 
 
208 BUSINESS — A PROFESSION 
 
 means the same in all in any one year. And in 
 the same department the profits varied greatly 
 during a series of years. In 1908, for instance, 
 the profits of the cigar department were only 
 4 per cent on the value of the tangible assets, 
 while the profits of the subsidiary smoking 
 tobacco companies were 103.5 P^^^ cent of the 
 value of the tangible assets. What is the 
 explanation of this great variation in profits? 
 The company was efiSciently managed. The 
 same able men supervised all of the depart- 
 ments. The same huge resources and trade 
 influence were at the service of each of the de- 
 partments. Commissioner Smith's elaborate 
 investigation solves the riddle. It brings out 
 clearly the following features: 
 
 "Very high rates of earnings on the actual invest- 
 ment in most departments. 
 
 "A marked coincidence of low rates of earnings and 
 a low degree of control where the latter occurs. 
 
 "A remarkable increase in the rates of earnings as 
 the combination became more effective in its control." 
 
 In 1908, when the trust earned only 4 per 
 cent on its cigar business, it controlled only 
 about one-eighth of the cigar business of the 
 country. When it earned 103.5 P^r cent on its 
 smoking tobacco subsidiaries, it controlled three- 
 
TRUSTS AND EFFICIENCY 209 
 
 quarters of the smoking tobacco business of the 
 country. 
 
 "The most striking feature of the entire preced- 
 ing discussion," says Commissioner Smith in conclud- 
 ing, "is the ahnost invariable association of high 
 rates of profit with a high degree of control, or with 
 monopolistic conditions, and of lower rates of profit 
 with a lesser degree of control or active competi- 
 tion. . . . 
 
 " The combination's abihty to estabHsh and main- 
 tain prices without much regard to competition in 
 the principal branches of the business, it may be 
 repeated, is vividly illustrated by the fact that when 
 the internal-revenue tax on tobacco was reduced in 
 1 901 and 1902, the combination maintained its prices 
 at the level which had been estabhshed when the tax 
 was increased some years earher. As a result of this 
 pohcy it appropriated practically the entire reduc- 
 tion in the tax as additional profit in succeeding 
 years." 
 
 That is the kind of eflSciency in which trusts 
 particularly excel. 
 
 As to the Steel Trust's extraordinary profits, 
 the Stanley Investigating Committee finds: 
 
 "The enormous earnings of the Steel Corporation 
 are due not to a degree of integration or efficiency 
 not possessed by its competitors, but to the owner- 
 ship of ore reserves out of all proportion to its out- 
 put or requirements, and to the control and operation 
 
210 BUSINESS — A PROFESSION 
 
 of common carriers, divisions of rates, and the liberal 
 allowance -obtained from other concerns through in- 
 equitable and inordinate terminal allowances." 
 
 BUYING COMPETITORS 
 
 The third proposition — that trusts are not 
 efl&cient enough to hold their relative positions 
 in the trade as compared with the independents 
 without buying up successful competitors — 
 is also supported by abundant evidence. 
 
 The Steel Trust furnishes a striking example 
 of this. Corporation Commissioner Herbert 
 Knox Smith, reporting on the operations of the 
 Steel Trust for the ten years following its for- 
 mation ( 1 901-10), says: 
 
 "Notwithstanding the great additions made by 
 the corporation to its properties from earnings, and 
 the acquisition of several important competing con- 
 cerns [including the Tennessee Coal and Iron Com- 
 pany], its proportion of the business in nearly every 
 important product, except pig iron and steel rails, 
 is less than it was in 1901. . . . 
 
 "This table shows that, whereas the Steel Corpora- 
 tion in 1 910 had fully maintained the share of the 
 country's total production of pig iron it held in 1901, 
 its proportion of the production of nearly all steel prod- 
 ucts had declined, and in most cases sharply de- 
 clined. The only important exception was steel rails. 
 The maintenance of its proportion here is chiefly 
 
TRUSTS AND EFFICIENCY 211 
 
 due to the erection of a very large rail mill at the new 
 Gary plant, and to the acqxiisition of the Tennessee 
 Coal, Iron and Railroad Company, which had a con- 
 siderable steel-rail production. 
 
 "Taking the production of steel ingots and castings 
 as a basis, it will be seen that the Steel Corporation's 
 percentage of the total fell from 65.7 per cent in 1901 
 to 54.3 per cent in 1910. This figure, perhaps, is the 
 best single criterion by which to judge the change in 
 the corporation's position in the steel industry from a 
 producing standpoint. ... It should be noted that 
 the dechne in the production shown by this com- 
 parison of 1901 and 1910 percentages was practically 
 continuous for most products throughout tlie entire 
 period." 
 
 That was the condition in 1910. A year 
 later the Steel Trust's proportion of the pro- 
 duction of the country had fallen below fifty 
 per cent. 
 
 It may be doubted whether steel rails would 
 have been an "exception" to the steady decline 
 in the Steel Corporation's proportion of the 
 country's business had it not been for the 
 steel-rail pool and the close community of in- 
 terest between the Steel Corporation and the 
 railroads. As the Stanley Committee finds: 
 
 "Of the $18,417,132,238 invested in railways in 
 the United States, the directors of the Steel Corpo- 
 ration have a voice in the directorates of or act 
 
212 BUSINESS — A PROFESSION 
 
 as executive officers of railroad companies with a 
 total capitaKzation and bonded indebtedness of 
 
 $10,365,771,833." 
 
 The Sugar Trust, also, furnishes striking evi- 
 dence of the inability of trusts to maintain their 
 position in the trade without buying up suc- 
 cessful competitors. In 1892, after acquiring 
 the Spreckels Company of the West, the Sugar 
 Trust alone produced ninety per cent of the sugar 
 refined in this country. It had vast resources. 
 It had strong political aflfiliations. It sought 
 by every means, fair or foul, to maintain its 
 control. It secured discriminating rates from 
 railroads. It cheated the Government by false 
 weights and undervaluation. With the bank- 
 ers' aid it crushed competitors through tricky 
 control of credits. But in 191 2 — at the end 
 of twenty years of oppression — its own pro- 
 duction of refined sugar had fallen to forty-two 
 per cent of the country's production. And, in 
 spite of buying up from time to time stock in 
 so-called independent cane sugar companies 
 and beet sugar companies, it controlled in 191 2 
 (according to the statement of President Van 
 Hise in "Concentration and Control") only 
 sixty-two per cent of this country's production 
 of refined sugar. 
 
 The dominating position of the Tobacco Trust 
 
TRUSTS AND EFFICIENCY 213 
 
 was likewise maintained only through its policy 
 of bujdng up competitors, as Corporation Com- 
 missioner Herbert Knox Smith so clearly 
 shows: 
 
 "Despite enonnous expenditures for advertising 
 and in 'schemes,' and despite frequent price cutting 
 by means of its so-called 'fighting brands' and its 
 bogus independent concerns, there has been in sev- 
 eral branches of the industry a constant tendency for 
 competitors to gain business more rapidly than the 
 combination, and thus to reduce its proportion of the 
 output. This tendency has been overcome only by 
 continued buying up of competitive concerns. Many 
 weaker concerns have been virtually driven out of 
 business or forced to sell out to the combination, either 
 by reason of the direct competition of the latter, or 
 as an indirect result of the vigorous competition be- 
 tween the combination and larger independent con- 
 cerns. In the case of the larger and more powerful 
 concerns which it acquired, however, the combina- 
 tion has usually secured control only by paying a high 
 price. The immense profits of the combination have 
 enabled it to keep up this poUcy. 
 
 "This great disparity in size [between the factories 
 of the combination and those of the independents] is 
 not due to lack of enterprise or capital on the part of 
 the independent concerns, but is essentially due to the 
 constant transfer of the largest concerns from the 
 ranks of the independents to those of the combi- 
 nation. . . . 
 
 "The output of individual concerns that remained 
 
214 BUSINESS — A PROFESSION 
 
 independent, however, has increased in most in- 
 stances. The resultant tendency to increase the entire 
 independent output was offset by the combination's 
 continued policy of buying up and absorbing the 
 larger and more successful competitors." 
 
 Even the Standard Oil Trust, which relied 
 mainly upon its control of the transportation 
 systems and other methods of unfair competition 
 to crush competitors, is shown by Commissioner 
 Smith to have been unable to quite maintain 
 its relative position in the market, despite its 
 continued buying up of competitors. 
 
 UNSUCCESSFUL TRUSTS 
 
 Of the truth of the fourth proposition, stated 
 above — that most of the trusts which did not 
 secure monopolistic positions have failed to 
 show marked success or efficiency as compared 
 with the independent competing concerns — 
 every reader familiar with business must be 
 able to supply evidence. Let him who doubts 
 examine the stock quotations of long-estab- 
 lished industrials and look particularly at the 
 common stock which ordinarily represents the 
 "expected economies" or "efficiency" of com- 
 bination. Take as examples: 
 
 The Upper Leather Trust (American Hide 
 and Leather Company — a combination of 
 
TRUSTS AND EFFICIENCY 215 
 
 twenty-one different concerns), with common 
 at ^}4: and preferred at 26^, 
 
 The Sole Leather Trust (Central Leather 
 Company — a combination of over sixty tan- 
 neries), with common at 26. 
 
 The Paper Trust (International Paper Com- 
 pany — a combination of twenty-three news 
 miUs), with common at 10. 
 
 The Paper Bag Trust (Union Bag and Paper 
 Company — a combination of seven different 
 concerns), with common at 6^. 
 
 The Writing Paper Trust (American Writing 
 Paper Company — a combination of twenty- 
 eight different concerns), with preferred at 28^^ 
 and common at 3^ — almost below the horizon 
 of a quotation. 
 
 But perhaps the most conspicuous industrial 
 trust which was not able to secure control of the 
 market is the International Mercantile Marine. 
 That company had behind it the ability and re- 
 sources of J. P. Morgan & Co., and their great 
 influence with the railroads. It secured a work- 
 ing agreement with the Hamburg American, the 
 North German Lloyd and other companies; 
 but it could not secure control of the Atlantic 
 trade, and in the seven years since its organiza- 
 tion has not paid a dividend on its $100,000,000 
 of stock. Its common stands at s^/gj its pre- 
 
216 BUSINESS — A PROFESSION 
 
 f erred at i8j^, and they stood little better be- 
 fore the Titanic disaster. On the other hand, 
 the $120,000,000 stock of the Pullman Com- 
 pany, which has like influence with the rail- 
 roads but succeeded in securing a monopoly, 
 stands at 170^. 
 
 Efificient or ineflScient, every company which 
 controls the market is a "money-maker." ]^o, 
 the^ issue of "Competition versus Monopoly " 
 distorted into the issi 
 
 Concerns ger^z^^ Large." The unit in business 
 may, of course, be too small to be efl&cient, and 
 the larger unit has been a common incident of 
 monopoly. But a unit too small for eflSciency 
 is by no means a necessary incident of competi- 
 tion. And a unit too large to be efficient is no 
 uncommon incident of monopoly. Man's work 
 often outruns the capacity of the individual 
 man; and no matter how good the organization, 
 the capacity of an individual man usually de- 
 termines the success or failure of a particular 
 enterprise — not only financially to the owners 
 but in service to the community. Organiza- 
 tion can do much to make concerns more effi- 
 cient. Organization can do much to make larger 
 units possible and profitable. But the efi&cacy 
 even of organization has its bounds. There is 
 a point where the centrifugal force necessarily 
 
TRUSTS AND EFFICIENCY 217 
 
 exceeds the centripetal. And organization can 
 never supply the combined judgment, initiative, 
 enterprise and authority which must come from 
 the chief executive officer. Nature sets a limit 
 to his possible achievement. 
 
 As the Germans say: "Care is taken that 
 the trees do not scrape the skies." 
 
TRUSTS AND THE EXPORT TRADE ^ 
 
 Progressive Party advocates of legalizing 
 industrial monopolies urge as a reason the ne- 
 cessities of the export trade. "How can we," 
 say they, "compete with small concerns against 
 England and Germany for the commerce of 
 the world?" 
 
 The answer is not difficult. There is no such 
 alternative as "monopoly or the small concern." 
 America has to-day, in aU lines of competitive 
 business, concerns large enough to be the most 
 efficient instruments of commerce, be it foreign 
 or domestic. With America's abundant capital 
 and the ambition of its citizens, there wiU be no 
 lack of "bigness" in industry. We need not 
 legalize monopoly in order to equip ourselves for 
 the foreign trade. 
 
 A survey of the relations of our leading trusts 
 to the export trade should dispel the belief that 
 we are particularly indebted to them either for 
 the quantity or character of their foreign 
 business. 
 
 ' Published in "Collier's Weekly," Sqitember 21, 1912. 
 
TRUSTS AND THE EXPORT TRADE 219 
 
 STEEL 
 
 First. Take the exports of steel — the crude 
 products in which the Steel Trust deals. George 
 W. Perkins, so prominent as promoter and 
 director of that corporation, gravely told the 
 Senate Committee: "We have been infinitely 
 more successful in expanding our foreign trade 
 than would have been possible under competi- 
 tive conditions." But the facts show that the 
 organization of the Steel Trust arrested the 
 development of the American export trade in 
 steel. .Our cost of production rose, while that 
 of European steel makers remained station- 
 ary and they gained the world's growing 
 trade. 
 
 The Steel Trust was organized April i, 1901. 
 During the ten years, 1901 to 1910, our exports 
 of crude steel and iron products increased from 
 1,154,000 to 1,533,000 tons, or 33 per cent; 
 Great Britain's from 3,213,000 to 4,594,000, or 
 43 per cent; Germany's from 838,000 to 4,868,- 
 000, or 480 per cent. In other words, America 
 had in 1901, as compared with England and 
 Germany, nearly 22 per cent of the world's ex- 
 port tonnage. In 19 10 America had less than 
 13 per cent. During these ten years coincident 
 with the existence of the Steel Trust, America 
 
220 BUSEvTESS — A PROFESSION 
 
 lost steadily in prestige in the world's steel 
 market. 
 
 As stated by Mr. T. Good in his able discus- 
 sion of the subject: 
 
 "From the moment that the Steel Trust got to 
 work the American iron and steel industry was di- 
 verted from natural to unnatural developments. 
 Costs and prices of raw material were inflated; 
 progress toward economy was arrested; retrogres- 
 sion set in and America's rosy chances of annexing 
 the world's export trade were shattered. . . . It is, 
 indeed, a dem onstrable fact that the trust has don e 
 morehaflH than g ood trom an American po int^frrew; 
 fha^^ f Ttecs-burdepi^H anrl h fl.nrlira.ppeH ihp. American 
 steel trade, and in cident ally given jjntain, (jerm^n v 
 -- ajid_Qt>ip.r rnnntr T^g t^ptjpr rhan^pa^ in t.he race. Last 
 year, 1910, the British iron and steel exports were 
 further in advance of those of America than they 
 were in 1900, the year before the Steel Trust got down 
 to business; while German exports, which were 
 about thirty per cent below those of the United 
 States in 1900, are now something hke three hundred 
 per cent above them." 
 
 And the Steel Trust's foreign sales were no 
 more satisfactory in character than in quantity. 
 Export prices were almost uniformly lower than 
 domestic prices, and in some instances the ad- 
 vantage given foreign consumers was surpris- 
 ingly large, the five-year average being, as the 
 
TRUSTS AND THE EXPORT TRADE 221 
 
 Stanley Committee shows, for steel rails about 
 $4 a ton, for structural shapes over $5 a ton, 
 and for tin plates over $14.50 a ton. 
 
 Steel Trust officials endieavor to meet this 
 damaging evidence and to support their asser- 
 tion that the trust has benefited our export 
 trade by presenting t he following tacts: (i) The 
 trust exports more steel than its constituent 
 companies did before the trust was organized. 
 (2) The trust's percentage of the total crude 
 steel exports of the country, as compared with 
 the independents, has risen greatly and now 
 amounts to ninety-five per cent of the total ex- 
 ports of that character. (3) The trust's exports 
 increased largely in 1911 over 1910. 
 
 The facts adduced by the trust's officials, 
 rightly interpreted, tend rather to disprove 
 than to prove their contention. The reason 
 why America lost its prestige in the world's 
 steel trade was the huge increase in the cost of 
 producing steel in America. That increased 
 cost was due particularly to the increased cost 
 of producing pig iron. And for the increased 
 cost of pig iron the organization of the Steel 
 Trust is in large part responsible. That increase 
 cost drove the independents out of the foreign 
 market where prices are competitive; and they 
 necessarily confined themselves to the domestic 
 
222 BUSINESS — A PROFESSION 
 
 market where prices were maintained through 
 Gary dinners. The Steel Trust could still sell 
 abroad, because its ownership of transporta- 
 tion systems gave them an unfair advantage 
 over the independents. The trust was perhaps 
 driven to sell some of its product abroad, be- 
 cause the independents made such heavy in- 
 roads upon the trust's percentage of the domes- 
 tic business — reducing it from over sixty per 
 cent in 1901 to less than fifty per cent in 191 1. 
 
 The large increase of exports of the trust in 
 1 91 1 was due, in part, to the sharp fall in the 
 selling price of steel in the United States during 
 that year. And the price fell, doubtless, not 
 so much because of lessened demand as be- 
 cause the Stanley Committee investigation led 
 to the discontinuance of the Gary dinners. 
 
 America may well take pride in her large ex- 
 ports of iron and steel products. In 19 10 they 
 amounted to $201,271,903; in 1911 to $249,- 
 656,411. But it is the highly manufactured 
 iron and steel products, made largely under 
 competitive conditions, like tools and machinery, 
 to which these large totals are mainly due. 
 The Steel Trust's exports in 1910 amounted 
 (as the Stanley Committee finds) to only $41,- 
 586,950. Machinery and machines rose from 
 $5o>897,390 in 1902 to $111,135,833 in 1911. 
 
