2?em fork HuU CfoUegf of Agriculture Cornell University Library HD3611.A25 Business and the public welfare. 3 1924 013 695 857 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013695857 P ROCEEDINGS,. OF THE ACADEMY OF POLITICAL SCIENCE IN THE CriY OF NEW YORK Volume n] JANUARY, igia [Number 2 BUSINESS AND THE PUBLIC WELFARE The Academy of Political Science Columbia University, Ne w Yohk 1912 Copyright by Thb Academy of Political Science CONTENTS VACK I SOCIAL EFFICIENCY IN BUSINESS Industrial Hygiene as a Factor in Human Con- servation I Irving Fisher Provision for the Safety of Employes . 9 Raynal C. Boiling Discussion Protection Against Occupational Diseases . . 18 John B. Andrews Reporting of Occupation Diseases by Physicians. 24 W. Gilman Thompson Sanitation and Ventilation of Factories 32 George M. Price The Health OF Women Workers -35 yane Seymour Klink The Doctor and the Nurse in Industrial Estab- lishments 41 Lillian D. Wald The Woman's Welfare Department of the Na- tional Civic Federation 47 Mrs. John Hays Hammond II THE IMPROVEMENT OF LABOR LEGISLATION The Efficient Enforcement of Labor Legislation 49 P. Tecumseh Sherman Provision Against the Consequences of Indus- trial Accidents 60 Miles M. Dawson The Compensation Amendment to the New York Constitution 68 Henry R. Seager Discussion Legislation Dwight W. Morrow ...... 80 Edward T. Devine . . . . . -87 Labor Law Improvement and Enforcement: The Manufacturer's Attitude 90 John Calder iii iv CONTENTS III FINANCIAL FACILITIES FOR WAGE-EARNERS PAGE Investments on the Instalment Plan ... 94 William E. Harmon Discussion Isaac N. Seligman . . . .104 II. R. Mussey 107 Remedial Loans — A Constructive Program . .109 Arthur H. Ham Discussion Legislation Raymond B. Fosdick . . .118 Ansley Wilcox . . . . . . .121 The Mutual Investment Association of the Postal Telegraph Company 125 Edward Reynolds Cooperative Loan Societies 129 Pierre Jay The Celluloid Club Saving and Loan Department 132 5. T. Simmonds Cooperative Saving and Loan Associations . .139 E. E. Pratt IV GOVERNMENT AND BUSINESS The Basis of Government Regulation . . .149 Samuel McCune Lindsay Government Regulation — ^The Railroad View . 153 Roberts Walker Government Regulation — New York's Responsi- 159 BILITY George W. Perkins The Objections to Government Regulation . .166 Frederick W. Whitridge The Relation OF Government TO Business -173 Henry R. Seager Social Relations of Big Business . . . .180 John Hays Hammond Report of the Autumn Meeting of the Academy of Political Science 184 INDUSTRIAL HYGIENE AS A FACTOR IN HUMAN CONSERVATION ' F IRVING FISHER Professor of Political Economy, Yale University EW will dispute that we live in an age of change and that of all the many changes now in progress one of the most significant is the change in our attitude toward waste. Although men have talked of political economy and domestic economy for four or five generations, it is only recently that we have faced the really great practical problems of economy ; and this is especially true in America. We have counted it our good fortune to dwell in a land where nature has been so prodigal that we have not needed to fear want. We are only beginning to realize that this very prodigality of nature has produced a spirit of prodigality in men. It is the purpose of the conservation movement to rebuke and correct this national trait, and the resources of science are now concentrated in a mighty effort in this direction. The im- portance of conserving the food supply from our soils, as well as our supply of waters, minerals and wood, has, under the leadership of ex-President Roosevelt, taken a deep hold on the popular imagination. A beginning has thus been made in the movement to check the frightful wastes of production which have been disclosed. There is also an effort being made to eliminate the wastes of exchange through more " scientific management." But im- portant as are productive and business economics, still more important is what has recently been called " vital economics." The conservation of human life will, I believe, constitute the grandest movement of the twentieth century. Not only do human beings constitute by far the greatest part of our national resources, but the waste of human life and • Read at the meeting of the Academy of Political Science, November n, 191 1. (53) 2 BUSINESS AND THE PUBLIC WELFARE [Vol. II strength is by far the greatest of all wastes. In the report of President Roosevelt's Conservation Commission, although his commission was appointed primarily to conserve our natural rather than our vital resources, it was pointed out that human beings, considered as capitalized working power, are worth three to five times all our other capital, and that even on a very moderate estimate the total waste or unnecessary loss of our national vitality amounts to one and a half billions of dollars per year. Moreover, and this is the most important point, this waste may be checked by an expenditure ridiculously small compared with the economies attainable. For instance, a sanatorium for the treatment of tuberculosis, of which the writer is secretary, has recently calculated the costs of the institution during the six years of its existence, and the returns on this cost. About $200,000 have been expended in treating patients, and there have been already earned by the cured or improved patients discharged over $300,000 ; and these discharged patients still retain in potential working capacity, estimated on a very con- servative basis, a capital value of over $1,500,000. In other words, the expenditure of $200,000 has within six years cre- ated a value of about $2,000,000, or $10 for each dollar ex- pended. One of the Rockefeller funds is now engaged in a fight to overcome hook-worm disease in the south. Our war depart- ment has already to a great extent got rid of this disease in Porto Rico at a cost of 54 cents per patient, and this has probably produced, on the average, a restored earning power of more than this cost every day of the life of the restored victim. Similarly great results have been reaped on the invest- ment of installing municipal water supplies in Pittsburgh and other places, in the prevention of deaths from typhoid fever. But, in order properly to conserve our vital resources, there will be necessary a revolution in (i) our habits of living, (2) our public guardianship of public health, and (3) our conditions of labor. All three of these changes are now in progress. The anti-tuberculosis movement, the housing reform which goes with it, the playgrounds movement, and the various dietetic (54) No. 2] HYGIENE IN HUMAN CONSERVATION 3 movements and investigations exemplify the changes slowly taking place in our habits of living. The rapidly increasing expenditures for municipal and state boards of health, the con- sequent reduction in mortality from infectious diseases, as well as the movement for a national department of health, are ex- amples of improvements in the public guardianship of health. Finally, the movement for factory sanitation, for shorter hours of labor, for protection of workmen against accidents, for workmen's compensation and insurance, are examples of the improvements taking place in conditions of labor. These con- ditions are already vastly different from what they were when the first factory acts were passed in England two or three gene- rations ago. We may also believe that the rate of improvement is greater to-day than ever before. Professor Henderson in his recent book on Industrial Insurance in the United States re- marks that it is impossible to bring his book fully up to date because improvement is taking place faster than the record of it can be revised. The two fields in which the public most realizes the need for improvement in conditions of labor are the labor of children and of women. The premature employment of children, especially if, as is usually the case, they are over-fatigued, means a shameful sacrifice in the working efficiency of the growing generation ; and the employment under improper conditions of women, especially of married women, means an even more serious waste of life and strength for future genera- tions. In spite of all the agitation on these important subjects, little practical reform has as yet been accomplished, as compared with what is necessary from the standpoint of industrial effi- ciency. Adjustments come slowly, even in these times of rapid change, and the slowest adjustment of all is the adjustment of those legal conditions which it is one of the purposes of this association to study. When we consider that many of our judges still declare that the laws passed to restrict the labor of women are unconstitutional on the ground that in the musty law books (the heritage of the unsanitary ages of the past) there can be found no precedents to justify a discrimination between men and women, we realize how sadly the law is behind the (SS) 4 BUSINESS AND THE PUBLIC WELFARE [Vol. II times and how dearly we have to pay for the neglect of our ancestors to recognize by proper legal usages the physiological differences between man and woman. Personally I have little doubt that improvements in industrial hygiene could add at least one, and probably two decades to the expectation of life of workmen. That this is not an un- reasonable inference will, I believe, appear to any one who familiarizes himself with ( i ) the mortality and morbidity among the industrial classes, (2) the known preventability of this mortality and morbidity and (3) the prevention already ac- complished, especially in other lands than ours. We need in- dustrial hygiene in every department of industry, but particu- larly in certain dangerous trades. We need to follow the example of Germany and other countries in providing greater safeguards against accidents on railways and in factories. We need also to follow their example in a more adequate control of industry in the dusty trades, particularly where the particles of dust are hard and angular, as in the grinding of needles. We need also more stringent regulations in regard to the chem- ical trades. Few things have been more humiliating to public- spirited Americans than the failure of the United States Con- gress to pass the law for a prohibitive tax on the poisonous match industry — a law which was approved by the match producers themselves, and which represents a reform that has been made in practically every other civilized country. I have already implied that the United States is in many re- spects behind foreign nations in regard to industrial hygiene. This was evident to visitors this summer at the great Inter- national Hygiene Exhibition at Dresden. An American expert and student of the prevention of accidents stated to me at this exhibition that there was no comparison between what Germany is doing and what is even seriously considered as yet in the United States. In fact, at the Dresden Exhibition the United States was the only civilized country which had no official representation. How little we as a nation as yet appreciate the value of modern hygiene is illustrated by the fact that a con- siderable number of our citizens can be misled into believing that a national department of health would endanger " freedom." (S6) No. 2] HYGIENE IN HUMAN CONSERVATION 5 So long as we let the unscrupulous have their so-called " free- dom " to stunt the growth of our children, to adulterate the foods which we eat, to advertise immoral and unhygienic nos- trums, so long shall we continue our high death rate and dis- ease rate. In order to accomplish all which ought to be accomplished in industrial hygiene, or even in order to catch up with other nations, we must invoke the aid of every agency which can pro- mote this result. These agencies are partly governmental, as the passage of laws regulating conditions of labor and the better equipment and administration of public health agencies, and partly voluntary, as efforts of the employers of labor and of the laboring classes themselves. Public opinion, the activity of the public press, the pulpit and the public school can also cooperate. Personally I strongly incline to the opinion that some of the greatest strides healthward will be taken in the future through the activity of employers and employes, particularly in their combinations, the labor unions and the trusts. There are doubtless evils of labor unions, as constantly pointed out by the capitalistic classes, and there are doubtless evils of trusts, as constantly pointed out by the consuming and laboring pub- lic. These evils are such, however, as can be better dealt with by regulation than by disrupting either labor unions or trusts. I believe that the time will come when this will be distinctly recognized and that instead of attempting to destroy either of these great and delicate mechanisms we shall endeavor rather to put them into harness and to compel them to do better their share of the world's work. Both of them are even now great factors in promoting the health of employes. Labor unions are doubtless in many instances acting on fallacious theories and in extreme ways. Like a man just out of prison, they must needs in their first gropings make mistakes, before they " find themselves." But they are already working along cer- tain lines in which they have achieved and will achieve results important to humanity. In my opinion, the salvation of labor lies largely in industrial hygiene, and so far as labor unions help industrial hygiene, they deserve the commendation of all who have the good of humanity at heart. (S7) 6 BUSINESS AND THE PUBLIC WELFARE [Vol. II Such few experiments as have been made in shortening the work day indicate that a maximum output can be secured by a shorter work day than that usually employed. At Liege, it was found in a sulphuric acid establishment similar to a foundry that shortening the working day from eleven hours to ten, from ten to nine, and so on gradually down to seven and one-half, resulted in each case in an increase of the output. In 1899 the owners of the great Zeiss optical goods factory at Jena, Germany, introduced the eight-hour day and then made careful records of the results. In 1903 it was announced that although the aggregate number of hours worked had de- creased 15 ^ the output per hour had increased 16.2 ^. An instance in which the eight-hour day superseded the nine-hour day with entire success is the case of the Salford Iron Works, of Mather & Piatt, at Manchester, England, which changed to the eight-hour day in 1893, It is not maintained that in all cases productivity will be as great in eight hours as in nine. Cases to the contrary could also be cited. The point to be insisted upon is not that it is profitable to an employer to make the work day shorter, for often it is not, but to show that it is profitable to the nation and the race. Con- tinual fatigue is inimical to national vitality, and however it may affect the commercial profits of the individual, it will in the end deplete the vital resources on which national efficiency depends. Many of our railway accidents are traceable to over-fatigue through very long hours of work ; and statistics show that ac- cidents to employes in factories increase rapidly as the late hours in the evening approach. An unduly long day is bad economy, for the fatigue which it ultimately entails is a cause of serious accidents. I believe that in general the hours of labor are, physically speaking, too long. In these directions the labor unions have already secured some results, not only directly through the education of their members as to the prevention of tuberculosis through the establishment of sanatoria and other mutual benefit institutions ; but as a potent force for the pas- sage of laws requiring better factory sanitation, the improve- ment of labor conditions and the shortening of the work day. Finally, it is interesting to note that among the agencies (S8) No. 2] HYGIENE IN HUMAN CONSERVATION 7 which tend to improve labor conditions are those organizations of capital commonly supposed to be directly opposed to the interests of labor — the so-called " trusts." As already indi- cated, I am one of those who believe in the regulation but not the disruption of trusts ; and I believe that one of the most hopeful signs of the times is found in the fact that the trusts are engaged in a far-sighted effort to benefit their employes. I do not mean to imply that pure philanthropy plays any great r61e in this movement, and indeed, were this the fact, we could not expect it to be permanent. Philanthropy enters in only to a minor degree, and generally because of the fear, on the one hand, of public opinion, of boycotts, or of strikes if conditions of labor are unsatisfactory, and because of the hope, on the other hand, of public approval, and patronage if conditions of labor are satisfactory. It is self-interest which leads the em- ployer to care for the employe, and sometimes he does so merely as an advertisement. The Coleman Mustard Company of Norwich, England, have, it is reported, never had a strike or any other kind of labor trouble because of fifty years of humanitarian and far-sighted treatment of their employes, with provisions for playgrounds, lunch-rooms, suitable lunch hours, and working day, — and all apparently without any attempt to exploit these conditions for the mere purpose of advertising. The American Iron and Steel Institute, representing over 95^ of the steel industry of the United States, has instituted a committee on welfare, under the charge of Dr. Darlington, the former commissioner of health of New York city. The steel plants have entered on this work on a colossal scale, having already spent several million dollars in improving water supplies, drainage and privy-vaults, installing shower baths and playgrounds, distributing literature for the instruction of employes in methods of eliminating flies, estab- lishing prizes for the best-kept gardens as well as providing apparatus for the prevention of accidents. The motive in mak- ing these improvements is to increase the labor efficiency of the men, decrease the absence from work on account of illness, diminish the number of unnecessary deaths, and keep abreast of the general movement for industrial hygiene now taking (S9) 8 BUSINESS AND THE PUBLIC WELFARE place among industrial establishments. Some years ago the bureau of labor of the United States showed that there was much room for improvement in the conditions obtaining in the steel industry in the United States, and the improvement then indicated is now in process of accomplishment. The life-insurance companies are entering this field not only for the benefit of their employes but also for the benefit of their far more numerous policy-holders. No other agency except governmental agencies can compare in importance with that of life insurance. It crowns the efforts of voluntary and business organizations and offers us assurance that in the future the conservation of life will be recognized as our greatest business interest. (60) PROVISION FOR THE SAFETY OF EMPLOYES' F RAYNAL C. BOLLING . Assistant General Solicitor, United States Steel Corporation OR a long time our prayers have besought the Lord to de- liver us from wars and pestilence and sudden death. At last we are doing our own part toward such deliverance by peace foundations, medical and sanitary research, and the prevention of accidents. Time was when even the most humane employers paid small heed to the prevention of accidents. Ex- posed set-screws and unguarded gears were so much a matter of course that little effort was made to eliminate these constant sources of danger; they were looked upon as "risks of the trade." In industries such as the making of steel the temper of the time was a courage often akin to recklessness. It took men who had the courage to take chances to put this country first among the steel-making nations of the world and to create in fifty years an industry which now employs nearly half a million men and produces each year ten hundred million dollars' worth of the material most essential to our civilization. Over and over again these men risked all they had in the world, lost everything, and afterwards won back more than ever. In the midst of business depressions they built more mills and furnaces against a return of good times. If one built furnaces with a capacity of fifty tons a day, his neighbor tried a capacity of a hundred tons ; and now the modern furnace makes seven hundred tons of iron in a single day. Engineers who designed cranes that would lift fifty tons are now building cranes which lift two hundred tons. I very well remember an expression used the first time I saw an ore ship unloaded. The great " bucket " de- scended swiftly into the hold of the ship with the operator riding in the " boot " above it ; the huge jaws bit into the cargo of ore ; and in a moment it rose again, carrying fifteen ' Read at the meeting of the Academy of Political Science, November ii, 1911. (61) lO JSUSIJVESS AND THE PUBLIC WELFARE [Vol. II tons from ship to stock pile. The young engineer beside me said : " I tell you, that's bold machinery ! " And it was " bold," because its power, beyond control for a single instant, might sink the ship and kill the men about it. That piece of ma- chinery and the most important machinery and methods in the making of steel to-day were planned in the minds of bold men. If these men sometimes allowed dangers to exist where safe- guards are used to-day, we must not forget that they were pio- neers developing an industry. They were doing in fifty years what might well have taken two hundred. A period of such tremendous development was not a time when caution would have advanced the interests of this country. Discoverers and pioneers have always been renowned for their courage rather than their caution. We are now in a period when attention everywhere turns to conservation, conservation of timber, of coal, of ore, of the soil — and conservation of human life, which is the chief end of all other conservation. The need for the conservation of human life in this country was shown some years ago when investiga- tors informed us that the number of people killed and injured in accidents in this country each year reached nearly half a million. No small proportion of this tremendous annual toll was made up from work accidents. Unquestionably, this country paid a heavy price in injuries and death for the great and rapid development of its industries. One might paraphrase a single word in a line from Kipling and say : " If blood be the price of industry, Lord God, we have paid it in ! " Speaking roughly and without exactness, investigations of industrial accidents several years ago indicated that about one third of these accidents were caused by some fault of the em- ployer, another third by faults of the employes, and the remain- ing third by happenings for which neither employer nor employes were to blame. Under an outworn system of legal re- sponsibility for those accidents only in which the employer was to blame, the employer naturally said : " I am not responsi- ble for more than a third of these accidents ; therefore I am (62) No. 2] PROVISION FOR THE SAFETY OF EMPLOYES \ \ not to blame for the conditions which exist." He had been taught to think in obsolete terms. It was necessary that he learn a new theory, that all work accidents are a proper charge against the industry in which they occur, irrespective of whose fault occasioned them. Under such a theory the employer must say to himself : " I can surely prevent nearly all the accidents due to any fault of my own ; I can probably so train my employes as to eliminate most of the accidents which are due to faults of theirs : and I can perhaps avoid many of the accidents for which neither employers nor employes are to blame." Only with the coming of that attitude on the part of employers will there come effective prevention of accidents. I have expressed the opinion that our laws relating to work accidents were hopelessly outworn. I think that was proved by the fact that only one man out of every four or five injured established his legal right to relief; that only a third of what was spent by the employers reached the injured men and their families ; and that from the moment of injury employer and employe were hopelessly estranged by antagonism, suspicion and distrust at the very moment when they ought to have been drawn together. To-day we are in the midst of a transition to some better system. Already ten states are trying different plans of workmen's compensation. All but one or two have refused to adopt the unfair terms of the British act under which workmen are allowed to choose after injury whether they will accept the benefits of the act or sue their employers. Because this vicious doctrine was one of the provisions of the New York act which was declared unconstitutional, I think we should be glad our first workmen's compensation act was not allowed to stand as a model for other states. Some of those which are on trial seem to me bound to fail. I am convinced that any such form of state insurance as Ohio is trying will bankrupt any state and permit such lavish expenditure of enormous sums that the industries of the state cannot stand the burden, and the people will not stomach the abuses sure to follow. I think the greatest danger of state insurance is its tendency to discourage the prevention of accidents by relieving the employer of further concern after his premium is paid, and placing well guarded (63) 12 BUSINESS AND THE PUBLIC WELFARE [Vol. II plants under much the same burdens as those which have no safeguards. However, one great advantage of our federal sys- tem is that we have some fifty state laboratories working out experiments in government and political economy. From fifty laboratories one must expect a good many smells and a few explosions. For the United States Steel Corporation, we feel some pride in the fact that before a single state had established work- men's compensation we had put it into effect among two hun- dred thousand employes. For nearly two years every man among them has known that, if he should be injured, he would receive relief, even though his own fault caused the accident. The exact amounts and all the details of this relief regardless of legal liability were printed and distributed among the men in thirteen different languages. This plan of voluntary accident relief was authorized and put into effect, notwithstanding the knowledge that it would add half a million dollars annually to the Corporation's expenditures arising from work accidents and that it would probably hasten the adoption of workmen's com- pensation in this country. In the matter of work accidents, an ounce of prevention is worth ten pounds of cure — because there is no cure. There- fore accident prevention is more important than attempted compensation to men injured and the families of men killed, whether from the standpoint of humanity or the standpoint of social and business efficiency. Only by preventing accidents can employers preserve to their employes the life and health for which there is no price and save for their stockholders a cost which does not compensate. Five years ago the mills, mines and plants of the United States Steel Corporation were not behind their neighbors in the prevention of work accidents. They carried no casualty insur- ance, and were correspondingly concerned in the avoidance of accidents. Each subsidiary company had its own casualty de- partment striving to deal with this problem ; yet in the last five years the serious accidents among those companies have been reduced to one-half their former number. In one company, employing thirty thousand men, the serious accidents have been (64) No. 2] PROVISION FOR THE SAFETY OF EMPLOYES \ 3 reduced to one-quarter the former annual number. In terms of two hundred thousand workmen, this means nearly three thousand men a year saved from injury or death. I suppose the reason I have been asked to tell you how this has been done is because I have watched it done and have given such as- sistance as I might to the men who have done it. Nearly six years ago, under the guidance of Mr. Charles Mac- Veagh, all the men employed in casualty matters for our sub- sidiary companies were brought together, annually or oftener, for discussion of the problems arising from work accidents. Out of these meetings grew the United States Steel Corporation Safety Committee. It is composed of seven of the casualty managers for the chief subsidiary companies. A representa- tive of the United States Steel Corporation acts as its chairman. The committee meets once each quarter and spends two or three days in its deliberations. In some detail its work is as follows : (i) It receives reports of all serious accidents, considers their circumstances, ascertains their causes, and suggests possible means to prevent the recurrence of any more accidents of the same sort. (2) It serves as a clearing house for all sorts of information concerning the discovery of fresh sources of danger, the development of new safety devices, and the experience of com- panies which have tried different methods of meeting common problems. All these matters are discussed and complete infor- mation is distributed throughout the organization by photo- graphs, blueprints and descriptions. (3) The safety committee sends to all the mills, mines and plants independent inspectors responsible only to the committee and chosen from some company which maintains rivalry with the plants whose mills are under inspection. These inspectors criti- cize everything which they consider unsafe and commend all effective safeguarding. They report directly to the safety com- mittee. The recommendations of these inspectors are considered by the committee and, if approved, are sent to the company con- cerned with request for a report in thirty days showing what has been done about them. In the rare cases of disagreement be- (6s) 14 BUSINESS AND THE PUBLIC WELFARE [Vol. II tween the inspectors and the plant officials, members of the safety committee make a personal investigation. In three years these inspectors of the committee made seven thousand recom- mendations from important matters such as building a thirty thousand dollar subway under railroad tracks to details such as washing the windows of a shop. Of these seven thousand recommendations, all but four hundred were immediately car- ried out by the companies concerned. (4) At intervals the safety committee publishes a bulletin of effective safety devices and methods of preventing accidents, which is distributed among the foremen, master mechanics and all others responsible for the safety of the mills. One of the most valuable methods thus established through- out the organization after trial by a single company is the method of having all plans for new construction, all drawings and orders for machinery " checked for safety." In every drafting room one man is delegated to make sure that provision has been made for safety devices and all dangerous features avoided in the preparation of plans for machinery and con- struction. No new machinery will be ordered or old machinery reconstructed unless the plans and specifications bear an endorse- ment which shows that they have been examined from the standpoint of safety to the workmen. Without such endorse- ment they will not be passed by the purchasing or other operating departments. This has been of great assistance in safeguarding the mills and has also saved much expense, because machinery which can be equipped with safety devices readily enough when built can be safeguarded afterward only at great trouble and expense. In any campaign to increase the safety of industrial plants the workmen themselves must be interested and enlisted. At- tempts to safeguard workmen without enlisting their own in- terest and endeavors would be about as successful as saving the souls of sinners who are satisfied with themselves. In the United States Steel Corporation subsidiary companies many different methods of interesting and enlisting the workmen have been tried with success : ( I ) Over the mill gates by which the men enter some of the (66) No. 2] PROVISION FOR THE SAFETY OF EMPLOYES 1 5 companies have placed large signs, illuminated at night, with admonitions such as, " Help to prevent accidents " — " Look out for the other man ; you may hurt him " — " It pays to think be- fore you act." Every few weeks the wording of these signs, which are printed in several languages, is changed to direct at- tention to some new aspect of the campaign for safety. (2) Many of the companies print in red ink on their pay envelopes little sermons on safety. I have in my hand three which read : " Use safety devices provided ; don't take a chance." — " Always bend hails down before throwing boards aside. Serious injuries may result from stepping on protruding nails." — " It is your personal duty to see that all safeguards and signs installed to promote safety are always in good condi- tion and to report all dangers promptly to your foreman or superintendent. The prevention of accidents is one of your most important duties." (3) Everywhere inside the steel mills signs and signals indi- cating possible sources of danger remind the men of the con- cern for their safety. One of the most interesting of these ■ signs is that devised for dangerous electrical appliances. It is expressed in a universal language intelligible alike to all nation- alities and to men who cannot read a word of any language. It is very effective. (4) Some of the companies offer prizes for suggestions for new safety devices, and hold prize competitions for the best answers to questions asking how safety may be promoted. (5) Some of the companies have organized in each plant safety committees of foremen and of ordinary workmen. Mem- bership in these committees changes frequently, so that in time a large number of the workmen will have served on the com- mittees. They make inspections at intervals which vary from once a week to once a month, and the men are allowed from their regular duties whatever time is required for their services on the committees. Members and former members of the committees wear small insignia to show that they belong to the general safety organization. All the men who have served on these committees have been taught to look for dangers and to do their best to eliminate them. They know their suggestions (67) 1 6 BUSINESS AND THE PUBLIC WELFARE [Vol. II will be received and acted upon, and have become fellow- workers with their employers, permanently enlisted in the efforts for safety. In this campaign for the prevention of accidents and similar endeavors to improve the condition of its workmen the United States Steel Corporation spent during the eighteen months