TRUSTS AND THE EXPORT TRADE 223 
 
 The growth of exports in highly manufactured 
 iron and steel products is the more remarkable 
 in view of the handicap to which our manu- 
 factures are subjected through the Steel Trust 
 by the high prices for crude steel products. 
 
 Furthermore, the Steel Trust claims to supply 
 ninety-five per cent of our crude steel exports. If 
 the formation of trusts advances the export trade, 
 why have we fallen behind Germany and Eng- 
 land in steel exports? Surely they have no steel 
 trusts comparable with the Steel Corporation 
 in size or resources. 
 
 Progres^ve Party advocates of monopoly have 
 the habit^ attributing the com mercial develo p- 
 ment of Germ any largely to the size of their in- 
 d ustrial units a nd to the legaliz ation of mo- 
 nopolies; but they misread the l:acts. 
 
 One of the largest and most successful of the 
 German cartels is that of the steel producers, con- 
 trolling ninety-five per cent of the country's pro- 
 duction — as our Steel Trust controls ninety-five 
 per cent of this country's crude steel exports. The 
 German Trust consists of thirty-six separate con- 
 cerns. Their aggregate capital is a little over 
 1,250,000,000 marks, or $312,000,000 — much 
 less than one-fourth of the capitalization of the 
 United States Steel Corporation, which, includ- 
 ing underlying bonds and outstanding securities 
 
224 BUSINESS — A PROFESSION 
 
 of subsidiary companies, is found by the Stanley 
 Committee to be $1,465,555,819. The average 
 capital of each of those thirty-six German con- 
 cerns is less than $10,000,000; and probably not 
 one of them has a capital as large as some of our 
 so-called independents; for the Lackawanna 
 Steel Company has a capitalization in bonds 
 and stocks of $145,412,000; the Republic Iron 
 & Steel Co., $70,630,000; the Cambria Steel 
 Company, $59,468,000; the Jones & Laughlin 
 Steel Company, $54,487,000; and the Bethle- 
 hem Steel Company, $66,336,000. 
 
 Furthermore , each one of those thirty-six 
 German concerns, which are federated for cer-;_^ 
 tat Brptrrp?5ges, are free and mSfepen clent in other 
 respect s. They are res tricted as to selling price 
 and quantity of produc tion (these being_jfi.xfid. 
 by the syndicate), but they ar e absolutely inde- 
 pendent as to internal management. The syndi- 
 cate exercises no control whatever as to meth- 
 ods and processes of manufacture, or over the 
 method of securing raw material by the individ- 
 ual members, or with their labor policy. Pnr- 
 thermore, the limited quota assigned to each 
 member relates exclusively to products made 
 for sale. Any member may use as much steel 
 and iron as he pleases in his own factories; that 
 is, may work up into more highly manufac- 
 
TRUSTS AND THE EXPORT TRADE 225 
 
 tured goods the crude steel products to which 
 alone the cartel restrictions apply. The Ger- 
 man Steel Trust preserved competition in large 
 part among its constituent concerns. The 
 United States Steel Trust destroyed competi- 
 tion among its constituent concerns. This 
 greater freedom for individual action, coupled 
 with the fact that the thirty-six concerns are 
 separately owned, and that the combination 
 agreement is for a limited term only, may 
 account, in large part, for the fact that, in 
 Germany, the cost of producing iron and steel 
 is no higher than it was ten or twelve years 
 ago, while the American cost of production 
 has risen greatly. 
 
 How groundless, in the light of these facts, is 
 the contention made by Mr. George W. Perkins, 
 before the Senate Committee on Interstate 
 Commerce, that the Steel Trust must be pre- 
 served to put us on a par with Germany: 
 
 "Suppose," asked Senator Newlands, "the steel 
 company were divided to-day into ten corporations of 
 =r^Tefo^ooo,ooo each, instead of being organized into 
 one' corporation having nearly a billion and a half of 
 capital. Do you not think that each one of those units 
 could be as efficient in business and in all the econo- 
 mies as the total aggregation in one corporation?" 
 
 "Not as efficient," answered Mr. Perkins. "If I 
 were asked to put my finger on one disadvantage 
 
226 BUSINESS — A PROFESSION 
 
 greater than the other, it would be its efifect on the 
 foreign trade. You take ten such companies and go 
 
 out and compete with Germany^ Itis selt-'^dent 
 
 t^ aFwe^couig"notl)e^ rToriSolt as effec'tiveTy "as with 
 one large company.'' ' "^^ 
 
 But the ultimate success even of the German 
 competitive system of combinations is by no 
 means assured. Although a very wide field of 
 competitive endeavor is left open and the incen- 
 tive of separate ownership is preserved, the 
 evils of combination appear not to have been 
 entirely avoided. The steel and iron cartel was 
 not formed until 1904; but already (as the 
 statement quoted by President Van Hise in his 
 "Concentration and Control" shows) grave 
 difl&culties are manifesting themselves: 
 
 .that the organization of the steel in- 
 dustry in the form of the steel combine will result in 
 a gradual deterioration in the quality of steel prod- 
 ucts and that tae chief object of the combine will 
 become . quantity^ rather than quaUty . 
 
 "-Jtjs maintained that the wishes o f customers are 
 iven duecuxisideiaLloii] 1 li^l I hpy are compSIlu-i 
 
 to take^h e quah ty of st ed which the combinejees^ 
 to give them, regardless of the special needsofJ -heir 
 business; . . . that it is difficult for the manufacturer 
 to secure as uniform a grade of goods as he had been 
 able to obtain when he bought all his steel from the 
 same firm. . . . 
 
TRUSTS AND THE EXPORT TRADE 227 
 
 "The combine has . . . secured gradually increas- 
 ing prices. . . . 
 
 "It is also asserted that ... it has been possible 
 for the cartel to shift the burden more and more upon 
 the less organized manufacturers who use steel prod- 
 ucts as raw materials. Consequently the last and 
 unorganized stages of steel products manufacture — 
 e. g., machine-making, etc. — have been forced to 
 bear the greater proportion of the burden caused by 
 a gradual increase in prices. These manufacturers 
 will undoubtedly be able to shift a part of the burden 
 upon the final consumer. . . ." 
 
 It is notable that the combination sells steel 
 abroad lower than at home; in some cases as 
 much as twenty per cent cheaper, following 
 the same policy as the United States Steel 
 Corporation. 
 
 "The manufacturing interests claim, and appar- 
 ently with good grounds, that the export policy of the 
 steel combine wiU in the long run prove disastrous to 
 the exports of the German machine industries. 
 Whenever the home market is unable to absorb the 
 amount of steel that the producers place at the syndi- 
 cate's disposal, it is generally forced to reduce its 
 price to foreign buyers in order to get rid of the out- 
 put. In this way the foreign manufacturer of ma- 
 chines, by obtaining his raw material from the Ger- 
 man combine, is placed in an unduly advantageous 
 position in competing with the German producer. 
 In 1904, for example, pig iron was sold abroad at 
 
228 BUSINESS — A PROFESSION 
 
 from 69 to 70 marks, whereas the domestic buyer was 
 forced to pay from 823^ to 923^. . . . 
 
 "Generally the larger and more powerful members 
 have benefited more than the weaker ones, through 
 its activity; and in some cases the condition of the 
 weaker members has deteriorated rather than im- 
 proved. While some companies have undoubtedly 
 been able to remain in existence as-a result of the syn- 
 dicate's activity that would under the competitive 
 system have been forced to the wall, others that might 
 have developed under the competitive system have 
 been held back by the cartel's policy of combination." 
 
 Has n't all that a very familiar sound? 
 "Gradually increasing prices"; "shifting the 
 burden upon the ultimate consumer"; "sell- 
 ing cheaper abroad than at home." Verily, if 
 the tariff is not the "Mother of the Trusts," 
 the attendant abuses are at least akin. 
 
 OIL 
 
 Second. Take next the export of mineral oil 
 and oil products — a very important item in 
 our exports. In 191 1 it amounted in value to 
 $105,922,848, or about one-twentieth of our 
 total exports. The exports are, also, a very 
 important part of America's oil trade, as we 
 have customarily exported more than one-half of 
 all the illuminating oil produced in the country. 
 For more than a generation the Standard Oil 
 
TRUSTS AND THE EXPORT TRADE 229 
 
 Company dominated the American oil trade, 
 having in recent years about eighty-six per cent of 
 the business of the country. That company stood 
 preeminent among American trusts in age, in 
 power, in resources, in perfection of organiza- 
 tion, and in ability of management. Through 
 the unfair use of that power, ability and organi- 
 zation it prevented the rise of any large Ameri- 
 can competitor. If great size and monopoly 
 powers gave peculiar advantages to Americans 
 for developing export trade, surely the Standard 
 should have conquered for us the oil trade of 
 the world; but Corporation Commissioner 
 Herbert Knox Smith showed that, though our 
 oil exports grew largely, we lost during the 
 reign of the Standard Oil our relative position 
 in the world's market, adding: 
 
 "More than half the illuminating oil produced in 
 this country is exported. The exportation of naphtha, 
 lubricating oils, paraffin, wax and candles made from 
 wax is also considerable. This country is, however, 
 to-day a comparatively less important factor in the 
 petroleum markets of the world than it was twenty or 
 thirty years ago." 
 
 And Commissioner Herbert Knox Smith also 
 shows that the Standard Oil Company did not 
 succeed in acquiring any larger part of the 
 
230 BUSINESS — A PROFESSION 
 
 foreign trade than it did of the domestic, the 
 percentage in each being about eighty-seven 
 per cent of the whole, saying: 
 
 "The percentage of export trade in illuminating 
 oil handled or controlled by the Standard Oil Com- 
 pany, therefore, is substantially the same as the pro- 
 portion of its production." 
 
 And, like the Steel Trust, the Standard Oil 
 was persistently selling its product much cheaper 
 abroad than in America, imposing extra burdens 
 upon the American consumer to compensate 
 for any possible losses in the foreign trade, as 
 Commissioner Herbert Knox Smith so clearly 
 shows : 
 
 "The preceding analysis of the price policy of the 
 Standard Oil Company in the export trade during 
 recent years, as compared with its price policy in the 
 domestic trade, shows two conspicuous facts. In the 
 first place, while the prices of illimiinating eil in the 
 principal foreign markets have for years been rela- 
 tively lower than the prices in the United States, this 
 disparity became especially conspicuous during the 
 years 1903, 1904 and 1905. During those years the 
 domestic prices stood at a much higher level than for 
 many years before, while prices in the principal foreign 
 markets, like the United Kingdom, Germany and 
 the Orient, stood at times from two to three cents 
 below the average price in the United States, trans- 
 
TRUSTS AND THE EXPORT TRADE 231 
 
 portation costs, difference in quality of oil, etc., being 
 taken into account. 
 
 "In the second place, the investigation shows that 
 the decrease in prices in the foreign trade, during the 
 years 1 903-1 905, was not due to an oversupply of 
 American oil or the oil from all sources combined, but 
 was due particularly to an attack by the Standard 
 Oil Company upon certain new and threatening 
 competitors. Aside from other proofs, conclusive evi- 
 dence that there was no oversupply of American oil, as 
 well as evidence that the Standard's poKcy has been 
 to promote its own interests rather than those of the 
 United States, is found in the Standard's extensive 
 purchases of Russian oil during these years and its 
 acquisition of crude-oil land and refineries in foreign 
 countries." 
 
 President Van Hise, in his "Concentration 
 and Control," mentions that in 1905 the United 
 States was taken into the International Steel 
 Rail Syndicate, and also says: 
 
 "Oil is one of the businesses in which the inter- 
 national combination and co-operation have gone far, 
 in some cases there being union, in others division, 
 of territory." 
 
 Possibly these facts may furnish a partial ex- 
 planation of America's falling prestige in the 
 foreign steel and oil trades. Was the foreign 
 market sacrificed to avoid competition by the 
 foreigners in the domestic market? 
 
232 BUSINESS — A PROFESSION 
 
 TOBACCO 
 
 ^ Third. Tobacco presents a field where an im- 
 portant foreign market was deliberately sacri- 
 ficed by the dominating trust in order to pro- 
 tect itself from foreign competition in the home 
 market. Tobacco products are among our 
 leading manufactures, but our exports of man- 
 ufactured tobacco products are, as Commis- 
 sioner Herbert Knox Smith reports, "com- 
 paratively insignificant." 
 
 "The exports in 1908 amounted to $5,550,695, or 
 less than two per cent of the value of our manufac- 
 tures of tobacco. . . . [In 191 1 they amounted to 
 only $4,677,859.] 
 
 "The existence of governmental monopohes of 
 tobacco manufactures in a number of leading coun- 
 tries and of prohibitive tariffs on the importation of 
 manufactured tobacco in other countries prevents 
 any considerable development in international trade 
 in such products." 
 
 The Tobacco Trust, which acquired control 
 of the greater part of what little of the ex- 
 port trade America had, deliberately closed the 
 door to any exports by it to Great Britain or 
 Ireland. In consideration of the powerful 
 British trust (the Imperial) agreeing not to 
 carry on business in manufactured tobaccos in 
 
TRUSTS AND THE EXPORT TRADE 233 
 
 the United States, the Tobacco Trust, and its 
 active directors individually, agreed that they 
 would not thereafter, directly or indirectly, 
 carry on business in Great Britain or Ireland. 
 
 WHY EXPORTS GROW 
 
 Trusts have, of course, contributed to our ex- 
 port trade, as have many independent manu- 
 facturers. Some of these trust contributions 
 have been large; but the great increase in our 
 exports of manufactures is not due to the ex- 
 istence of trusts. Increased exports have been 
 quite as marked in other lines as in trust-made 
 goods. We hear particularly of the Harvester 
 Trust's export business; and it is true that this 
 country's exports in agricultural implements 
 doubled in ten years — 1902 to 191 1. But in 
 many long-established and highly competitive 
 lines of manufacture, like special lines of ma- 
 chinery and of tools, the 19 11 exports were not 
 only double but threefold those of 1902; and in 
 other new and highly competitive businesses the 
 increases were much greater. For instance, the 
 191 1 exports of automobiles were twenty times 
 as large as those of 1902; the 191 2 exports 
 nearly thirty times as large. The fact is we 
 have become a great manufacturing people. In 
 the year ending June 30, 191 2, our exports of 
 
234 BUSINESS — A PROFESSION 
 
 manufactured products exceeded $1,000,000,000. 
 American manufactures have been developed 
 through initiative, enterprise, energy and am- 
 bition — all common characteristics of com- 
 petitive business. The trusts had, of course, a 
 part in securing these foreign markets; and 
 have enjoyed, perhaps, a still larger share of 
 their fruits by exploiting foreign markets in 
 which independent manufacturers had been the 
 pioneers. 
 
 But the trusts have not been the cause of our 
 heavy export business; nor are they essential to 
 its continuance or future development. And 
 it should be borne in mind that the great 
 trusts carry, in their huge resources and the 
 volume of their business, also an element of dan- 
 ger to our export trade. Many of them have 
 already established factories in foreign coun- 
 tries from which they supply a part, at least, of 
 their foreign trade. This is true of the Stand- 
 ard Oil Company, of the Harvester Company, 
 of the Shoe Machinery Company and of many 
 others. The establishment of these foreign fac- 
 tories has been due, in large measure, to the 
 existence of foreign tariffs or to the require- 
 ments of foreign patent laws. But it has been 
 due, in part, also to a lower cost of production 
 abroad, resulting from the lower wages paid 
 
TRUSTS AND THE EXPORT TRADE 235 
 
 there. We have been able, in many lines, to 
 produce goods at lower cost in America than 
 foreigners do abroad, in spite of paying higher 
 wages; because of greater superiority in man- 
 agement or the introduction of advanced ma- 
 chinery and labor-saving devices. But is it 
 not possible that our able business managers, 
 transferring to foreign countries American busi- 
 ness organization, machinery and methods, may 
 be able to produce with low-priced foreign 
 labor goods for the foreign trade more cheaply 
 abroad than at home? And, in such event, 
 would they not be led to develop their foreign 
 factories instead of those at home, and the ex- 
 port trade suffer accordingly? Such a course 
 might bring great gains to the American capi- 
 talists, who are the stockholders of the trusts; 
 but the American workingmen would lose. 
 
 Has not our export trade more to lose than 
 to gain through the legalization of monopolies? 
 
COMPETITION THAT KILLS' 
 
 "I CANNO T believe/' said Mr. Justice Holnr ies^ 
 "thatln the^l ong run the publ icwiU^grofi t hy 
 ^fehjs'^eo urse, permitting knaves to ait rea.sona.hlR _ 
 prices for mere ulterior purposes of j h f.ir nwp ^ 
 o impair, if not des to)v. the produc- 
 
 and tnus 
 
 tion and the^sale of ar ticles which it is assumed 
 to be desirable the peg ple sho uldbe abletoget." 
 Such was the dissent registered by this for- 
 ward-looking judge when, two years ago, the 
 Supreme Court of the United States declared 
 invalid contracts by which a manufacturer of 
 trade-marked goods sought to prevent retailers 
 from cutting the price he had established.^ 
 Shortly before, the court had held that mere 
 possession of a copyright did not give the 
 maker of an article power to fix by notice the 
 price at which it should be sold to the consumer.' 
 And now the court, by a five-to-four decision, 
 has applied the same rule to patented articles, 
 thus dealing a third blow at the practice of 
 
 * Published in "Harper's Weekly," November is, 1913. 
 2 Dr. Miles Medical Co. vs. Park & Sons Co., 220 U. S. 409. 
 ' Bobbs-Merrill Co. vs. Straus, 210 U. S. 339. 
 
COMPETITION THAT KILLS 237 
 
 retailing nationally advertised goods at a uni- 
 form price throughout the country.^ 
 
 Primitive barter was a contest of wits instead 
 of an exchange of ascertained values. It was, 
 indeed, an equation of two unknown quantities. 
 Trading took its first great advance when 
 money was adopted as the medium of exchange. 
 That removed - one-half of the uncertainty in- 
 cident to a trade; but only one-half. The 
 transaction of buying and selling remained still 
 a contest of wits. The seller still gave as little 
 in value and got as much in money as he could. 
 An d the law looked on at th e contest, deda^nag 
 solem nly and om inously : '^ et the juyer be- 
 ware." Within ample limits the seller might 
 legally lie with impunity; and, almost without 
 limits, he might legally deceive by silence. The 
 law gave no redress because it deemed reliance 
 upon sellers' talk unreasonable; and not to dis- 
 cover for one's self the defects in an article pur- 
 chased was ordinarily proof of negligence. A 
 good bargain meant a transaction in which one 
 person got the better of another. Trading in 
 the "good old days" imposed upon the seller 
 no obligation either to tell the truth, or to give 
 value or to treat all customers alike. But in 
 the last generation trade morals have made 
 
 ' Bauer vs. O'Donnell, 229 U. S. i. 
 
238 BUSINESS — A PROFESSION 
 
 great strides. New methods essential to doing 
 business on a large scale were introduced. They 
 are time-saving and labor-saving; and have 
 proved also conscience-saving devices. 
 
 The greatest progress in this respect has been 
 made in the retail trade; and the first impor- 
 tant step was the introduction of the one-price 
 Store. That eliminated the constant haggling 
 about prices, and the unjust discrimination 
 among customers. But it did far more. It 
 tended to secure fair prices; for it compelled 
 the dealer to make, deliberately, prices by which 
 he was prepared to stand or fall. It involved a 
 publicity of prices which invited a comparison 
 in detail with those of competitors; and it sub- 
 jected all his prices to the criticism of all his cus- 
 tomers. But while the otie-price store marked 
 a great advance, it did not bring the full assur- 
 ance that the seller was giving value. The day's 
 price of the article offered was fixed and every 
 customer was treated alike; but there was still 
 no adequate guarantee of value, both because 
 there was ordinarily no recognized standard of 
 quality for the particular article, and because 
 there was no standard price even for the article 
 of standard quality. 
 
 Under such conditions the purchaser had still 
 to rely for protection on his own acumen, or on 
 
COMPETITION THAT KILLS 239 
 
 the character and judgment of the retailer; and 
 the individual producer had little encourage- 
 ment to establish or to maintain a reputation. 
 The unscrupulous or unskilful dealer might be 
 led to abandon his goods for cheaper and in- 
 ferior substitutes* This ever-present danger 
 led to an ever-widening use of trade-marks. 
 Thereby the producer secured the reward for 
 well-doing and the consumer the desired guar- 
 antee of quality. Later the sale of trade- 
 marked goods at retail in original packages 
 supplied a further assurance of quality, and also 
 the assurance that the proper quantity was de- 
 livered. The enactment of the Federal Pure 
 Food law and similar State legislation 
 strengthened these guarantees. 
 
 But the standard of value in retail trade was 
 not fully secured until a method was devised 
 by which a uniform retail selling price was estab- 
 lished for trade-marked articles sold in the 
 original package. In that way, widely extended 
 use of a trade-marked article fostered by na- 
 tional advertising could create both a reputa- 
 tion for the article and a common knowledge 
 of its established selling price or value. With 
 the introduction of that device the evolution 
 of the modem purchase became complete. The 
 ordinary retail sale — the transaction which had 
 
240 BUSINESS — A PROFESSION 
 
 once been an equation of two unknown quanti- 
 ties — became an equation of two known 
 quantities. Uncertainty in trade is eliminated 
 by "A Dollar and the IngersoU Watch," or 
 "Five cents and the Uneeda Biscuits." 
 
 THE court's prohibition 
 
 Such is the one-price system to which the 
 United States Supreme Court denied its sanc- 
 tion. ^Ch g courts of Great B r itain had recog-- 
 nized this method of marketing goods as Jegal, 
 ~The-S«pi^ine-€otnl~ofTS3rassachusetts and that 
 of California had approved it. The system was 
 introduced into America many years ago, and 
 has become widely extended. To abandon it now 
 would disturb many lines of business and seri- 
 ously impair the prosperity of many concerns. 
 
 When the United States Supreme Court de- 
 nied to makers of copyrighted or patented goods 
 the power to fix by notice the prices at which the 
 goods should be retailed, the court merely in- 
 terpreted the patent and copyright acts and de- 
 clared that they do not confer aiiy such special 
 privilege. But when (the court denied the valid- 
 ity of contracts for price-maintenance of trade- 
 marked goods, it decided a very different matter. 
 It did not rest its decision mainly upon the 
 interpretation of a statute; for there is no stat- 
 
COMPETITION THAT KILLS 241 
 
 ute Which in terms prohibits price-maintenance, 
 or, indeed, deals directly with the subject. It 
 did not trefuse to grant a special privilege to 
 certain manufacturers; it denied a common 
 right to all producers. Nor does the decision of 
 the court proceed upon any fundamental or 
 technical rule of law. The decision rests mainly 
 upon general reasoning as to public policy; and 
 that reasoning is largely from analogy. 
 
 THE DEMANDS OF PUBLIC POLICY 
 
 When a court decides a case upon grounds of 
 public policy, the judges become, in effect, leg- 
 islators. The question then involved is no longer 
 one for lawyers only. It seems fitting, there- 
 fore, to inquire whether this judicial legislation 
 is sound — whether the common trade practice 
 of maintaining the price of trade-marked arti- 
 cles has been justly condemned. And when 
 making that inquiry we may well bear in mind 
 this admonition o f Sir George Jessel, a very wise 
 Eng lish judg^ 
 
 "^Mhfitfciii P"" tVii'nyr ■n yhich morc than any other 
 public policy requires, it.ip tha t men ot tull age and 
 competent understanding sKall have the utmos t 
 liberty of contracting, and that their contracts, when 
 entered into freely and voluntarily, shall be held 
 sacreJ] and shall bti dufuited b)) COUI'IS ol justi^ 
 
242 BUSINESS — A PROFESSION 
 
 Therefore, you have this paramount public policy to 
 consider, that you are not lightly to interfere with 
 this freedom of contract." 
 
 THE court's objection 
 
 The Supreme Court says that a contract by 
 which a producer binds a retailer to maintain 
 the established selling price of his trade-marked 
 product is void; because it prevents competition 
 between retailers of the article and restrains 
 trade. 
 
 Such a contract does, in a way, limit compe- 
 tition; but no man is bound to compete with 
 himself. And when the same trade-marked 
 article is sold in the same market by one dealer 
 at a less price than by another, the producer, in 
 effect, competes with himself. To avoid such 
 competition, the producer of a trade-marked 
 article often sells it to but a single dealer in a 
 city or town; or he establishes an exclusive 
 sales agency. No one has questioned the legal 
 right of an independent producer to create such 
 exclusive outlets for his product. But if ex- 
 clusive selling agencies are legal, why should 
 the individual manu^fa-cturer of a trade-marked 
 article be pre\":Silted from establishing a mar- 
 keting system under which his several agencies 
 for distribution will sell at the same price? 
 
COMPETITION THAT KILLS 243 
 
 There is no difference, in substance, between an 
 agent who retails the article and a dealer who 
 retails it. 
 
 For many business concerns the policy of 
 maintaining a standard price for a standard ar- 
 ticle is simple. The village baker readily main- 
 tained the quality and price of his product, by 
 sale and delivery over his own counter. The 
 great Standard Oil monopoly maintains quality 
 and price (when it desires so to do) by selling 
 throughout the world to the retailer or the con- 
 sumer from its own tank-wagons. But for most 
 producers the jobber and the retailer are the 
 necessary means of distribution — as necessary 
 as the railroad, the express or the parcel post. 
 The Standard Oil Company can, without enter- 
 ing into contracts with dealers, maintain the 
 price through its dominant power. Shall the 
 law discriminate against the lesser concerns 
 which have not that power, and deny them the 
 legal right to contract with dealers to accomplish 
 a like result? For in order to insure to the 
 small producer the ability to maintain the 
 price of his product, the law must afford him 
 contract protection, when- he deals through 
 the middleman. "^ 
 
 But the Supreme Court says that a contract 
 which prevents a dealer of trade-marked arti- 
 
244 BUSINESS — A PROE^ISSION 
 
 cles from cutting the established selling price, 
 restrains trade. In a sense every contract re- 
 strains trade; for after one has entered into a 
 contract, he is not as free in trading as he was 
 before he bound himself. But the right to bind 
 one's self is essential to trade development. And 
 it is not every contract in restraint of trade, 
 but only contracts unreasonably in restraint of 
 trade, which are invalid. Whether a contract 
 does unreasonably restrain trade is not to be 
 determined by abstract reasoning. Facts only 
 can be safely relied upon to teach us whether 
 a trade practice is consistent with the general 
 welfare. And abundant experience establishes 
 that the one-price system, which marks so im- 
 portant an advance in the ethics of trade, has 
 also greatly increased the efficiency of merchan- 
 dising, not only for the producer, but for the 
 dealer and the consumer as well. 
 
 THE producer's PLEA 
 
 If a dealer is selling unknown goods or goods 
 under his own name, he alone should set the 
 price; but when a dealer has to use somebody 
 else's name or brand in order to sell goods, then 
 the owner of that name or brand has an interest 
 which should be respected. The transaction is 
 essentially one between the two principals — 
 
COMPETITION THAT KILLS 245 
 
 the maker and the user. All others are middle- 
 men or agents; for the product is not really 
 sold until it has been bought by the consumer. 
 Why should one middleman have the power to 
 depreciate in the public mind the value of the 
 maker's brand and render it unprofitable not 
 only for the maker but for other middlemen? 
 Why should one middleman be allowed to in- 
 dulge in a practice of price-cutting, which tends 
 to drive the maker's goods out of the market 
 and in the end interferes with people getting 
 the goods at all? 
 
 CUT PRICES A MISLEADER 
 
 When a trade-marked article is advertised to 
 be sold at less than the standard price, it is gen- 
 er ally done to ^tt ract persons to the particular 
 store by the offer of an obviously extraordin ary 
 bargain. Tt is a. bait — ra.lled_bv-tJne dealers^ 
 a^" leader.^ But the cut-price artiel«-^:^ulG 
 more appropriately be termed af^mis-leadej: 
 because ordinarily the very purpose ofTEe cut- 
 price is to create a false impression. 
 
 -The dealer who sells the Dollar IngersoU 
 watch for sixty-seven cents necessarily loses 
 money in that particular transaction. He has 
 no desire to sell any article on which he must 
 lose money. He advertises the sale partly to 
 
246 BUSINESS — A PROFESSION 
 
 attract customers to his store; but mainly to 
 create in the minds of those customers the false 
 impression that other articles in which he deals 
 and which are not of a standard or known value 
 will be sold upon like favorable terms. The 
 customer is expected to believe that if an Inger- 
 soU watch is sold at thirty-three and one-third 
 per cent less than others charge for it, a ready- 
 to-wear suit or a gold ring will be sold as cheap. 
 The more successful the individual producer of 
 a trade-marked article has been in creating for 
 it a recognized value as well as a wide sale, the 
 greater is the temptation to the unscrupulous to 
 cut the price. Indeed a cut-price article can 
 ordinarily be effective as a "mis-leader" only 
 when both the merits and the established selling 
 price are widely known. 
 
 HOW CUT PRICES HURT 
 
 The evil results of price-cutting are far- 
 reaching. It is sometimes urged that price- 
 cutting of a trade-marked article injures no 
 one; that the producer is not injured, since he 
 received his full price in the original sale to 
 jobber or retailer; and indeed may be bene- 
 fited by increased sales, since lower prices 
 ordinarily stimulate trade; that the retailer 
 cannot be harmed, since he has cut the price 
 
COMPETITION THAT KILLS 247 
 
 voluntarily to advance his own interests; that 
 the consumer is surely benefited because he gets 
 the article cheaper. But this reasoning is most 
 superficial and misleading. 
 
 To sell a Dollar Ingersoll w atch for sixty- 
 seven cents in] ures~BotE the manufactu rer and 
 the regular dealer; because it tends to make 
 the public believ e that^ eTther the manufac- 
 turer's or the dealer's p rofit s are ordi narily 
 e xorbitan t; nr^ in ntVier wnrH s. that the watcIT 
 is not worth a doll ar. Such a cut necessarily 
 impairs the reputation of the article, and, by 
 impairing reputation, lessens the demand. It 
 may even destroy the manufacturer's market. 
 A few conspicuous "cut-price sales" in any 
 market will demoralize the trade of the regular 
 dealers in that article. They cannot sell it at 
 cut prices without losing money. They might 
 be able to sell a few of the articles at the estab- 
 lished price; but they would do so at the risk to 
 their own reputations. The cut by others, if 
 known, would create the impression on their 
 own customers of having been overcharged. 
 It is better policy for the regular dealer to drop 
 the line altogether. On the other hand, the 
 demand for the article from the irregular dealer 
 who cuts the price is short-lived. The cut- 
 price article cannot long remain his "leader." 
 
"248 BUSINESS — A PROFESSION 
 
 His use for it is sporadic and temporary. One 
 >^leader" is soon discarded for another. Then 
 
 thecul-price outlet is closed to the producer; 
 and, meanwhile, the regular trade has been lost. 
 Thus a single prominent price-cutter can ruin a 
 market for both the producer and the regular 
 retailer. And the loss to the retailer is serious. 
 On the other hand, the consumer's gain from 
 price-cutting is only sporadic and temporary. 
 The few who buy a standard article for less than 
 its value do benefit — unless they have, at the 
 same time, been misled into buying some other 
 article at more than its value. But the public 
 generally is the loser; and the losses are often 
 permanent. If the price-cutting is not stayed, 
 and the manufacturer reduces the price to his 
 regular customers in order to enable them to 
 retain their market, he is tempted to deteriorate 
 the article in order to preserve his own profits. 
 If the manufacturer cannot or will not reduce 
 his price to the dealer, and the regular retailers 
 abandon the line, the consumer suffers at least 
 the inconvenience of not being able to buy the 
 article. 
 
 PRICE MAINTENANCE — NOT PRICE FIXING 
 
 The independent producer of an article 
 which bears his name or trade-mark — be he 
 
COMPETITION THAT KILLS 249 
 
 manufacturer or grower — seeks no special 
 privilege when he makes contracts to prevent 
 retailers from cutting his established selling 
 price. The producer says in effect : " That which 
 I create, in which I embody my experience, to 
 which I give my reputation, is my property. By 
 my own effort I have created a product valuable 
 not only to myself, but to the consumer; for I 
 have endowed this specific article with qualities 
 which the consumer desires, and which the con- 
 sumer should be able. to rely confidently upon 
 receiving when he purchases my article in the 
 original package. To be able to buy my article 
 with the assurance that it possesses the desired 
 qualities is quite as much of value to the con- 
 sumer who purchases it as it is of value to the 
 maker who is seeking to find customers for it. 
 It is essential that the consumer should have 
 confidence, not only in the quality of my prod- 
 uct, but in the fairness of the price he pays. 
 And to accomplish a proper and adequate dis- 
 tribution of product, guaranteed both as to qual- 
 ity and price, I must provide by contract against 
 the retail price being cut." 
 
 The position of the independent producer who 
 establishes the price at which his own trade- 
 marked article shall be sold to the consumer 
 must not be confused with that of a combi- 
 
250 BUSINESS — A PROFESSION 
 
 nation or trust which, controlling the market, 
 fixes the price of a staple article. The inde- 
 pendent producer is engaged in a business open 
 to competition. He establishes his price at his 
 peril — the peril that, if he sets it too high, 
 either the consumer will not buy, or, if the arti- 
 cle is nevertheless popular, the high profits 
 will invite even more competition. The con- 
 sumer who pays the price established by an 
 independent producer in a competitive line of 
 business does so voluntarily; he pays the price 
 asked, because he deems the article worth 
 that price as compared with the cost of other 
 competing articles. But when a trust fixes, 
 through its monopoly power, the price of a 
 staple article in common use, the consumer does 
 not pay the price voluntarily. He pays under 
 compulsion. There being no competitor he 
 must pay the price fixed by the trust, or be 
 deprived of the use of the article. 
 
 PRICE-CUTTING THE ROAD TO MONOPOLY 
 
 Price-cutting has, naturally, played a promi- 
 nent part in the history of nearly every Ameri- 
 can industrial monopoly. 
 
 Commissioner Herbert Knox Smith found, 
 after the elaborate investigation undertaken by 
 the Federal Bureau of Corporations, that: 
 
COMPETITION THAT KILLS 251 
 
 "One of the most effective means employed by 
 the Standard Oil Company to secure and maintain 
 the large degree of monopoly which it possesses, is 
 the cut in prices to the particular customers, or in the 
 particular markets of its competitors, while main- 
 taining them at a higher level elsewhere." 
 