end- ing June 30, 19 II, about a million five hundred thousand dollars. This work requires the whole or a substantial part of the time and labor of nearly one hundred men. And it has received the careful and stimulating attention of the highest executive officers of the United States Steel Corporation and its subsidiary companies. No ordinary employer could have conducted quite such a campaign, although any employer can do many of the specific things I have mentioned. This sort of thing requires organi- zation. If you ask me what has contritiuted most to its success, I answer without hesitation, the tremendous momentum of a great, effective organization. I have seen this movement, sup- ported by such far-sighted, broad-minded men as Judge Gary, Mr. Farrell, and the presidents of the subsidiary companies, acting under authority of the finance committee, attain in a few years a momentum which will presently bring every mill up to the standards of the most carefully safeguarded mills and will constantly raise the standards even of our best mills. I believe the highest benefit of human organization, whether in armies, churches or industries, is this momentum given to any improve- ment in methods which sweeps along even those who at first doubt and are half-hearted. It lifts every man to efforts a little beyond his best, and it accomplishes what the mere aggregate efforts of any number of individuals would have left unattained and impossible. In the industrial organization of our country this is a time to see clearly and to think straight ; to discard theories and to recognize facts. Our country is facing the question whether it will disorganize our industries by disintegrating them when we are daily reaping the benefits of their organization. Ask any competent investigator and I believe he will tell you that the most dangerous mills in this country today are those of the small (68) No. 2] PROVISION FOR THE SAFETY OF EMPLOYES 1 7 employers. Watch the opposition to such legislation as work- men's compensation and see whether it does not come chiefly from the small employers. I do not say this in condemnation, — they do the best they can with their small capital and scant organization and constant struggle — but I believe you will find that the great advances in prevention of accidents and the adoption of workmen's compensation have been attained largely through the present attitude and assistance of the great em- ploying corporations. In the United States Steel Corporation there is no thought that we are anywhere near the .goal of our desire in accident prevention. We aspire sometime to say : " We have practically done away with that portion of our accidents which were due to the fault of the employer. We have trained our employes to eliminate almost all of those accidents which were due to the faults of the employes. We have advanced a long way toward the avoidance of that remaining portion of accidents for which nobody was to blame." If this movement were to have any motto — and mill men are not much given to mottoes — I would suggest to the men who are doing this work a line from Shake- speare which I have quoted elsewhere : " Out of this nettle, danger, we pluck this flower, safety." (69) PROTECTION AGAINST OCCUPATIONAL DISEASES' JOHN B. ANDREWS Secretary, American Association for Labor Legislation A BROOKLYN manufacturer inquired recently if the venti- lation bill which was introduced in the state legislature last winter had become a law. When informed that in common with several other desirable measures it had failed to pass, but that up-to-date information on ventilation had been collected and could be mailed to him, this manufacturer said : " No, I don't care to know anything about that. I only wished to make sure that I was within the law." In one of our leading industrial states a large manufacturing company had been for years a notorious offender in failing to protect its employes from lead poisoning. Under an occupa- tional disease law which recently went into effect, sixty work- men who had become leaded were removed from this factory by the state medical inspector and orders were issued involving the expenditure by this firm of $160,000. The company under the law has cheerfully agreed to provide the necessary safe- guards. The continued use of poisonous phosphorus in the manufac- ture of matches furnishes a very clear illustration of the lieces- sity of legislation in solving some of the problems in the field of industrial hygiene. Although about 6^ ft of all of the matches produced in this country are manufactured by the " Match Trust," and although manufacturing companies repre- senting about 95 fi of the total output have asked the govern- ment to aid them in discontinuing the use of this deadly poison for which there are harmless substitutes, they all declare their inability to use those substitutes without first having a uniform law absolutely prohibiting any manufacturer from using the ' Read in discussion at the meeting of the Academy of Political Science, Novembei II, 1911. (70) PROTECTION AGAINST DISEASES 1 9 poison, since it is perhaps 5 ^ cheaper. And still the added cost of manufacture would scarcely be noticeable to the con- sumer. If an average family of five persons uses an average of 30 matches a day, the family outlay for matches during one whole year is only about one dollar. The added cost to the average family in one year would be only about five cents. But to the match manufacturer who is producing a commodity with a very small margin of profit, the difference of five cents a family assumes proportions in business competition which com- pel him to hesitate. It is for this reason that every civilized country in the world, except the United States, has by national legislation absolutely prohibited the use of poisonous phos- phorus in the manufacture of matches. In a Connecticut town where the manufacture of cartridges involves the use of mercury, the superintendent of the priming department had been obliged for many years to "lay off" dur- ing six or seven months of every twelve in order to recuperate from the effects of the mercury poisoning. But he was a skilled worker and these annual lapses were annoying and expensive. Three years ago the owners of this establishment were induced to consider the advantage of pure air in the work rooms. A ventilation system was installed. This skilled man and many lesser experts now work in this establishment without loss of time. Two years ago attention was called to a storage-battery works in New York where two workmen died within ten days as a re- sult of lead poisoning. The establishment was old and unsani- tary. A physician in that community reported that he met with cases of both acute and chronic lead poisoning almost every week from this one factory and that as a rule the men had symptoms of lead poisoning within thirty days after beginning work in this plant. The average loss in wages and the expense of medical treatment amounted to about $65 for each attack. These men were unskilled and were easily replaced. The man- agement did not remodel the factory. But the factory burned down last winter and in its place the owners erected splendid modern buildings with all sanitary precautions. The same physician now reports that since the work has been carried on in the new establishment he has had no cases of lead poisoning. (71) 20 BUSINESS AND THE PUBLIC WELFARE [Vol. II In Cleveland, Ohio, lead poisoning is on the increase. But most of the cases are now coming from the automobile factories, and particularly from one department where men are " sanding the boxes," without proper protection. In Belgium, by national law, dry sand-papering of paint is prohibited. But the Belgians are queer folks, who regard human life as more important than a highly polished surface on an automobile ! During the past two years I have made a special study of sixty deaths from lead poisoning in New York. Three-fourths of these deaths were due to the manufacture of white lead and to the use of white lead in paints. Now, in France, by national legislation, the use of white lead in paint is prohibited after an early date. Many other countries in Europe have adopted vigorous measures to safeguard the health of the workers where this occupational poison is still used. Many industrial diseases can be minimized or prevented if we insist. Nine years ago a group of social-minded medical men in Milan, Italy, united in a demand for systematic study of diseases of occupation. Five years ago they called together from many nations the first International Congress on Industrial Diseases. In March, 1910, they saw the hopes of years culminate in the dedication of the first labor clinic. A large hospital is there fully equipped and devoted to the elimination of those diseases peculiar to industrial employments. As an outgrowth of our First National Conference on Indus- trial Diseases, held in Chicago in June, 1910, a committee of experts prepared a Memorial on Occupational Diseases, which discloses industrial injuries of still greater magnitude than those which under the name of " accidents " have so nearly occupied our complete attention during the past few years.' In this ad- mirable memorial of facts and figures we learn that in the United States there are probably not less than 13,000,000 cases of sickness each year among those engaged in industrial em- ployments. The money loss each year (for those who find dollars more impressive than lives) is calculated by these con- ' The Ohio state accident commission announces that seventy-five per cent of in- dustrial injuries reported to that body by trade unions shbuld have been classified as occupational diseases. (72) No. 2] PROTECTION AGAINST DISEASES 2 I servative experts as nearly three-quarters of a billion dollars. At least one-fourth of this painful incapacity for work, we are told, can be prevented, if we insist. But a nation-wide campaign for the study and prevention of occupational diseases has been developed in this country dur- ing the past two years. Thousands of people have learned that in the making of the common parlor match, in the manu- facture and use of ordinary lead paint, in the foundation work for bridges, and in a long list of other occupations, there con- tinually lurks the hideous possibility and the too frequent agony of preventable disease and death. Our representatives in Con- gress, our newspaper and magazine editors, our ministers, lawyers and teachers, are beginning to mouth the scientific terminology of the unfamiliar classifications of occupational diseases. Agitation has begun for the foundation of special clinics and hospitals for the study, treatment and prevention of these peculiar injuries which are due to the conditions of em- ployment. There is now forming a belated sentiment favorable to the elimination of unnecessary suffering and death among those who toil in factory, workshop, and mine. " Unnecessary suffering and death ! " Lowered vitality and anemia from the breathing of factory air that need not be filled with injurious dusts and fumes. Weakened resistance to ward off rheumatism and pneumonia that might have been vanquished except for the unregulated moisture in the weaving-shed and dye-house. The hatters' " shakes,'' the potters' " rot," the painters' colic and " wrist drop," the caisson workers' " bends," the matchmakers' "phossy jaw," the brassworkers' chills, the boilermakers' deafness, the glassblowers' cataract, the miners' asthma, the blue line on the gums ! The humble stonecutter, who spends his life in carving last- ing memorials for his fellow-men, on account of the dust he breathes dies fifteen years ahead of his time. When the Eads bridge was built across the Mississippi River at St. Louis, 600 men were employed in sinking the foundations. Of these 600 men 119, or nearly 20 ^, suffered from caisson disease, and 14 died. No less than 27 trades are menaced by arsenic poison- ing. In at least 138 trades, we are told, workmen are in con- (73) 22 BUSINESS AND THE PUBLIC WELFARE [Vol. II stant danger of poisoning from lead. Nearly every indoor oc- cupation has its peculiar disease danger. With reasonable care much of this danger may be removed. No one knows exactly how serious is this creeping assault of industrial disease. In America we are merely on the threshold of investigation. Conjecture as to totals is necessarily based on European experience. But we are beginning to study the problem. In America we have held our first national conference on in- dustrial diseases ; the second conference is now being planned. Investigation has been stimulated and is now bringing to light much valuable information. For the first time in America, through the efforts of the American Association for Labor Legis- lation, six states have enacted laws requiring physicians to report cases of occupational disease. This is only a beginning, and upon the advice of expert medical authority in England., where this system of notification has been in successful operation during the past thirteen years, only a few of the most clearly defined and most easily recognizable of occupational diseases are included during this first year. Already, in several states, information of great significance has been secured by state authorities under this law, and when physicians have become familiar with its pur- pose and its operation, its scope may be extended. The recent increase in interest in the subject of occupational diseases, par- ticularly among medical men, is due to no small extent to the responsibility now placed upon them through this legislation. This fundamental educational work, although it still calls forth an occasional protest from the physicians themselves, is already bearing rich fruit. One of the most significant and encouraging developments of the year in the work of safeguarding the comfort and health of our millions of factory workers, is the awakening of a wide public interest in the problem of preventing industrial diseases. Magazine writers who eighteen months ago verbally scoffed at the existence of " occupational diseases" are now publishing serious articles upon the subject. A national committee ap- pointed in September 191 1 is at work upon a standard schedule for the uniform reporting of these industrial irfjuries. (74) No. 2] PROTECTION AGAINST DISEASES 23 We need and shall soon have special clinics and hospital wards for the study, treatment and prevention of industrial diseases. Such institutions will correlate the experience of our small local groups of hygienists and encourage more medical men to direct their attention to the problems of industrial hygiene. We need an American Institute of Industrial Hygiene to direct and correlate both individual and organized research. With such an institution, the long list of poisons affecting scores of different occupations would gradually be shortened.' Con- ditions which lower vitality, lessen efficiency and invite disease, would quickly be improved to the advantage of manufacturer and wage earner. The necessary research would be carried on by scientists of unquestioned ability and singleness of purpose, and in a manner which would enlist from all the heartiest cooperation. ' An extensive list of these poisons with the occupations affected and the symptoms of the diseases, as prepared by the International Association for Labor Legislation, is published in Bulletin No, 86 of the United States Bureau of Labor. (7S) REPORTING OF OCCUPATION DISEASES BY PHYSICIANS ' W. GILMAN THOMPSON, M. D. Professor of Medicine in Cornell University Medical College, New York Gty; Visiting Physician to Bellevue Hospital. TO secure reporting by physicians of diseases referable to occupations and the environment immediately associated therewith, the following conditions should be considered in order to obtain results of scientific value : ( 1 ) The establishment of a definite and universal nomenclature and classification. (2) The spread of wider information among physicians as to the details of the hazardous trades. (3) The possible enforcement of notification through proper legislation. (4.) The encouragement of reporting through distribution of suitable uniform blank forms, designed to economize time and facilitate accuracy and comparison. I. At the outset the question of nomenclature presents many difficulties. The literature of the occupation diseases, as it exists in English, is very meager, being comprised chiefly in a half-dozen textbooks, a few scattered articles in medical journals, insurance statistics, and occasional reports in trade journals and trade-union literature dealing with isolated trades, rather than with comprehensive classification. The United States census statistics, besides being very restricted, do not clearly differ- entiate diseases of occupation from surgical injuries, deal only with fatal cases, and ignore the enormous number of cases of chronic invalidism which produce greater or less incapacity for work and lay the foundation for many fatal diseases not primarily caused by occupation, but which are engrafted upon constitu- tions enfeebled by harmful trades. Thus, the polisher of glazed 1 Read in discussion at the meeting of the Academy of Political Science, November II, 1911. (76) REPORTING OF OCCUPATION DISEASES 25 pottery may not die of the immediate eHects of plumbism or of inhalation of flint or other sharp dust particles, but his arteries, kidneys or lungs may become so damaged that he almost in- evitably dies if exposed to the germs of pneumonia or tuber- culosis. Such a case should be classified as follows : (a) Major occupation : potter. (b) Detailed hazard: lead poisoning, or dust inhalation (specifying the variety of dust), as the case may be. (c) Immediate cause of death : pneumonia or tuberculosis. (d) Contributing cause of death : arteriosclerosis, nephritis, or pneumokoniosis. (e) Degree of alcoholism or of chronic non-toxic maladies present. (f) Age and sex. (g) Duration of employment. It is desirable to formulate general classification from three different points of view, as follows : ( i ) A list of occupations. (2) Of injurious substances. (3) Of diseases commonly caused by occupations. For example : ( 1 ) Occupation : knife grinder. (2) Injurious substance : emery dust. (3) Disease: cirrhosis of the lung (tuberculosis, etc.). Another example : ( 1 ) Occupation : pottery polisher. (2) Injurious substances : silica, flint, charcoal and lead. (3) Disease: chronic bronchitis, asthma, lead neuritis or palsy, arteriosclerosis, nephritis, etc. The first classification would include such occupations as knife grinder, potter, wool sorter, typewriter, painter, etc., to the number of about 500 trades. The second would read as follows: lead, arsenic, zinc, chromic acid, feathers, furs, cement, diamond dust, meerschaum, etc., to the number of about 300 deleterious substances. The third would read : ( 1 ) Diseases of the respiratory system : chronic bronchitis, asthma, pneumokoniosis, etc. (2) Diseases of the circulatory system : enlargement of the heart, aneurism, arteriosclerosis, varicose veins, etc. (3) Diseases of the skin: eczema, ulcers, etc. (77) 26 BUSINESS AND THE PUBLIC WELFARE [Vol. II (4) Diseases of the eyes and ears. (5) Diseases of the kidneys. (6) Diseases of the nerves and muscles. (7) Diseases of the bones. II. Such schedules, elaborated in detail, should be furnished by state health boards to physicians, who should be informed fur- ther as to the importance of stating the mode of acquisition of an occupation disease ; for preventive legislation may comprise reg- ulations either as to ventilation, provision of protective gloves, masks and respirators, facilities for cleansing the hands and the adequate cleansing of workshops, according as the deleterious substance is air-borne as a dust, inhaled as a basic fume, con- veyed to the mouth by the hands or on food eaten at the lun- cheon hour in a dirty workroom. There are over 1 50 danger- ous trades attributable to the use of lead alone, and it may enter the system in any of the above-mentioned ways. Few who have not specially studied the subject of occupation disease are aware that the makers of iron files are subject to lead poison- ing, because the files are embedded in a lead matrix, or that mercury poisoning may be acquired through sublimation in the hot-pressing and glossing of silk hats, or that it obtains among workers in white rubber, or that bronchitis and scalp irritation may be acquired in a soap factory where silica is added to make a scouring soap. Such facts should be briefly stated, in any classification of hazardous trades, so that physicians may especi- ally investigate them. The desirability of legislative enforcement of reporting is a debatable question. It is true that without such enforcement experience has shown that for various reasons physicians are lax in reporting contagious diseases to the health boards. They either are too busy, pre-occupied or neglectful, or do not ap- preciate the importance of collaboration in such matters. The occupation diseases, however, present somewhat different regis- tration problems. They are more fixed and concentrated in locality. The main object of notification, as concerns purely economic interests, is to secure sufficient definite data on which to base corrective legislation. Such data may better be ob- (78) No. 2] REPORTING OF OCCUPATION DISEASES 2^ tained, in many instances, by stimulating the interest of a few physicians who come in direct association with large numbers of cases of occupation diseases, and who may learn to become expert in recognizing and reporting them, than by compulsory reporting. What is everyone's business easily becomes no one's business. It is of little use, for example, to enact legislation compelling a physician in Saranac Lake to report all cases of mercurial poisoning or the caisson disease. It is of great use to interest a half-dozen physicians connected with the dis- pensaries in Newark, or living in Danbury, to report all cases of mercury poisoning in connection with the glossing of silk hats. In other words, better results are often obtained through leading than through driving. One or two small but active associations composed of those directly interested in the matter, could prepare blank forms for registration and brief synopses of the conditions to be inquired into especially, and see that they were given to the physicians having the largest oppor- tunity for observation. They could bring into association with such physicians district workers who would be of great service in verifying concomitant social data. A member of my staff in the medical clinic of Cornell Uni- versity Medical College in this city, Dr. Frederick L. Keays, as physician to the Pennsylvania Railroad tubes, has made the best report on the caisson disease ever written, comprising a study of 3692 cases with 20 deaths, originating among 10,000 workmen employed. No compulsory legislation could be ex- pected to produce results of comparable value. Another member of my staff, Dr. Montgomery H. Sicard, has made a similar study of poisoning among brassworkers. Such specific study, based upon concentrated work with a large number of dispensary cases, is worth much more than general compulsory notification by a large number of physicians untrained for the work. The new compulsory notification law of New York state (ch. 258 of the laws of 191 1), which is also on the statutes of five other states, requires notification of poisoning by 4 metals, I germ, and injury by compressed air — a meager list, yet a beginning. The notification blanks issued under this law to physicians by the state department of labor are deficient in (79) 28 BUSINESS AND THE PUBLIC WELFARE [Vol. II that they make no provision for record of age or sex, the duration of the patient's employment at his trade, the mode of entry of the poison into the system, as through inhalation, through the mouth or integument, and no reference whatever is required in regard to the important factors of alcoholism and certain chronic specific diseases. In illustration — a man might have been a hard drinker for ten years and have acquired arteriosclerosis and Bright's disease therefrom, and he might have worked in lead, which causes the same diseases, for only ten days, yet the present method of compulsory registration would tend to class him under lead occupation with the erroneous inference that his disease was due to it. Such a lax method of gathering data renders them of nega- tive scientific value and of very little trustworthiness as a foun- dation for legislation. A thorough investigation of one occu- pation, or one group of occupations at a time, made by competent physicians, would secure more convincing data in a year than would be derived from a score of years of collection of such superficial reports. Registration to be of service should be cooperative. Thus, although the New York state law requires the registration of caisson-disease cases, the classification of the United States census of the hazardous occupations in a list of 156 fails to mention caisson workers, nor does it include workers in fur or feathers, or plumbers, occupations presenting much more ser- ious hazard than those of cab drivers or makers of neckties, which it does give. The sample history cards reproduced below are in use in my medical clinic conducted in the Cornell University Medical College Dispensary and in the wards of Bellevue Hospital, as an attempt to obtain comprehensive data of accuracy. In addition, my assistants are furnished with a list of the major occupation diseases and hazardous trades likely to be met with in New York City. The data collected by physicians, whether under compulsory legislation or voluntary, should be reported to the state and local boards of health, rather than to the state labor bureaus, (80) No. 2] REPORTING OF OCCUPATION DISEASES 29 for the equipment of the former is better adapted to deal with the complex technical and scientific questions involved, and physicians are more in the habit of cooperating with these bureaus. It is easy to compile mortality statistics but it is of far more importance to compel the periodic examination by physicians of workers in dangerous trades, in order to detect incipient disease before the victim is invalided or organically injured for life. In conclusion, the adoption of a uniform classification and the spread of definite information as to the details of what con- stitute hazardous trades should precede compulsory notification by physicians. Sample History Cards Used in Cornell University Medical College Dispensary Respiratory diaeases ; dust, fumes; Diagnosis. Case No. Hist. No. Name Age M. F. S. M. W. Occupation Occupation in detail : Drinker: (bard, moderate, abstainer). Sypbilis (years). Years employed Hours of work No. of co-workers Are they also affected ? Prophylactic instructions ? Ventilation: Fans, hoods, windows (open, shut). Masks? Respirators? Room cleaned, how often? Exposure to cold, heat or wet? Physical examination of pharynx lungs heart General condition : Weight anemia, Hb. % r. b. c. w. b. c. digestion cough sputum exam. Acute symptoms at beginning of work; coryza, headache. Note especially : recurrent bronchitis, asthma, dyspnoea, rhinitis, laryngitis, vertigo, pneumokoniosis, tuberculosis. Onset of tuberculosis in relation to duration of employment. Present symptoms : chief complaint Special notes : (81) 30 BUSINESS AND THE PUBLIC WELFARE [Vol. II Meta ljiioiBoning diseasea. Diagnosis Case No. Hist. No. Name: Age: M. F. S. M. W. Occupation : Occupation in detail : Drinker: (hard, moderate, abstainer). Syphilis (years) Years employed Hours of work No. of co-workers Are they also affected ? Prophylactic instructions? Washing facilities: (good, poor). Lunch eaten where ? Ventilation of room? Masks, respirators (for fumes) Room cleaned, how often? Details of metal: dust, filings, fumes, alloys (composition) Solder? Port of entry: mouth, nose, finger-nails. Protective agents: gum or tobacco chewing? Milk? Wife's miscarriages? Physical examination: gums teeth beard? arteriosclerosis blood pressure heart, size murmurs lungs : digestion constipation nervous system : neuritis cramps palsy hands: eczema fissures ulcers Blood examination: Hb. % red cells white cells basophiles Urine examination: alb. casts sp. gr. lead? Eyes: trauma injury by heat, light Acute symptoms at beginning of work vertigo gastrointestinal nervousness Synopsis of present symptoms: chief complaint Occupation Diseases I. Diseases of the Respiratory System : Solid Irritants, Fumes. [A] Solid Irritants: — 1 . Sharp insoluble mineral dusts, as steel, silica, emery, glass, flint. 2. Soluble metal dusts, as lead filings. 3. Soft organic dust as particles of cotton, wool, grain, feathers, etc. Investigate especially: weavers, spinners, workers in fur, feathers, flax, jute, wool, horsehair, cotton, tobacco, grain elevators, street sweepers, subway and tunnel employes, ashmen, coal heavers, stokers, firemen, chimney sweepers, plasterers, cement grinders, pottery polishers, porcelain workers, grinders of meerschaum, scissors, knives, needles, etc. , workers in leather, skins and paper, wood sawyers, stonecutters, brass polishers, filers of iron and steel, brick makers, emery grinders, diamond and glass cutters. [B] Toxic Fumes:— Workers in asphalt, chromic acid, engravers and etchers, copper refiners (arseniated hydrogen), hat pressers (mercury), beer brewers (COj), matches, gas-house workers, wall papers (arsenic), dyers, workers in veneer, wood alco- hol, benzine, mercury cyanid, di-nitro-benzol; HjS and CO fumes, aniline oil, acetelene, tar, creosote, nitro-glycerine. (82) No. 2] REPORTING OF OCCUPATION DISEASES 3 1 II. Metal Poisoning Diseases. [A] Lead: — Painters, makers of white lead, type founders and setters, solderers and tin- smiths, pottery glazers, gas fitters (red lead), rubber (white lead), metal cork caps, file makers, electrical equipment (solder). {B] Other Metals: — Mercury: workers in mirrors, mercurial pumps, incandescent lights, barometers. Zinc oxide paint : workers in bronze, copper and brass (ascertain per cent of alloy used), tin, bronze powders, workers in wall papers and feathers (arsenic), gold cyanid. III. Traumatic and Occupation Neuroses. Nature of the trauma or strain. Duration of the occupation. Hours of work. Nerves or muscles affected. Neuritis, pain, cramp, paralysis. Concentration of attention, as in caring for machines. Strain of eyes and ears. Effect of pres- sure, blows, vibrations, repeated muscular contractures. Position in standing, leaning toward one side, or sitting in cramped postures as in tailoring. Inter- ference with proper lung expansion, and deformities of chest. Gastric neuroses from errors in diet and occupation. General "nervousness" from overwork and strain. Examine patient for vaso-motor disturbances, reflexes, dysesthesia, spasticity. (83) SANITATION AND VENTILATION OF FACTORIES' GEORGE M. PRICE, M. D. Director of Investigation, New York State Factory Investigating Commission BY " sanitation of factories " is meant the sum of measures undertaken for the prevention of disease and the promo- tion of health of operatives in factories. By " ventila- tion " was formerly meant simply the introduction of street air into the room. This narrow conception of ventilation is at present justly being discarded, and the meaning of ventilation broadened so as to include the correlated subjects of light, illumi- nation, heating, humidity, quantity of air, quality of air, etc., all of which bear a close relation to the question of the purity of air within enclosed spaces. In this broader conception of ventilation, an extensive experience of twenty- six years as an inspector and an exhaustive study of the subject lead me to assert that the ventilation of workshops is a wofully neglected subject. Within the last year an investigation of 1 800 shops in the cloak and suit industry, made under my direction, has disclosed the fact that but 3.83 ^ of the shops had any special means of ventilation. The rest of the shops relied solely upon the com- mon window ventilation, which is defective even in summer when windows are open ; and inadequate in winter when win- dows are naturally closed. Another fact which has been disclosed during this investiga- tion was that the enlarging of the shop in floor space, as well as in cubic space, is not necessarily followed by improved ventila- tion, the movement of air being much slower in large loft shops with closed windows than in smaller shops with windows not too far from the opposite walls and doors. In the investigation which is being carried on by the New ' Read in discussion at the meeting of the Academy of Political Science, November II, 1911. (84) SANITATION AND VENTILATION OF FACTORIES 33 York State Factory Commission, nearly 3,000 inspections have already been made, and although complete data are not yet at hand, we have some figures which already show that the per- centage of ventilated shops does not exceed 4^, as in the cloak and suit trade. Out of 357 printing shops inspected only 25 had a system of mechanical ventilation, and only 50 had special devices to improve natural ventilation. Out of 151 tobacco manufacturing concerns, only 16 had a system of me- chanical ventilation, and only 38 had any special device to improve ventilation. These are industries where dusts, poisons and fumes are generated, and where the necessity for special ventilation is very urgent. In a large sugar refinery which I recently inspected I found the sanitary conditions as to care, comforts and toilet accomo- dations much lower than in any ordinary garment shop which I had inspected during the last year. On several floors of this huge nine-story double building, I found the air so filled with charcoal dust that it was impossible to see 4 feet away, and impossible to breathe longer than a few minutes. On one of the floors of this refinery I found a dozen persons, barefooted, and naked except for a loin cloth, in a temperature of 95° F., with a relative humidity of 96, almost reaching saturation, rinsing and washing dirty filter-bags in half a dozen vats, the water in which was at 130° F. The whole place resembled nothing so much as a scene from Dante's Inferno. What are the remedies? It is impossible to discuss them at length. I shall but name them. They are : 1. Standardization. 2. Legislation. 3. Education and cooperation. 