 And Chief Justice White, in delivering the 
 opinion of the United States Supreme Court 
 in the Tobacco Trust case, said: 
 
 "... the intention existed to use the power of 
 the combination as a vantage ground to further mo- 
 nopoHze the trade in tobacco by means of trade con- 
 flicts designed to injure others, either by driving com- 
 petitors out of the business or compelling them to 
 become parties to a combination — a purpose whose 
 execution was illustrated by the plug war which 
 ensued and its results, by the snuff war which fol- 
 lowed and its results, and by the conflict which im- 
 mediately followed the entry of the combination in 
 England and the division of the world's business by 
 the two foreign contracts which ensued." 
 
 Therefore recent legislative attempts to stay 
 monopoly commonly include in some form pro- 
 hibition against the making of cut-throat prices, 
 with a view to suppressing competition. Such 
 provisions will be found in the bills proposed by 
 Senator La FoUette, Congressman Stanley and 
 Senator Cummins to supplement the Sherman 
 
252 BUSINESS — A PROFESSION 
 
 Anti-Trust Act; and statutes dealing with the 
 subject have been enacted in several States. 
 
 President Wilson urged most wisely that, in- 
 stead of sanctioning and regulating private 
 monopoly, we should regulate competition. 
 Undoubtedly statutes must be enacted to secure 
 adequate and effective regulation; but shall our 
 courts prohibit voluntary regulation of com- 
 petition by those engaged in business? And is 
 not the one-price system for trade-marked 
 articles a most desirable form of regulation? 
 
 monopoly's easiest way 
 
 The competition attained by prohibiting the 
 producer of a trade-marked article from main- 
 taining his established price offers nothing sub- 
 stantial. Such competition is superficial merely. 
 It is sporadic, temporary, delusive. It fails to 
 protect the public where protection is needed. 
 It is powerless to prevent the trust from 
 fixing extortionate prices for its product. The 
 great ' corporation with ample capital, a per- 
 fected organization and a large volume of busi-. 
 ness can establish its own agencies or sell direct 
 to the consumer, and is in no danger of having 
 its business destroyed by price-cutting among 
 retailers. But the prohibition of price-mainte- 
 nance imposes upon the small and independent 
 
COMPETITION THAT KILLS 253 
 
 producers a serious handicap. Some avenue of 
 escape must be sought by them; and it may be 
 found in combination. Independent manufac- 
 turers without the capital or the volume of 
 business requisite for engaging alone in the 
 retail trade will be apt to combine with exist- 
 ing chains of stores, or to join with other manu- 
 facturers similarly situated in establishing new 
 chains of retail stores through which to market 
 their products direct to the consumer. The 
 process of exterminating the small independent 
 retailer already hard pressed by capitalistic 
 combinations — the mail-order houses, existing 
 chains of stores and the large department 
 stores — would be greatly accelerated by such 
 a movement. Already the displacement of the 
 small independent business man by the huge 
 corporation with its myriad of employees, its 
 absentee ownership and its financier control 
 presents a grave danger to our democracy. The 
 social loss is great; and there is no economic 
 gain. But the process of capitalizing free 
 Americans is not an inevitable one. It is not 
 even in accord with the natural law of business. 
 It is largely the result of unwise, man-made, 
 privilege-creating law, which has stimulated 
 existing tendencies to inequality instead of dis- 
 couraging them. Shall we, under the guise of 
 
254 BUSINESS — A PROFESSION 
 
 protecting competition, further foster monopoly 
 by creating immunity for the price-cutters? 
 
 Americans should be under no illusions as to 
 the value or effect of price-cutting. It has been 
 the most potent weapon of monopoly — a means 
 of killing the small rival to which the great 
 trusts have resorted most frequently. It is so 
 simple, so effective. Far-seeing organized capi- 
 tal secures by this means the co-operation of 
 the short-sighted unorganized consumer to his 
 own undoing. Thoughtless or weak, he yields 
 to the temptation of trifling immediate gain, 
 and, selling his birthright for a mess of pottage, 
 becomes himself an instrument of monopoly. 
 
THE NEW ENGLAND TRANSPORTA- 
 TION MONOPOLY 
 
 Mr. President and Gentlemen of the New England 
 Dry Goods Association: — ^ 
 The proposed merger presents for the decision 
 of the people of Massachusetts the most im- 
 portant question which has arisen in this Com- 
 monwealth since the Civil War. I regret 
 deeply, therefore, that the eminent counsel of 
 the New York, New Haven and Hartford Rail- 
 road Company should have declined the invi- 
 tation of your association to present an argu- 
 ment in favor of the merger. His refusal to 
 discuss the question, following many like re- 
 fusals of invitations extended by other associa- 
 tions to President Mellen and Vice-President 
 Byrnes, is obviously in pursuance of a definite 
 policy, and the policy appears to be this: 
 Having actually acquired the large block of 
 stock in the Boston and Maine Railroad secretly 
 and without authority under the laws of Massa- 
 chusetts — "the less said about it, the better." 
 
 • An address delivered before the New England Dry Goods Asso- 
 ciation at Boston, February ii, 1908. 
 
256 BUSINESS — A PROFESSION 
 
 Against this Standard Oil policy of " Secrecy and 
 Silence," the opponents of the merger vigorously 
 protest. 
 
 Let us define what the merger question really 
 is, and recall the circumstances under which it 
 has arisen in l^Iassachusetts. 
 
 The merger question is this: Shall the New 
 York, New Haven and Hartford Railroad 
 Company be permitted to acquire, through 
 control of the Boston and Maine, a substan- 
 tial monopoly of all transportation within New 
 England and from New England to the South 
 and West — a monopoly including alike steam 
 railroads, trolleys and steamboat lines? 
 
 The circumstances under which this question 
 arises are as follows: 
 
 For more than a generation the statutes of 
 Massachusetts have declared that no railroad 
 company shall acquire the stock of any other 
 railroad company or of any street railway com- 
 pany without the express authority of our leg- 
 islature. This has been the law of Massachusetts 
 during all the time that the New York, New 
 Haven and Hartford has operated any railroad 
 in this Commonwealth. 
 
TRANSPORTATION MONOPOLY 257 
 
 THE NEW HAVEN DEFIANCE OF MASSACHUSETTS 
 LAWS 
 
 With this law on the statute books, the New 
 Haven Company, without seeking permission 
 from our legislature, acquired within three 
 years prior to June, 1906, nearly five hundred 
 miles of trolleys in central and western Mas- 
 sachusetts. These trolley purchases threatened 
 to extend into the Boston and Maine territory. 
 The Boston and Maine had carefully obeyed 
 the Massachusetts law which prohibited it 
 from making trolley purchases; and it sought 
 in 1905 authority from our legislature to do 
 with the legislature's permission what the New 
 Haven undertook to do in spite of legislative pro- 
 hibition. The proposed change in the long- 
 established policy of the Commonwealth was 
 strenuously opposed. The question was re- 
 ferred to the Recess Committee of the legis- 
 lature of 1905; and the question was again 
 considered by the legislature of 1906, which 
 refused to grant the permission asked. 
 
 Governor Guild then called attention to the 
 situation in a memorable special message to the 
 legislature (June 23, 1906) in which he said: 
 
 "I congratiilate you on the defeat of a measure that 
 would have sanctioned the possible consolidation of 
 
258 BUSINESS — A PROFESSION 
 
 all transportation in Massachusetts under the control 
 of a single corporation. The present railroad situa- 
 tion, however, is most unjust and inequitable. Our 
 steam railroad system is forbidden to meet the com- 
 petition of electric street car lines by purchase or 
 control of their stock, but another controlled by men 
 who are not citizens of Massachusetts is not only 
 permitted to exercise that privilege, but is exerting 
 it to-day to such an extent that healthy competition 
 in western Massachusetts is already throttled. 
 
 "Slowly, surely, the control of our own railroads, 
 the control of the passage to market of every Massa- 
 chusetts product, the control of the transportation 
 to and from his work of every Massachusetts citizen 
 is passing from our hands to those of aUens. 
 
 "I therefore urge upon you with all. the strength 
 that is in me the passage of some legislation giving 
 rehef from this grave injustice. Let Massachusetts 
 announce that transportation within her borders is 
 in the future to be controlled by the people of Massa- 
 chusetts, and not by men beyond the reach of her 
 law and the inspiration of her ideals." 
 
 The message was immediately referred to the 
 Joint Committee on Railroads and Street 
 Railways. It was then late in June. The ses- 
 sion had already lasted nearly six months. All 
 other legislative business had been disposed of. 
 It was urged that consideration of a subject 
 so important should not then be entered upon. 
 The New Haven Company insisted that it had 
 
TRANSPORTATION MONOPOLY 259 
 
 no intention of violating the laws of Massa- 
 chusetts; that it had been advised that, while 
 the Massachusetts statute controlled Mas- 
 sachusetts corporations, like the Boston and 
 Maine, the New Haven Company, having a 
 Connecticut charter and operating through a 
 subsidiary company, could legally purchase 
 railroads and street railways in this State, re- 
 gardless of the prohibition contained in the 
 Massachusetts statute. It invited the Attorney 
 General to bring proceedings to test the legal 
 validity of its action. The New Haven Com- 
 pany asserted, furthermore, that it had no 
 intent or desire to act contrary to what Massa- 
 chusetts might declare to be its own policy in 
 this respect. 
 
 THE NEW HAVEN BREACH OF FAITH 
 
 It was naturally suggested that this attitude 
 on the part of the New Haven was assumed in 
 order to delay legislation, so that meanwhile 
 it might have the opportunity of continuing 
 unhampered its purchases of Massachusetts 
 properties. To meet this objection the follow- 
 ing assurance was given to the legislative com- 
 mittee by the counsel of the New Haven Com- 
 pany: 
 
260 BUSINESS — A PROFESSION 
 
 June 27, 1906. 
 Representative Joseph Walker, Esq. 
 
 My Dear Mr. Walker: — 
 
 I have communicated with Mr. Mellen by tele- 
 phone and got from him the following: 
 
 "Mr. Mellen authorizes Mr. Choate to state to 
 the Legislature that he will not enter upon further 
 acqviisitions in Massachusetts other than those al- 
 ready contracted for, or build any trolley lines except 
 such as are now under actual construction, until such 
 time as the merger question has been settled. 
 
 "Mr. Mellen is willing, if the Committee desires 
 it, to furnish a list of properties already contracted 
 for or under construction, to avoid any future mis- 
 understanding." 
 
 Yours truly, 
 (Signed) Charles F. Choate, Jr. 
 
 The list of Massachusetts trolley properties in 
 which the New Haven was then interested was 
 asked for and was furnished by Mr. Mellen. 
 After that the legislature refused to pass any 
 act dealing with this subject, and adjourned. 
 Proceedings were then begun by the Attorney 
 General to test the validity of the New Haven's 
 position. While these proceedings were pend- 
 ing, the New Haven Company, regardless of 
 the promise which had been given by Mr. Mel- 
 len on its behalf, proceeded with its purchases 
 of Massachusetts trolleys. It bought the Mil- 
 ford, Attleborough, and Woonsocket Street 
 
TRANSPORTATION MONOPOLY 261 
 
 Railway Company; it bought the Hartford 
 and Worcester, the Uxbridge and Blackstone 
 and the Worcester and Holden Street Railway 
 Companies. It acquired still other Massa- 
 chusetts trackage through the Providence Se- 
 curities Company. 
 
 And it did more. It acquired, without appli- 
 cation to the legislature, and without notice in 
 any way to the public, a large block of stock 
 of the Boston and Maine Railroad — 109,948 
 shares out of a total of 295,096 outstanding in 
 the hands of the public. 
 
 The great merger issue, the most important 
 question which has arisen in Massachusetts in 
 more than a generation, is thus brought before 
 us by conduct on the part of the New Haven, 
 which is not only in defiance of the settled policy 
 of Massachusetts, as expressed in its statute 
 law, but in defiance also of the promise sol- 
 emnly given to the legislature of the Com- 
 monwealth and relied upon by it. 
 
 THE PROPOSED TRANSPORTATION MONOPOLY 
 
 Now, let us pass to the question of the merger 
 itself and what it involves: 
 
 The possible advantages of a merger have not 
 been made clear; but the objections, I submit, 
 are clear, and they are insuperable. 
 
262 BUSINESS — A PROFESSION 
 
 First. The merger would result inevitably 
 in a complete monopoly of transportation in 
 New England. 
 
 It would mean control by the New Haven, not 
 only of the Boston and Maine and the Maine 
 Central systems, but of all railroads extending 
 into New England, except the Grand Trunk and 
 the Canadian Pacific. Outside the New Haven, 
 the Boston and Maine and the Canadian sys- 
 tems, there is now no important railroad in 
 New England, except the Boston and Albany 
 and the Bangor and Aroostook. The Boston 
 and Albany is already closely allied with the 
 New Haven through a trafl&c arrangement. 
 It will inevitably fall into the New Haven's 
 grasp if the Boston and Maine does. So also 
 will the Bangor and Aroostook and the small 
 outlying roads. 
 
 But the merger means far more than a mo- 
 nopoly of the railroads. The New Haven has 
 pursued relentlessly in each community to 
 which its railroads extend the policy of sup- 
 pressing all competition whatsoever, existing or 
 potential — suppressing, at whatever cost, the 
 competition not only of railroads but of steam- 
 ship lines and of trolley lines as well. What it 
 has already done in Connecticut and Rhode 
 Island would inevitably be repeated in Massa- 
 chusetts and in northern New England. 
 
TRANSPORTATION MONOPOLY 263 
 
 See how the New Haven has suppressed all 
 competition between Boston and New York: 
 
 The New York and New England Railroad 
 was designed to give us an independent aU-raU 
 line to New York. The New Haven induced 
 the Connecticut legislature to refuse authority 
 to construct the missing link. The New York 
 and New England, however, actually gave us 
 an independent rail and water line to New 
 York via Norwich and a freight line via the 
 Hudson River. The New York and New Eng- 
 land passed into the hands of receivers and was 
 purchased by the New Haven. 
 
 The Central New England Railroad intended 
 (in connection with the Boston and Albany) to 
 give us an independent line to the Pennsyl- 
 vania coal fields, and another freight line to 
 New York via the Hudson River. It met per- 
 sistent obstruction in the legislature and in the 
 courts of Connecticut. Its securities suffered, 
 and it passed into the control of the New Haven. 
 
 A few years ago we had four rail and water 
 lines to New York via the Sound — the FaU 
 River Line, the Providence Line, the Stoning- 
 ton Line and the Norwich Line. All of these 
 have passed into the hands of the New Haven; 
 and another rail and water line to New York — 
 the New Bedford Line — belongs also to the 
 
264 BUSINESS — A PROFESSION 
 
 New Haven. Later a new competitor — the 
 Joy Line — arose; but soon it also passed into 
 New Haven control. 
 
 Finally the Enterprise Transportation Com- 
 pany was started, with boats running from 
 New York to Fall River and to Providence, and 
 with good promise of success. The New Haven, 
 under secret cover of the Neptune Line and of 
 the Joy Line, entered into fierce competition 
 with the Enterprise Transportation Company. 
 Last October the Enterprise Transportation 
 Company succumbed. It passed into the hands 
 of ;a receiver, and shortly after the New Haven 
 purchased the Kennebec, one of its best boats. 
 
 Not a single independent line of steamboats 
 exists between Massachusetts and New York 
 except the Metropolitan Line; and now that, 
 like other competitors of the New Haven, has 
 passed into receivers' hands. May we not 
 expect to see, as the nfext step, its fine steam- 
 ships, the Harvard and the Yale, flying the 
 New Haven flag, and the last vestige of 
 steamship competition disappear? 
 
 A few years ago we heard promises of inde- 
 pendent trolley lines from Boston to New York. 
 The key to such a line was a franchise east 
 from New York City. Two franchises were 
 given — the New York, Westchester, and Bos- 
 
TRANSPORTATION MONOPOLY 265 
 
 ton Railway Company and the New York and 
 Port Chester Railroad Company — both given 
 with the understanding that they should pro- 
 vide competition with the New Haven. The 
 New Haven, at huge expense, acquired both 
 franchises, and suppressed the nascent com- 
 petition. 
 
 The policy of suppressing competition at any 
 cost, pursued with respect to through lines 
 between Boston and New York, has been fol- 
 lowed by the New Haven throughout its terri- 
 tory. Under that policy the New Haven has 
 acquired in all about fifteen hundred miles of 
 trolley tracks — substantially all the trolleys in 
 Connecticut and in Rhode Island, and nearly 
 six hundred miles of line in central and western 
 Massachusetts. It has even extended its lines 
 into Vermont and northern New York. 
 
 No competitor was too large to be overcome, 
 and none so insignificant as to be tolerated. 
 Thus the New Haven acquired the lesser steam- 
 boat lines from New York to Connecticut and 
 to Rhode Island ports — the Bridgeport Line, 
 the New Haven Line, the Hartford Line and the 
 Block Island Line. And with this nearer field 
 covered, it undertook to extend its acquisitions 
 to more distant ports, far beyond the present 
 territory of its rail lines. It purchased, at large 
 
266 BUSINESS — A PROFESSION 
 
 cost, a line from New York to Portland, Maine. 
 It purchased a line from Boston to Philadelphia; 
 and then, in connection with that purchase, it 
 acquired a substantially controlling interest in 
 the Merchants & Miners Transportation Com- 
 pany, with lines from Boston to Philadelphia, 
 to Baltimore and to Norfolk. 
 
 If the New Haven secures the Boston and 
 Maine system, it appears inevitable that the 
 control which the New Haven has already 
 acquired over the Boston and Albany through a 
 traffic agreement will become practically abso- 
 lute, that the New Haven's policy of acquiring 
 trolleys will be further extended, and that 
 soon all means of transportation by steam, by 
 trolleys or by established steamship lines within 
 -New England, or from New England south and 
 west, will be absolutely under New Haven 
 control. The only other outlet for the people 
 and products of Massachusetts will be across 
 the Atlantic or to Canada. 
 
 AN ALIEN MONOPOLY 
 
 Second. This monopoly by the New Haven in 
 transportation within New England and from 
 New England south and west would be con- 
 trolled by persons alien to Massachusetts, not 
 only in their financial interests, but in their 
 
TRANSPORTATION MONOPOLY 267 
 
 traditions and aspirations. How little the voice 
 of Massachusetts would be heeded in the man- 
 agement may be inferred from the present 
 conditions. 
 
 Although more than one-half of the stock- 
 holders of the New Haven are residents of Mas- 
 sachusetts, and although they owned, June 30, 
 1907, $35,000,000 out of $97,000,000 of New 
 Haven stock outstanding in the hands of the 
 public, as well as a larger part of its outstanding 
 bonds and notes, Massachusetts has to-day 
 upon the board of directors of the New Haven 
 only two members out of twenty-three. It had 
 one other member, making up the full board of 
 twenty-four, but Mr. Charles F. Choate, long a 
 member of the New Haven board, resigned 
 recently. 
 
 Apparently the influence of the Massachu- 
 setts members in the board has been propor- 
 tionate to their number. 
 
 ALIEN INTERESTS 
 
 Third. This monopoly in transportation would 
 not only be controlled by non-residents of Mas- 
 sachusetts, but, as the New Haven's transpor- 
 tation lines would extend into at least six other 
 States, the management, though intending to 
 act with entire fairness to Massachusetts, 
 
268 BUSINESS — A PROFESSION 
 
 might deem it proper to postpone the interests 
 of Massachusetts to those of some other State 
 or States. It might seem best to the manage- 
 ment of this transportation monopoly to favor 
 New York, or New London, or Providence, or 
 Portland, as against Boston, not from any- 
 malevolent motive, but solely in the supposed 
 interests of the company. 
 
 Yet we of Massachusetts have the solemn ob- 
 ligation of protecting and advancing our own 
 welfare. We must not intrust the determina- 
 tion as to what our welfare demands to the de- 
 cision of persons who may be influenced by 
 considerations other than the interests of 
 Massachusetts. 
 
 COMBINATION INEFriCIENT 
 
 Fourth. The very size of the proposed con- 
 solidated system and the diversity of its in- 
 terests would be such as to impair its efl&ciency. 
 The company would not be merely a large rail- 
 road company, but an aggregation of trolley 
 companies, of steamship companies, of gas com- 
 panies and power companies, an electric light 
 company and a water-supply company. For 
 thus comprehensive are the varying activities 
 of the New Haven. 
 
 For every business concern there must be a 
 
TRANSPORTATION MONOPOLY 269 
 
 limit of greatest efficiency. What that limit is 
 difiers under varying conditions; but it is clear 
 that an organization may be too large for ef- 
 ficient and economical management, as well as 
 too small. The disadvantages attendant upon 
 size may outweigh the advantages. Man's 
 works have outgrown the capacity of the in- 
 dividual man. No matter what the organization, 
 the capacity of the individual man must deter- 
 mine the success of a particular enterprise, not 
 only financially to the owners, but in service 
 to the community. Organization can do much 
 to make possible larger efficient concerns; but 
 organization can never be a substitute for 
 initiative and for judgment. These must be 
 supplied by the chief executive officers, and 
 nature sets a limit to their possible accomplish- 
 ment. Any transportation system which is 
 called upon not merely to operate, but to 
 develop its facilities, makes heavy demands 
 upon its executive officers for initiative and for 
 the exercise of sound judgment. And New 
 England needs most emphatically development 
 of its transportation facilities. To aid in this 
 development we need more minds, not less. 
 
 Massachusetts has had and is having a les- 
 son on the evils of too large units which should 
 not readily be overlooked, namely the wretched 
 
270 BUSINESS — A PROFESSION 
 
 service of the Boston and Albany Railroad. 
 Even in mere operation that railroad has failed 
 egregiously as compared with its condition prior 
 to its lease to the New York Central. And what 
 is the cause of this failure? Not, I submit, in- 
 tentional neglect, on the part of the ofl&cials of 
 the New York Central, of the interest of Massa- 
 chusetts or the comfort of its patrons; not any 
 purpose on the part of the management to 
 prefer other communities to our own. The 
 wretched service is due, in the main at least, 
 to the fact that the New York Central System 
 is greater than the administrative capacity of 
 its executive ofi&cers. From that overgrowth 
 its finances, its service and its patrons have 
 alike suffered. And we may be sure that if we 
 spread the ability of the New Haven manage- 
 ment over a larger field we shall get, not better, 
 but worse, service throughout the whole ter- 
 ritory. 
 
 POLITICAL DANGERS 
 
 Fifth. The political dangers surrounding a 
 monster corporation controlling all transpor- 
 tation facilities of New England are too ob- 
 vious to require comment, particularly in the 
 case of a corporation having the political tra- 
 ditions which surround the New Haven. 
 
TRANSPORTATION MONOPOLY 271 
 
 IMPOSSIBLE TO " SAFEGUARD " MONOPOLY 
 
 Sixth. It has been suggested that we accept 
 the proposed monopoly in transportation, but 
 provide safeguards. 
 
 This would be like surrendering liberty and 
 substituting despotism with safeguards. There 
 is no way in which to safeguard people from 
 despotism except to prevent despotism. There 
 is no way to safeguard the people from the evils 
 of a private transportation monopoly except to 
 prevent the monopoly. The objections to des- 
 potism and to monopoly are fundamental in 
 human nature. They rest upon the innate and 
 ineradicable selfishness of man. They rest 
 upon the fact that absolute power inevitably 
 leads to abuse. They rest upon the fact that 
 progress flows only from struggle. 
 
 Furthermore, the most carefully devised 
 safeguards are in many respects futile. The 
 legislation authorizing the Boston and Albany 
 lease was surrounded by all safeguards which 
 an able governor, the legislature and our busi- 
 ness organizations could devise. Have these 
 safeguarding provisions reduced or made more 
 tolerable the wretched service which we have 
 received? 
 
272 BUSINESS — A PROFESSION 
 
 FALSE ANALOGY OF SOME LOCAL MONOPOLIES 
 
 Seventh. The analogy sometimes urged in 
 favor of existing well-operated local monopolies 
 in lighting, or gas, or street railways is delu- 
 sive. In the first place a local gas company 
 may have a monopoly of gas, but it has not a 
 monopoly of lighting. It has the competition 
 of electric light and the competition of oil. 
 
 But there is furthermore this marked differ- 
 ence: A local monopoly, like a gas company, or 
 an electric light company or a street railway com- 
 pany, is but a creature, a servant of the State, 
 wholly subject to the control of the State within 
 which it is situated, wholly dependent for its 
 prosperity upon the particular community which 
 it serves; and in Massachusetts subject at all 
 times to being terminated by the authority 
 which created it. 
 
 The street railways of Massachusetts and the 
 gas and electric light companies of Massachu- 
 setts, so far as they are monopolies, are per- 
 forming practically, as agents of the State, pub- 
 lic functions during good behavior. If they do 
 not properly serve the community, the com- 
 munity may at any time terminate their fran- 
 chises without even paying compensation. The 
 right to run street railways in our public streets. 
 
TEANSPORTATION MONOPOLY 273 
 
 the right to lay gas pipes or electric light wires, 
 is a license merely, and is subject at all times 
 to termination by the State and the municipal 
 authorities. There is no resemblance between 
 such a monopoly of service covering a specific 
 agency and the proposed New Haven monopoly 
 of all transportation, a monopoly which claims 
 rights under the laws of other States, and has 
 asserted, though operating also in Massa- 
 chusetts, that it is free from the restrictions im- 
 posed by the Massachusetts law. And yet even 
 in respect to these local service monopolies, 
 Massachusetts recognized as early as 1894 that 
 legislation was necessary to protect our people 
 from the abuses incident to their being con- 
 trolled by foreign corporations. 
 
 THE DANGERS OF A HOLDING COMPANY 
 
 Eighth. Furthermore, it must be remem- 
 bered that the New Haven Company is not a 
 transportation company merely. It is a huge 
 holding company. Its freedom in the issue of 
 its own securities and its broad charter powers 
 to hold securities of other companies expose us 
 to the same conditions which have made Harri- 
 man a menace to America. The primal cause 
 of Harriman's power has been his ability to use 
 the treasury and credit of the Union Pacific 
 
274 BUSINESS — A PROFESSION 
 
 for practically any purpose. The Union Pacific 
 was once a corporation with power to construct 
 and operate a railroad within given limits. It 
 has become a corporation with almost universal 
 powers. And these large powers have been 
 exercised practically by one individual, instead 
 of being subject to the action of the stockholders. 
 Precisely similar operations may be pursued 
 by the New Haven management, particularly 
 since it secured its new Connecticut charter. 
 Indeed its act in taking over this large interest 
 in the Boston and Maine stock without action 
 on the part of its own stockholders shows the 
 extraordinary power heretofore exercised by 
 the New Haven management. And the position 
 for the future is even more dangerous than it 
 has been in the past. 
 
 THE NEW haven's FINANCIAL CONDITION 
 
 Ninth. The above objections to the merger 
 would exist even if the New Haven were to-day 
 the financially strong and conservatively man- 
 aged railroad which it was for many years 
 prior to the advent of Mr. Mellen. But its 
 financial condition is vastly changed. Once 
 financially the strongest railroad company in 
 America, it has by excessive expansion become 
 perilously weak. The burdens which it has 
 
TRANSPORTATION MONOPOLY 275 
 
 assumed must for many years greatly hamper 
 its ability to serve the Commonwealth. Its 
 impaired credit will prevent it from making fur- 
 ther large improvements. The excessive prices 
 paid to suppress trolley and steamboat competi- 
 tion create a permanent heavy charge upon all 
 future traffic. How it will be able to bear the 
 burdens thus created will, for some time, remain 
 a question. But it is clear that the burdens al- 
 ready assumed have taxed to the uttermost, not 
 only the ability of the managers, but the finan- 
 cial resources of the company itself. There is 
 no surplus of ability or of credit which is avail- 
 able for extending its operations to another 
 great system with a railroad mileage larger than 
 its own.^ 
 
 THE BOSTON AND MAINE 
 
 Tenth. And the Boston and Maine system is 
 a great system. Its physical condition ought un- 
 doubtedly to be much improved. Additional 
 facilities should be added and developed. But 
 it possesses a solid foundation upon which to 
 rest such development. The Boston and Maine 
 is one of America's leading railroad systems. 
 Including leased lines and railroads controlled 
 
 ' This subject was discussed elaborately by Mr. Brandeis in a 
 pamphlet entitled: " Financial Condition of the New York, New 
 Haven & Hartford Railroad Company and of the Boston and Maine 
 Railroad," published in December, 1907. 
 
276 BUSINESS — A PROFESSION 
 
 but operated separately, it has 3,559.52 miles 
 of line, and a total trackage of 5,817.71 miles. 
 For the year ending June 30, 1907, the gross 
 earnings of the system from operation were 
 $50,986,553.60. Of the 852 operating com- 
 panies in the United States, with an aggregate 
 mileage of 220,028 miles, reporting to the 
 Interstate Commerce Commission for the year 
 ending June 30, 1906, only thirteen had gross 
 earnings as large as that. 
 
 The miles of line owned or leased by the 
 Boston and Maine Railroad are 2,232.25 as 
 compared with 2,006.23 owned and leased by 
 the New Haven. The freight tonnage carried 
 one mile on these lines by the Boston and Maine 
 Railroad in the year ending June 30, 1907, was 
 2,296,970,964 as compared with 1,927,686,950 
 tons carried by the New Haven. 
 
 In the six years ending June 30, 1907, it in- 
 creased its gross earnings 34.41 per cent, while 
 the increase of its capitalization was only 21.4 
 per cent, and the fixed charges increased only 
 2.72 per cent. 
 
 It is for Massachusetts to build up this dis- 
 tinctly Massachusetts railroad so that it shall 
 be worthy of Massachusetts; and the capital 
 required for making it meet all the demands of 
 Massachusetts for proper transportation facili- 
 
TRANSPORTATION MONOPOLY 277 
 
 ties can be and should be had. Massachusetts 
 now recognizes the serious error which it com- 
 mitted in leasing the Boston and Albany to the 
 New York Central. It should not commit the 
 infinitely greater mistake of surrendering the 
 Boston and Maine and its own prosperity to 
 the New Haven Company. 
 
 IMMEDIATE LEGISLATION NECESSARY 
 
 Eleventh. The public did not discover until 
 May, 1907, that the New Haven Company had 
 secretly acquired this large block of stock in 
 the Boston and Maine RaUroad. It was then 
 too late in the legislative session adequately and 
 definitely to consider the subject. The legisla- 
 ture, with a view to providing for such consid- 
 eration, passed a temporary restraining act by 
 which the New Haven was prohibited until 
 July I, 1908, from attempting to vote on stock 
 already acquired, or otherwise exercising con- 
 trol over the Boston and Maine Railroad, and 
 from acquiring any additional stock in that 
 company. 
 
 As this act expires July i, 1908, and the New 
 Haven Company, through the possession of 
 nearly forty per cent of the Boston and Maine 
 stock, has an interest so large that it may easily 
 be converted into a working majority, the 
 
278 BUSINESS — A PROFESSION 
 
 merger of the two systems will be practically 
 complete on July i, 1908, unless at the present 
 session further legislation is enacted which shall 
 not only compel the New Haven Company to 
 dispose of the stock already acquired by it with- 
 out authority under the laws of Massachusetts, 
 but shall also prohibit it from in any way 
 undertaking to exercise control over the Boston 
 and Maine Railroad. 
 
 The control by the New Haven of the Boston 
 and Maine through stock ownership would be 
 the most dangerous form of merger — a merger 
 with full power and with no responsibility. 
 
 Governor Guild wisely said: 
 
 "I therefore urge upon you with all the strength 
 that is in me the passage of some legislation giving 
 relief from this grave injustice. Let Massachusetts 
 announce that transportation within her borders is 
 in the future to be controlled by the peoplte of Massa- 
 chusetts, and not by men beyond the reach of her 
 law and the inspiration of her ideals." 
 
THE NEW HAVEN— AN UNREGULATED 
 MONOPOLY! 
 
 The breakdown of transportation in New 
 England under the New Haven monopoly has 
 become obvious. Demoralized and curtailed 
 freight service, antiquated equipment, frequent 
 wrecks, discontented employees, heavy depre- 
 ciation in the market value of securities, and 
 huge borrowing on short-time notes at high 
 interest are the accumulated evidences of 
 that deterioration in our transportation system 
 which has been in process during the past eight 
 years of aggressive monopolization. 
 
 The demand for a remedy is loud and urgent. 
 What remedy shall we apply? Shall the mo- 
 nopoly now breaking down be broken up, or 
 shall we attempt to patch it up by regulation? 
 
 Let us consider first the causes of our present 
 ills. 
 
 These Uls result from monopoly. But, while 
 the policy of monopoly is the fundamental cause 
 
 ' Published in the " Boston Journal," December 13, 1912. 
 
280 BUSINESS — A PROFESSION 
 
 of the deterioration of our transportation system, 
 it has itself bred subsidiary causes; and of these 
 subsidiary causes excessive bigness is probably 
 the most potent. 
 
 Excessive bigness often attends monopoly; 
 but the evils of excessive bigness are something 
 distinct from and additional to the evils of 
 monopoly. A business may be too big to be 
 efficient without being a monopoly; and it may 
 be a monopoly and yet (so far as concerns size) 
 may be well within the limits of efficiency. 
 Unfortunately, the so-called New Haven system 
 suffers from both excessive bigness and from 
 monopoly. 
 
 THE MONOPOLY 
 
 The New Haven monopoly of transportation 
 in New England, now substantially complete, 
 rests upon ownership or legal control of an effect- 
 ive interest in: 
 
 First. Substantially all the railroads in Maine, 
 New Hampshire, Massachusetts, Rhode Island 
 and Connecticut, except the Grand Trunk's 
 line from Canada to New London and to Port- 
 land, the Canadian Pacific Line through north- 
 ern Maine, and the Bangor and Aroostook. 
 
 Second. Substantially all the trolley lines 
 in Rhode Island and Connecticut, the most 
 
UNREGULATED MONOPOLY 281 
 
 important in western and central Massachu- 
 setts, and some in Maine, New Hampshire, 
 Vermont and New York. 
 
 Third. Substantially all the steamship lines 
 from any of the New England States to New 
 York or Philadelphia or Baltimore. 
 
 The control which the New Haven, a pri- 
 vately owned corporation, holds over Boston is 
 without parallel in the whole world. All rail- 
 roads entering Boston (unless the Boston, 
 Revere Beach and Lynn be called a railroad and 
 is independent) are either owned by the New 
 Haven, or controlled legally or through an 
 effective interest; for it has such a partnership 
 interest also in the Boston and Albany. All 
 the coastwise steamship lines sailing from Bos- 
 ton for New York, Philadelphia or Baltimore 
 are owned or controlled legally or < influenced 
 through an effective interest. 
 
 Among the American cities Boston ranks 
 second in assessed wealth. Among the American 
 seaports Boston ranks second in foreign com- 
 merce. Among the American centers of popu- 
 lation Boston (including suburbs) ranks fourth. 
 But Boston, alone of all the large cities of the 
 United States, is in the grip of a railroad mo- 
 nopoly. The following is the position of the 
 other large cities: 
 
BUSINESS — A PROFESSION 
 
 Railroad Systems 
 
 New York has . 8 Milwaukee has . 
 