1 . We need to standardize ventilation, for as yet we do not know what it really is, and have no proper standards for it. 2. We need drastic legislation in relation to ventilation. It is my belief that the state has a right to demand from the builder who shuts out the air of the street in building his house that he make provision for the introduction of the air into his building. It is my belief that the state has a right to compel the employer not only to pay wages to the workers to buy food, (8s) 34 BUSINESS AND THE PUBLIC WELFARE but also to provide for his workers air, which is more necessary than food. 3. We need education and cooperation. It is my belief that no amount of legislation, however drastically enforced, will be of any avail unless the employers as well as the employes are edu- cated to realize the importance of air to their business and to the bodily efficiency of their workers, and unless there is a close cooperation between progressive capitalists and enlightened labor organizations. (86) THE HEALTH OF WOMEN WORKERS' JANE SEYMOUR KLINK Welfare Manager, Pilgrim Steam Laundry Company, Brooklyn, N. Y. I SHALL not attempt to speak to you of statistics that have been compiled, or to give you theories of economics ; you know far more of such things than I do : but I shall talk along the line of my experience in my own work, endeavoring to make a few suggestions that have occurred to me. Welfare work, as I see it, consists in the conservation of human energy ; and that human energy is to be conserved by means of education — physical education, which will train and develop physically ; mental education, which will stimulate and encourage; moraleducation,which will reprove and inspire; and social education, which will make workers helpful both to them- selves and to one another. These result: first, in establishing as high a degree of efficiency as is possible with the individual workman ; second, in creating an atmosphere which is a mater- ial aid to such efficiency. That I conceive to be the duty of the welfare worker. The means of attaining ends so greatly to be desired, the directing of energy into channels that will pro- duce significant results, the applying of force where it will tell, the transformation of latent power into action, — this work is to be accomplished, I say, by means of education. When I took charge of my present work in Brooklyn some five or six years ago, a lunch room had already been established. There are lunch rooms and lunch rooms. A lunch room may be a place to eat, and only that ; it may have nothing about it of welfare work. The proper enjoyment of eating depends on what people eat, where they eat, and the attitude or atmosphere in which they sit down to their meals. If you sit down to a table where the roaches are swarming, and where there is dust and dirt, with a garbage can at either end, you are neither going ' Read in discussion at the meeting of the Academy of Political Science, November II, 1911. (87) 36 BUSINESS AND THE PUBLIC WELFARE [Vol. II to enjoy your meal, nor are you going to be best fitted for the work you have to do : if you sit down in such a place your digestion is going to suffer, your stomach is going to be out of order, and everything is going wrong. The majority of our ills come from the stomach. It is an important thing, this providing people with luncheon. I would rather get up a six- course dinner every day in the month than to have to provide one luncheon to be carried every day : because you never have the sorts of things in the house that the person will eat : and if you go to restaurants to buy lunch, under the prevailing con- ditions, prevailing high prices, you cannot get enough to eat for ten or fifteen cents, and the wages received by the girls of whom I am speaking are such that they generally cannot spend over eight to ten cents a meal: consequently a lunch room, where suitable and wholesome food can be given m a clean place and a pleasant atmosphere, is a prime necessity. Also in conducting a lunch room one finds that many people want to eat what you think they should not eat. They want cake, and you cannot give them cake at every meal simply because they want it. It fills up, but is not very nutritious — I will not say it has no nutrition, but it is not rich in nutrition — and people have to be trained to eat what is good for them to eat. I had to adopt rice, both because of its relatively low price and because of its nutritious qualities, and many of the girls did not want rice. I had to train them to eat it, but it took me two years to do it — two years to break up the habit of always eating potatoes. What a person eats and how he eats it is reflected first in his personal condition and then in the manner in which he does his work. If girls go without breakfast — and I have found that many of them used to go without breakfast — they cannot do their work. Nor can they do their work when a cup of coffee is snatched with one hand while dressing, and a roll is eaten on the way downstairs. They have to be taught how to take care of themselves. The proper management of the lunch room I con- ceive to be one of the most important things in factories where the employes do not live near enough to go home at the noon hour. Often better lunches are served there than they would get at home. (88) No. 2] THE HEALTH OF WOMEN WORKERS n Second, I found that a good many people needed attention for all the various ills that flesh is heir to : and this led me to the discovery that a seidlitz powder, which seemed to be the uni- versal remedy, was not a cure-all. So I went to a good physician and obtained a set of good prescriptions, prescrip- tions for simple ailments, headaches and various other aches, and purchased the drugs that would fit those aches and ills. Those things grew little by little : and to-day I have quite a respectable shelf of medicines, which have been prescribed for such ills by different reliable physicians, and I am able to diag- nose and prescribe for various minor ailments. I am going to give you a few figures I have collected from such prescribing. Since August, 1908, a record has been kept of every patient who has applied for medical aid. This record includes the names of patients, with the ailment in each case and the remedy applied, so that I have a set of statistics running back over three years. Recorded Cases from August, 1908 to August, 191 i Stomach . ... 436 Rheumatism Headache . . ... 340 No breakfast Menses. . . ... 328 Malaria . . Colds , . 124 Eyes. . . Toothache . . 118 Nosebleed . Fainting and weakness . . ... 89 Hemorrhoids Burns . . • • 79 Miscellaneous Sore throat . ■ • SS Nerves . ... 49 Total Neuralgia ■ 36 31 16 16 9 4 124 1876 In those three years I have had an average of between one hundred and sixty-five and one hundred and seventy women under my supervision — the men do not come so closely under my attention, as they are mostly employed in outside work — but I have had between a hundred and seventy and a hundred and eighty-five people under my care, and during those three years we have supplied one thousand eight hundred and seventy- nine prescriptions. Does not that record show the need of such prescriptions to keep those girls and women in physical health ? As the table shows, the stomach is the root of a great deal of (89) 38 BUSINESS AND THE PUBLIC WELFARE [Vol. II evil — I will not say all — heading the list with 436 cases in which it was the direct cause of the trouble. At the other end of the list is nosebleed, 9 cases, while of burns, which are gen- erally supposed to be the most common trouble in laundries, there are 79, of which only six were severe enough to be re- corded. These 1879 cases make me consider that it would be worth while for the small manufacturer, employing two, three or four hundred women, to have some one to look after their physical health. Those 1879 cases speak for themselves. They were necessary treatments; people do not take castor oil, Epsom salts, or bitter powders for the pleasure of the taste or the odor ; they take them in order to get better ; and it is much to be able to help them. Again, there is the economic feature of such work. Every employer of labor, whether in factory, store, shop or business office, has a business that is measured by the efficiency of his subordinates. One of the factors of the efficiency of these em- ployes is the time spent in performing their duties. If one girl has to go home from a work-room, another girl will have to do her work, and not only may not be able to do it so well, but must perform it in addition to her own duties. Most employers keep just about as many people as they need to do the work that is required ; the fact that some keep more than they need, while some employ less, is beside the question. Someone has to do the work of the person who is away ; and there is an eco- nomic loss to the manufacturer, where the work of one employe has for any reason to be done by other employes, and there is certainly an economic loss to the employe that goes home. Furthermore, when she goes home, the general remedy is simply to go to bed ; and it does not always accomplish the results de- sired. It is usual to hear girls say, when they have had to leave the plant on account of indisposition, and are asked what they did, " I just went to bed ; I thought I'd be better in the morning." If there were a woman on hand who could and would give them what they needed, and let them rest for fifteen minutes or an hour or two in the rest-room, they could often go back to their work invigorated, and every one would be better for their being there. (90) No. 2] THE HEALTH OF WOMEN WORKERS 39 Sometimes people become a little hysterical, because they have been taken to task by the forewoman, for example, and sometimes a girl faints in her place, and where that happens, all the others are excited and upset, and it is some minutes before they can return to their work. If there is a room where such girls can be cared for, time is saved. It would be well worth while for any employer of labor to take care of the physical health of his employes in that way. When I think of my one hundred and seventy girls with an average of over 600 cases a year, and then think of the vast office buildings many stories high, where the girls pour out every night, many hun- dreds of them, I think one of the most important things would be to have in each of these great buildings of New York, a room or rooms, with a social superintendent or welfare man- ager in charge, a woman with personality strong enough to inspire confidence, and with sympathy deep and broad enough to give help in the smallest matter, or animate with courage for the large undertaking, with imagination and education sufficient for her to give all that was possible of physical, mental and spiritual help and inspiration to the girls. Sometimes the mere talking to a person of that kind is a help. One of our girls said the other day, " I just felt as if I couldn't do anything, I was so nervous when I came in here, but it seems to have gone away." And it had; she had " talked it off." More or less trouble of this sort is inevitable. Little acts of carelessness will creep in, and when the fore- woman comes in and says, " This is wrong," or " That is out of the way," nervousness results. Unless some one can be there to start a new train of thought, or turn the " flat," as a correc- tion is called, into an uplift, it may be brooded over until a very acute case of self-pity is developed, than which disease there are few worse. " A word fitly spoken is like apples of gold in pictures of silver," and often that word will put a girl in a con- dition to do her work better than she had been doing it before, because it changes the atmosphere. One more point. In the last five years we have not had many girls married out, — and I am a matchmaker, too, and want them to marry when they can do well. They do not all marry ; but (91) 40 BC/S/N£SS AND THE PUBLIC WELFARE I have watched carefully those that did, and I have found that wrhen they marry they undergo maternity very much the same as do those who have not worked in factories — and this in cases where they have worked from four to seven years with us in the laundry. The office girl I wish particularly to speak of. She needs guidance. Her life is in a way unnatural, and she is quite as susceptible to illness as her more active sister in the factory, if not more so. That is an additional reason for the suggestion I made in regard to the help that is needed to conserve the energies of girls in offices. You have asked me to speak only of the physical side, the health of women workers. I have kept to my text, and would close with saying that we all need work ; we want it ; it is our common heritage, our common joy; but we must keep our- selves and those for whom we are responsible in good physical health if we would have the work done well, and be happy in the doing of it. (92) THE DOCTOR AND THE NURSE IN INDUSTRIAL ESTABLISHMENTS ' LILLIAN D. WALD Head Worker, Nurses Settlement, New York City THE application of the established principles of safety, sanitation and hygiene to shop practise rests upon three fundamental conditions : ( i ) Intelligence and goodwill on the part of employers that they may desire to provide con- ditions which will insure well- ventilated, well-lighted and well- cleaned working places, to guard dangerous machinery and to furnish protection against fire. (2) Interest and responsibility on the part of employes that they may make concerted demand for sanitary standards and may cooperate not only in establish- ing these standards but also in maintaining them. (3) Enlight- ened opinion on the part of the public, that it may, through its knowledge of what constitutes good service, insure competent factory inspection and sustain protest against interference with the official integrity of the factory department. But in addition to all these conditions, service to the indi- vidual in the shop is essential both for treatment and for edu- cation. The need for such service has led to the employment of trained people for this purpose. The discussion of general sanitary conditions too often brings no specific evidence of the relation of such conditions to individual ill-health ; the work of the doctor and the nurse necessarily emphasizes the individual consequences of such conditions. Many industrial establishments (the exact number cannot be ascertained, since the experiment is new and the printed infor- mation fragmentary and indefinite) employ doctors or nurses or both. Inquiry has been made of some twenty as to why they do so. Practically all make the same answer : " It pays ; " — " It is a saving to the firm in prevention of infections and ' Read in discussion at the meeting of the Academy of Political .Science, November II, 1911. (93) 42 BUSINESS AND THE PUBLIC WELFARE [Vol. II large hospital bills ; " — " Our medical department is considered of economic value or it would not exist." The employer testifies that he secures increased efficiency by having someone on the spot to whom the employes' illnesses may be reported. Serious effects from minor accidents are prevented by giving immediate aseptic treatment. Headaches, hysteria and small ailments can be controlled by a nurse through the application of common sense on her part, because the workers have confidence in her. The loss of an entire day's labor because of slight and temporary discomfort is often elim- inated through the nurse's attentions. A manufacturing company employing over 2600 persons re- ports that three years ago, before the establishment of a factory doctor or nurse, it was found upon careful study that an aver- age of six men were absent from work daily owing to slight in- juries, which were not serious in themselves but which had re- sulted in infection through lack of early attention. As the firm paid wages for a portion of the time employes were absent because of illness, there was a two-fold loss to it, namely, the wages paid and the decreased production, and in addition there were the reduced earnings and the suffering of the employes themselves. During the year ending October 31, 1 9 1 o, after the employment of a nurse and physician, the company report that out of some four thousand minor injuries such as cuts, bruises and sprains, the infections resulting did not average more than four a month. The firm states that the experiment has been of value to the company and to the workers and has opened up unexpected avenues of usefulness. Another firm reports im- portant economic gains to them following the employment of doctor and nurse. In this establishment the girls work in pairs and the indisposition of one means the loss of the work of two. Another firm employing over 2500 people reports practically the same result and adds that it will hereafter increase the physicians and nurses as the number of employes grows larger. Care for the health of operatives has induced the telephone companies to make interesting experiments. The effect of im- proved ventilation has had no more convincing demonstration than that described in the United States report on the telephone (94) No. 2] THE DOCTOR AND THE NURSE 43 companies. The result of ventilating unventilated rooms was a marked improvement in the health of the girls in actual figures : 4TTr 'h of the force were absent in 1906; 4-nr ^ were absent in 1907, and only i-j^ fi were absent in 1908, after ventilation had been installed. Continuous study by people in the field would multiply such instances. Such testimony as this is evidence of scientifically managed in- dustries and perhaps is the more wholesome in that it is no attefnpt to assume the r61e of philanthropy, but a very frank and up-to-date acknowledgment of the good business policy that employs machinery of every kind to increase efficiency and re- duce waste. Important as is this saving to the employer and employe, the slogan, " It pays," is not in itself an appeal of sufficient lofti- ness to enlist the ardent support of the working people and the general public. Working people as a rule are not deeply inter- ested in social welfare work, since their most immediate pressure as they see it would be relieved by higher wages and shorter hours, and health protection is to them of remoter consequence. The Joint Board of Sanitary Control of the Cloak and Suit Industry is the most notable exception to this. Perhaps no social worker would be inclined to insist upon the special values of medical inspection and sanitary protection in shop and factory did he not see in the movement help towards a standardizing of work and hours. There is a difference of opinion as to where the responsibility for the employment of the doctor or the nurse should rest. The benefit societies, long established, have accustomed men and women to an insurance against sickness for which they have themselves paid in whole or in part. It seems natural for em- ployes to assume that their interests are more likely to rank in importance with those of the employer when they share the expense of doctor and nurse. On the other hand, manufac- turers, while frankly acknowledging the economic gain to themselves, through better physical condition of their employes and through the elimination of lost time due to trifling ail- ments, also say that the service in the establishment is much better managed by the responsible heads of the plant. They (95) 44 BUSINESS AND THE PUBLIC WELFARE [Vol. II declare that it is not desirable that first-aid treatment should in any way compete with the doctors' practise and that it should not be developed into medical clubs. Some smaller industrial establishments not warranted in en- gaging the full time of a nurse have arranged with the visiting nurse associations in their communities for periodical visits from the nurse in the district ; other firms who have the full time of a nurse have made satisfactory arrangements with a physician who can be called upon by the nurse when in her judgment his services are essential. The doctors are not eager to give their full time to the treatment of minor ailments and slight acci- dents, and one physician reports that the emergency cases which they are called upon to treat in factories where girls are employed are usually attacks of hysteria that can well be handled by the nurse alone, as can also such accidents as happen in box factories and similar industries. In naphtha dry-cleaning estab- lishments the girls often suffer nervous attacks, loss of appetite and dizziness, and need general help and advice as much as medical care. In general it would be safe to say that the nurses are needed most where girls are employed and where the work does not involve serious accidents, but where the strain is severe from excessive speeding or where heat or noise is great. Doctors are especially required for preventive work in the poisonous and dusty trades where regular periodical medical in- spection should be given to all men and women employed in order to defend them against the action of the poisons and to protect them against industrial tuberculosis. The presence of the nurse working with the doctor is of incalculable value in giving knowledge of minute symptoms that should help in the handling of the hygiene of the industry as well as of the individual. Doctor and nurse who have broad interests and the social point of view can perform significant work in the factory and workshop in developing methods for establishing safe con- ditions concerning which we are at present talking a great deal but doing comparatively little. Rendering first aid in cases of accident or giving treatment for petty ailments is but a part of the opportunity. The field for general observation is tremendous and the nurse, if properly (96) No. 2] THE DOCTOR AND THE NURSE 45 trained, can be of great importance in the industrial world, through her knowledge of the effects of speeding up and nervous exhaustion. She ought to know at what time of the day the workers are most subject to accidents. She should be able to work out a system of periodical rests and trace the occurrence of fatigue, illnesses and accidents to conditions and causes. She should have something definite to contribute as to the number of hours that it would be safe to work at any given trade. Working side by side with the doctor she should have evi- dence and data to bring him upon which he may develop scien- tific measures of prevention and precaution. The work of the doctor and nurse should be closely coordinated with that of the state factory inspector, in whose hands eventually the hy- gienic and sanitary condition of the factory will probably be placed. In this discussion, I have not referred to home follow-up work by the nurse, upon which some employers of labor place great weight. They give numerous illustrations of her ability to harmonize the relationship between employer and employe and they suggest the elimination, through her knowledge of the homes, of certain elements of disturbance in the routine of the plant. Department stores also have utilized the nurse, and occa- sionally the doctor. Their officials report that it has been of advantage to them and to their employes on the whole. For service of this kind there is a demand for the right kind of nurse greater than the supply that the training schools provide. In conclusion I would repeat that doctors are needed in industrial establishments primarily for the study of occupa- tional diseases, for the prevention of industrial poisoning and for surgical work. Nurses are required to assist the factory surgeons and to take general care of the girls, assisting them to regulate their diet and personal hygiene, caring for them when they suffer from vague symptoms of fatigue, over-strain and bad air. In the light of the evidence already obtained, the public would seem obligated to the promotion of a policy of supervision and education that will bring official inspection to a standard re- (97) 46 BUSINESS AND THE PUBLIC WELFARE quiring close knowledge of every industrial establishment and involving not only investigation of the sanitary conditions of the premises, but physical examination of the persons employed, that there may be assurance of their fitness for the work upon which they are engaged. The medical inspection of industries would seem to be a logical extension of the police powers of the state. That intel- ligent employers have found it of practical economic value to engage the nurse and doctor for their benefit — and incidentally to the advantage of the employes — is an assurance of the wisdom of promoting a public sentiment for the supervision of the indi- vidual employes in every work-shop. It would seem to promise "to pay" for the state as well as for the employes. Protection of the workers is only in its beginning. The education of the people at the bench and at the machine is essential. Through their intelligent demand for protection and safety the presence of doctor and nurse may become universal and democratic. (98) THE WOMAN'S WELFARE DEPARTMENT OF THE NATIONAL CIVIC FEDERATION ' T MRS. JOHN HAYS HAMMOND Chairman HE Woman's Welfare Department of The National Civic Federation is an organization of women interested in the welfare of government and industrial employes. We are a body composed of three classes of women : women who as stockholders or through family relationship are financially interested in industrial organizations; women who are inter- ested because their families are employed in government de- partments ; and women drawn to welfare work by their desire to be helpful. Our aim is to improve the working and living conditions of the wage-earner. This includes the safeguarding from un- necessary risks in dangerous and unhealthful occupations ; the provision of proper ventilation, light, and sanitation ; the furnish- ing of lunch rooms, rest rooms, educational" and recreational facilities ; the establishment of good housing conditions, savings funds and benefit and loan associations — recognizing always that the first essentials to the welfare of the employe are steady work, an equitable wage, and reasonable hours of labor. Our method of work is to meet the employer, and by inter- esting him in the needs of his employes to work with him for improved conditions. We study the condition of many institu- tions, and where we find points to be commended we are quick to bring them to the attention of other employers. Our woman's welfare department is yet in its infancy, being barely four years old, but we have lived long enough to see some of the fruits of our endeavors. We initiated a Woman's Welfare Department for Government Employes in Washington, and Congress, animated by our efforts, has ap- ' Read in discussion at the meeting of the Academy of Political Science, November II, 1911. (99) 48 BUSINESS AND THE PUBLIC WELFARE pointed a committee to inspect all department buildings and to report as to their needs in the way of proper sanitation. Fol- lowing this investigation we hope that Congress will pass the bill which our organization has urged, providing for a govern- ment board of sanitary inspectors. There is need of welfare work in every community where there are factories, stores, mines, railroads or public institutions, such as city hospitals, post offices, schools and other govern- ment buildings. The scope of our opportunity for good is limitless. With the great influx of women into industrial pursuits, many prob- lems arise hitherto unknown in civic life. We feel that with patient study and unselfish zeal we may help to solve some of these problems. Surely the thoughtful management which has gone toward the making of our own homes may effectively be applied to bring about a considerate justice in ordering these larger homes of industry. Our special care is woman. The value of woman to the state is, after all, as a mother, and this function should not be impaired by unnecessary hardship as a wage-earner. In the United States there are seven million women who are employed in industrial pursuits. Unregulated hours of labor and the lack of consideration for the workers' health and com- fort are happily disappearing, for in the changed economic con- ditions in the business world employers see that it pays to have good lunch rooms, recreation halls and means of assist- ance for those who are ill or in financial distress. They recog- nize that greater efficiency results from good working condi- tions. Our work so far has been relatively local ; but we have formed active sections in New York, New Jersey, North Carolina, South Carolina, Virginia, West Virginia, Georgia and Washington, D. C. Other sections are in the process of organization, and it is our aim and expectation to extend the welfare department through- out every state and territory of the union. In every region of our great country where women are employed there is much for us to do — sympathy and intelligent aid to be given by those who have the time, means and influence to devote to this great work — the improvement of the condition of the wage-earner. (too) THE EFFICIENT ENFORCEMENT OF LABOR LEGISLATION ' p. TECUMSEH SHERMAN Former Commissioner of Labor in New York State THE most efficient carrying out of the purpose of labor legislation does not consist merely of " enforcement." If the factory laws, and more particularly those provi- sions of the factory laws aimed to promote safety, are the immediate subject of study, we must first determine their purpose, and then investigate the methods of accomplishing that pmrpose, not considering merely the enforcement of the specific safety regulations to be found in the laws. The purpose of such laws is to protect persons employed in factories from physical injuries due to their employment. To carry out this and other purposes the state has established and maintains a bureau of factory inspection and a force of in- spectors, clothed with the authority and duty to inspect factories. What is the purpose of such inspection in respect to safety? Is it to enforce the safety regulations prescribed in the factory laws? Yes, partly; but that is neither the whole purpose''nor the ultimate purpose ; for those statutory regulations are merely indirect means to an end, and not even the principal means to that end. Rather, the mission of the factory inspector should be to study out the causes of industrial accidents, and then to do everything legally possible to eliminate those causes. To that end there are two courses open to him: first, to enforce the existing laws, and to advise as to the adoption of further laws to meet conditions not covered by those existing; second, in the course of his inspections to keep the subject of accident prevention constantly in the minds of employers, managers, foremen and workmen, to point out to them known causes of danger, to study with them their specific problems and to act ' Read at the joint meeting of the Academy of Political Science and the New York Association for Labor Legislation, November, i8, 191 1. (lOl) 50 BUSINESS AND THE PUBLIC WELFARE [Vol. II as a clearing house for information and experience between them, and thus to secure not only compliance with the law, but also more or better things than the law requires. For with the active cooperation of employers and workmen, if he can secure it, not only can the factory inspector bring about all that the law requires, and that far more quickly and easily than if he should approach the subject in the spirit of a mere police ofJficer, but he can also go further towards his purpose than it is safe to extend the law. This opinion is based upon experi- ence here, and is demonstrated by experience in Germany, where factory inspection has achieved its highest results, and where, so far as it relates to safety, it is in a sense self-regula- tion by employers, being carried on by mutual associations of employers. But experience in Europe also shows that success in this line of industrial supervision is dependent upon the employment in the inspection service of experts of high qualifications and ability, so that their advice and instructions may always be practicable and effective, and that they may be able to explain and convince as well as to advise and order. In my opinion the New York factory inspectors have followed proper methods in their work ; but in spite of the fact that many of them by long experience and wide observation have acquired great ability and usefulness, yet with some few exceptions they at best work mechanically, having no higher scientific education. Hence their usefulness in the fields of investigation of accident causation and of voluntary inducement is restricted to a comparatively low plane. If the present force were supplemented and to a degree supervised by a group of experts with scientific education, it would soon attain to such skill and ability as to command the respect and cooperation of the majority of our employers, who, in decided contrast to a recalcitrant minority, are glad to adopt reasonable means to avoid dangers ; and then it could do far more for accident prevention, without recourse to the sanction of law, than would be attainable by the mere literal enforcement of the best laws that a legislature of Solomons could possibly devise. During the past few years many large establishments have (102) No. 2] ENFORCEMENT OF LABOR LEGISLATION 5 1 effected remarkable improvement by employing experts in in- dustrial safety. Why should not the state cover this compara- tively neglected part of the field by providing an equivalent service for the vast majority of establishments that cannot afford such experts of their own? There was reason to anticipate, from the recommendations of the Wainwright Commission and from consequent legislative action, that officials with the tech- nical qualifications I have indicated would soon be added to our factory inspection service ; but more recent action by the state civil service commission threatens rather to reduce that ser- vice to a lower level. However highly qualified our inspection service may become, we shall never progress very far in the line of accident prevention so long as the existing law of employers' liability remains as it is. For, in the first place, accident prevention starts from a study of the causation of accidents under local conditions ; and it is only after we have learned the causes of actual accidents that we shall be able to determine the best means to destroy or lessen these causes. But our law places employers and injured employes, immediately after accidents, in legal relations where it is to the advantage of each party to hide or distort a large part of the evidence — to conceal his cards until the game of chance which is to determine his legal rights as to damages shall be played out in court. Consequently accidents are screened from investigation behind a cloud of suppression and distortion. Moreover, our law is disturbing because it diverts the minds of employers and workmen — who in the final analysis must be the principal agents for creating safer conditions — and even the minds of industrial experts, too much to the proximate cause of accidents, which cause the law has fixed upon as the criterion