 Chicago has 19 Cincinnati has . 
 
 Philadelphia has ... .3 Newark has . 
 
 St. Louis has . 17 New Orleans has 
 
 Cleveland has . . ■ . S Minneapolis has 
 
 Baltimore has . . 3 Kansas City has 
 
 Pittsburg has s LouisviUe has 
 
 Detroit has 7 Denver has 
 
 Buffalo has g Seattle has . . 
 
 San Francisco has 4 
 
 One railroad system has Boston 
 
 S 
 6 
 
 S 
 
 S 
 
 8 
 
 10 
 
 7 
 6 
 
 A DELUSIVE COMPARISON 
 
 Advocates of monopoly urge that the days of 
 competition are passed; that to insist upon 
 competition is to go backward, not forward; 
 that (at least as to railroads and our public- 
 service corporations) the path of progress lies 
 in regulation, and that this remedy should be 
 relied upon with respect to the New Haven. 
 
 The contention rests upon a half-truth and a 
 misconception. Undoubtedly we need effective 
 regulation of railroads as well as of other public- 
 service corporations, whether they be monopo- 
 lies or competitive concerns. 
 
 Undoubtedly, also, certain public services, 
 local in character, like those supplying gas or 
 water, will, on the whole, be best performed by 
 monopolies, if effectively regulated; or, as in 
 the case of the telephone, may as monopolies 
 
UNREGULATED MONOPOLY 283 
 
 best serve the public convenience. But the 
 instances of desirable private monopolies are 
 exceptional; and the transportation service 
 (other than local) is not within the exception. 
 The difference is clearer. 
 
 1. When a local gas company (as in Bos- 
 ton) is given a monopoly, it is a monopoly only 
 in gas, and not a monopoly in all lighting. The 
 gas company is subjected to the competition 
 of electric light and to the competition of oU. 
 
 Indeed, where a monopoly in gas and electric 
 lighting is combined in the same company, the 
 results are clearly less satisfactory than they are 
 where the gas company and the electric light 
 company compete vigorously (as in Boston) with 
 one another. 
 
 2. There is also this marked difference be- 
 tween such a local monopoly, even if complete, 
 and a monopoly like the New Haven: 
 
 A local monopoly, like a gas company or 
 electric light company or a street railway com- 
 pany, is but a creature, a servant of the State, 
 and as such wholly subject to the control of 
 the State within which it is situated. 
 
 In Massachusetts, where such local monopo- 
 lies have been satisfactorily conducted, the 
 company has at all times been absolutely sub- 
 ject to the will, not only of the State, but even 
 
284 BUSINESS — A PROFESSION 
 
 largely to the will of the particular community 
 which it serves. 
 
 Its whole business is dependent upon the 
 license to use the streets; and this license is 
 terminable at the will of the people. In other 
 words, the street railways of Massachusetts and 
 the gas and electric light companies of Massa- 
 chusetts are practically permitted to perform 
 as agents of the State public functions during 
 good behavior. 
 
 If they do not properly serve the community, 
 the community may at any time terminate 
 their franchises or license without even paying 
 compensation. 
 
 Furthermore, these Massachusetts public- 
 service corporations cannot issue any securities 
 without the consent of the Commonwealth. They 
 cannot pass under the control of a foreign cor- 
 poration without their charter becoming liable to 
 forfeiture. The control of the State is absolute. 
 
 This reserved power in the community is an 
 effective weapon by which the community may 
 compel the corporation to supply the service it 
 needs. Thus it compelled the West End Street 
 Railway to lease the Tremont Street subway and 
 to remove the surface tracks from Tremont 
 Street. It compelled the Boston Elevated to lease 
 the line beyond Forest Hills and give five-cent 
 
UNREGULATED MONOPOLY 285 
 
 fare to Boston, It compelled recently the con- 
 solidation of the West End and Elevated and 
 the leasing of the Boylston Street and Dorches- 
 ter subways. Eighty-cent gas and the recent 
 satisfactory gas service were obtained by a like 
 struggle and the threat of municipal gas as an 
 alternative. 
 
 THE NEW HAVEN SUPERIOR TO OUR LAW 
 
 Between a street railway, gas or electric light 
 monopoly, existing under such conditions, and 
 the New Haven monopoly in transportation 
 there is no real resemblance. The New Haven 
 claims rights under the laws of seven States and, 
 in addition, under acts of Congress. Massa- 
 chusetts has, except in strictly local matters, 
 no effective legal control over the company. 
 Neither the Massachusetts legislature, nor any 
 commission it may create, can regulate the 
 New Haven in any of its important functions. 
 Any statute attempting to do so would be void 
 as interfering with interstate commerce. 
 
 And Massachusetts cannot enforce her will 
 even as to intrastate matters, as it does in the 
 case of street railways, gas and other street-using 
 corporations; because the railroad franchises 
 cannot be taken without paying compensation. 
 Massachusetts prohibited the New Haven from 
 
286 BUSINESS — A PROFESSION 
 
 issuing stock without the consent of the rail- 
 road commissioners. The New Haven disobeyed 
 the laws with impunity. Massachusetts laws 
 prohibited the New Haven from issuing more 
 bonds than stock. The New Haven disobeyed 
 the laws with impunity. Massa,chusetts laws 
 prohibited the New Haven from acquiring 
 steamship lines. The New Haven disobeyed 
 the laws with impunity. Massachusetts laws 
 prohibited the New Haven from consolidating 
 with other companies. The New Haven dis- 
 obeyed the laws with impunity. In each 
 instance these prohibitions were a part of Mas- 
 sachusetts' plan for regulating railroad com- 
 panies; but the New Haven claimed the right 
 to act under the laws of another State, and 
 successfully defied Massachusetts. 
 
 And the recent Grand Trunk incident fur- 
 nished another and a striking instance of our 
 inability to regulate this monopoly. The New 
 Haven, having been unable to prevent the 
 passing of the enabling act providing for this 
 competition, nullified the law by an arrange- 
 ment with the Grand Trunk. 
 
 A DIVIDED LOYALTY 
 
 There is, however, another and very im- 
 portant respect in which local monopolies, like 
 
UNREGULATED MONOPOLY 287 
 
 gas and electric light and street railways, differ 
 from the interstate monopolies. The prosperity 
 of the local monopoly is absolutely dependent 
 upon the prosperity of the community in which 
 it is situated. Self-interest demands that the 
 company owning the local monopoly should 
 endeavor to advance the prosperity of the 
 community which it serves. But in the case of 
 the New Haven monopoly there are several 
 communities served and there is a distinct di- 
 versity of interest between those communities. 
 The interests of Boston and northern New 
 England are in many respects directly opposed 
 to the interests of New York City. The in- 
 terests of our merchants and manufacturers 
 are in many respects directly opposed to the 
 interests of the Wall Street financiers, who 
 control the destinies of the New Haven. 
 Northern New England might suffer by the 
 New Haven serving New York, Connecticut 
 and Rhode Island in preference to this Com- 
 monwealth. The prosperity of Massachusetts 
 and northern New England is at present abso- 
 lutely dependent on the New Haven; but the 
 New Haven's prosperity is not absolutely de- 
 pendent upon Massachusetts and northern New 
 England. 
 
288 BUSINESS — A PROFESSION 
 
 THE LIMITS OF REGULATION 
 
 The policy of regulating public-service com- 
 panies is sound; but it must not be over- 
 worked. The scope of any possible effective 
 regulation of an interstate railroad, either by 
 the federal or by State commissions, is limited 
 to a relatively narrow sphere. Regulation may 
 prevent positive abuses, like discriminations, 
 or rebating, or excessive rates. Regulation may 
 prevent persistent disregard of definite public 
 demands, like that for specific trains or for 
 stops at certain stations. Regulation may 
 compel the correction of definite evils, like the 
 use of unsanitary cars. But regulation cannot 
 make an inefficient business efficient. Regula- 
 tion cannot convert a poorly managed railroad 
 into a well-managed railroad. Regulation can- 
 not supply initiative or energy. Regulation 
 cannot infuse into railroad executives the will 
 to please the people. Regulation cannot over- 
 come the anaemia or wasting-sickness which 
 attends monopoly. Regulation may curb, but 
 it cannot develop the action of railroad officials. 
 
 For no commission, however broad its powers, 
 however able, fearless and diligent its members, 
 can perform the functions of general man- 
 ager and the board of directors of a railroad sys- 
 
UNREGULATED MONOPOLY 289 
 
 tem; or supply the incentive and the eagerness 
 to please the public and that development which 
 results from the necessities of competition. 
 It is to lack of efl&ciency, to the lack of ap- 
 preciation of the community's needs, and to the 
 lack of this eagerness to please its customers 
 that our demoralized transportation service is 
 in large measure due. 
 
 For instance, bad freight service has seriously 
 impaired the prosperity of New England. De- 
 liveries of freight have been almost incredibly 
 slow and unreliable. The effect upon the busi- 
 ness concerns has been very serious. Success of 
 individual businesses has been imperilled. Pros- 
 perity of all New England has been retarded. 
 All this has happened in a period in which the 
 country has been blessed with an able, fear- 
 less and upright Interstate Commerce Commis- 
 sion, possessing broad legal powers. The recent 
 hearings before that commission have disclosed 
 the evUs from which the community suffers. 
 The recent public disclosures will undoubt- 
 edly result in correcting some specific evils 
 which have been pointed out; but the com- 
 mission cannot by any order make the railroads 
 give the shippers good service. Regulation 
 cannot produce efficient and enlightened rail- 
 road operation in the interests of the public; 
 
290 BUSINESS — A PROFESSION 
 
 and without that the community cannot get 
 satisfactory service. 
 
 The efl&ciency of regulation, even within its 
 acknowledged sphere, is quite limited. The 
 Bridgeport wreck of 191 1 was caused, as the 
 Interstate Commerce Commission found, by the 
 maintenance of a short crossover. It was un- 
 doubtedly lack of judgment in the railroad 
 originally to establish such a short crossover. 
 When the short crossover was found to be the 
 cause of the accident, the commission recom- 
 mended its abolition. The recommendation 
 was ignored by the railroad; the change was not 
 made. And the terrible Westport accident of 
 19 1 2 was the result of ignoring the recommenda- 
 tion. The Interstate Commerce Commission 
 surely performed its full duty of regulation in 
 this connection; and yet the community was 
 subjected to this serious result of inefl&ciency 
 in railroading. 
 
 THE NEED OF COMPETITION 
 
 No one has recognized more fully than mem- 
 bers of the Interstate Commerce Commission 
 the limitation of accomplishment through rail- 
 road regulation. No one recognizes better than 
 they the continuing need of competition to 
 secure satisfactory service. 
 
UNREGULATED MONOPOLY 291 
 
 This appears very clearly from Chairman 
 Prouty's letter to the President, written March 
 12, 191 2, referring to the proposal to permit 
 raUroad-owned ships to use the Panama Canal, 
 but referring generally to all water trans- 
 portation, in which he says: 
 
 "The commission, after consideration, is unani- 
 mously of the opinion that if the waterways of this 
 country are to be of any substantial benefit in the 
 way of reducing the rates of transportation, it is ab- 
 solutely essential that rail carriers be prohibited from 
 owning or controlhng, directly or indirectly, com- 
 peting water carriers." 
 
 Congress, also, by an overwhelming ma- 
 jority, testified to its conviction that the Inter- 
 state Commerce Commission was right in de- 
 claring such competition in transportation to be 
 essential to our prosperity; for it not only pro- 
 hibited railroad-owned steamships from using 
 the Panama Canal, but insisted upon insert- 
 ing in the Canal Act a general provision by which 
 all railroads engaged in interstate commerce are 
 prohibited from owning or operating any com- 
 peting water lines on any routes after July i, 
 19 14, unless the commission should, upon inves- 
 tigation of the particular line, find that its opera- 
 tion is of advantage to the convenience and 
 commerce of the people; or that such service 
 
292 BUSINESS — A PROFESSION 
 
 would not retard competition by other vessels 
 on the water route under consideration. 
 
 Of course, competition between carriers is 
 not synonymous with rate-cutting. New Eng- 
 land longs for good service even more than for 
 lower rates. The Interstate Commerce Com- 
 mission may effectively prevent increases in 
 rates; and may protect the community by en- 
 forcing reductions. 
 
 But even in its admitted field care must 
 always be taken not to overwork the Inter- 
 state Commerce Commission by creating 
 conditions of monopoly under which burdens 
 would develop greater than it could probably 
 bear. The excellent work which the Commis- 
 sion has so far done has been possible only 
 because existing competition between rail- 
 roads has to a large extent produced develop- 
 ment and supply of reasonable facilities, and, 
 in the main, reasonable rates; each railroad 
 acting, to a certain extent, as a check upon 
 the other. Such is the condition in Wisconsin, 
 where the best success in regulation of railroads 
 has been attained. To abandon competition in 
 transportation and rely upon regulation as a 
 safeguard against the evils of monopoly would 
 be like surrendering liberty and regulating 
 despotism. 
 
UNREGULATED MONOPOLY 293 
 
 THE MONOPOLY UNCONTROLLABLE 
 
 The Grand Trunk incident shows clearly that 
 a powerful interstate monopoly like the New 
 Haven with its banking affiliations is uncon- 
 trollable, so long as the monopoly is allowed to 
 continue. The people of Massachusetts and 
 of Rhode Island, after some unsatisfactory ex- 
 perience with the New Haven's monopoly of 
 transportation, determined to secure competi- 
 tion. The Boston Chamber of Commerce and 
 other trade organizations of these States insisted 
 that the Grand Trunk should be permitted to 
 secure an independent entrance into Boston and 
 into Providence. The governors of these sover- 
 eign States, the mayors of their chief cities, 
 recommended the necessary legislation. The 
 legislatures, after long deliberation, passed the 
 required acts in spite of all the opposition 
 which the New Haven could interpose. Con- 
 struction of the line through Massachusetts to 
 Providence was commenced, and, despite the 
 obstacles presented by the New Haven, was 
 nearing completion. Contracts were let for 
 the new line of Grand Trunk boats from 
 Providence to New York. Surveys for the 
 Grand Trunk railroad into Boston were being 
 made. 
 
294 BUSINESS — A PROFESSION 
 
 Then the powerful New Haven monopoly, 
 by threat, bribe or other influence, stopped 
 construction and secured the abandonment of 
 the competitive project. The laws of Massa- 
 chusetts and of Rhode Island were nullified; 
 the will of the people of two supposedly sover- 
 eign States was defied; and there is no power 
 of regulation now possessed by, or which can 
 be conferred upon, any State railroad commis- 
 sion or the Interstate Commerce Commission 
 which could prevent or redress such a wrong 
 to the people. 
 
 THE CURSE OF BIGNESS 
 
 But even if it were possible to really regu- 
 late the New Haven monopoly, efficient and 
 satisfactory transportation would be unat- 
 tainable because the New Haven suffers not 
 only from monopoly, but also from excessive 
 bigness. 
 
 The New Haven is not strictly a system; it 
 is an agglomeration of properties. Its huge 
 bulk was attained, not by normal growth, but by 
 acquisition. It represents not so much a devel- 
 opment as a putting together. Furthermore, 
 it is an agglomeration, not of railroads merely, 
 but of railroads, steamships, trolleys and other 
 properties. 
 
UNREGULATED MONOPOLY 295 
 
 Here are some of the properties which the 
 New Haven railroad, with 2,006 miles of line, 
 has purchased or acquired control of, or an 
 effective interest in, during the last eight years 
 of aggressive monopolization: 
 
 , , T> Miles of 
 
 (i) Railroads lme 
 
 Boston and Maine system 2,449 
 
 Montpelier and Wells River and the Barre railroads . . 66 
 
 Maine Central system . 1,410 
 
 Sandy River and Rangeley Lakes 102 
 
 Bridgeton and Saco 21 
 
 Sebasticook and Moosehead 16 
 
 Rangeley Lakes and Megantic 11 
 
 New York, Ontario and Western S13 
 
 Central New England .... . ... . 272 
 
 New York, Westchester and Boston 274 
 
 4,934 
 These railroads have a total of 7,245 miles of track. 
 
 The New Haven acquired also: 
 
 1. One-half the New York Central holdings of preferred 
 stock (and would have acquired all but for adverse legal pro- 
 ceedings) in the Rutland Railroad, with 415 miles of line. 
 
 2. One-half interest in the resvdts of operating the Boston 
 and Albany, with 392 miles of line. 
 
 , . __ Miles of 
 
 (2) Trolleys line 
 
 In Connecticut, 37 trolley lines 773 
 
 In Rhode Island, 12 trolleys 347 
 
 In Massachusetts, 19 trolley lines . . ... 481 
 (The New Haven claims to have divested itself of 
 control of a large part of these.) 
 
 In New York, 3 troUey lines 58 
 
 In New Hampshire, 2 trolley lines 47 
 
 In Vermont, i trolley line 21 
 
 1,727 
 
296 BUSINESS — A PROFESSION 
 
 (3) Steamship Lines 
 Joy Line. 
 
 Hartford and New York Transportation Company. 
 Maine Steamship Line (now merged in Eastern Steamship 
 
 Company). 
 Metropolitan Steamship Company (now merged in Eastern 
 
 Steamship Company). 
 Boston and Philadelphia (now merged in Merchants' and 
 
 Miners'). 
 
 To acquire the mere control or interest in new 
 properties, the New Haven invested, during 
 the last ten years of aggressive monopolization, 
 about $250,000,000. In that period the New 
 Haven increased its own capitalization and 
 other direct and contingent liabilities nearly 
 sixfold, or from $87,000,060 to $530,000,000. 
 