of legal responsibility. But in a large proportion of cases the proximate cause is some inadvertent act or omission which humanly speaking is hopelessly unpreventable, while back of it are basic causes, which can be successfully attacked and to a degree eliminated. Our law raises eternally the question of " fault," and incites employers and employes into what is really a class war to de- cide between them to which class fault shall be imputed by the (103) 52 BUSINESS AND THE PUBLIC WELFARE [Vol. II law, regardless of whether or not such imputation is correct, or whether or not fault actually exists. What constitutes fault in concrete cases is generally a most difficult moral question ; and what is popularly or legally deemed to be fault under unfamiliar conditions of industrial accidents is very often either not a true cause or not the efficient or moral cause or not a preventable cause of the accident of which it is deemed to be the responsi- ble cause. Consequently to fix a legal responsibility for dam- ages for the consequences of accidents according to such a criterion is not at all effective as a deterrent from accidents, but quite the contrary. If we are to succeed in preventing accidents we must trace them to their true causes, and then direct our remedies to those causes. Not only is it contrary to justice but it is also unfavorable to safety to hold responsible and to punish for industrial accidents those to whom the law, either expressly or as applied by judges or juries, wrongly imputes fault. And in practise it imputes fault wrongly in a large proportion of cases. In my opinion, therefore, the substitution of the Euro- pean law of " compensation," which generally eliminates this difficult question of fault, in place of our existing law of em- ployers' liability for damages for fault, is a necessary first step towards carrying out most efficiently the purpose of the factory laws for the prevention of accidents. I turn now to that branch of my subject relating to those pro- visions of the factory laws which for the purpose of promoting safety specifically prescribe or prohibit the doing of certain things. How these laws shall be enforced and how they can most efficiently be enforced depends principally upon the sub- stance of the laws themselves. Attention must therefore be directed chiefly to the question of how these laws should be framed. On this question I am entirely out of sympathy with the spirit of the times ; for I attribute the unnecessarily danger- ous conditions in many of our industries and in certain classes of our buildings used for industry, not so much to class " greed " as to a combination of economic necessities, bad laws and in- adequate provision for the proper administration of the law. My first proposition is that statutory regulations for safety should be selected and framed with close regard to economics. (,104) No. 2] ENFORCEMENT OF LABOR LEGISLATION 53 In America we live in comparatively great danger from fire, in part at least, because we cannot afford fireproof material in our structures. If we collectively were to adopt laws to compel our- selves individually to go to greater expense in the construction of our dwellings, surely we should strive to frame those laws so that they would effect the greatest increase in safety in propor- tion to the expense entailed. And we should see to it that such requirements should deprive few if any of us of our homes alto- gether merely because they are not ideal, for even dangerous dwellings are far preferable to no dwellings at all. The state should act in that way toward industries. We might cut off over half of our industrial injuries at one stroke by prohibiting the manufacture of steel and the use of high power machinery, but that remedy would obviously be worse than the disease. Yet a like mistake is apt to be made indirectly by adopting regu- lations which would impose upon industries a burden of expense greater than some of them could bear. Examine two recent proposals for general statutory safety regulations, viz., (i) that the electric drive should be required by law in place of belting and shafting in all factories, and (2) that automatic sprinklers should be required in all city workshops. Each would cost our industries several hundred million dollars, and yet, while in gen- eral one of them would be and the other might be of some net benefit, nevertheless, in a large proportion of cases both would be of slight or of doubtful advantage. If many such expensive blanket requirements were adopted, it would ruin some indus- tries, reduce employment, and lower wages or raise prices. Consequently, the adoption of a few such requirements would tend to preclude the adoption of other means of safety, even although those others might be far the more necessary and effective. We should therefore not compel the general adop- tion of standardized measures for safety merely because on the average they would do some good, but should use discrimina- tion and so frame our statutes that they will compel the use of the most effective means of safety and then only under condi- tions where they are reasonably necessary. Of the 24,000 factory accidents annually reported in this state only a minor proportion are due to obvious defects in (105) 54 BUSINESS AND THE PUBLIC WELFARE [Vol. 11 Structure or equipment or to the neglect of known safety appli- ances or practises. The majority are inevitable incidents of the use of modern machinery, processes and organization, which, along with an enormous increase in productivity have caused an increase in the inherent risks of production. Those risks are not absolutely unpreventable ; but they are unpreventable so long as employers resort to the methods of production that cause them. The problem, then, seems to be to compel or induce the selection of those methods of production which will have the lowest risks in proportion to productivity. Can the state bring about such a selection by standardized regulations ? Most decidedly it cannot, although it may with benefit prohibit any trades, processes or practises which the overwhelming pre- ponderance of technical expert opinion unqualifiedly con- demns. Beyond that there is only one effective remedy that I know of, namely, to make the cost of compensating for work injuries an unavoidable part of the employer's cost of produc- tion. That would make the more dangerous methods of pro- duction less cheap, and the safer methods relatively less expensive ; and thereby would tend to direct industrial devel- opment along the safer lines. That leads us again to the "compensation law" as a remedial measure of primary in- portance. My second proposition is that no compulsory regulation for safety should be adopted unless its usefulness is certain under practically all conditions to which it is to apply ; for if any such regulation to any material degree uselessly interferes with freedom in the operations of industry or imposes useless ex- pense upon any considerable number of employers, it will tend to defeat its own purpose. To explain that conclusion I start from an idea that the experienced observer will accept as an axiom, namely, that the state is not competent generally to determine and prescribe what is most conducive to safety, and that its function to be really conducive to that end must be strictly limited to forbidding what is clearly wrong and com- manding what is clearly right. Consequently, general and ab- solute regulations, such as it is now the popular tendency to resort to, should be generally avoided, for the reason that they (io6) No. 2] ENFORCEMENT OF LABOR LEGISLATION 55 inevitably go too far and frequently command what under some conditions is wrong, i. e., what is useless, impracticable, impos- sible, harmful or less effective than other and less expensive means. In such cases the law is either deliberately left unen- forced, or, owing to the natural prejudices of judges and juries, is successfully resisted, after the efforts of those charged with its enforcement have first been wasted in futile litigation, or else it is enforced with unnecessary burden upon some industries and interference with them. One effect in the two latter cases is to put the most capable and best disposed managers of in- dustry and of property in a position of antagonism to the state's entire scheme for the prevention of accidents. In the applica- tion of the safety provisions of the factory laws, which are ab- solute — but which, from the view I have taken, should be conditional — that result has been clearly noticeable, and in the application of the New York city building laws it is the common rule. Among the mass of orders and proceedings pending against owners of buildings the majority are doubtless proper; but many of them are against buildings already better equipped for safety than the average, while others require heavy expendi- tures in ways which, under the particular conditions would not serve to reduce any existing dangers, but would be mere use- less tributes to legal or administrative formalism. And, more- over, the law is neither so framed nor so administered as to distinguish justly between landlords and tenants, but too gen- erally penalizes the one for the acts of the other, and vice versa. The natural results are to discourage the solution by private owners and managers of the problems of safety in- volved, and to excite an amount of righteous opposition to the law which hinders its enforcement generally. The existing dangers from fire in our New York city work- shops emphasize a point to which I will revert later, namely, the need that the law should be so elastic as continually to fit changing conditions. During the past few years the removal of the bulk of workshops in the clothing trades from tenements and rookeries to loft buildings has rapidly and radically changed the means requisite to protect the working people therein from the dangers of fire ; and the former statutory remedy — the New York type (107) 56 BUSINESS AND THE PUBLIC WELFARE [Vol. II of fire escape — under these new conditions has ceased to be a remedy and has become a disease, i. e., is a useless expense and in itself a cause of danger. The problem, then, is so to shape our laws that they will re- quire of the proper persons the most economical and certain means for safety wherever, but only where, they are reasonably necessary and will be effective. A code of such laws could not be compressed within the limits of an ordinary statute, and what is more serious, would require amendment, to fit new or unantici- pated conditions, more frequently than is practicable by legisla- tive action. Specific statutes, then, being too inelastic for the purpose, the alternative is to enact general statutes requiring " proper " means to guard against specific dangers " where reasonably necessary," and delegating discretion to decide what, under various particular conditions, are " proper " means, and under what conditions those means are " reasonably necessary." The question then arises : upon whom should such discretion be conferred ? There are serious objections to conferring it upon the official whose duty it is to enforce the law ; for he is peculiarly prone to misuse such discretion, in order to gain private ad- vantage, to satisfy temporary gusts of popular passion, to give advantage to personal favorites, or to make the law more easy of enforcement. And he is likely to err through routine depend- ence upon subordinates, or through lack of time, information and knowledge. Even if he should not abuse his discretion, he would nevertheless always be subject to the! suspicion of unfair discrimination and to consequent opposition from the public and the courts. Moreover, if capital should be subjected to the unbridled discretion of single heads of departments in matters wherein the abuse of such discretion would lead to partial con- fiscation, it would cause capital to be harmfully withheld from investment. Under the recent Hoey Act, which established a bureau of fire prevention in the New York city fire department, the fire commissioner is given unlimited discretion to compel the installation of appliances for the prevention of fires, subject however to a review of his orders by a " board of survey." As a check such review is better than none at all ; but it is not suf- ficient ; for a board of survey will deal with each particular case (io8) No. 2] ENFORCEMENT OF LABOR LEGISLATION 57 by itself without relation to the general field, and consequently its work will not check unfair discrimination nor tend to allay the suspicion of such discrimination, even if none exists. Where the legislature delegates such discretion, it should re- quire that the exercise of that discretion be expressed in formu- lated rules for public guidance, and that such rules should be amended only after public notice and hearings of those to be affected. These rules should be made and altered, not by the official whose duty it will be to enforce them, but upon his mo- tion and at his suggestion by some other official or board, and preferably by a board of experts constituted especially for that purpose. (A bill giving to the commissioner of labor power to make rules and regulations in certain cases subject to the ap- proval of the governor, was recently vetoed by Governor Dix, on the ground, as I understand it, that the governor is not to be assumed to be an expert in such matters, and should not have such a responsibility thrust upon him. The governor's position is probably right. Consequently the discretionary power to make such rules should not be delegated to the executive.) To the objection that we have already too many boards, the answer is that in this matter we are seeking to control a power which if misdirected or abused would waste millions of dollars or needlessly sacrifice thousands of efficient workmen, and therefore that the end to be accomplished is well worth the price. There are some specific dangers to be avoided in the constitution of such boards; but experience abroad, upon which I have based my suggestion, has demonstrated methods to avoid them. In another way our law needs correction. The safety regu- lations of the labor laws are designed simply to prescribe cer- tain obligations, conducive to safety, to be enforced by the state. But they are also used for a secondary purpose, as criteria of liability for wrongs by employers to employes ; and in this application they are often misconstrued by judges and juries — who are entirely unfamiliar with the subjects and con- ditions to which they relate — so as to require what is useless or impossible. Such misconstructions frequently result, not only in producing injuries, but also in depriving the regulations (109) 58 BUSINESS AND THE PUBLIC WELFARE [Vol. II of some of their effectiveness for safety. In this second use these regulations have been too generally construed as imposing obligations entirely and exclusively upon employ- ers. Many of the duties thereby imposed upon the employer are really joint duties of the employer and his workmen or some of them. To hold the employer in such cases entirely responsible to those workmen for the consequences of a viola- tion does not conduce to safety. Even where the violation involves serious personal fault on the part of the employer, so that it is altogether just to impose upon him unlimited liability for the consequences, yet such action is sometimes undesirable. Working people should not be led to believe that they are free from all responsibility in the matter, and that they may accept and continue in dangerous employment, resting supine in the belief that the state must discover their danger and protect them from it. The working people owe a duty to their em- ployers and to the state to aid in the enforcement of laws enacted for their protection. If we are really seeking safety and not class warfare, we should reshape our laws and legal practises so as to cultivate instead of destroying a sense of these duties in the minds of the working people. To that end the secondary use of safety regulations, which I have explained, should be discontinued ; and all the law governing the liability of employers to their employes for work accidents should be contained in distinct and independent statutes. There is one further requisite for efficiently carrying out the purpose of this branch of labor legislation, and that is time. Our factory inspection force has now been augmented until in proportion to its field it is larger, and in proportion to its diffi- culties — arising principally from the obstructive practises of many of our magistrates — it is about as large as the corre- sponding force asked for by the New York city fire commis- sioner for a lighter task. It should be borne in mind that in England existing conditions have been reached only through the labors of a well-equipped force for a generation, and that in Germany, after an equal period, many trade inspectors are still admittedly " in arrears." We should, therefore, anticipate satisfactory results, not in months, but in years; and in the (no) No. 2] ENFORCEMENT OF LABOR LEGISLATION 59 meantime should judge the work of the inspectors not by what may have escaped their detection nor by what they may not have corrected but by what they shall have accomplished. If one feels inclined to be impatient with the prospect of such slow progress, let him remember that there is a great compen- sating advantage in proceeding slowly, namely, that progress is then more sure and more apt to be guided by experience towards the desired end ; whereas, if it is sought to obtain the same result by turning a mob of agitato^, political hacks and untrained cubs, labeled inspectors, loose on the industrial com- munity, with authority to make trouble, the chances are that they will miss the desired result altogether. What is our goal ? What may we reasonably seek and ex- pect to accomplish? From rash estimates by some experts and from results recently accomplished in some exceptional industries, a popular belief has been created that a majority of our industrial accidents are practically preventable. In my opinion that belief is erroneous. General European accident statistics prima facie indicate that, in spite of systematic inspec- tion and regulation, industrial injuries are increasing, both in the aggregate and in proportion to numbers employed ; but, more closely studied, those statistics reveal so many elements of error that they can fairly be said to support neither that conclusion nor any other. The more perfect statistics of the highly organized industries, however, show positively that in many trades, in spite of the adoption of more dangerous pro- cesses and a consequent increase in the inherent trade risks, the proportion of serious injuries has been materially reduced; that is, that there has been a noticeable reduction where natural progress uncontrolled would have resulted in an increase, and what is more important, that the number of such injuries has been very materially reduced in proportion to economic results accomplished. That, and not the millenium is what we should expect ; and it is well worth striving for. (Ill) PROVISION AGAINST THE CONSEQUENCES OF INDUSTRIAL ACCIDENTS' MILES M. DAWSON Counsellor at Law and Consulting Actuary, New York THE subject presented for discussion may be tersely yet comprehensively put, " How may we best provide against the financial consequences of industrial acci- dents upon workmen and their families ? " It is no longer put : " Shall we so provide? " We have ceased asking that question for two reasons : first, because as a people we are already con- vinced that compensation should be made to injured workmen and to the dependents of those who are killed, entirely without regard to negligence; second, because all who stop to think carefully about the existing conditions know very well that we are already making provision in a way which costs much and helps little. In saying this I refer least of all to the waste in enforcing or evading liability for negligence, whether by direct expenditure of employers or by their payment of insurance premiums. If it be true, as has been asserted, that, by the time the insurance companies have met their expenses and the claimants theirs, not more than one-fifth to one-fourth of the premiums paid by employers becomes available for the relief of injured workmen or the dependents of the dead, even this is economical, com- pared with the manner in which we meet the cost of the much greater number of industrial accidents not so compensated. In civilized countries we do not knowingly permit women and children to starve or freeze or go without shelter. If they be- come paupers or beggars, we support them by public or private charity. If they steal, we let them live by stealing until they are caught and then we support them in prison. If they serve men's vicious propensities, we may even pay them for injuring ' Read at the joint meeting of the Academy of Political Science and the New York Association for Labor Legislation, November lo, 191 1. (112) INDUSTRIAL ACCIDENTS 6 1 US, or at the worst they may procure support in a home or re- formatory. If they fail of the education which we so freely offer all who themselves have food and shelter, their miseduca- tion will cost us dearly industrially in poor task-work and may cost us yet more dearly politically in the decline of democratic institutions which these, our wards, help to guide. All of this we pay ; we must pay it to the full, we cannot escape it. And this compensation, as it falls due, we must pay in this very manner, for a full generation or more to come, in respect to every workman already maimed and every family already dependent, even though we set up a system of ample compensation of all who become victims of these misfortunes from this day. The whole problem is essentially one of the shifting and in- cidence of taxation. It is purely a question of how we may best levy this tax, which we cannot evade, so that : first, it may promptly, amply and effectually relieve in such manner as to minimize the evils and enhance the benefits of the compensa- tion; second, it may most directly and effectively encourage and even compel prevention ; third, it may be most economic- ally and efficiently administered ; fourth, it may avoid duplica- ting the burdens which our industries and we ourselves are already bearing and must bear for more than a generation to come, by providing for the immediate creation of a capital fund to furnish all the compensation hereafter to be paid to persons who shall be injured or who are dependent on workmen killed by accident. As this last problem is actuarial, it will be dis- cussed first. We are now paying through indirect and wasteful means for or toward the keep of tens of thousands of persons rendered wholly or partly dependent as the result of industrial accidents. This compensation, in diminishing volume as the numbers are reduced by death or arrival at the stage of self-support, we must continue for years to come — a generation or more — not to speak of the long, long consequences of the encouragement given pauperism and criminality. If we were to make provision now by direct tax for the care and support of all who become victims from this day, not a (113) 62 BUSINESS AND THE PUBLIC WELFARE [Vol. II voice would be raised in favor of collecting from year to year more than is needed to meet the payments required during the year, with perhaps a sufficient reserve to provide against fluctu- ations. This would mean the levy of a tax the first year sufficient only to pay the medical, nursing and funeral expenses of those who are injured or killed that year, plus the weekly or monthly annuities which are paid during that year to injured workmen or their dependents, in case they die of their injuries. The second year enough would have to be raised to pay all these items because of accidents occurring the second year and also all annuities to the injured or their dependents because of accidents that took place the first year ; the third year, enough to cover the annuities for accidents awarded the first and second years, as well as the additional payments due to the accidents of the third year; and so on. Theoretically the maximum would be reached in about fifty years, when the oldest pensioner or widow entitled to a pension dies off ; but really in half that time or even earlier if prevention keeps pace with the knowledge of the causes of accident which a good compensa- tion system will supply. Such a system would impose its burdens gradually, therefore, and without disturbing industries overmuch or withdrawing from them large sums before they are needed. Obviously, if we tax ourselves, either by holding the employer responsible without his insuring against such responsibility or by encouraging or even compelling insurance in private insurance companies or associations, we cannot distribute the load in the manner suggested above. If we impose the liability directly upon an employer, say a railway company, as soon as an ac- cident occurs we must require a liability to be set up for the present value of all sums payable in future because of it. We must not consent that an insurance company or association evade charging up this liability on a basis which would assure that assets equivalent to it would be sufficient, with interest, to meet these claims. Therefore, under such a system, we must tax ourselves at once when accidents occur, in sums equal to the present values of the sums to be paid, at whatever time, ("4) No. 2] INDUSTRIAL ACCIDENTS 63 because of them. This is a necessary, an unavoidable adjunct of any such system. Only under a frankly recognized system of taxing industries directly according to the payroll and the hazard by compulsory insurance in national funds, may we escape the staggering bur- den such a system would impose ; for we cannot trust anything less than the nation with the responsibilities assumed in adopt- ing the alternative plan above suggested. The nation which takes upon itself the enforcement of the continued collection of such taxes or premiums can do what it promises ; no private corporation or association can. The nation could never aban- don its wards. The private company or association has no wards ; it has creditors only, whose claims, if too numerous, may bankrupt the institution and destroy the assets held to protect the creditors. This was the view which Germany took of the matter from the outset; and, accordingly, the industries of Germany, ad- justing themselves gradually to the burden, have thriven mar- velously and now scarcely feel a load which would have laid them low if it had been suddenly imposed. The comments of Dr. Friedensburg, which have been given wide currency here of late, are those of a reactionary, who talks of " crippled industries" in a country the commercial progress of which in the twenty-five years of " social insurance " is unparalleled in the history of the world. In our country we have taken the contrary view so far, and further, have imposed the burden piecemeal, i. e., by states. We have thus caused the almost intolerable condition against which Governor Wilson, of New Jersey, protested the other day, viz., a condition of excessive burdens upon industry in one state, out of all propor- tion to the rates in adjoining states — such as 2 ^^ in New Jersey against i of i ^ in New York and Pennsylvania for machine shops, for instance. But this is only a part of the explanation. It will not, per- haps, apply with equal force to the state of Washington, with compulsory state insurance, or even to Ohio or Massachusetts with state insurance, but without complete compulsion ; for, if we are as successful as the peoples of Norway, Sweden, Austria, (115) 64 £USII\rESS AND THE PUBLIC WELFARE [Vol. II Italy or Luxembourg, we may be able to operate such a system much more economically than private insurance — for instance, for lo 'jo or at most 15 Jb of the premiums, instead of 50 fo. In other words, there is here another reason why this tax upon our industries in proportion to the payrolls and the hazards, which must inevitably be paid by all of us, should not be levied indirectly through premiums paid to private insurance com- panies. Such a system is wasteful, even when compared with bureaucratic political methods; and the burden, already ren- dered unreasonably heavy if we are annually to pay out moneys sufficient to cover all outlay, present and future, because of this year's accidents, is literally doubled by resort to this method. The want of efficiency under the system of private insurance is tantamount to a much greater waste than its extravagant expenses. The purpose of this provision is to afford support to injured workmen and their dependents; and, while it is important to avoid being deceived by simulation and malinger- ing, it is yet more important that, when it is decided that these are found not to exist, the claims be promptly allowed. With the private company, it is business merely. It will get off in each case as cheaply as possible. All questions that can be raised are employed as a basis for compromise. This is con- tinually commented upon by British magistrates with much bitterness and is resented by British workmen. In Denmark, it resulted in the state taking over the adjustment of all claims, even claims against private insurance companies. It must be remembered that if, by any chance, as has unquestionably happened in Great Britain, we fail to make adequate provision by annuity payments for these helpless ones, we shall pay the tax the second time in the good old way, through charities and correction and the like. Private insurance companies wholly fail to perform these functions adequately; they can save money by not doing it and they merely lose money by doing it. Further, in the readjustment of this burden, we must not interfere with the steady employment of all workmen at their trade — and particularly the employment of the aging, the fail- ing, the partially disabled. Private insurance at its best, as in England, by concessions in rates encourages the discharge of (116) No. 2] INDUSTRIAL ACCIDENTS 65 such workmen. This is admitted ; it is not admitted but is obviously true that, as death benefits for men without family are much smaller, the system also encourages employers to prefer single men. Such lapses from true efficiency we find inherent in the scheme of private insurance and not elsewhere. They are not discoverable an3rwhere in the world in state insur- ance or in mutual insurance under state compulsion. In all such systems fairly carried out special efforts to utilize the aging, failing and partially disabled — and even to educate them in industries for which their powers are suitable — are made. Even more important is it to inquire how we may provide through our system of compensation for effective means of prevention; for that strikes at the root of the matter, and reduces the otherwise irreducible net cost, under whatever system distributed. As to this, a priori reasoning and the lessons of experience agree. In spite of occasional, sporadic efforts, the reduction of accidents will not be accomplished under private insurance, which is interested only in getting an ample rate, whatever the hazard may be, and can make as much money when the hazard is great as when it is small. State insurance is equally ineffective. It tends to become a mere collecting and distributing bureau, economically administered but not especially alert. At most, it reports to an inspection department all accidents and their causes, and there it rests. To be sure, the pressure of rates, whether of private or of state insurance, does something to encourage prevention, but not much, unless such rates are wisely, discriminatingly and even stubbornly applied. Much the most successful of all agencies for prevention have been mutual associations of employers, formed under legal compulsion, organized by industries and given full power to collect premiums from their members, like taxes, fixing the rate according to the hazard and the payroll. Ger- many, employing this system, leads the world in preventive devices and the requirement of their use. As costs vary with the number of accidents, all employers at once feel in their as- sessments the effects of neglect on the part of one or more of their number. No other system is conducted with greater (117) 66 BUSINESS AND THE PUBLIC WELFARE [Vol. II economy and no other system gives the state such warrant for assessing only what is required from year to year, with a moder- ate provision for fluctuations ; for, when at its highest point and in equilibrium, the cost thus determined will be the fair average tax which should be assessed upon the industry and through it upon the consumer. Under this system and this only, likewise, has it proved prac- ticable to give effective relief, by making a permanent provision without power to compromise or commute, to relieve quickly as by immediate surgical or medical attention, nursing and hos- pitals, to minimize the evils of simulation and malingering which are present in every system, and to render the benefits to workmen and dependents equal to the full purchasing power of the money paid. Precisely as it was anticipated that the idea of compensation, instead of liability for negligence, would be deemed by our peo- ple inconsistent with our fundamental notions of individual liberty and responsibility, so has it also been argued that com- pulsory insurance, state or national, is both repugnant to our conceptions of individual liberty and violative of our state and federal constitutions. And yet, though there has thus far been no concerted agitation for compulsory insurance, three states, as widely separated territorially and traditionally as Massachu- setts, Ohio and Washington, have adopted it, the first two in the quasi-optional form, the last in the straight-out compulsory form. The compulsory form has already been held constitu- tional in the state of Washington and the quasi-optional in the state of Massachusetts. At the recent conference of governors no governor of one of these states voiced or reported any loud protest; while from New Jersey, the very governor who had secured the adoption of direct liability, which of course means private insurance, announced that the well-grounded protests of the people of his state against the exorbitant cost had converted him into an advocate of compulsory state insurance. The managers of the private insurance companies see the handwriting on the wall. Their recent meeting in New York brought forth at least two addresses which tacitly but none the less obviously admitted the seriousness of the situation from (ii8) No. 2] INDUSTRIAL ACCIDENTS 67 their standpoint. The people and their legislatures are accord- ingly besought to accept as an alternative private insurance with state supervision of rating bureaus to be set up by the com- panies. The expenses of private insurance, so far, have in- tolerably increased the burden of accident risks, and the man- agement of such companies has inevitably made against the effectiveness of the provision for injured workmen and their dependents; yet their competition with one another has at least prevented their adding a sure profit and indeed has usually caused them to do the business at a loss. This the state is now asked to obviate by requiring the companies to join in fixing rates and thus obligating itself, by exercising supervisory powers, that the rates shall not be " confiscatory," that is, shall be profitable. This is the only alternative they offer ; we must take our choice. From the days of Rome, it has been known to be folly to " farm out the taxes " to private agencies to exploit for their own profit. Shall we continue this method? Our early ex- perience with toll-roads and toll-bridges and our recent experi- ence with excessive bounties through protective tariffs show the folly of such a system. Shall we repeat this mistake on a tremendous scale, or shall we, under the taxing power of the federal government, proceed to instal, with improvements, a democratic system of compulsory insurance ; with administration in the hands of those who pay the money; without unnecessary accumulation of funds and therefore with a gradual shifting of the burden upon the industries concerned ; with broad federal supervision, nation-wide, ample, economical, efficient ; encourag- ing prevention, supplying data and statistics for the study of causes, avoiding the petty meannesses of inter-state competition and giving positive assurance that every injured workman and every widow, orphan or other dependent will be provided for during helplessness and dependency? (119) THE COMPENSATION AMENDMENT TO THE NEW YORK CONSTITUTION ' HENRY ROGERS SEAGER Professor of Political Economy, Columbia University; Vice-Chairman of the New York Employers' Liabihty and Unemployment Commission ON March 24th the court of appeals of this state declared the Wainright Act (chapter 674 of the Laws of 19 10), making the payment of compensation to the victims of industrial accidents in certain employments compulsory, uncon- stitutional. This act was no hasty or ill-considered piece of legislation. It was passed on the recommendation of the Com- mission on Employers' Liability appointed in 1909, defended in its report, of which the court of appeals itself speaks in high terms, and approved by so careful a lawyer as Governor Hughes. The arguments urged in its support were briefly as follows : The present system of providing indemnities for the victims of industrial accidents, under which the right to indemnity or " damages " depends on ability to convict the employer of negligence, is in its practical operation inadequate, wasteful and even vicious. Under it only a small proportion of injured wage-earners, about one in eight according to the returns of the employers' liability insurance companies, is able to obtain damages. Even these wage-earners, instead of receiving the indemnity when it js most needed, immediately after the accident, may have to await the conclusion of a long and costly law suit, which eats up a large part of the verdict that is ultimately obtained. Thus, as a means of relief from the added expenses and cur- tailed earnings which a serious accident entails, the law is a complete failure. Wage-earners as a whole are little better off, notwithstanding the sensationally large verdicts that are occasionally awarded, than they would be if they were without ' Read at the joint meeting of the Academy of Political Science and the New York Association for Labor Legislation, November 10, 191 1. (120) THE COMPENSATION AMENDMENT 69 this gambler's chance and were forced to bear themselves the entire loss as well as the pain and suffering which accidents cause. Often laws which are disadvantageous to wage-earners have compensating advantages from the viewpoint of employers, but this cannot be claimed for our employers' liability law. Of the money they are forced to pay out under it, only a small part, not over one-third on the average according to the estimates of the New York commission, reaches the injured employe. Moreover, it is of no advantage to employers to be put in the position of soulless monsters turning over their employes to the mercy of heartless claim agents at the very time when they most need their sympathy and help, nor to be mulcted in heavy damages, whenever negligence can be proved against them, by incensed juries whose humanity is outraged by the constant miscarriage of justice under the system. Nor is much that is favorable to the law to be urged from the standpoint of the lawyer or the judge. It is condemned by the best representatives of the bench and bar because it involves the legal profession in a branch of litigation in which trickery, fraud and ability to appeal to the sympathy rather than the intelligence of a jury are requisites for success, rather than mastery of legal principles or fidelity to the accepted code of legal ethics. To society the system is entirely inadequate because it merely tinkers at rather than solves the serious problem presented by industrial accidents. Worked out by our forefathers to suit the industrial conditions that antedated the railroad and the factory, it is quite unsuited to the complex conditions of our day. Moreover, the burden of expense entailed on the state by the litigation which it fosters is another serious offset to the damages awarded to that small proportion of wage-earners who prosecute suits successfully. The New York commission presented in its report a con- vincing arraignment of the present employers' liability law and few persons who have taken the trouble to study the facts will dissent from its conclusions : (121) 70 BUSINESS AND THE PUBLIC WELFARE [Vol. II First : That the present system in New York rests on a basis that is economically unwise and unfair, and that in operation it is wasteful, uncertain and productive of antagonism between workmen and em- ployers. Second : That it is satisfactory to none , and tolerable only to those employers and workmen who practically disregard their legal rights and obligations and fairly share the burden of accidents in industries. Third : That the evils of the system are most marked in hazardous employments, where the trade risk is high and serious accidents are frequent. Fourth : That as a matter of fact, workmen in the dangerous trades do not, and practically cannot, provide for themselves adequate acci- dent insurance, and therefore, the burden of accidents falls on the workmen least able to bear it, and brings many of them and their families to want. There are many evils which do not admit of a remedy- through legislation. Is the unsatisfactory operation of our employers' liability law the consequence of insurmountable difficulties in the situation or merely proof that the law itself is based on a false theory ? It is necessary only to know what other countries are doing in this field to be convinced that the trouble is with our law, not with our industries, nor with the employers and employes who operate them. Every important country in the world except the United States has given up in whole or in part the principle of employers' liability and sub- stituted for it that of compensation. This principle is well explained by Senator Elihu Root who considers the present law " foolish, wasteful, ineffective and barbarous." All accidents (he says) all injuries are subject to the law of average. The cost of support which is made necessary by the injuries suffered in a business is just as much a part of the cost of the business as the tools that are worn out and the material that is consumed. It ought to be paid for by the business as a part of that cost and not left to the charity of the nation at large. Different plans are being tried for bringing about this result and opinions differ as to which of these — British compensation, German insurance through mutual employers' associations, or (122) No. 2] THE COMPENSATION AMENDMENT 71 Norwegian state insurance — is best adapted to American condi- tions. All of these systems, however, have in common the compensation principle, that is, they require employers to pay indemnities, either directly or indirectly through an insurance fund, to wage-earners injured in the course of their employ- ment, whether or not such injury is due to the employer's negli- gence. Thus they must pay when the accident is due to the carelessness of a fellow-servant, to risks inherent in the industry, to contributory negligence on the part of the injured wage- earner himself, or even to such negligence without any con- tributory negligence on the part of the employer, unless such negligence is of so gross a character as to amount to delib- erate self-injury. In other words, in all these systems, now well- nigh universal outside of the United States and rapidly spreading in the United States outside of New York, the principle of negli- gence with its limitations is given up and for it is substituted the principle of compensation. The Wainwright Act, which was declared unconstitutional, was modeled after the British compensation law. It presented the compensation principle for the first time to our courts, and anxiety lest it should be deemed unconstitutional caused the commission which framed it to formulate it with more regard to legal than to economic theory. Thus it applied only to extra-hazardous employments and to accidents in such employ- ments due to the hazard peculiar to the industry. The constitutional argument in support of the law is quite simple. Because of the extra-hazardous character of certain industries, measures for the protection of employes engaged in such industries are justified. Thus far the legislature, in the exercise of its police power, has limited these measures to the prescription of certain safety devices. In a compensation law it goes farther, and says to the employer that he may continue to carry on such dangerous industries only on condition that he become the insurer of his employes against the risks to which their employment in his service exposes them. As such insurer he is made liable for compensation to them on a moderate scale — half wages in this law — when they are injured in conse- quence of the risks inherent in the employment, and he is re- (123) 72 BUSINESS AND THE PUBLIC WELFARE [Vol. II quired to indemnify their families by the payment of a reason- able sum — not exceeding $3,000 under this law — when they are killed. The New York court of appeals might have objected to this statute on various grounds. Thus it might have held the pro- posed classification of extra-hazardous employments unreason- able, or might have found fault with the method adopted of discouraging litigation and jury trials. Fortunately for the clarity of the issue which its decision presents, the court of appeals based its objections on the compensation principle itself. The following summary, taken from the Fourth Report of the Commission on Employers' Liability, shows how free the deci- sion was from captious or technical objections to the law and at the same time how persuaded were the judges of our highest court — the decision was unanimous — that the compensation principle is inconsistent with the due-process clause of our constitution as they interpret it. Imposing upon the employer liability for industrial accidents when the accident is not due directly or indirectly to his negligence, is taking his property without due process of law. The idea that the law may be justified since it merely compels the employer to assume the risks of the trade, whereas the law before compelled the employe to assume those risks and because one plan is logically as defensible as the other, is disposed of by pointing out that the employe assumes the risks not because of the law, but because of the nature of the case. He is the person injured ; upon him fall the consequences of the injury. All that the law does is to say that under certain circumstances, that is, if the negligence of the employer has caused the accident without any contributory negligence on the part of the employe, he may have the right to recover. To argue that the law may now go further and say that he shall have the right to recover, even if there has been no neg- ligence on the part of the employer, appears to the court to create a liability opposed to the whole spirit of our legal system. Such proce- dure is not justified, in the opinion of the court, as an exercise of the police power. That power might be urged in support of a measure designed to promote the public health , but in the view of the court the act under consideration " does nothing to conserve the health, safety, or morals of the employes, and it imposes upon the employer no new or affirmative duties or responsibilities in the conduct of his business." (124) No. 2j THE COMPENSATION AMENDMENT 73 The court finds that the law is valid as regards its classification of extras hazardous trades, nor does it disapprove of the statute on the ground that it interferes with the right of trial by jury, or that it violates section 18, article 2 of the constitution, which declares: "The right of action now existing to recover damages for injuries resulting in death, shall never be abrogated ; and the amount recoverable shall not be subject to any statutory limitation." The judges thus declare in the clearest terms that the com- pensation principle and due process of law are irreconcilable, and it cannot be claimed that they have arrived at this conclu- sion through failure to appreciate the force of the economic reasons that have led to the world movement to substitute the compensation principle for the employers' liability principle. They say expressly : In arriving at this conclusion we do not overlook the cogent economic and sociological arguments which were urged in support of the statute. There can be no doubt as to the theory of this law. It is based upon the proposition that the inherent risks of an employment should in justice be placed upon the shoulders of the employer, who can protect himself against loss by insurance and by such addition to the price of his wares as to cast the burden ultimately upon the consumer : that indemnity to an injured employe should be as much a charge upon the business as the cost of replacing or repairing disabled or defective machinery , appliances or tools; that, under our present system, the loss falls im- mediately upon the employe, who is almost invariably unable to bear it, and ultimately upon the community which is taxed for the support of the indigent; and that our present system is uncertain, unscientific, and wasteful, and fosters a spirit of antagonism between employer and employe which it is to the interests of the state to remove. We have already admitted the strength of this appeal to a recognized and widely prevalent sentiment, but we think it is an appeal which must be made to the people and not to the courts. Later they make their position more clear by asserting : The right of property rests not upon philosophical or scientific specu- lation nor upon the commendable impulses of benevolence or charity, nor yet upon the dictates of natural justice. The right has its founda- tion in the fundamental law. That can be changed by the people, but (125) 74 BUSINESS AND THE PUBLIC WELFARE [Vol. II not by legislatures. In a government like ours theories of public good or necessity are often so plausible or sound as to command popular approval, but courts are not permitted to forget that the law is the only chart by which the ship of state is to be guided. It is no part of the purpose of this paper to argue in re- gard to the soundness of this decision. It has been criticized by able lawyers and teachers of law from the Atlantic to the Pacific. Many valuable reports and briefs have been prepared attacking the narrow and unprogressive interpretation of the due- process clause on which it rests and calling attention to the much more liberal tone of the decisions of the federal Supreme Court. Finally, a similar issue has since been passed on by the supreme court of the state of Washington in connection with the compulsory accident insurance law of that state, and the judges of that court after reviewing the reasoning of our court of appeals, have unanimously decided that for that state at any rate the compensation principle, carried a good deal farther than was attempted here, is in entire harmony with the due- process requirement.' For advocates of compensation legisla- tion in other jurisdictions the volume of authoritative opinion on the other side, which has been called out by the New York de- cision, nearly if not quite outweighs the disappointment which that decision has caused. It has educated public opinion on this whole subject as nothing else could have done. It has stimulated the ingenuity of legislators to secure the benefits of a compulsory compensation law while appearing to confine their enactments within voluntary contractual lines. Finally, it has caused the constitutional argument for the compensation prin- ciple to be summed up with such convincing force as, for Ex- ample, in the memorandum prepared by the law committee of the Civic Federation headed by Francis Lynde Stetson, in the brief submitted for the state in the Washington case, and in the Washington decision itself, that it can now scarcely be doubted that the United States Supreme Court, when called upon to de- cide whether this new method of dealing with industrial acci- dents conflicts with federal due process of law, will again give proof of its progressive and enlightened attitude. ' State of Washingion v. Clausen, decided September 27, 191 1. (126) No. 2] THE COMPENSATION AMENDMENT 75 In this state, however, it is a condition and not a theory which confronts us. Our court of last resort, interpreting a clause in the state constitution, has said unanimously that the compensa- tion principle is at variance with our fundamental law and has declared that if we wish to introduce it into our system of juris- prudence, unless by some unsatisfactory side-door method like that adopted by our sister state of New Jersey, we must make our appeal not to the court, but to the people, in whose hands rests the amendment of the fundamental law. To the members of the New York Association for Labor Leg- islation and through them to the legislators and citizens of this state I wish to address such an appeal. The argument for the compensation principle, as a substitute for or supplement to the principle of employers' liability, seems to me conclusive. It has carried the day in every important country except the United States. Its beneficent results are attested by both em- ployers and employes in every country in which it has been in- troduced. To secure the application of this principle to indus- trial accidents in New York we must either evade this decision by imposing on employers and employes burdens which will lead them to choose this system voluntarily ; get a different rul- ing from the same court on another statute which presents the principle in slightly different form ; or amend the constitution. I oppose the first plan, except as a last resort, because I be- lieve the compensation principle to be just and right, and I am not willing to accept the view that it does not harmonize with our fundamental law. It is more important, in my opinion, to keep our fundamental law abreast of our conceptions of justice and truth than even to do away with our present " foolish, wasteful, ineffective and barbarous" system of employers' lia- bility. Moreover, I question whether the full advantages of a compensation system can be secured through free contract, that is, without making its acceptance obligatory on all employers and employes alike. The second plan seems to me even more objectionable. That the court of appeals will reverse itself on this issue in any reasonable time is a vain hope. It has declared itself and de- clared itself unanimously. It is true that thirty years hence, (127) 76 BUSINESS AND THE PUBLIC WELFARE [Vol. 11 when the compensation principle is in general operation in other jurisdictions, the new judges who will then compose our court of appeals would probably reverse this decision. Believing in the soundness, legally and economically, of the compensation principle, I cannot doubt this. But who of us is willing to wait thirty years for a reform that is already shamefully overdue? It has been suggested that our judges might be led to reverse themselves even in our generation if we could get a case, under the Wainwright or some other law, before the federal Supreme Court and there obtain a favorable decision. Those who enter- tain this hope should consider two facts. First, in its decision the court of appeals clearly anticipated the possibility that the Supreme Court of the United States might hold such a law in harmony with federal due process, and yet declared it incon- sistent with due process in this state. On this point it said, re- ferring to the language used in recent federal decisions : As to the cases of Noble State Bank v. Haskell (219 U. S. 104) and Assaria State Bank v. DoUey (219 U. S. 121) we have only to say that if they go so far as to hold that any law, whatever its effect, may be upheld because by the " prevailing morality" or the " strong and pre- ponderant opinion" it is deemed "to be greatly and immediately necessary to the public welfare," we cannot recognize them as con- trolling our construction of our own constitution. Second, there is no reason to suppose, even could a case involving a citizen of another state be commenced in the fed- eral courts, that these courts would give it serious considera- tion. They would almost certainly content themselves with pointing out that the act in question had been declared to be in conflict with the state constitution and is therefore null and void whatever view they may take of its relation to the federal constitution. We are thus confronted, it seems to me, with the clear and manifest duty of amending the state constitution. Three amendments were proposed at the last session of the legislature and one of these, the Jackson amendment, passed the assembly. This goes farther than would be necessary to (128) No. 2] THE COMPENSATION AMENDMENT jy cause due process to be interpreted as not condemning the compensation principle. It reads : Nor shall anything in this constitution contained prevent the legisla- ture from making such provision as to it may seem proper for the security and protection of the lives, health and safety of workmen , for compensation for injuries to them caused by accidents, or otherwise, arising out of their employment, for insurance against accidents, sick- ness, invalidity and old age, and for the good and welfare of the state and the people of the state. In appealing to you this afternoon to work for a compensa- tion amendment, I do not wish to urge the particular language of this or any other proposed new clause. There is time before the convening of the legislature to give further thought to this important matter and to agree on the phrasing of an amend- ment that will be generally satisfactory. I do believe, however, that it is important that we should take advantage of the situa- tion which this illiberal decision of the court of appeals has created, to have embodied in the constitution a clause giving wider scope to the police power in connection with all kinds of protective labor legislation. As time goes on, the New York Association for Labor Legislation will certainly desire to sup- port other enlightened legislation such as is in successful opera- tion in other countries. Just what forms this legislation should take cannot be decided in advance, but is it not clear that as problems arise calling for new regulations these should be shaped by reference to economic and sociological considerations rather than by reference to some theory as to what constitutes due process of law, which, however well suited to conditions •when our constitution was adopted, is quite out of relation to modern industrial needs? The objection that will be urged against this view is, of course, that in opening the way for wise and much-needed labor regulations, we may at the same time remove the constitutional restraint on arbitrary, unreasonable and socially objectionable uses of the legislative power fathered by demagogues and enacted to secure the political support of some favored class. The conclusive reply to this objection is that in liberalizing (129) 78 BUSINSSS AND THE PUBLIC WELFARE [Vol. II our state constitution we do not relax in the least the restraints imposed by the due-process clause of the federal constitution as interpreted by the federal Supreme Court. That tribunal has never evinced any very radical or revolutionary tendencies. It is fully alive to the rights of individuals and fully competent to prevent legislatures from encroaching on them in ways that are unreasonable or unwarranted by serious economic or social evils. On the other hand the judgments of the Supreme Court are, taken as a whole, more enlightened and more socially reasonable than those of any state court. Made up, as it should be, of jurists who have attained distinction through their un- usual capacities, it can more safely than state courts be en- trusted with the delicate task of interpreting our written, con- stitutions so as to guide and yet not to hamper our national progress. So long as we have the due-process clause of the federal constitution and the federal Supreme Court to interpret it, I submit that there is no valid objection to giving the broad- est definition to the police power in our state constitution. One very important consequence of such a procedure would be to promote that uniformity of state legislation that is so much to be desired. Under such a plan the constitutional restriction on labor legislation would be applied by one tribunal, and that the ablest and wisest tribunal which the country possesses. Labor regulations would, if this plan were generally adopted, be either unconstitutional for the whole United States or con- stitutional for the whole United States. No change would be more certain to facilitate the enactment of wise labor laws or to remove the impression, now unfortunately widespread among wage-earners, that the courts are hostile to their interests. Your executive committee is so impressed by the force of these considerations that at a recent meeting it voted to endorse provisionally the Jackson amendment as the one most likely to pass. It is probable that a better amendment can be drafted and that by earnest effort in the next two months all of the organizations that should support it may be marshaled behind it. What is important this afternoon is that all our mem- bers resolve to work together for a compensation amendment and direct their executive committee to decide between the (130) No. 2] THE COMPENSATION AMENDMENT 79 different amendments that may be presented and to take the necessary steps to secure the enactment of the one preferred by the legislatures of 191 2 and 191 3 and its submission to the people in November 19 13, as required by the constitution. We believe such an amendment to be necessary. We believe that it will effectively clear the way for wise compensation legislation, because we think that the compensation principle will be upheld by the Supreme Court of the United States as in harmony with the federal constitution. Finally, we approve an amendment that will widen materially the scope of the state's police power, because we believe only good will come from giving to the state legislature in the field of protective labor laws a freer hand so far as the limitations of our state constitu- tion are concerned. (131) DISCUSSION OF WORKMEN'S COMPENSATION LEGISLATION' M DWIGHT W. MORROW New York City OST of the discussion of labor legislation is from the point of view of the laborer. I propose to talk about it for a few minutes from the point of view of the em- ployer. In this, as in most other things, what helps the laborer probably also helps the employer, and what helps the employer probably also helps the laborer. The theory of the workmen's compensation legislation is to abolish the employer's common-law liability for negligence and to substitute therefore a definite payment irrespective of negli- gence, which shall reach the workman or his dependents quickly and with small expense. I believe the most enlightened managers of corporations are heartily in sympathy with the change from the employer's lia- bility theory to the workmen's compensation theory. In fact, a great many of them are working under the workmen's com- pensation theory to-day. In the case of large corporations with a great many employes, it is surprising to find how rarely they consult their counsel with reference to their legal liability in cases of accident. They are not so much interested in the theoretical question as to where the legal liability rests as they are in the question whether or not they can get a fair settlement without the great waste of time and money which litigation in- volves. This is partly from a desire to maintain cordial rela- tions with their workmen and it is partly a business proposition. A policy of fair settlement is cheaper than one of litigation. Let us assume that 1 5 ^ of the accidents which occur in the business of a large manufacturing corporation are attributable to the negligence of the employer. At first blush it may seem ' Read at the joint meeting of the Academy of Political Science and the New York Association for Labor legislation, November 10, 191 1. (132) WORKMEN'S COMPENSA TION LEGISLA TION 8 1 that a change in the law which will make the employer liable for lOO ^ instead of for 15 ^ of the accidents will place upon the industry an intolerable burden. There are, however, two important offsetting considerations. In the first place, if the maximum amount which the employer is required to pay under the new system is smaller than the average amount which he is now required to pay in those cases in which he is legally liable, obviously he will be able to distribute the gross amount of his present payments over a wider number of people. In the second place, no intelligent employer could conduct a business under the old law under the assumption that he is put to no expense for the 85 ^ of the accidents for which he is not legally liable. Every manager of a large corporation realizes that whether or not he is technically liable for an accident, every accident costs him something. Most large corporations aim, therefore, to settle every case promptly, irrespective of their legal responsibility. There are now in the United States, I believe, about ten workmen's compensation acts. We are also about to have a federal law applying to interstate carriers. These laws differ widely. They range all the way from a simple adoption of the workmen's compensation principle to elaborate schemes for state insurance. I should like to speak briefly about the prin- cipal features of four laws, those of New Jersey, New Hamp- shire, Massachusetts and Washington. I take these four laws because they represent a gradation away from the common law. The New Jersey act simply substitutes for the employer's common-law liability for negligence a liability in all cases except where the injury or death of the workman is intentionally self-inflicted or is caused by intoxication. The maximum pay- ment in case of death is three thousand dollars, spread over three hundred weeks and in case of total disability four thousand dollars spread over four hundred weeks. Specific payments are required to be made for specific injuries. There is nothing to compel the employer to insure. To protect the workman, however, the right to compensation is given a preferred lien on the assets of the employer. This act applies to every employer in the state. The act is optional, but the state makes an effort to compel employers to adopt the new law by abolishing certain (133) 82 BUSINESS AND THE PUBLIC WELFARE [Vol. II common-law defenses. Several of the largest manufacturing corporations in the state have voluntarily come under the law. I understand that those who have accepted the act estimate that it will add to their accident expense. This additional payment they are glad to make in the belief that substantially all of their disbursement will go to their workmen instead of a substantial portion being lost in transmission. The New Jersey act has been criticized as being unfair to the small employer of labor, expecially to the householder. Such an employer, if he comes under the new law, is unable to insure himself. He must insure in a casualty company and the casualty rates have been made surprisingly high when examined in view of the data of those large corporations who insure themselves. Some relief may possibly be expected when the casualty companies get accurate data as to the cost of the new law. The act of New Hampshire, like the New Jersey law, is op- tional. It, however, applies only to selected employments in which the hazard is believed to be great. There is no require- ment to insure, but the employer who accepts the act must sat- isfy the commissioner of labor of his financial ability or must file a bond to discharge any liability incurred under the act. The Massachusetts law is also optional, but any employer de- siring to come under the act is required to insure in a state em- ployers' insurance association. The governing body of this association is in the first instance appointed by the state but is later to be chosen by the subscribers to the fund. The fixed rates of compensation which the act provides are paid out of the fund. The maximum payment is three thousand dollars spread over three hundred weeks in case of death and spread over five hundred weeks in case of total disability. The law provides, however, that if an employer prefers, he may insure in any liability insurance company authorized to do business in the state. The law passed by the state of Washington and recently held constitutional by the supreme court of that state, is a compulsory law applicable only to certain industries defined as hazardous. Under the law employers in the industries covered by the act pay into a state insurance fund the premiums fixed by the law, and out of this fund a fixed compensation is paid to injured (134) No. 2] WORKMEN' S COMPENSATION LEGISLATION 83 workmen. It will be seen at once that this is a much further break from the old system than the Massachusetts law. Under the