 Before the New Haven acquired control of 
 these properties they were in large part oper- 
 ated independently and by different groups of 
 executive officers. Since the acquisition, and 
 as a necessary incident of incorporating them 
 into the so-called system, a few New Haven 
 officials have, in effect, been charged with the 
 management of them all. For a few men to 
 manage all these properties well surpasses 
 human capacity. 
 
 INTENSIVE RAILROADING 
 
 The bulk of the New Haven properties is 
 huge; but it is not the huge bulk alone which 
 
UNREGULATED MONOPOLY 297 
 
 renders impossible the task of efl&cient man- 
 agement. The New Haven properties are 
 diverse in character and widely scattered; but 
 it is not these facts which present the most 
 serious difl&culty in their operation. The in- 
 superable obstacle to efl&cient management of 
 the New Haven properties, in addition to the 
 status of monopoly, lies in the fact that almost 
 each one of these many diverse properties, 
 agglomerated into a so-caUed system, presents 
 many problems which are not only important, 
 but are individual to the particular property 
 and to the particular community served by 
 it. That results necessarily from the con- 
 ditions surrounding transportation in New 
 England. 
 
 For the solution of each of these problems 
 there is required, not only separate investi- 
 gation, but carefid weighing of relevant facts. 
 In order to secure unity of purpose and action, 
 all these problems must be passed upon ulti- 
 mately by the same chief executives. Now, 
 the number of such decisions which any man 
 can make, however able and hard-working he 
 may be, and the extent of supervision which 
 any man can effectively apply, are obviously very 
 limited. Organization may accomplish much 
 in extending the scope of work possible for an 
 
298 BUSINESS — A PROFESSION 
 
 executive; but there is an obvious limit j also, 
 to the efl&cacy of organization; for the success of 
 the whole enterprise demands that the executive 
 must be able to comprehend all the important 
 facts bearing upon the properties. Real effi- 
 ciency in any business in which conditions are 
 ever changing must ultimately depend, in large 
 measure, upon the correctness of judgment 
 formed from day to day on the problems as 
 they arise. And it is an essential of sound judg- 
 ment that the executives have time to know 
 and correlate the facts. 
 
 MERE CHANGE OF MANAGEMENT NO REMEDY 
 
 Men of good judgment must necessarily 
 make many errors if they work under the con- 
 ditions with which the liigh New Haven officials 
 have been confronted during the past eight 
 years. If the conditions remain the same, the 
 New Haven cannot, by removing present offi- 
 cials and substituting others, escape from mak- 
 ing similar errors in the future; nor can we aid 
 the matter materially by regulation, state or 
 federal. Present ills are due, in the main, to 
 the fundamental erroi' of adopting the policy of 
 monopoly. The ills can be remedied only by 
 abandoning that policy. Present conditions 
 
UNREGULATED MONOPOLY 299 
 
 make bad management inevitable. Bad man- 
 agement of the New Haven can be avoided in 
 the future only by changing the controlling con- 
 ditions under which the properties are to be 
 operated; and that involves reducing the so- 
 caUed system to a size consistent with efl&ciency, 
 and subjecting those who manage it to that 
 constant incentive and education which come 
 from having "to make good" in competitive 
 business. 
 
 It has been urged that the so-called New 
 Haven system is not too large; and some other, 
 large railroad systems have been referred to as 
 evidence of this. It may be answered, in the 
 first place, that none of those systems are mo- 
 nopolies; and that few of them own any trolleys 
 and relatively few are operating steamship lines. 
 Furthermore, several of them appear also to 
 have exceeded the limit of greatest efficiency. 
 But no comparison can properly be made be- 
 tween other large systems and the so-called 
 New Haven system. With a few notable excep- 
 tions the size of most of the other systems 
 was, in the main attained by gradual growth. 
 Their main line was built, then extended, and 
 branches were constructed in various directions 
 in obedience largely to actual necessities of the 
 States or of the railroads. Their problems were 
 
300 BUSIlsfESS — A PROFESSION 
 
 important and were difficult; but as compared 
 with the problems arising from operation in New 
 England they were relatively few and simple. 
 In the West the same problem is repeated on 
 many parts of the line ; there a general rule can 
 frequently be laid down. Here nearly every grave 
 problem is an individual one. New England 
 railroading is done in an old and settled com- 
 munity; the population is congested; and here, 
 to a certain extent, conditions became fixed 
 even before the days of railroading. 
 
 The great growth of population and of business 
 in New England has brought with it many ptob- 
 lems, individual in character, but which are 
 nevertheless of a nature to require consideration 
 by the high executives. Indeed, this difference 
 between the railroad situation in other parts of 
 the country and that of the East has been fre- 
 quently urged by the railroad ofl&cials them- 
 selves. Railroading, to be done efficiently and 
 prosperously in New England, must be done far 
 more intensively than in newer sections of the 
 country. New England railroading may, per- 
 haps, be likened to our intensive market gar- 
 dening, or to tobacco growing in the Connecti- 
 cut valley, in contrast to the big wheat farms of 
 the West. 
 
UNREGULATED MONOPOLY 301 
 
 ENDING OF MONOPOLY IMPERATIVE 
 
 Even if the size of the so-called New Haven 
 system were much reduced, yet the efficient ser- 
 vice demanded by the public could not be at- 
 tained so long as a monopoly in transportation 
 is permitted to exist. Competition, except in 
 purely local traffic, subject to complete regu- 
 lation as above described, should be intro- 
 duced so far as possible everywhere. But, as 
 above explained, this does not mean rate- 
 cutting. Competition is not possible every- 
 where on the New Haven system; but a broad 
 field of healthy competition is open to New 
 England. Bordering largely on the Atlantic 
 Ocean, blessed with fine harbors, we should 
 have the full benefit of water competition and 
 of the low rates which are consistent with rea- 
 sonable profit to those engaged in water trans- 
 portation. Being a thickly settled community, 
 we should have the full benefit of competition 
 through interurban electrics. The New Haven 
 has robbed New England of the benefit both of 
 water competition and of trolley competition. 
 
 In order to attain its transportation mo- 
 nopoly the New Haven bought up at huge cost 
 not only competing railroads, but water and 
 trolley lines. To secure satisfactory transpor- 
 
302 BUSINESS — A PROFESSION 
 
 tation conditions in New England, water and 
 trolley competition must be reestablished. 
 Connecticut, Rhode Isl9,nd and Massachusetts 
 should insist upon separate ownership of rail, 
 water and trolley lines, which are naturally 
 competitive. 
 
 But the establishment of competing water and 
 trolley lines would not afford complete relief. 
 Neither steamships nor trolleys could break the 
 monopoly in a large part of our traffic. To do 
 that railroad competition is essential. To this 
 end the Boston and Maine must be completely 
 separated from the New Haven. Such separa- 
 tion would reinstate important competition in 
 transportation within the State; and without 
 such separation adequate competition is unat- 
 tainable in the most important interstate traffic; 
 for instance, to Chicago, St. Louis and the West. 
 
 Without establishing an important absolutely 
 independent railroad system in our community, 
 the New Haven and the community will be de- 
 prived of that opportunity of comparing stand- 
 ards of operation which is essential to the best 
 accomplishment in any department of business. 
 
 Unless the Boston and Maine is separated 
 from the New Haven, Massachusetts and 
 northern New England will be without a rail- 
 road system wholly devoted to its interests. 
 
UNREGULATED MONOPOLY 303 
 
 LAWS 
 
 The recent decision of the United States Su- 
 preme Court, holding the Union-Southern Pa- 
 cific merger illegal, may lead the administration 
 to bring proceedings to end this huge New 
 Haven monopoly by reinstituting the proceed- 
 ings commenced in 1908 by President Roosevelt 
 and dismissed by the new administration in 
 1909, after the Boston Railroad Holding Com- 
 pany bill was passed. And so far as concerns 
 the water lines, relief may also be afforded 
 through the Interstate Commerce Commission 
 under the provisions of the recent act of 
 Congress. 
 
 But proper transportation conditions will 
 probably not be secured unless the States also 
 take appropriate action. The States can effect 
 the separation of the trolley lines. Rhode 
 Island seems inclined to acquire and complete 
 the railroad line which the Grand Trunk was 
 induced by the New Haven to abandon. And 
 at present the most certain and expeditious 
 method of securing the separation of the Boston 
 and Maine from the New Haven appears to be 
 for the Commonwealth of Massachusetts to ex- 
 ercise the right reserved to it in the Massa- 
 chusetts act of 1909, incorporating the Boston 
 
304 BUSINESS — A PROFESSION 
 
 Railroad Holding Company (the New Haven's 
 subsidiary which holds for it the Boston and 
 Maine stock). That act provides: 
 
 "The Commonwealth may at any time, by act of 
 the Legislature upon one year's notice, take or re- 
 quire the securities." 
 
 The New Haven is clearly bound by the pro- 
 visions of this statute, as the act expressly 
 provides: 
 
 "The acquisition by any railroad corporation . . . 
 of any bonds, stocks, notes, or other evidence of in- 
 debtedness of said Boston Railroad Holding Com- 
 pany shall be deemed to be an acceptance by said 
 railroad corporation of all the terms and provisions 
 of this act." 
 
 The legislature of Massachusetts passed the 
 holding company bill upon the assurance of 
 Governor Draper and of the Attorney General 
 that by so doing the Commonwealth would 
 acquire potential control over the Boston and 
 Maine. The aggressions of private monopoly 
 compel it now to exercise this reserved power 
 to take the stock. After the Commonwealth 
 has acquired the stock, it may retain the same 
 and assume the responsibility of a majority 
 owner in a corporation to choose its managing 
 officials; or it may transfer the stock under 
 
UNREGULATED MONOPOLY 305 
 
 proper safeguards to others, who will operate it 
 in the interest of Massachusetts and northern 
 New England. But action by the State to take 
 over the stock seems necessary now. 
 
 "A condition and not a theory confronts us." 
 
AN AID TO RAILROAD EFFICIENCY ^ 
 
 The decision of the Interstate Commerce 
 Commission having established that there shall 
 be no general advance in railroad freight rates, 
 the attention of the public should now be di- 
 rected toward encouraging improvements in 
 service and in operating conditions and to 
 the development of transportation facilities. 
 To this end greater efficiency in management, 
 and an ample supply of capital, are necessary. 
 
 Railroading being a private business, the 
 corporations must, in order to secure capital 
 as well as ability and zeal in management, offer 
 the ordinary incentives incident to successful 
 private businesses, namely, liberal money re- 
 wards. Capital or property will yield vastly 
 differing returns according to the degree of 
 judgment and efficiency applied in manage- 
 ment. In order to secure efficient administra- 
 tion of railroads, we must make the rewards 
 proportional to the efficiency. The establish- 
 
 ' A statement before the (Hadley) Railroad Securities Commis- 
 sion, March 6, igii : Published in "Engineering Magazine," October, 
 1911. 
 
AID TO RAILROAD EFFICIENCY 307 
 
 ment, therefore, of any rule fixing a maximum 
 return on capital invested in railroads would 
 tend to prevent efficiency by placing a limit 
 on achievement. 
 
 To-day even though no fixed maximum 
 return is definitely adopted, efficiency in man- 
 agement is in danger of being punished; whereas 
 it should be rewarded. Efficiency is nat- 
 urally reflected in large net earnings; and as 
 no ready means exists for determining whether 
 larger net earnings are due to greater efficiency 
 in management or to higher rates, large earn- 
 ings are frequently accepted as evidence that 
 rates are too high and lead to demands for 
 reduction; when, in fact, the large earnings 
 may be due wholly to better management. 
 To take from railroad corporations the natural 
 fruits of efficiency — that is, greater money 
 rewards — must create a sense of injustice 
 suffered, which paralyzes effort, invites in- 
 efficiency and produces slip-shod management. 
 The public interest, as well as justice, demands, 
 therefore, the due appreciation of greater effi- 
 ciency in management, and the granting of 
 adequate rewards. In other words, private 
 capital embarked in a quasi-public business 
 ought to receive compensation on a sliding 
 scale; so that the greater the service to the 
 
308 BUSINESS — A PROFESSION 
 
 public, the greater the profit to those furnishing 
 that service. 
 
 Boston applied the sliding-scale system to 
 the production and sale of gas. There the divi- 
 dend to the stockholders rises as the selling 
 price to the public is reduced; and that system 
 has proved eminently satisfactory both to the 
 public and to the investor. The problem pre- 
 sented in the gas business was so simple that it 
 was possible to apply the principle and make 
 it operate automatically. The problem in 
 railroading is infinitely more diflScult, owing 
 to the complexities arising from multitudinous 
 rates, varying, conditions and degrees of ser- 
 vice and interstate relations. But if the prin- 
 ciple of the sliding scale is once definitely 
 recognized by the Interstate Commerce Com- 
 mission, State railroad commissions and the 
 people, as properly controlling the relations 
 between the public and railroad corporations, 
 methods will undoubtedly be worked out in 
 time by which it can be safely applied. 
 
 The first step in applying the principle of 
 the sliding scale must be, however, to devise 
 means of determining degrees of efficiency, — 
 and that involves determining the unit cost of 
 each operation on each railroad. Unless costs 
 are so ascertained, no true measure of efficiency 
 
AID TO RAILROAD EFFICIENCY 
 
 can be arrived at. The knowledge that the 
 average annual cost per locomotive for repairs, 
 renewals and depreciation on one railroad is 
 $3832.37 and on another is $2709.27 would be 
 a very unsafe ground for determining the rela- 
 tive economy of operation on the two rail- 
 roads. The conditions on the two railroads 
 and the standards of renewal and depreciation 
 may vary so greatly that the company expend- 
 ing the greater sum may actually have con- 
 ducted its locomotive use and repair more 
 economically and efficiently than the railroad 
 expending less. We must reduce each operation 
 to its ultimate unit and ascertain the cost of 
 that before a proper basis of comparison can be 
 secured. We must learn not merely the cost 
 of turning a wheel of a standard size and char- 
 acter, the cost of laying a tie or a rail under 
 standard conditions; but even these relatively 
 simple operations must be again analyzed and 
 separated into their component elements before 
 a safe basis of relative costs can be arrived at. 
 
 The fact that railroads are subject in their 
 accounting to the orders of the Interstate Com- 
 merce Commission makes it possible to require 
 that each company should ascertain and report 
 to the commission the ultimate unit costs of 
 each operation in each department of the rail- 
 
310 BUSINESS — A PROFESSION 
 
 road. The further fact that the railroad 
 business is largely non-competitive, makes it 
 proper to publish these costs and to give to 
 each railroad the benefit of knowing the lowest 
 unit cost of each operation attained by any 
 railroad and how it was attained. 
 
 To aid in this work the Interstate Com- 
 merce Commission should establish a Bureau 
 of Railroad Costs by which the ascertainment 
 of costs may be supervised and the results 
 analyzed, classified and compared. Knowledge 
 of the best methods would thus become the 
 common property of railroad men. That alone 
 would lead directly to great advances in effi- 
 ciency and economy. But the adoption of the 
 best existing methods would be merely the 
 beginning of the great advance. The ascer- 
 tainment of the lowest existing costs would 
 inevitably be followed by widespread striving 
 to eliminate further waste of time, effort and 
 material and to find ever better methods. 
 With the introduction of exact tests of effi- 
 ciency, with the establishment of dependable 
 standards of comparison, railroad operation 
 would soon develop into a recognized profes- 
 sion; and those who pursue it would be stimu- 
 lated like scientists and engineers to ever higher 
 achievements. 
 
AID TO RAILROAD EFFICIENCY 311 
 
 There should be established also an Ex- 
 periment Station in Railroad Efficiency. Such 
 a- station could be conducted similarly to the 
 Agricultural experiment stations and the Office 
 of Roads in the Department of Agriculture. 
 The former has been potent in raising the stan- 
 dard in agriculture; the latter has advanced 
 road-building throughout the United States. 
 The cooperation of the government in fur- 
 thering railroad efficiency would be no less 
 effective. The Bureau would undoubtedly 
 develop valuable inventions and discoveries 
 in its own laboratories, as the various exper- 
 iment stations of the Agricultural Department 
 have done. But it would be of even greater 
 service in testing the inventions made and 
 methods suggested by others; and it could 
 bring those of especial value to the attention 
 of the railroads. Hundreds of inventions, 
 hundreds of new methods which, if adopted, 
 would enhance the efficiency of railroad oper- 
 ation, and introduce economies of wide scope, 
 have remained unused, because they are not 
 known to the operating men. Many of these 
 inventions are not now in use merely because 
 no single railroad was willing to give the time 
 or incur the expense of testing their value; 
 many because the inventor or discoverer, was 
 
312 BUSINESS — A PROFESSION 
 
 unable to secure a hearing or a fair test. There 
 are undoubtedly also a large number of devices 
 and methods in use in foreign countries of 
 which our railway managers have either no 
 knowledge or have but inadequate information. 
 It is a proper function of our government 
 to make such investigations and to give to the 
 railroads the benefit thereof. The railroads are 
 the greatest single industry in the United 
 States next to agriculture. The interest of the 
 general public to secure efl&cient and econo- 
 mical transportation is so great that the govern- 
 ment would be fully justified in incurring any 
 reasonable expense to aid in increasing rail- 
 road efficiency. And in view of the obligations 
 already assumed by the government in the reg- 
 ulation of railroad rates and service, it should 
 proceed now to thus lend its aid to the rail- 
 roads, securing to them greater justice by per- 
 mitting them to enjoy earnings on capital in pro- 
 portion to the efficiency of their management. 
 
THE OPPORTUNITY IN THE LAW ^ 
 
 I ASSUME that in asking me to talk to you on 
 the Ethics of the Legal Profession, you do not 
 wish me to enter upon a discussion of the rela- 
 tion of law to morals, or to attempt to ac- 
 quaint you with those detailed rules of ethics 
 which lawyers have occasion to apply from day 
 to day in their practice. What you want is 
 this: Standing not far from the threshold of 
 active life, feeling the generous impulse for 
 service which the University fosters, you wish 
 to know whether the legal profession would 
 afford you special opportunities for useful- 
 ness to your fellow-men, and, if so, what the 
 obligations and limitations are which it im- 
 poses. I say special opportunities, because 
 every legitimate occupation, be it profession or 
 business or trade, furnishes abundant oppor- 
 tunities for usefulness, if pursued in what 
 Matthew Arnold called "the grand manner." 
 It is, as a rule, far more important how men 
 pursue their occupation than what the occu- 
 patio^ is which they select. 
 
 • An address delivered May 4, 1905, at Phillips Brooks House, 
 before the Harvard Ethical Society. 
 
314 BUSINESS — A PROFESSION 
 
 But the legal profession does afford in Amer- 
 ica unusual opportunities for usefulness. That 
 this has been so in the past, no one acquainted 
 with the history of our institutions can for a 
 moment doubt. The great achievement of the 
 English-speaking people is the attainment of 
 liberty through law. It is natural, therefore, 
 that those who have been trained in the law 
 should have borne an important part in that 
 struggle for liberty and in the government which 
 resulted. Accordingly, we find that in Amer- 
 ica the lawyer was in the earlier period almost 
 omnipresent in the State. Nearly every great 
 lawyer was then a statesman; and nearly 
 every statesman, great or small, was a lawyer. 
 DeTocqueville, the first important foreign ob- 
 server of American political institutions, said of 
 the United States seventy-five years ago: 
 
 "In America there are no nobles or literary men, 
 and the people are apt to mistrust the wealthy; 
 lawyers, consequently, form the highest political 
 class. ... As the lawyers form the only enlightened 
 class whom the people do not mistrust, they are natu- 
 rally called upon to occupy most of the public stations. 
 They fill the legislative assemblies and are at the head 
 of the administration; they consequently exercise a 
 powerful influence upon the formation of the law and 
 upon its execution." 
 
OPPORTUXITY IX THE LAW 315 
 
 For centuries before the American Revolution 
 the lawyer had played an important part in 
 England. His importance in the State became 
 much greater in America. One reason for this, 
 as DeTocqueville indicated, was the fact that 
 we possessed no class like the nobles, which 
 took part in government through privilege. A 
 more potent reason was that with the introduc- 
 tion of a written constitution the law became 
 with us a far more important factor in the 
 ordinary conduct of political life than it did in 
 England. Legal questions were constantly aris- 
 ing and the lawyer was necessary to settle them. 
 But I take it the paramount reason why the 
 lawyer has plaj^ed so large a part in our political 
 life is that his training fits him especially to 
 grapple with the questions which are presented 
 in a democracy. 
 
 The whole training of the lawyer leads to the 
 development of judgment. His early training — 
 his work with books in the study of legal rules 
 — teaches him patient research and develops 
 both the memory and the reasoning faculties. 
 He becomes practised in logic; and yet the use 
 of the reasoning faculties in the study of law 
 is very different from their use, say, in meta- 
 physics. The lawyer's processes of reasoning, 
 his logical conclusions, are being constantly 
 
316 BUSINESS — A PROFESSION 
 
 tested by experience. He is running up against 
 facts at every point. Indeed it is a maxim 
 of the law: Out of the facts grows the law; 
 that is, propositions are not considered ab- 
 stractly, but always with reference to facts. 
 
 Furthermore, in the investigation of the facts 
 the lawyer differs very materially from the 
 scientist or the scholar. The lawyer's investi- 
 gations into the facts are limited by time and 
 space. His investigations have reference al- 
 ways to some practical end. Unlike the scien- 
 tist, he ordinarily cannot refuse to reach a 
 conclusion on the ground that he lacks the 
 facts sufficient to enable one to form an opinion. 
 He mustjform an opinion from those facts which 
 he has gathered; he must reason from the facts 
 within his grasp. 
 
 If the lawyer's practice is a general one, his 
 field of observation extends, in course of time, 
 into almost every sphere of business and of life. 
 The facts so gathered ripen his judgment. 
 His memory is trained to retentiveness. His 
 mind becomes practised in discrimination as well 
 as in generalization. He is an observer of men 
 even more than of things. He not only sees 
 men of all kinds, but knows their deepest secrets; 
 sees them in situations which "try men's souls." 
 He is apt to become a good judge of men. 
 
OPPORTUNITY IN THE LAW 317 
 
 Then, contrary to what might seem to be the 
 habit of the lawyer's mind, the practice of law 
 tends to make the lawyer judicial in attitude 
 and extremely tolerant. His profession rests 
 upon the postulate that no contested question 
 can be properly decided until both sides are 
 heard. His experience teaches him that nearly 
 every question has two sides; and very often 
 he finds — after decision of judge or jury — 
 that both he and his opponent were in the 
 wrong. The practice of law creates thus a 
 habit of mind, and leads to attainments which 
 are distinctly different from those developed in 
 most professions or outside of the professions. 
 These are the reasons why the lawyer has ac- 
 quired a position materially different from that 
 of other men. It is the position of the adviser 
 of men. 
 
 Your chairman said: "People have the im- 
 pression to-day that the lawyer has become 
 mercenary." It is true that the lawyer has 
 become largely a part of the business world. 
 Mr. Bryce said twenty years ago when he com- 
 pared the America of 1885 with the America 
 of DeTocqueville: 
 
 "Taking a general survey of the facts of to-day, 
 as compared with the facts of sixty years ago, it is 
 clear that the Bar counts for less as a guiding and re- 
 
318 BUSINESS — A PROFESSION 
 
 straining power, tempering the crudity or haste of 
 democracy by its attachment to rule and precedent, 
 than it did." 
 
 And in reviewing American conditions after 
 his recent visit Mr. Bryce said: 
 
 "Lawyers are now to a greater extent than for- 
 merly business men, a part of the great organized 
 system of industrial and financial enterprise. They 
 are less than formerly the students of a particular kind 
 of learning, the practitioners of a particular art. And 
 they do not seem to be so much of a distinct profes- 
 sional class." 
 
 That statement was made by a very sympa- 
 thetic observer of American institutions; but it 
 is clear that Mr. Bryce coincides in the view 
 commonly expressed, that the Bar had become 
 commercialized through its connection with 
 business. I am inclined to think that this view 
 is not altogether correct. Probably business 
 has become professionalized as much as the 
 Bar has become commercialized. Is it not this 
 which has made the lawyer so important a part 
 of the business world? 
 
 The ordinary man thinks of the Bar as a body 
 of men who are trying cases, perhaps even 
 trying criminal cases. Of course there is an 
 immense amount of litigation going on; and a 
 great deal of the time of many lawyers is de- 
 
OPPORTUNITY IN THE LAW 319 
 
 voted to litigation. But by far the greater part 
 of the work done by lawyers is done not in 
 court, but in advising men on important mat- 
 ters, and mainly in business affairs. In guid- 
 ing these affairs industrial and financial, lawyers 
 are needed, not only because of the legal ques- 
 tions involved, but because the particular men- 
 tal attributes and attainments which the legal 
 profession develops are demanded in the proper 
 handling of these large financial or industrial 
 affairs. The magnitude and scope of these 
 operations remove them almost wholly from 
 the realm of "petty trafficking" which people 
 formerly used to associate with trade. The 
 questions which arise are more nearly questions 
 of statesmanship. The relations created call 
 in many instances for the exercise of the high- 
 est diplomacy. The magnitude, difficulty and 
 importance of the problems involved are often 
 as great as in the matters of state with which 
 lawyers were formerly frequently associated. 
 The questions appear in a different guise; but 
 they are similar. The relations between rival 
 railroad systems are like the relations between 
 neighboring kingdoms. The relations of the 
 great trusts to the consumers or to their em- 
 ployees is like that of feudal lords to com- 
 moners or dependents. The relations of public- 
 
320 BUSINESS — A PROFESSION 
 
 service corporations to the people raise ques- 
 tions not unlike those presented by the monop- 
 olies of old. 
 
 So some of the ablest American lawyers of 
 this generation, after acting as professional ad- 
 visers of great corporations, have become finally 
 their managers. The controlling intellect of 
 the great Atchison Railroad System, its vice- 
 president, Mr. Victor Morawetz, graduated at 
 the Harvard Law School about twenty-five 
 years ago, and shortly afterward attained 
 distinction by writing an extraordinarily good 
 book on the Law of Corporations. The head of 
 the great Bell Telephone System of the United 
 States, Mr. Frederick P. Fish, was at the time 
 of his appointment to that office probably our 
 leading patent lawyer. In the same way, and for 
 the same reason, lawyers have entered into the 
 world of finance. Mr. James J. Storrow, who 
 was a law partner of Mr. Fish, has become a 
 leading member of the old banking firm of Lee, 
 Higginson & Co. A former law partner of Mr. 
 Morawetz, Mr. Charles Steele, became a mem- 
 ber of the firm of J. P. Morgan & Co. Their 
 legal training was called for in the business world, 
 because business has tended to become profes- 
 sionalized. And thus, although the lawyer is 
 not playing in affairs of state the part he once 
 
OPPORTUNITY IN THE LAW S21 
 
 did, his influence is, or at all events may be, 
 quite as important as it ever was in the United 
 States; and it is simply a question how that 
 influence is to be exerted. 
 
 It is true that at the present time the lawyer 
 does not hold as high a position with the people 
 as he held seventy-five or indeed fifty years 
 ago; but the reason is not lack of opportunity. 
 It is this : Instead of holding a position of inde- 
 pendence, between the wealthy and the people, 
 prepared to curb the excesses of either, able 
 lawyers have, to a large extent, allowed them- 
 selves to become adjuncts of great corpora- 
 tions and have neglected the obligation to use 
 their powers for the protection of the people. 
 We hear much of the "corporation lawyer," and 
 far too little of the "people's lawyer." The 
 great opportunity of the American Bar is and 
 will be to stand again as it did in the past, ready 
 to protect also the interests of the people. 
 
 Mr. Bryce, in discussing our Bar, said, in his 
 " American Commonwealth" : 
 
 "But I am bound to add that some judicious 
 American observers hold that the last thirty years have 
 witnessed a certain decadence in the Bar of the great 
 cities. They say that the growth of the enormously 
 rich and powerful corporations willing to pay vast 
 simas for questionable services has seduced the virtue 
 
322 BUSINESS — A PROFESSION 
 
 of some counsel whose eminence makes their example 
 important." 
 
 The leading lawyers of the United States 
 have been engaged mainly in supporting the 
 claims of the corporations; often in endeav- 
 oring to evade or nullify the extremely crude 
 laws by which legislators sought to regulate 
 the power or curb the excesses of corporations. 
 
 Such questions as the regulation of trusts, 
 the fixing of railway rates, the municipaliza- 
 tion of public utilities, the relation between 
 capital and labor, call for the exercise of legal 
 ability of the highest order. Up to the present 
 time the legal ability of a high order which has 
 been expended on those questions has been al- 
 most wholly in opposition to the contentions 
 of the people. The leaders of the Bar, without 
 any preconceived intent on their part, and 
 rather as an incident to their professional 
 standing, have, with rare exceptions, been 
 ranged on the side of the corporations, and the 
 people have been represented, in the main, by 
 men of very meagre legal ability. 
 
 If these problems are to be settled right, this 
 condition cannot continue. Our country is, 
 after all, not a country of dollars, but of bal- 
 lots. The immense corporate wealth will neces- 
 sarily develop a hostility from which much 
 
OPPORTUNITY IN THE LAW 323 
 
 trouble will come to us unless the excesses of 
 capital are curbed, through the respect for law, 
 as the excesses of democracy were curbed 
 seventy-five years ago. There will come a 
 revolt of the people against the capitalists, 
 unless the aspirations of the people are given 
 some adequate legal expression; and to this end 
 cooperation of the abler lawyers is essential. 
 
 For nearly a generation the leaders of the 
 Bar have, with few exceptions, not only failed 
 to take part in constructive legislation de- 
 signed to solve in the public interest our 
 great social, economic and industrial prob- 
 lems; but they have' failed likewise to oppose 
 legislation prompted by selfish interests. They 
 have often gone further in disregard of com- 
 mon weal. They have often advocated, as 
 lawyers, legislative measures which as citizens 
 they could not approve, and have endeavored 
 to justify themselves by a false analogy. They 
 have erroneously assumed that the rule of 
 ethics to be applied to a lawyer's advocacy is 
 the same where he acts for private interests 
 against the public, as it is in litigation between 
 private individuals. 
 
 The ethical question which laymen most fre- 
 quently ask about the legal profession is this: 
 How can a lawyer take a case which he does not 
 
324 BUSINESS — A PROFESSION 
 
 believe in? The profession is regarded as neces- 
 sarily somewhat immoral, because its members 
 are supposed to be habitually taking cases 
 of that character. As a practical matter, 
 the lawyer is not often harassed by this 
 problem; partly because he is apt to believe, 
 at the time, in most of the cases that he actu- 
 ally tries; and partly because he either abandons 
 or settles a large number of those he does not 
 believe in. But the lawyer recognizes that in 
 trying a case his prime duty is to present his 
 side to the tribunal fairly and as well as he 
 can, relying upon his adversary to present the 
 other side fairly and as well as he can. Since 
 the lawyers on the two sides are usually reason- 
 ably well matched, the judge or jury may or- 
 dinarily be trusted to make such a decision as 
 justice demands. 
 
 But when lawyers act upon the same prin- 
 ciple in supporting the attempts of their private 
 clients to secure or to oppose legislation, a ve^y 
 different condition is presented. In the first 
 place, the counsel selected to represent im- 
 portant private interests possesses usually 
 ability of a high order, while the public is often 
 inadequately represented or wholly unrepre- 
 sented. Great unfairness to the public is apt 
 to result from this fact. Many bills pass in 
 
OPPORTUNITY IN THE LAW 325 
 
 our legislatures which would not have be- 
 come law, if the public interest had been fairly- 
 represented; and many good bills are defeated 
 which if supported by able lawyers would have 
 been enacted. Lawyers have, as a rule, failed 
 to consider this distinction between practice 
 in courts involving only private interests, and 
 practice before the legislature or city council 
 involving public interests. Some men of high 
 professional standing have even endeavored to 
 justify their course in advocating professionally 
 legislation which in their character as citizens 
 they would have voted against. 
 
 Furthermore, lawyers of high standing have 
 often failed to apply in connection with pro- 
 fessional work before the legislature or city 
 council a rule of ethics which they would deem 
 imperative in practice before the court. Lawyers 
 who would indignantly retire from a court case 
 in the justice of which they believed, if they 
 had reason to think that a juror had been bribed 
 or a witness had been suborned by their client, 
 are content to serve their client by honest ar- 
 guments before a legislative committee, although 
 they have as great reason to believe that their 
 client has bribed members of the legislature or 
 corrupted public opinion. This confusion of 
 ethical ideas is an important reason why the 
 
326 BUSINESS — A PROFESSION 
 
 Bar does not now hold the position which it 
 formerly did as a brake upon democracy, and 
 which I believe it must take again if the serious 
 questions now before us are to be properly 
 solved. 
 
 Here, consequently, is the great opportunity 
 in the law. The next generation must witness 
 a continuing and ever-increasing contest be- 
 tween those who have and those who have not. 
 The industrial world is in a state of ferment. 
 The ferment is in the main peaceful, and, to a 
 considerable extent, silent; but there is felt 
 to-day very widely the inconsistency in this 
 condition of political democracy and industrial 
 absolutism. The people are beginning to doubt 
 whether in the long run democracy and abso- 
 lutism can co-exist in the same community; 
 beginning to doubt whether there is a justifi- 
 cation for the great inequalities in the distri- 
 bution of wealth, for the rapid creation of 
 fortunes, more mysterious than the deeds of 
 Aladdin's lamp. The people have begun to 
 think; and they show evidences on all sides 
 of a tendency to act. Those of you who have 
 not had an opportunity of talking much with 
 laboring men can hardly form a conception of 
 the amount of thinking that they are doing. 
 With many these problems are all-absorbing. 
 
OPPORTXJNITY IN THE LAW 327 
 
 Many workingmen, otherwise uneducated, talk 
 about the relation of employer and employee far 
 more intelligently than most of the best edu- 
 cated men in the community. The labor 
 question involves for them the whole of life, 
 and they must in the course of a comparatively 
 short time realize the power which lies in them. 
 Often their leaders are men of signal ability, 
 men who can hold their own in discussion or in 
 action with the ablest and best-educated men 
 in the community. The labor movement must 
 necessarily progress. The people's thought will 
 take shape in action; and it lies with us, with 
 you to whom in part the future belongs, to say 
 on what lines the action is to be expressed; 
 whether it is to be expressed wisely and tem- 
 perately, or wildly and intemperately; whether 
 it is to be expressed on lines of evolution or on 
 lines of revolution. Nothing can better fit you 
 for taking part in the solution of these problems, 
 than the study and preeminently the practice 
 of law. Those of you who feel drawn to that 
 profession may rest assured that you will find 
 in it an opportunity for usefulness which is 
 probably unequalled. There is a call upon the 
 legal profession to do a great work for this 
 country. 
 
Cornell University Library 
 HC 106.B7 
 
 Business — a profession, 
 
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