Massachusetts law the employer is required to insure if he would get the benefit of the new act, but he insures in a mutual company or private company that he himself selects. In Wash- ington, however, he must insure with the state. An industrial insurance commission is created to administer the law. This commission has its main office at the state capital with power to establish branch offices. It has power to appoint assistants, in- cluding a traveling auditor, to whom the books, records and pay- rolls of the employers shall at all times be open. It may also employ one or more physicians in each county of the state. Whether Washington can find the men to run this compHcated machinery may fairly be considered open to doubt. I was rather disappointed to hear Mr. Dawson say in his very able address that the governor of New Jersey — or as Mr. Daw- son puts it, " the most prominent candidate for the Democratic nomination for President of the United States " — was already dissatisfied with the New Jersey law, and was in favor of a law that goes the whole length of the Washington law. I am in- clined to doubt whether Governor Wilson has gone this far. I have read his criticism of the high charges of the insurance companies, and I think that this criticism is in a measure just. The fact .that the New Jersey law applies to everybody in the state — not only to hazardous industries, but to every house- holder — has made it an unpopular law, and it is the people who have had to pay very high insurance rates who are objecting. I was also interested to hear Mr. Dawson say that the gov- ernor of Washington and the governor of Massachusetts, who attended the recent conference of governors, had not expressed at that conference any dissatisfaction with their laws. Perhaps it may have have had some bearing upon their attitude toward their own laws that neither of those laws had gone into effect at the time the conference of governors took place. The Wash- ington law went into effect October ist, and the Massachusetts law does not go into effect until January ist next. The New Jersey law, however, had already been in effect at the time of the governors' conference, though only for a period of about (135) 84 BUSINESS AND THE PUBLIC WELFARE [Vol. II two months. All of us can remember other laws that reached their greatest popularity before they were put into operation. It was a sound statement of Mr. Sherman's, in his address, that we must not object to these laws merely because we find faults in them. You will find faults in any one of the nine or ten workingmen's compensation laws that have already been passed in this country — very serious faults, because we are all experimenting with this question. I shall read with great interest the full paper of Mr. Dawson's, in which he suggests a plan by which this question will be dealt with nationally. I shall read this paper carefully, because of Mr. Dawson's wide experience and well-known and deep interest in the whole subject; but I shall be sorry if Mr. Dawson's plan or any other man's plan is adopted for the whole United States. In a year or two we may have twenty or thirty state laws in ad- dition to those that have already been passed. In addition we shall have the federal law dealing with interstate carriers, the preliminary outline of which was presented by Senator Suther- land's committee the other day. I prefer to see the people of the United States working with this problem in thirty or forty laboratories instead of in one. What we all want is to find a practical method of doing away with the frightful waste of our present accident system. We are interested in state accident- insurance projects only in so far as they are necessary to help solve the problem. To accomplish the desired result we may be driven to state insurance. I believe, however, that those laws have the best chances of success which aim to accomplish the purpose with the least change in the habits of the people. A law that fits a highly organized manufacturing state like Ger- many after twenty-five years of experience, may be very ill- suited to a western agricultural state. There is one more point that I should like to emphasize in closing. Our goal should be the saving of the life, the leg, or the arm, and not the payment for them after they are gone. Our laws should be framed, if possible, to lead to the preven- tion of accidents. In this connection we may perhaps learn something from the German statistics, however doubtful may be their applicability to a country like ours. As you all know, (136) No. 2] WORKMEN'S COMPENSATION LEGISLATION 85 it is now about twenty-five years since Germany adopted the general principle of workingmen's compensation. Each ten years the imperial insurance office makes a report classifying the industrial accidents compensated under the new system. In a recent bulletin published by the United States Bureau of Labor the German reports for 1897 ^'^^ 1907 are compared. These figures show that there has been a great increase in the percentage of accidents during the decade. The following figures show the sources of accidents in two years, a decade apart : Due to fault of the employer 16.81% 12.06% Due to fault of workmen 29.89 41.26 Due to fault of both employer and workmen . . 4.66 .91 Due to fault of fellow-workmen or third party. . 5.28 5.94 Due to general hazard of the industry 42.05 37-65 Other causes 1.31 2.18 It will be noted that in the decade the accidents due to the fault of the employer decreased from 16.81^ to 12.06^. In the same period the accidents due to the general hazard of the industry decreased from 42.05^ to 37.65^. This would indi- cate that the law was operating to make employers more care- ful. On the other hand, the accidents due to the fault of the workmen increased from 29.89^ to 41.26^. In classifying the time when the accidents occurred it appeared that a larger percentage of accidents fall on Monday than on any other day of the week, and that of those that occur on Monday a larger percentage come in the morning than in the afternoon hours. The editors of the report suggest that this may be partly caused by the use of alcohol on Sunday and the fatigue following. The great increase in the percentage of accidents under the German system and the increase in the percentage attributable to the workmen's fault, raises a serious problem. Many people believe that the rate of accident is bound to continue to increase with the increased use of machinery. We may be compelled to accept this conclusion, but we should do so reluctantly. Meanwhile the American states that have already passed work- men's compensation laws are in a fair way to make a contribu- (137) 86 BUSINESS AND THE PUBLIC WELFARE tion to this subject which Germany has not been able to make. We all recognize that mere negligence on the part of the em- ploye should not bar him from recovery if the workmen's com- pensation theory is adopted. A great number of those acci- dents which are attributable to the negligence of the workman are undoubtedly cases in which a certain amount of relaxation or inattention is to be expected from any ordinary human being. There are cases, however, where the workman is not merely negligent, but commits an affirmative act of misconduct, such as wilfully declining to use a particular safety device. For example, take the case of the workman washing windows in a tall building who declines to use the safety strap. How shall such accidents be treated? Under the New Jersey law the workman receives his compensation unless the injury is self- inflicted or the workman was intoxicated ; and under the Ohio law the compensation applies except where the injury was per- sonally self-inflicted. In California, Massachusetts, New Hamp- shire and Wisconsin, however, the workman is disentitled if guilty of serious or wilful misconduct. The vital distinction between these two classes of laws will be noted at once. The states last referred to are trying to put an inducement upon the workman to refrain from misconduct. It is to be said against such a course that it may do away with one of the main advan- tages of the new system by making each accident still the subject of dispute and litigation. It is to be said in favor of such a course, however, that it may have the desirable effect of keeping down the accident rate. It is in the working out of the details of these laws that we should see the great advantage of our form of government. With so many states each dealing with its own local affairs but each watching the other, and all watching the operation of a federal law applicable to interstate carriers, it may well be that we can do something for ourselves and for the world that Ger- many has not been able to do. That is what I mean when I say that we shall soon be working in thirty or forty laboratories. Is it too much to hope that the work will be done in the spirit of the laboratory worker, in the spirit of the scholar and with the scholar's patience? (138) DISCUSSION OF WORKMEN'S COMPENSATION LEGISLATION' o EDWARD T. DEVINE Professor of Social Economy, Columbia University. NE of the wholly unexpected and I am sure unintended results of the decision of the New York court of appeals in regard to workingmen's compensation is to transform many of us suddenly into constitutional lawyers. I have been expecting that a lot of plain workingmen, and a lot of plain university professors would be asking the law schools to give them the degree of bachelor of laws because of the rapid education that has been going on in the last several years on certain fundamental questions of constitutional law. I share, of course, the desire that we should observe this legislation as students, sympathetically, from the scientific point of view; but I feel that there is one laboratory experiment which has been tried out, and on which it is not necessary to observe or study any longer, and that is the laboratory experi- ment of employers' liability as it was in operation in England in former years, and has been in this country up to the present time. If our discussion thus far has taken too much for granted, if there are any persons who have not, so to speak, been through the elementary, course on this subject, it may not be amiss to refer to an incident which fell under my eye a few days ago in a paragraph in a daily paper from up the state, relating to a man who is now an inmate of the Susquehanna County almshouse in Pennsylvania. He received in certain railroad shops an injury which disabled him for life, and he has now for two years been in the almshouse. He is about to be trans- ferred, at the request of the overseers of the county, to a state ' Read at the joint meeting of tbe Academy of Political Science and the New York association for Labor Legislation, November lo, 1911. (139) 88 BUSINESS AND THE PUBLIC WELFARE [Vol. II institution where he can have certain surgical operations per- formed which he has needed all that time. Is there any one who reads the newspapers who cannot reconstruct what has probably happened in that instance ? This man was injured, injured for life, at his work. On the heels of the injury some ambulance-chasing lawyer probably approached him and asked him for the privilege of prosecuting his claim. He probably gave him authority, and suit was begun. He probably got a disproportionately high verdict from a sympa- thetic jury. The lawyer for the defendant probably moved that the verdict be set aside because it was contrary to the evi- dence or because the jury had not taken into account the con- tributory negligence of the man himself, or had left out some other consideration, upon which the judge had fully instructed the jury at the request of counsel. An appeal was probably taken, and after long delays the case was reversed, and tried again in the lower court after two or three years. In the mean- time the man needed care. I do not know, in this case, whether he had a family or not, but workmen sometimes have. If so, the family probably suffered for lack of the necessities which had been provided by the wages of the head of the family ; but now, at the end of a couple of years of suffering, which could ,have been prevented if the money had been forthcoming which the man under all principles of economics and equity should have received, relief is possibly to be secured as a result of a transfer to a state charitable institution. This is a real evil. It is a serious defect of our legislation, which the law proposed by the Wainwright Commission would have remedied, if it had been not made ineffective by the deci- sion of the court of appeals. I second most heartily the appeal which the vice-chairman of that commission has made for the support of the constitutional amendment. In this state that is the only way out. I think that it is a matter of great gratification, as Dr. Seager has pointed out, that public sentiment in this state has moved rapidly. Undoubtedly the decision made in this case has helped that movement. It is a great thing that some thirteen states have already enacted some kind of law on this subject, (140) No. 2] WORKMEN' S COMPENSATION LEGISLATION 89 and that at least one of these laws has been declared to be con- stitutional by the highest court in the state in which it was enacted. I look with great gratification on the fact that as a result of this discussion we have had our eyes opened to the fact that we have not one remedy before us, but two. I am very glad that we seem likely to have in our legislation on this subject some ex- periments in both directions, in the direction of assured compen- sation on the English plan, and in the direction of a compulsory insurance scheme upon the plan which has been adopted in the state of Washington. I am very glad that the Jackson amend- ment, to which reference has been made, makes possible legis- lation in this state in either of these two directions, and I am the more heartily in favor of it on that account. The language of the amendment expressly provides for insurance against accidents, sickness, invalidity, and old age, as well as for modi- fications in the direction the law proposed by the commission contemplates, and I hope, whatever plan may ultimately be adopted, that the way will be left open for legislation in this state in either of these two directions. Mr. Calder, in the midst of some remarks with which I sympathize cordially, on the subject of efficiency, expressed the opinion that the wave of humanitarianism which we have been experiencing is at its crest. I do not agree with him ; I think it has only begun. I think that a wave of humanitarianism em- bodied in legislation of this sort will sweep on until all that is left of such inequities as these will disappear, as the houses along the edge of Lisbon and Galveston disappeared when the tidal waves swept over them. (141) LABOR LAW IMPROVEMENT AND ENFORCEMENT: THE MANUFACTURER'S ATTITUDE' JOHN CALDER Manager, Remington Typewriter Works IN the state of New York there was a time, not so very far distant, when a large proportion of the manufacturers took little or no interest in legislative action affecting labor and never reckoned with their responsibilities under the labor laws until worried into doing so. At that time, particularly in the less populous parts of the state, they were seldom worried and, in spite of the efforts and oft-repeated recommendations of able and zealous commissioners, the provision for state enforcement of the labor laws was so inadequate that manufacturers had dif- ficulty in believing that serious observance had been expected by our lawmakers. At the present day such matters have greatly changed for the better, and to an extent that is hardly realized by a public fed largely upon sensation and responding chiefly to lamentable in- dustrial catastrophes, the chief lesson of which is that whatever is permitted by law or administration to be anybody's business is, in daily life, nobody's business. At the present time the best type of manufacturer looks his legal obligations to labor squarely in the face and plans accordingly. He realizes his moral as well as his statutory responsibilities toward his employes and in many cases exceeds his statutory liability in satisfying his con- science and intelligence regarding his moral duty. This good work naturally begins at the top. It still needs a long process of education and demonstration to instil a sense of obligation in the great mass of small employers in our villages and large cities, and to make them realize that the way out is clearly marked. Towards this end agencies which hardly existed ten years ago ' Read in discussion at the joint meeting of the Academy of Political Science and the New York Association for Labor Legislation, November lo, 191 1. (142) LABOR LA W IMPRO VEMENT g i are now cooperating with the state. Some of the larger corpo- rations not only are striving to make their factories models of safety and sanitation, but are freely making their experiences available for the common good. The press, both social and technical, is doing a noble service in diffusing information. The capable safety inspectors of our casualty insurance companies are able to concentrate their attention upon accident prevention and are performing splendid missionary work among their policy holders. We can ill afford to exchange this work for anything less efficient, as might well happen should the compensation question finally take any form which weakens the preventive motive. The work of accident-prevention associations is also an increasing factor in education, and the writer is not without hope that soon the education of no young engineer will be con- sidered complete at any of our colleges unless he has been taught the nature of industrial accident risks and methods of avoiding them, a subject now conspicuously absent from engi- neering courses. The foremen of manufacturing establishments are being taught that safety engineering is a part of the daily routine &nd that effeotive supervision and safe working is their share of the work. Last but not least, the manufacturer hails with satisfaction the placing of the labor commissioner's staff on a practical basis, the addition to it of a trained mechanical engineer and the par- celing out of the state into workable divisions under skilled superintendence. This decentralization and specialized knowl- edge of definite state areas will count for much in both enforce- ment and observance. One visit a year on an average to any plant by a factory inspector charged with enforcing many stat- utes is unsatisfactory, and such slight exercise of the policing function alone can do little towards education in accident risk and labor obligations. For a fraction of the cost of an inspector, an information bureau technically informed could prepare and issue to em- ployers illustrated pamphlets discussing the accident and sani- tary risk peculiar to various industries. By laying stress suc- cessively on particular danger-points and safeguards it could, the writer believes, accomplish far more than the formal yearly visit (143) 92 BUSINESS AND THE PUBLIC WELFARE [Vol. II accomplishes, and could greatly improve the efficiency of the latter when it takes place. The wave of humanitarian interest, which is on the crest at present and which will of course have its variations, is not the only or indeed the chief factor in securing permanent better- ment in industrial conditions. A less obvious but none the less real influence is at work which bids fair to make the path smoother for the realization of some labor ideals. The possi- bilities in improved labor legislation, particularly in hours of labor, are closely allied to and dependent upon improved labor and factory efficiency. Economic necessity, if not inclination, is already driving the manufacturer to take up in all seriousness the conservation and intensive application of human energies in every department of activity, distributive as well as productive. To succeed in this his factory must be safe, clean, well lighted, heated and venti- lated, and his employes must be willing to be taught how to attain higher efficiency in a shorter working day. The living neces- sities of a rapidly multiplying urban population leave us no longer any choice as to whether we shall or shall not intensify the industrial arts. After a period of great abundance and of great waste of natural resources we are now living upon charity, the charity of the farmer and of every living soul whose efficiency or inefficiency contributes to the cost of necessities. Even the farmer must now rely wholly upon the engineer and manufacturer for the tools of his trade which alone make ex- tensive cultivation possible, and upon the chemist and other sci- entists for the directions which will enable him to intensify his yield as well. The population question within our own borders will shortly make these steps imperative and no legislation or political economy which ignores such needs can possibly stand a trial. In spite of some unwise advocacy and also of not a little cur- rent misrepresentation of the efficiency movement — which by the way is not the property or patent of any particular set of practitioners — the manufacturer is bound to reckon with it and nothing but good to the body politic can come from wise use of it. Reasonable hours of labor, safety, sanitation and com- (144) No. 2] LABOR LAW IMPROVEMENT 93 pensation are all involved in the efficiency he seeks, and the steps he has to take to attain these most desirable ends tax his organization, his skill of management and his capital far more than they do his workmen, who are insured increasing leisure and increasing reward for a new type of diligence. If the stereotyped and unprogressive " trades " stand in the way they will most certainly block labor's progressive ideals and in the long run will invite their own destruction. The progressive manufacturer's organization is deliberately •directed towards enabling employe and capitalist alike to make more of the opportunities of the working day under efficient shop conditions which satisfy every reasonable aspiration of labor and which will make it possible to obtain permanently by scientific cooperation a larger measure of leisure for the work- man than legal fiat alone could ever secure. Let the labor laws be framed under competent advice and follow the best practise ; let them be always enforced with dili- gence, ability and tact by inspectors whom manufacturers can respect and who have a profitable, secure and honorable future in the service of the state ; let these conditions be mandatory, not permissive, and the factory inspector will become more and more a welcome visitor in our busy hives of industry. (145) I INVESTMENTS ON THE INSTALMENT PLAN ' WILLIAM E. HARMON New York City F a dozen men were asked to put their finger on the most serious problem confronting civilization, at least half would consider some phase of industrialism or capitalism as representing the knottiest problem and constituting the most serious menace to universal well-being. When I say that indus- try is underpaid, it may bring a sarcastic smile to the lips of the prosperous members of this audience. When I say that, as a general proposition, the workingman does not give an honest day's work to his employer, frowns of disapproval may gather on the faces of the representatives of labor. Both propositions are, however, true. The struggle between men and women operating individually, or welded into labor unions, and money welded into organized capital, constitutes a wasteful war that has been carried on unceasingly throughout modern times, and bids fair to keep up till the millennium. It was never more bitter than to-day, and a practical solution never seemed farther off. The antagonism between labor and capital does not arise because of any inherent moral defect in either one or the other. It is simply the result of the fact that capital and labor have not a large enough common interest. It is obvious that if all capitalists had to raise their capital requirements among their working people, and all working people in a given trade had to rely for constant work upon the prosperity of that trade, the relation between the man and his employer would be, of neces- sity, harmonious, for their interests would be identical. No remedy will cure the antagonism between labor and capital except the removal of the cause through this harmonizing of their interests. Repressive legislation against the capitalist does not convince him of the equity of the government, nor does the 'Read at the meeting of the Academy of Political Science, November ii, 191 1. (146) INVESTMENTS ON THE INSTALMENT PLAN 95 power of organized capital over its employes convince the workman of the justice of such a state of facts. It is only when an inter-relationship is established between the two with a mutual knowledge of each other's problems, that any real cooperative feeling comes into existence. This is to all doubt- less self-evident, the real question being simply how it can be brought about. In the brief space available it will be impossible to go into a discussion as to how the antagonism between capital and labor has developed. It is a sequence of modern methods of doing business, and modern methods of doing business have been a sequence of the rapid development of the world in invention and in facility for human intercourse. The telegraph, rapid mail service, banking methods and industrial coordination have all had a part in developing the present situation. Although they are effective in increasing the prosperity of the working- man as well as the employer, a great waste has developed, the same kind of a waste that is seen in the operation of every newly-discovered force — the waste of resources. The time has come for the conservation process to begin — conservation in finance and industry. A large portion of available wealth is not utilized. Certain favored classes have opportunities not open to the general public ; millions are wasted in loss of wages through enforced idleness, and other millions in property destroyed during strikes. No one will belittle the importance of this fact, nor minimize a scheme of settlement which will, without destruction, harmonize interests, neutralize antagonisms and make the lion of labor and the lamb of organized capital pull the plow in double harness, even if the lion of labor does most of the work. I have had twenty-five years of relationship with men con- trolling large amounts of capital ; for twenty-five years I have had an intimate experience with the man of small means. It has been possible to see the point of view of both parties ; it has been possible to keep a sympathy with each class ; it has been a great opportunity for study and experiment. Out of this life have grown up many conceptions of the rights of employer and employe, and through this experience has been (147) 96 BUSINESS AND THE PUBLIC WELFASE [Vol. II developed a comprehensive plan for conserving resources and harmonizing interests now arrayed against each other. In taking up a consideration of this plan, it may be well to say in advance, that it is simply the development of a business career, that it presents nothing new and is not in any sense radical or artificial, but contemplates, through the development of forces already in operation, a unity of interest between two great powers, which at bottom are always working for the same results. In brief, my plan is to make the wage-earner a capitalist, and the capitalist, in a certain degree, his representative. The President of the United States is the servant of all its citizens ; the president of the United States Steel Corporation is the representative of 1 10,000 stockholders. The gross incomes of the United States Steel Corporation and the United States Government are nearly equal. When the president of the United States Steel Corporation is the servant of ten times the number of people now on the books of the corporation, then my hoped- for results will be nearer accomphshment. France is the creditor nation of the world, because the French bankers have, of necessity, created and developed methods by which the smallest wage-earner can share in the opportunities offered to the great fiduciary institutions. In France every wage-earner who is capable of setting aside a surplus has been taught to invest that surplus in some form of security. This is what gives France its tremendous lending capacity. This is what enabled it to pay the Prussian war debt without apparent effort. In the United States we have never cultivated the capacity of the producer to save money, simply because we have been able to raise our moneys in other directions with less effort. We have failed to realize that we were disturbing an industrial balance ; that we were making the wage-earner a radical, be- cause we were not giving him a fair opportunity to employ profitably a part of the results of his labor, viz., his savings; that we were, at the same time, making the capitalist a radical because we were alienating him from the men who made suc- cess for him possible. (148) No. 2] INVESTMENTS ON THE INSTALMENT PLAN gy There is no civilized nation in the world where the seeds of socialism have found so little opportunity for growth and pro- pagation as in France. The Frenchman is a conservative because he is a property owner. He is interested in his wage, but also in the protection of the property which produces his wage. This rule, of course, is not invariable, but it has a general application, and has a special application in certain directions. In the United States we have provided for two needs of the average man : one, the need of protection for loved ones in case of death through life insurance. Every man recognizes the value of life insurance, and pays his premiums with the same confidence that he would buy his winter coal. The other satisfied need is a depository for emergency cash requirements. This we find in the savings bank. But there is cmother vital longing in every man's heart, to which as a nation we have paid little or no heed, and in some ways I think it is the greatest longing of all. Protection for loved ones is important, a place to deposit money for future requirements is important, but the opportunity of setting aside a certain portion of one's earnings to establish a competence for old age would seem to be quite as real and vital as either. We restrict by lack of training, as well as opportunity, the man of small means or capital to a rate of earning much lower than the average rate of earning on capital. There are comparatively few persons who know much about the earning capacity of -wealthy men in fortunate position. We see the rich growing richer; perhaps, the poor growing richer too, but not in the same proportion, or at the same rate. We see great economies through great consolidations, and we learn at third or fourth hand of enormous sums of money made by men who are in a position to derive the benefits of the country's prosperity through special privileges. Ordinarily speaking, the public has an opportunity of getting hold of securities only when various commissions and under- writings have taken off most of the cream. It is easy to exag- gerate the profits made by men of wealth, and it is also easy to belittle the profits and over-emphasize the losses, but those of us who are more or less in the inner circle in our particular line (149) g8 BUSINESS AND THE PUBLIC WELFARE [Vol. II of work do know that the men who are capable of furnishing financial aid to undertakings of all kinds receive, as a general rule, a very handsome compensation for their risk, and if the average man could receive his share of these profits, the securi- ties representing these ventures would bear a higher rate of income than they do when he has the opportunity of getting hold of them. Without going into particulars, I am assured that the average income of self-made millionaires on their capital is at least 7 to 8^ per annum. This does not mean that all their capital earns 7 to 8^, but it does take into consideration their losses. In other words, from a long study of the question I am con- vinced that the wealth of the average active man of wealth grows, at least, from 7 to 8^ per annum from dividends, underwritings, bonds retired at a premium, stock distributions, bonuses, profits in real estate and the like. Now, what I want to do is to give every working man in this country an opportunity of sharing in the profits accruing to the most favored individual. I want to teach him the importance of saving to the end that he may accumulate a competence. I should like to solicit him for investment, just as the life- insurance companies solicit him for insurance, and I should like to offer investments to him upon terms within his reach. I should like to teach the capitalist the value of the cooperation of the man of small means in increasing the efficiency of his plant or operation, in defending him against destructive legisla- tion ; I want to teach him the enormous possibilities of financial assistance through tapping the saving capacity of the millions of wage-earners. Through the development of a dual relation- ship between the man and the boss, I hope to reach the same objective sought for by the socialists, namely, the ownership of all property by practically all people, but that ownership to be acquired by purchase and not by confiscation. In order to show clearly the facility with which this plan can be carried into effect, a word will be said about the instalment business, which, in my opinion, contains absolutely inexhaustible opportunities for the good of the nation and its people. Twenty-five years ago the selling of commodities on instal- dso) No. 2] INVESTMENTS ON 7 HE INSTALMENT PLAN 99 ments was in the hands of a very few persons, was a business of questionable character, and was operated by men of doubtful reputation. To-day, it is a proved factor in finance. The writer's firm established the instalment business in real estate, being the first ever to write an instalment contract for land. Though accurate information is not available, the writer estimates that there are two or three hundred million dollars' worth of real estate sold on instalments each year in this country. The insurance of lives is a business done on instalments. Savings banks conduct an instalment business. The instalment method might be extended to the sale of all classes of securities through bond and security houses of the highest grade, as well as through organizations created for this specific purpose. The same energy should be put back of the sale of securities that has been used to build up the millions of assets back of life-insurance companies; and the same energy and ingenuity should be exercised to meet the requirements of all classes of buyers. The thing has been accomplished in the real-estate business, in which a single concern disposes of $5,000,000 worth of property a year. It has been done in an investment business confined to real-estate securities, several million of such securities having been disposed of in a single year. Put any one of a number of well-known financiers at the head of an organization of this kind, and a hundred million dollars worth of securities would be an easy annual output. Put out that amount of securities annually among the money savers of the country, and you gradually educate men in financial methods, you create respect for property, you neutralize antag- onisms, you conserve human rights. In order to give a clear concept of the practical working-out of this plan, I shall briefly sketch out a corporation, showing its character, functions and possible history. Assume that we have formed the American Mutual Investment Association for the purpose of buying different classes of personal securities, such as stocks, bonds, notes and other forms of property, and of selling for cash or on instalments either such securities or shares representing fractional interests in groups or blocks of securities. The board of trustees has been made up of rep- (151) lOO BUSINESS AND THE PUBLIC WELFARE [Vol. II resentative men in various departments of financial, social and industrial activity. Obviously the larger portion are men en- gaged in finance, for this class is in touch with the great invest- ment opportunities. The aim of the association is to train the common people into a just comprehension of the character and value of securi- ties, of the principles governing business and the rights of the parties therewith connected ; also to teach those engaged in corporation management the importance of a diversified owner- ship of their securities, and the policy of fair dealing with their security-holding clientele. The primary function of the associ- ation is to purchase from time to time the best investment securi- ties of different classes that are offered, and to distribute these securities by instalments among all the people earning a surplus above their actual cost of living. Obviously, a difficulty is met with in selling actual securities themselves. But the money of instalment buyers can be accumulated at a low rate of interest for specific purchases until the amount accumulated is sufficient to purchase the securities themselves, as for ordinary buyers. This, however, is not the largest function of the corporation. By far the largest amount of business would be in the sale of fractional interests in blocks of securities, rather than in the sale of specific securities. To illustrate : Assume the selling capacity of the association in the year 19 12 to be $50,000,000. This will be made up of contracts running an average of, say, five years. At the end of 191 2 these contracts will all be combined under the head of "Consolidated Syndicate of 1912," and thereafter as this money is received at the rate of something less than $10,000,000 per year, it will be invested in such securities as the trustees may decide to buy. At the end of five years the entire $50,000,000, less forfeitures and surrenders, will be paid in and invested in securities of different kinds. At this time, or earlier if desirable, shares of a par value of $100 each can be delivered representing the fractional interest of holders. These shares will naturally have a market value cor- responding to the average value of the securities in the block or pool. This value will soon find its level in the markets of the world, and if only listed securities are purchased, (152) No. 2] INVESTMENTS ON THE INSTALMENT PLAN loi will have a value corresponding to the average value of the listed stocks or bonds, with a far more stable market from the fact of broad distribution and freedom from speculative influence. The actual stocks and bonds will be held by the association as trustee under a declaration of trust, giving proper protection and proper freedom of action. The distribution of these securities or shares costs money, and as it would be necessary to conduct a business of this kind aggressively, money must be provided from the business itself to pay for its own development. Let us consider this important question, and see from what sources an income sufficient to pay for the sale of securities can be provided. Finst, every corpora- tion offering securities to the public must, in some way or other, pay the cost of selling them. This expense is in the shape of underwriting fees, commissions, or advertising. It is incon- ceivable that a corporation would not be willing to pay as much to an organization that would put its securities into the hands of small holders as it would to get them into those of a banking syndicate. The difference between the price which the corpora- tion receives for its securities and the price which the public pays represents the profit to underwriters, banking houses and syndicates, or the expense of marketing the securities in any other manner. As our corporation would be one of the largest buyers of securities, and would distribute them in the manner most attractive to selling corporations, the fees from underwritings would probably aggregate from 3 to 8^. A greater or more constant saving could be made in another way. At present the only avenue of investment open to the average man is the savings bank, in which the interest paid runs from 3 to 4^. Let our corporation invest money as received at the best possible rate of interest, and pay the investor during the instalment period savings-bank interest, or even less, and he will be satisfied, and a considerable sum will accumulate in this manner. As the buyer of certificates at the end of his contract period receives the full earning capacity of the securities pur- chased on his behalf, together with any increment which may have accrued, he will be well content to make a slight sacrifice of interest during the instalment period. (IS3) I02 BUSINESS AND THE PUBLIC WELFARE [Vol. II A careful study of this whole matter shows that at least 8^ of the total amount received could be set aside for advertising and solicitation as a means of selling securities, and still give the buyer a fair rate of interest upon his money during the instalment period and the full earning capacity of his money measured by the highest ability to purchase in primary markets. Equitable methods should be established in protecting the delinquent investor through cash surrender values, but the company should be the gainer to a reasonable degree by the failure of the buyer to keep up his payments. A forfeiture or surrender feature may be either too drastic or too liberal. A man should be given opportunity to get cash in case of mis- fortune, but it should be made so expensive that saving becomes practically compulsory. To-day conditions are ripe for the organization of a corpora- tion of this kind. Life-insurance agents have been taught to talk investment insurance, but find this department of life insurance constantly diminishing in popularity. Life-insurance companies are limited to a low earning capacity from the fact that they must provide for mortuary requirements and maturities, while our shares are permanent investnlents, as far as the cor- poration is concerned. The writer would not hesitate to agree to place from ten to one hundred millions a year of these securities in the hands of the public after a properly organized mutual company was well under way, and to distribute them so widely that the average holdings would not exceed $2,000. If the stocks and bonds of corporations were distributed as widely as life-insurance policies are distributed, if every legislative attack or all socialistic propa- ganda affected thousands of property owners where they now affect one, we should find a conservative spirit quickly arising in opposition. As we acquire property we learn thereby to respect the property of others. The great question which will come up to the student of economics is, what effect will such a corporation have upon the menace of control, or, in other words, upon the ever-increasing power of small groups of men to control great financial re- sources? Will this not put a new weapon in their hands? (IS4) No. 2] INVESTMENTS ON THE INSTALMENT PLAN 103 Will it not make this growing type of despotism more complete ? Admittedly, it will repose great power in men who control the destinies of the association, but it will at the same time create a sense of responsibility and enforce a type of publicity which will prevent the use of the power for personal ends. There are probably few institutions in the world that are con- ducted with a greater regard for the rights of the smallest investor than are the savings banks, and one might hazard an opinion that the tendencies in the Hfe-insurance companies at the present day are in the same direction. Our best illustration of the working out of this policy, however, is found in France. It matters little in France how enormous the concentration of financial power may be, there is practically no abuse of that power. Laws have grown up and customs have kept pace, which protect the individual in a manner utterly unknown in this country. The savings banks in America, and the banking and credit institutions in France have had a parallel history. It matters not whether good laws have created the disposition to save, or whether the habit of saving has created good laws. They are coordinate and contemporaneous to-day, and it can be safely said that when we have established investment organi- zations in which large numbers of small investors can place their funds, a like condition of affairs will come into existence in this country. Men are thinking deeply on this subject. The best of those engaged in finance and the employers of large bodies of industrial workers recognize the weakness in our present methods, and some are trying in a more or less haphazard fashion to meet the coming crisis. The trouble is that very- few men are familiar at the same time with the reasonable rights of capital, the reasonable needs of wage-earners and the methods through which the two can be harmonized. In the opinion of the writer it lies in the development of the instalment business in the hands of men with high ideals of public responsibility. This is the true solution of the problem of labor and capital, and when this or a similar plan of distribution is fully developed, the antagonism between the two great classes will disappear. dss) DISCUSSION OF INVESTMENTS ON THE INSTAL- MENT SYSTEM' ISAAC N. SELIGMAN J. and W. Seligman Company, New York I AM not certain whether the word " harmonizing " is not derived from Mr. " Harmon " himself. I noticed that the phrase " harmonizing the interests of labor and capital " was frequently made use of by him. I have been associated with Mr. Harmon for many years in the National Child Labor Committee and his cleverness and facility in getting funds from quarters which I thought were impossible, were so great, that I think if he succeeded in forming a company for either one million or fifty millions, I should be disposed to subscribe liberally toward any practical plan which he had in view. The company is not yet organized, however ; and we shall therefore have to await future developments. I am not really competent to discuss his scheme, not having as yet seen his monograph ; but judging from the interesting remarks of Mr. Harmon, I think there is a great deal in what he says, which might perhaps be usefully elaborated. I wish however to impress on him the fact that there is a very radical difference between investors in this country and investors in Europe and especially in France. This may be due to the insular financial status of France. France is a very wealthy country ; it is not a debtor country like ours. It is a rich coun- try, both in land and in crops ; and the people, who are more thrifty than our people, have been educated in the idea of in- vesting — perhaps from patriotic or other motives — in their own securities. The conditions with us here are quite different, with a virgin land of great area, and with great and varied oppor- tunities for investment in nearly every department of industry. It would therefore be a very difficult task, I think, though not • Discussion at the meeting of the Academy of Political Science, November ii, 1911. (156) INVESTMENTS ON THE INSTALMENT SYSTEM 105 an impossible one, to educate our farmers and middle class, who represent the small investors, to the idea of placing their savings in first-class securities of industrial or railroad companies. In France finance is largely controlled by large banks. Those banks, as Mr. Harmon has stated, have their branches in all the small towns and cities of France. Our national banking law does not permit the establishment of branch banks. In France they have large financial companies, like the Credit Lyonnais, Comptoir d'Escompte, Socitti ginirale and other large societies of enormous capital and power which are well known through- out that country and which have the confidence of the small investors and of all the working people throughout France. When a large issue of any security is made, these banks through their numerous branches throughout France issue their circulars which are posted in every little hamlet, and investors flock to these agencies and purchase the securities with a feeling of abso- lute confidence. Those conditions would be absolutely impos- sible in this country. There are in this country three or four large banking firms — not perhaps the ones that are widely known — that have sixty or seventy or even a hundred good bond men traveling on the road all the time, from Portland, Maine, to New Orleans, Louisiana, trying to educate the small investors, the common people, in purchasing good securities. They succeed in selling quite a number of good bonds in small lots of two, three, five and ten thousand dollars to small in- vestors and the total may aggregate considerable sums, but after all it is a small percentage, of the people whom they reach and who are willing to invest. It requires much cajoling and long explanations to succeed at all. Our government, if I recollect correctly, during the adminis- tration of Secretary Carlisle in the Treasury Department, tried what was termed a popular United States bond subscription, and it did not prove a success. I have been more or less connected with a number of issues by the United States gov- ernment of its bonds, and strange as it may appear, the small investors of the country never appeared to take any substantial interest in United States bonds as a permanent investment. They preferred apparently to invest their profits in farms or (157) I06 BUSINESS AND THE PUBLIC WELFARE Other forms of property, and perhaps now and then in an auto- mobile. They have not yet been educated to the idea of in- vesting in government securities, or other gilt-edged securities. They apparently in many cases prefer to place their surplus funds in savings banks, and possibly now in the postal banks. In any event it will not be an easy undertaking for Mr. Harmon to educate our small or middle-class investors, that is, the work- ing people, into taking first-class securities as investments. It is very possible that in a case of emergency, such as a war, patriotism would lead them to invest in national securities, but under normal conditions even well-directed efforts in that line would I think encounter great difficulties. I think, however, that the plan outlined by Mr. Harmon is well worthy of consideration ; I have not read its details, but on general principles I should say that any plan that he suggests is entitled to serious study, even though it may at first appear impracticable. (is8) DISCUSSION OF INVESTMENTS ON INSTALMENTS HENRY RAYMOND MUSSEY Associate Professor of Economics, Columbia Univeraty IN examining any new financial or industrial plan, we are obliged, in the existing state of social development, to look at it from two points of view: in the first place, is it economically effective ? and in the second place, is it democratic ? The one consideration is not less important than the other. Does Mr. Harmon's plan meet these two tests? As regards economic effectiveness, it appears pretty clear that a company organized, officered and managed as Mr. Harmon proposes, could be made the means of affording a larger return to small investors, with a far greater degree of security, than they are able to enjoy under existing conditions. Assuming that to be the case, it seems that by safeguarding investments Mr. Harmon's plan would do something in the way of encouraging small investors to save money, and would thus be a means of increasing the capital at the disposal of industry. On that account it would be economically useful. The third economic advantage is the wide distribution of industrial securities, which would do something in the way of warding off the legislative attacks and the legal restrictions to which capital is subject at the present time. I am by no means certain that such a lessening of restrictions would be wholly a gain, even from the standpoint of wealth production. While such restric- tions may have been carried too far, their indirect results at least have in many cases been favorable to an increased output of wealth. Admitting the economic effectiveness of the scheme, is it democratic? Whether we like it or not our people are insisting more and more not only upon equality of financial opportunity, but upon the right of public control of every important indus- trial agency. Herein lies a difficulty: by no conceivable ar- rangement with regard to investments is it possible to harmonize entirely the interests of the whole community and of the indi- ' Discussion at the meeting of the Academy of Political Science, November II, 1911. (IS9) I08 SUSIN'SSS AND THE PUBLIC WELFARE viduals in it. Assume that by the application of such a plan in- vestments should be very widely distributed, nevertheless you could not by any possibility get all the members of the com- munity into the investing group : therefore there would be more or less opposition and friction between the investing group and the rest of the community. No mere change in investment arrangements can effect any complete unification of interests. Given such a conflict of interests, social progress demands that the claims of non-investors be not unduly subordinated to those of investors; but an arrangement whereby the small investor might put his money into good securities, well managed, would still leave the actual control of financial affairs pretty much where it now rests, and the result might well be to enlarge somewhat the power of our financial magnates. A very serious aspect of the matter would be the political situation resulting from the placing of securities among small investors. Is a condition such as that in the state of Pennsylvania, where there is a wide distribution of the securities of a great railroad cor- poration, from any point of view an ideal state of affairs ? I do not object to harmonizing the interests of the corporation with those of the public ; I do question seriously whether the attain- ment of such a nominal harmony by increasing the power of the corporation over public opinion is to be desired and whether it is conducive to sane democratic development. Because Mr. Harmon's plan contains such a possibility, it needs careful scrutiny. My criticism, then, would not be directed to the economic effectiveness of the plan, nor should I question most of the advantages claimed for it ; but it should be pointed out that it would constitute only one small part of a really effective pro- gram of democratic social advance. In my judgment the most important result to be expected from it is the educational one. The effect not only in educating the small investor to the mean- ing of financial operations, but in giving the manager of invest- ments a sense of his responsibility, in teaching him the possibilities of his position in the development of industry, would be of real and permanent value in bringing about that sense of mutual ob- ligations and duties on which social progress must in the last instance depend. (i6o) REMEDIAL LOANS— A CONSTRUCTIVE PROGRAM' ARTHUR H. HAM Direclor, Division of Remedial Loans, Russell Sage Foundation DURING the last three years a bill designed to regulate the small loan business in the District of Columbia has been introduced in each session of Congress. This bill pro- vides for the licensing and supervision of all money-lenders in the District and allows them to charge a monthly interest rate of 2^. In spite of the fact that the bill has had the unanimous support of the press of Washington, the approval of many philanthropic institutions and a large number of prominent individuals who have the welfare of the community at heart, it has not yet become a law. There have been from the beginning intimations that a power- ful lobby supported by combinations of money-lenders having their headquarters in Washington has been at work to prevent the passage of the bill and that political influence has been en- listed in most unusual and unexpected quarters. The real reason for the failure of the bill to pass is to be found in the attitude of several congressmen who have been members of the committees to which the bill has been referred. The chairman of one of these committees recently said, " The loan-shark bill as presented at the last session would have made it legal to charge 24^ a year on money borrowed. This would have been detrimental to the needs of the District and I voted against it. There is not a place in the country where such a rate of interest is tolerated, much less made legal." Another prominent con- gressman in a letter recently received by me said, " I do not think the money-lenders who seek to get 2f) a month ought to be protected. In my judgment they ought not be permitted to do business in the United States. I want strict regulations on this subject. I will never support any measure that proposes ' Read at the meeting of the Academy of Political Science, November 11, 1911. (161) 1 lo BUSINESS AND THE PUBLIC WELFARE [Vol. II 2^ a month or i>^^ a month. More harm than good will come of it." Another senator insisted that a Umit of &Jd a year be fixed on all loans of this sort, that such a law strictly en- forced would serve the purpose best of all. These gentleman seem to believe that all Congress has to do is to enact a strict law forbidding a higher rate of interest than &fo and the loan-shark business ceases. They seem to be ignor- ant of the fact that in New York city, where until recently a higher rate of interest than 6^ per annum has been prohibited under penalty of criminal prosecution, except to corporations organized under a special law, more than 300 loan sharks are charging from 120 to $00^ per annum. Probably they do not know that in the state of Pennsylvania, where a higher rate of interest than 6'jo is forbidden, all cities and the larger towns are infested with loan sharks, one of whom was recently found to be charging more than 700^ annual interest on his loans. They apparently have not noticed that during the last sessions of the state legislatures bills were introduced in twenty-two states allow- ing a higher rate of interest on small loans than the banking rate, and that in the state of Massachusetts the entire business of small loans has been placed under the control of a newly created state supervisor of loan agencies to whom power has been given to regulate the rates of interest, within a maximum of 3jfc a month. Even a cursory examination of the conditions that have given rise to the loan-shark evil shows that banking rates of interest cannot be imposed on a business conducted on security not accepted by banks. The loan company, having no deposits to loan, must do its business on its capital alone, and in order to pay operating expenses plus a reasonable return on the in- vestment and to meet the losses in a business notable for its risk a higher rate of interest than the banking rate must be charged. Shall the small loan business, then, be recognized as a national institution, to be made legitimate, regulated and con- trolled and subjected to reasonable conditions, or shall it by the passage of drastic laws be rendered more clearly illegal? The answer must be in favor of legalizing the small loan business, for drastic laws result, not in the discontinuance of the usurious (162) No. 2] REMEDIAL LOANS 1 1 1 loan business, but in driving it further into the dark. Any attempt to work unnecessary hardships on the lender, to com- pass him about with unreasonable restriction, has the inevitable result of forcing the borrower to pay a still higher charge for his loan. The average annual wage of the American workingman is not more than $500. This falls far short of the minimum expendi- ture upon which it is estimated that a normal standard of living can be maintained. Enforced idleness, unexpected illness and similar emergencies necessitate the borrowing of money. This condition cannot be eliminated without the entire remodeling of our whole social and economic system. The small loan evil has reached far greater proportions in the United States than in foreign countries, not because of the prevalent American un- thrift about which we hear so much, nor because the American workingman is worse off in the matter of wages than the work- ingman in other countries, but because our country has been backward in enacting social legislation and in recognizing the duty of the community toward its marginal laborer, and because the workingman himself has still to grasp the full possibilities of voluntary protective effort. Many foreign countries, realizing the evils resulting from exploitation in the field of small loans by private enterprise, have with varying degrees of success attempted to regulate the business by making it a governmental monopoly. In several European countries the need for loans among workingmen is met by the operation of municipal or semi-public loan associa- tions that advance money on household goods, clothing, jewelry and other property at low rates of interest. Out of 10,000,000 discounts made by the Bank of France last year, over 2,000,000 were for loans of 50 francs or less. It was the boast in Scotland more than a century and a half ago that any young Scot known to his neighbors as industrious and honest could get a loan at a local bank at banking rates. The Scotch local-bank idea has been developed in many other countries into a system of co- operative credit associations. It is estimated that there are some 40,000 of these associations now in operation in Europe with over 3,000,000 members and $1,000,000,000 resources. (163) 112 BUSINESS AND THE PUBLIC WELFARE [Vol.11 52 of these credit unions are operating successfully in the Dominion of Canada. It is a regrettable fact that until very recently the small loan business in this country has been almost entirely and even now is very largely in the hands of discredited and disreputable people. Governmental monopoly of the small loan business has never been attempted in the United States and only very recently has it been discussed. The rapidly rising storm of protest against the evils of usury in this country during the last few years has given an impetus to the remedial loan movement that has taken the form in many cities of competing loan insti- tutions of a semi-philanthropic nature. There are at present twenty-one of these remedial loan societies in nearly as many cities, employing $10,000,000 of capital. All are paying a reasonable return on the investment and by their competition are forcing the usurers to reduce their rates or vacate the field. A notable example is the Provident Loan Society of New York city, which loans money upon pledge of personal property at I ^ per month. During its seventeen years of existence it has grown from a small society with a capital of $100,000 to a great financial institution now employing $7,500,000. The result of the work of this society is shown by the fact that most of the larger pawnbrokers in New York city are now loaning money at I ^ per month, and the proportion of pawnbrokers to popu- lation has decreased nearly one-third. An effort is being made to supplement the work of the Provident Loan Society in this city by the organization of a similar institution to make small loans upon security of mortgages on household furniture. This endeavor has not been extended to the field of salary loans, nor is it necessary that it should be. The salary loan evil is a problem that can be and is being solved by protective effort on the part of employes with the cooperation of employers. Borrowing on assignments of wages is not peculiar to any one class of employes. It is prevalent among clerks employed by public service corporations, banks and mercantile houses and federal and municipal employes. A recent investigation in this city by the commissioner of accounts showed that many loan sharks operating exclusively among city employes are charging (164) No. 2] REMEDIAL LOANS 113 from 60 to 400 f) per annum on their loans. Not only was a large percentage of firemen and policemen found to be involved, but aldermen, city magistrates, and even supreme court judges were among the loan sharks' clients. It is estimated that in New York city more than 200,000 persons are involved with the loan companies, many of whom are every year paying back in interest alone two or three times as much as they ever borrowed. The statement could probably be proved that one city dweller in every twenty, one voter in every five, finds it necessary at some time during the year to discount two days' labor for the immediate price of one. A business of this character and extent, carried on among employes, has naturally become a source of great annoyance and worry to employers. Many of them, casting about for a solution, have attempted to discourage the habit of assigning wages among their employes by threatening with immediate discharge upon discovery any employe found so involved. This rather common attitude among employers is illustrated by the following excerpt from a letter which I recently received from the president of a large manufacturing concern in this city : " We now have a rule that whenever an employe's salary is attached by one of these firms and such notice is served upon us, the employe is subject to discharge. This, we think, is a good rule, as knowing that such is the case, it prevents our employes from going to these agents, whether to purchase goods or to get a loan on their wages." The effect of such action on the part of the employer is shown by the following typical case. A young man holding a responsible position endorsed the note of a friend who had been compelled to borrow $50 from a salary loan shark. Under the loan shark system the endorser as well as the borrower is required to give an assignment of his wages. Subsequently the borrower, before he had paid his loan, lost his position and left the city. The loan company called upon the endorser to make good the loan. He was unable to do this, but knowing that his employer would dis- charge him if it became known that he had dealings with the loan company, as the loan shark was already threatening to notify his employer he went to a second loan company to (i6s) 1 14 BUSINESS AND THE PUBLIC WELFARE [Vol. II borrow the amount claimed by the first. This began a chain of transactions that lasted for about eighteen months. During that time he paid the money-lenders $250 in excess of the amount received from them and was then indebted to the extent of $300. The loan shark one day informed him that unless the total amount due was paid on the following day a file would be placed against his wages. Knowing that such a development would cause his discharge he determined to raise the money by whatever means he could, and in desperation he unwisely took what seemed to be the easiest course under the circumstances and appropriated $200 of his employer's funds at that time under his care. This was sufficient to meet immediate demands, but the loan shark still claimed a balance of $100 and after a time again became insistent in his demands for payment. Unable to get more money from the man, the loan company filed on his wages and he was discharged. When his theft had been discovered, it was found that he had disappeared and it is believed by his wife and his employer that he has committed suicide. The greatest evil in the salary loan shark's business lies in his power over men upon whose wages he has loaned money and who dare not let their employers know of their assignment through fear of loss of employment. The salary loan business has been termed " the loaning of money without security." On its face it is almost this, but in reality the salary loan shark has at his command a very effective agency for collection — the borrower's fear of discharge. All employers can profit by the simple device adopted by a Philadelphia firm which reversed its former policy and took up the cudgels for its men, declaring that it would discharge no man for assigning his wages and giving notice that it would defend its men against the loan sharks' extortion. The terrorism of discharge was taken out of the transaction and one feature of the evil minimized. The recent decision of the appellate division of the New York supreme court in the case defended by a large department store of this city upholds this attitude. The court held that no assignment of wages is valid unless filed with the employer within three days from the date the loan was actually made. (166) No. 2] REMEDIAL LOANS I15 This decision has been reiterated in a recently enacted law known as the Brooks law. It cannot be denied that such a court decision coupled with legislation like the Brooks law relieves the employer of much annoyance caused by the filing of assignments, but it must be remembered that the problem involves the interest not only of the employer but of the bor- rower and lender. While the Brooks law benefits the employer it renders the plight of the borrower worse than ever. Making it more difficult for the loan shark to collect his money always results in a higher charge to the borrower. The employe will borrow from loan sharks in time of need if he is unable to obtain money elsewhere, and the Brooks law, while it may remove the fear of discharge in many instances, does not remove the fear of displeasure of the employer. This fear, in the hands of the loan shark, is almost as effective a weapon for collection as the fear of discharge. Obviously the remedy for the salary loan evil is not to be found in legislation alone. The very fact that the salary loan business has increased so rapidly shows that it has arisen in response to a need, and that no remedial plan, legislative or otherwise, can be successful unless it gives the borrower an opportunity to obtain loans at fair rates and under reasonable conditions. The progress that has been made by the remedial loan move- ment so far as it affects borrowers who have no security to pledge except their earning capacity has taken the form of in- dustrial organizations, capitalized sometimes by the employer alone, sometimes by him in cooperation with his employes, while several corporations have loan funds capitalized and administered wholly by their employes. Under the first-mentioned arrange- ment, the employer's loan fund, employes in good standing may, upon the approval of an official, borrow from the company sums not exceeding the monthly wage, to be repaid in regular instal- ments, which are taken out of the pay envelope by the pay- master or treasurer of the company. It is not surprising that this arrangement has not become popular among employes. Other employers, recognizing the defects of the paternalistic system just described, have encouraged the organization of cooperative associations among their employes, which stimulate (167) Il6 BUSINESS AND THE PUBLIC WELFARE [Vol. II thrift among members by encouraging savings accounts, and which afford facilities for borrowing at reasonable rates without the knowledge of the employer, loans being voluntarily repaid in partial payments a.t stated periods. The organization of these cooperative associations has not been uniform. In some of them the majority of the stock is held by members who never borrow, in this way making for themselves a substantial profit out of the returns upon loans made to other members. This is often the case with cooperative associations existing in news- paper offices in large cities. The best type of cooperative associations for savings and loans is that which places a limit upon the interest that any one member can hold in the associa- tion and fixes the interest charge on loans at a rate that will pay expenses of operation and return to savings depositors an inter- est slightly in excess of that paid by regular savings institutions. Associations operating along this line afford an effective solution to the salary loan problem in an industrial establishment. There are many of them that have been operating successfully for years, but none has been more successful than the savings and loan association of the Celluloid Company of Newark. In that company the salary loan evil is now practically unknown. At a recent conference held in this city many large employers unanimously agreed that the following course of procedure should be adopted : ( i ) that employers rescind rules of dis- charge, in order to assist employes in resisting unreasonable interest charges; (2) that all employers disregard claims by money-lenders against the wages of employes, not in direct compliance with law; (3) that in self-interest as well as for the benefit of their employes, the creation of cooperative savings and loan associations be encouraged ; (4) that laws be enacted which will allow a reasonable rate of interest on all small loans and provide for the licensing of money lenders under the effi- cient supervision and control of a state department. Following this conference an unusual amount of interest in the cooperative savings and loan idea has been shown by many large employers, and it is hoped that it will not be long before these associations will be in operation in most of our industrial establishments, railroad and telegraph offices and city depart- ments. (168) No. 2] REMEDIAL LOANS II7 For workingmen the condition of whose employment will not permit of the establishment of cooperative savings and loan associations, the remedy appears to lie in attracting honest capital into the salary loan business on a reasonable money- making basis. The Brooks law, to which I have referred, allows an interest rate of 18^ per annum. This, in my opinion, is not sufficient. It provides that lenders on salaries must register their names and places of business with the county clerk. This is not the supervision and control needed. A satisfactory law should allow a sufficiently high interest charge to enable the business to compete with other enterprises for the capital needed. The interests of the borrower should be safeguarded by provisions requiring license or incorporation under the supervision of a state department or bureau whose duty it should be to make frequent examinations of the business of the licensees with the idea of detecting illegal practises and unjust methods. To this department should be given certain discretionary powers in the matter of regulations for the con- duct of the business. Violations of the law by overcharge or other unfair practises should be severely punished. Such a law would soon remove the odium and disrepute by which the salary loan business is now surrounded ; it would ensure a fair profit to lenders and would relieve borrowers from the necessity of paying interest for years after the cancellation of the actual debt. To summarize, a successful program for minimizing the evils of small loans must include competition and constructive legis- lation. The competition must take the form of semi-philan- thropic loan agencies in the pawnbroking and chattel-loan fields and cooperative associations for savings and loans among employes, supplemented by the investment of honest capital on a reasonable money-making basis. No legislation should be permitted except that which, dealing fairly with all interested parties, recognizes the business as a necessary element of our financial system, to be legalized, regulated and controlled. Let us not forget that the operation of loan agencies under condi- tions approaching justice will do more to remedy the small loan evil than any number of laws based on suppression. (169) DISCUSSION OF REMEDIAL LOANS' RAYMOND B. FOSDICK Commissioner of Accounts, New York City IN discussing Mr. Ham's very excellent paper on loan agen- cies, I want to say in the first place that I find myself thor- oughly in accord with his remarks as to the demand for a constructive program. Too much emphasis cannot be laid upon the necessity for some agency to take the place of the loan shark. The loan shark occupies a very important and necessary position in the lives of thousands of our citizens. He supplies a need. He has a commodity to sell for which there is a demand. In our investigation last summer we effectively curbed for the time being the activities of several notorious loan sharks in this city. Those gentlemen are to-day operating as they did before our investigation began — perhaps not so openly, cer- tainly with a little more care, but they are nevertheless conduct- ing an extensive business, for the simple reason that there is a demand for their commodity which nobody else is able to supply. Before any campaign to oust the loan shark can be effective, there must be some agency equipped and prepared to take his place. Indeed, no campaign of extermination will ever succeed. No amount of condemnation will ever be effective. No nega- tive laws, however drastic, can permanently relieve the present abuses. As long as we have citizens who want to borrow money — and we shall always have them — so long will loan agencies of some kind continue, and it is only the better sort that will succeed in driving out the worse. So I say that any constructive program, such as the one that Mr. Ham has outlined to-day, which aims at the substitution of remedial loan institutions for loan sharks is the only plan which can effectively and permanently improve the situation. • Read at the meeting of the Academy of Political Science, November ii, 1911. (170) DTSCUSSrON OF REMEDIAL L OANS 1 1 9 I said a moment ago that no drastic legislation can of itself relieve the present abuses. That does not mean that legislation is unnecessary. It means that we must legislate constructively and not negatively. This, of course, is entirely apart from the cooperative loan associations voluntarily established for em- ployes in various industrial concerns. Here no legislation is needed. The remedy is at hand. But constructive legislation is needed, as Mr. Ham has pointed out, to encourage the en- trance of private capital into the small loan business for the purpose of serving the man on a salary. No reputable concern to-day would engage in such a business. Entirely apart from its unwholesome associations, no such concern, in New York state at least, could obey the law and make a profit. Under the present conditions one of these two courses would have to be sacrificed. In carrying out constructive legislation along this line, there are two obstacles to be encountered : first, the influence of the vicious, and second, the ignorance of the virtuous. The first obstacle discloses itself in the powerful lobby maintained by small loan interests in every legislature in this country. The ugly connection between Albany and certain loan agencies in this city which we discovered in the course of our investigation last summer, the many payments of so-called counsel fees to the gentleman from Syracuse, the mysterious relation of certain up-state politicians with the smug Congregational deacon from Binghamton, all give silent but damning testimony of this dark phase of our problem. Our second obstacle is the ignorance of the virtuous, and per- haps it is even more difficult to surmount than the one we have just mentioned. Mr. Ham has already spoken of it. It is the belief that banking rates of interest can be imposed on a busi- ness which is conducted without security. It is the blind opinion that you can run a small loan business at 6 ^ per annum and make it pay. It is the false hope that laws prohib- iting an interest rate in excess of 6 ^ can be enforced. Before adequate legislation can be had these illusions must be de- stroyed, and the only way in which they can be destroyed is by a thorough knowledge of the facts brought about through an educational campaign. (171) I20 BUS/NESS AND THE PUBLIC WELFARE For that reason I regret very much that Governor Dix saw fit to veto, last July, Senator Burd's bill for the appointment of a commission to study the question of small loan agencies. It is possible that such a commission would not have acquired any more information on the subject than the experts of the Russell Sage Foundation now possess. But the real work of such a commission would have been educational. It would have helped to dispel the belief not only of our legislators, but of the mass of people whom they represent, that 2J^ ^ or 3 ^ a month, even if it does amount to 36 ^ a year, is an excessive interest rate for a business conducted without security. I believe that in time we shall have in all our states a law similar to what has been outlined this afternoon : securing ade- quate control over loan agencies by state authorities ; allowing a reasonable return for money invested, such as to attract private capital ; shielding the borrower from all oppression and injus- tice. Only through such a constructive law, which will bring the business into the light, can we hope to see the loan shark exterminated, and the wage-earner protected in his need. (172) I DISCUSSION OF REMEDIAL LEGISLATION ANSLEV WILCOX President of the Charity Organization Society of Buffalo, N. Y. T has been shown that the old evils connected with pawn- broking have not abated in modern times, but are rather on the increase, in spite of prohibitive legislation, and that usurious charges and extortionate practices are common in this branch of the small loan business. The chattel-mortgage loan business is legalized and regulated in New York state by a good law, passed in 1895,' and since then amended and perfected. This act places the control of the business in the hands of the state superintendent of banks, giving him considerable discre- tion, which, if wisely exercised, would be highly beneficial ; but the fact is that the law has never been thoroughly enforced, and is now to a large extent disregarded, so that the evil practises connected with this branch of the business have not been abolished. The salary loan business, that is, lending money on assignments of salary or wages, is a newer form, but has grown to enormous proportions, until it is now running into millions of dollars annually in our greater cities, and is threatening to undermine the morality and economic soundness of such vast numbers of working people that it actually menaces the welfare of society as a whole. It is universally recognized by those who have given real study to this subject that prohibitive legislation is a failure. In fact, it increases the evil by making the business more clearly illegal, and therefore both more disreputable and more danger- ous, thus making it possible and indeed necessary for those who carry on the business in defiance of law to charge more and more for their loans. It is plain that people of small means need banking facilities, that is, they need places where they can borrow money in times of illness or temporary unemployment, •Laws of 1895, ch. 326. (173) 122 BUSINESS AND THE PUBLIC WELFARE [Vol.11 and on many other occasions. At such times the necessities of the poor will recognize no law. They will find some place where money can be borrowed, and if this has been prohibited by law, or limited by impossible restrictions, then both they and the lenders will defy the law and take their chances on its enforcement ; but the borrower always has to pay the price, which runs up to lOO or even 200 or 300 fi a year. The form of remedial legislation which seems to be best suited to American ideals and conditions, is suggested by the New York Chattel Mortgage Law of 1895, as now amended. This is based upon the idea of encouraging private capital to go into the business of making such small loans, by legalizing the business and making it respectable and safe as well as profit- able, but at the same time subjecting it to strict regulation and official control, so that the power of making such loans at extra- ordinary rates of interest cannot be abused. A complete law on this subject necessarily involves the idea of either incor- porating the persons who are to conduct such business or licensing them, and should involve their giving a bond for good behavior; it necessarily permits loans to be made at rates which will be remunerative, running up to as much as i J^ or 2 ^ a month, and even more in some cases, for some forms of the business cannot be profitably conducted at these rates; but there should be some supervising authority, with power to cut down the rates of charge so as to permit the business to earn only a reasonable net return on the capital invested and reward for the labor put into it ; and to effect these ends, there must be periodical reports with full details, coupled with ample power of inspection at all times, and the power to forfeit licenses and bonds and to enforce obedience to law. The fact that the New York Chattel Mortgage Law, which embodies these features, has not been fully successful should not unduly discourage us. The duty of enforcing it was placed on the state banking department, which has always regarded it as an excrescence and an unwelcome addition to its burdens. It now appears either that there should be a separate state bureau, created for the supervision of this business, as in a law enacted this year in Massachusetts, or, probably better, that a separate (174) No. 2] DISCUSSION OF REMEDIAL LEGISLATION 123 bureau should be created within the banking department, with a responsible chief and assistants giving special attention to this kind of business, and the expenses of such a bureau should be paid by levies made on the persons conducting the business. These features would probably improve the enforcement of the law, which has hitherto been lax. They need to be supple- mented by an increased public interest in the subject, and an increase in the number of people of means willing to invest their money in corporations conducting such a business for the sake of a safe and moderate return and for the good which they can thus do. Even as it is, the New York Chattel Mortgage Law has done much good in permitting the incor- poration of some societies which conduct this business on an admirable basis, and in furnishing weapons with which to fight some of the worst of the old loan sharks who still exist. At the last session of the New York legislature, a bill was introduced, at request, by Senator Burd of Erie County, entitled " An act to provide for the supervision, regulation and control of the business of making loans on pledges of personal prop- erty, chattel mortgages or assignments of salary or wages," and which, by its terms, was to be known as the " Remedial Loans Law." This bill was drafted as a result of many conferences among students of this subject. It was not regarded as a com- plete or perfect measure, and was not urged for passage, but was merely put forward as a suggestive outline for adequate legislation. Another bill was introduced, entitled, " An act to establish a commission to inquire into the workings of laws relative to certain loans commonly made at extraordinary rates of interest or charges, also to make recommendations for legis- lation, and making an appropriation for the expenses of said commission." This bill was most absurdly amended in the legislature so as to exempt licensed pawnbrokers from its operation, and then was passed, but was vetoed by the governor because of the appropriation of $10,000 for expenses which it carried — to the shame and great loss of the state. It is to be hoped that with or without an official investigation in New York, we can soon procure a fairly adequate act of legislation, which will not exempt pawnbrokers or any other (I7S) 124 BUSINESS AND THE PUBLIC WELFARE special class of small lenders. But the greatest need after all is to arouse public interest in the subject, and to create an in- telligent appreciation of the evils which exist and of the proper remedies for them. Without this the restrictions of any law would not be enforced, and its permissive features would not be taken advantage of. Money invested in a well-conducted remedial loan society to-day can safely be said to be rendering the highest kind of social service, by supplying the honest and legitimate needs of the poor for loans in their emergencies, and supplanting the loan sharks. At the same time it makes an exceedingly safe investment. (176) THE MUTUAL INVESTMENT ASSOCIATION OF THE POSTAL TELEGRAPH COMPANY EDWARD REYNOLDS Treasurer AMONG the employes of large business concerns we find two classes that need consideration, the unfortunate and the improvident. All agree, I think, that the unfortu- nate are entitled to such consideration as can properly be ex- tended to them, but there is quite a difference of opinion as to the advisability of an organized effort to aid the improvident. In the majority of cases it has been our experience that it is the most expert craftsmen that are reckless with their earnings, and for this reason it is to the interest of employers to aid this class, for by doing so they are able to retain them in the service and obtain the benefit of their skill. The great problem is to find a way to handle the subject to the advantage of the employer and the employed. From the experience we have had during the last two and a half years I am satisfied that outside financial aid is not necessary or desir- able ; that the only effective means of combating the loan-shark business is for each large employer of labor, through savings and loan associations formed within the ranks of his own people, to provide for their needs in time of financial stress. We feel that we have worked the problem out successfully among our people in New York city, and we are now preparing to extend the work to those outside. Our first move was to agitate the question of systematic sav- ing among our employes. In carrying out our work we have found that many who never saved before have been induced to keep up their payments to our association, so that at this time they have an interest of over $200 each. In addition to this many of them who never gave any thought to the matter of saving before have been encouraged to make other savings through the purchase of shares in a building and loan society (177) 126 BUSINESS AND THE PUBLIC WELFARE [Vol. 11 (that caters particularly to those engaged in electrical pursuits) and in guaranteed stocks of other companies. Our association has undertaken to handle without any compen- sation the money of those employes who desire outside invest- ments, in order to see that they do not give up the attempt to save. During the past fifteen months we have placed in out- side investments nearly $50,000 coming entirely from those in our service, in addition to the amount deposited to their credit with our association. We have found that many who heretofore have been regarded as improvident and in a sense undeserving are not really so un- deserving as they appeared. They are people who at one time or another became heavily indebted and were unable to extri- cate themselves. With our assistance they have done so, and upon the clearing of their debts have started in to save. There are many in this class who when assisted in their difficulties and put upon their feet remain there. We aim to help all such. Our losses resulting from loans made to those who after^vard left our employ have been negligible. We do not take any assignments of wages from them, but place all borrowers upon their honor, and I am glad to say that even those who have left our service, over whom we could no longer exercise control, have, with very few exceptions, paid their loans in full. The great rank and file of wage-earners are honest, notwithstand- ing the opinion of many to the contrary. We are no longer annoyed by having assignments of wages filed with us by loan companies and we have not lost the services of valuable men because of the persecution of the loan sharks. We feel that the work pays. It is not altogether unselfish. The only suggestion I have to offer is, that all the great em- ployers of labor throughout Greater New York organize associ- ations similar to our own ; that they join together in a league so that they may be able to cooperate with one another for mutual protection. I am thoroughly convinced that the work of these societies would be far-reaching and would practically ehminate the business of the salary loan sharks. (178) No. 2] MUTUAL INVESTMENT ASSOCIATION 127 PLAN OF OPERATION OF THE MUTUAL INVESTMENT ASSOCIATION The Mutual Investment Association of the employes of the Postal Telegraph Cable Company, 253 Broadway, was organ- ized on February i, 1909. It is a voluntary association and unincorporated. Its membership is limited to employes of the Postal Telegraph Cable Company and allied companies. The purpose of the association is to create and maintain by monthly contributions a fund to be invested in real estate, stocks, bonds, mortgages or such other investments as may be selected, to be held for the mutual benefit of the members in proportion to the amount contributed by each of them. The management of the funds is in the hands of a finance committee of five members. No salary is attached to any office. There is no transfer of shares ; dividends may be declared by a three-fourths vote of all the members at the annual meeting or at a special meeting called for the purpose. Dividends when declared are not paid in cash, but are put to the credit of mem- bers. Thus continuous saving is encouraged. A regular pay- ment of $5 per month entitles each member to one full share. There is no limit to the value of a share. The present value is $235. Loans are made to applicants on their personal notes. No other security is taken. Practically no losses have been incurred through bad loans. Money is loaned at 6 ^ per annum and the borrower agrees to make his payments in weekly or monthly instalments. A man borrowing $25 and wishing to pay back on a basis of $1 per week is charged $.75 interest (6 months at 6 ^ per annum). A unique feature of the association is the method by which it secures profit on merchandise. Frequently operators make loans for the purpose of buying typewriters, since every operator must furnish his own machine. Accordingly the Mutual In- vestment Association sells typewriters on the instalment plan, and thus the association makes a profit not only on the loan but also on the sale of the typewriter. If it is a pair of shoes for which money must be borrowed, the association issues to the (179) 128 BUSINESS AND THE PUBLIC WELFARE borrower a card introducing him to a prominent shoe company and his bill is charged to the account of the Mutual Investment Association, to an amount not exceeding the amount of his loan. Naturally the shoe company pays the association a commission. Here the borrower gets his shoes at cost price, paying his money in instalments to the association. Cards are also issued to several of the New York and Brooklyn dry-goods stores. (i8o) DISCUSSION OF COOPERATIVE LOAN SOCIETIES ' PIERRE JAY Vice-President of the Bank of Manhattan Company MR. HAM has well said that the need for small loans is imperative. The time has passed when reformers urge merely restrictive legislation which only serves to make the terms for necessitous borrowers the harsher ; the day of the constructive program is surely here. I am especially in- terested in the cooperative part of Mr. Ham's program and I shall discuss briefly and without detail the following points : 1 . Differences between cooperative and capitalistic methods of providing small loans. 2. The structural outline of a cooperative association. 3. The advantage of legislative recognition for cooperative associations. 4. Cooperative v. non-cooperative interest rates. The difference between the cooperative loan societies and the provident, chattel and salary loan companies established by public-spirited citizens is exactly the difference between per- sonal and impersonal associations. The first thing the imper- sonal association wants to know is whether the loan will be repaid. The first thing the personal association wants to know is whether the loan will be a good thing for the borrower. It is no less solicitous than the impersonal about the repayment of the loan, but thrift is its fundamental idea and nothing will undermine thrift so surely as improvident borrowing. Satis- factory inquiry into the object of the loan is impracticable in the large provident societies and can only be done in the rela- tively small associations. The cooperative societies may be called personal from an- other point of view. The capital of the provident societies is supplied by one class of citizens: the borrowers belong to another class. Therefore, the relation between borrowers and lenders is impersonal. In cooperative societies the relationship ' Read at the meeting of the Academy of Political Science, November 11, 191 1. (181) I30 BC/S/JV£SS AND THE PUBLIC WELFARE [Vol. II is personal, for both borrowers and lenders belong to the same class and to the same association, and their interests are com- mon instead of opposed. The existence of such a relationship has been one of the chief elements of success in the European associations. You are to learn from other speakers the detailed working of one of these cooperative associations. I will present no details but merely the general plan of operation of the European societies, and of those in Canada and in Massachusetts, which are really based on the European societies. Massachusetts is the only state having a law providing for their establishment and regulating their operations. There an association may incorporate if it can satisfy the banking department that its proposed field of operation is favorable to success and that the standing of the proposed members is such as to give assurance that its affairs will be administered in accordance with the spirit of the act. No one can become a member unless he is honest and industrious. Members are admitted by the direct- ors but credits are passed upon by an entirely different com- mittee. Each member of the association has one vote irre- spective of the number of shares he holds. The par value of the shares is so small as to make them available to people of the most moderate means. Members may contribute funds to the association either by purchasing shares or by making de- posits similar to savings deposits at a fixed rate. While no law is necessary for the establishment of these associations, nevertheless experience in this country as well as in Europe shows that their formation is greatly encouraged by the existence of a proper law. The case of Massachusetts illustrates this well. Prior to 1909 there were three or four such associations in the state organized on various lines. In 1909 a law was passed authorizing their formation and defining the lines on which they should operate. In a little over two years, 22 associations have been formed under the law. In the province of Quebec, prior to 1906, there were three such asso- ciations. In the five years which have elapsed since the pas- sage of the law, some 50 new ones have been formed. Therefore, I want to add another plank to Mr. Ham's plat- (182) No. 2] CO-OPERATIVE LOAN SOCIETIES 131 form and to urge that the first step towards encouraging the organization of these associations in any state should be the enactment of a law requiring them to start under proper auspices and operate along lines which elsewhere have proved safe and wise. Without such a law, great initiative is required to start an association, and no two will start with exactly the same ideas back of them. But the standing given them by legal recognition and the ease of following a path already blazed out are of the greatest assistance. Furthermore, the better the law the better the results obtained from their operation. It is a well-known fact that the building and loan associations, which are our great national contribution to cooperative credit, have flourished most where the laws have been best. Our own ex- perience with these associations in New York has shown us the unfortunate results of poor laws, now happily revised in a most satisfactory way. The last point I wish to discuss is the rate of interest. Mr. Ham has spoken of the relatively high rates of interest which a risky business entitles the lender to charge. It is a fact that in the cooperative associations the rate seldom goes above 8 ^ and averages about 6 fo. They can make loans cheaply because their expenses are small and their legal expenses nil, and be- cause at the outset they exclude unworthy borrowers. Never- theless, I have known some such associations to charge from 12 to 24 ^ and thereby to earn large dividends for non- borrowers. This is a vicious practise : first, because it violates the cooperative principle of fairness to both parties, and second, because it attracts an undue amount of money, makes it difficult for the loan committee to put it out, and tends to lessen the careful scrutiny given to the object for which the loan is de- sired, which after all is one of the fundamental principles of cooperative credit. If it is a good thing for a borrower to have a loan, he should get it as cheap as possible ; if it is not a good thing for him to have it, he should not get it at any rate, low or high. I regret that lack of time prevents my speaking of the moral results of cooperative credit in European countries, which in the opinion of many observers are more important than the economic results which have been achieved. (183) THE CELLULOID CLUB SAVING AND LOAN DEPARTMENT' T S. T. SIMMONDS Manager HE Celluloid Club is an association of the employes of The Celluloid Company with headquarters in a club house furnished by the company. The saving and loan branch is a department of the club and depositors must be employes of The Celluloid Company. At the beginning we were half afraid of the venture ourselves because so many predicted the certain and complete failure of any scheme that proposed to make personal character the security on which loans should be made. However, we planned better than we knew and instituted a department of welfare work that was popular with the employes from the start and that has been steadily and increasingly successful. The objects of this department are to encourage savings and to furnish temporary financial assistance to depositors. The saving and loan department is made up of, and managed by, the employes themselves. The officers are elected annually by the depositors and there is absolutely no interference whatever with the affairs of the association by the company. The officers of the company did encourage the starting of the department — in fact, the original suggestion came directly from the president and vice-president. The only financial aid the company is asked to extend is to advance temporarily the amount we have out as loans at the close of each series. This arrangement enables us to pay off depositors at the regular withdrawal date without having to call in outstanding loans. The company also helps by allowing the managers of the fund to attend to the business during working hours. Without this privilege we could scarcely carry on the work successfully. •Read in discussion of Mr. Ham's paper at the meeting of the Academy of Political Science, November ii, ign. (184) THE CELLULOID CLUB 1 33 A saving and loan department would not be popular if oper- ated by the company. Employes would object to their em- ployers knowing just how much they were saving, and the best class of employes would suffer rather than ask for temporary financial assistance through the office. There is a vast differ- ence between telling one's troubles to some fellow employe and telling that same story to an official, and doubtless employers as a rule would be glad to have someone among the work peo- ple who could relieve them of having to listen to and consider applications for temporary loans. Our department, as the name indicates, has both saving and loan features. We accept deposits of twenty-five cents or more weekly — no limit — and pay a share of the earnings pro rata to depositors. We impose a fine for failure to deposit weekly. This helps to get members into the habit of making regular de- posits. Profits are derived from fines, charges for loans, and withdrawal fees. Our " series " or periods of saving are of six months' dura- tion, the regular withdrawal dates being the middle of June and December. While we accept deposits in any amount, we dis- tribute the profits only on savings of one dollar or less weekly. This is to prevent those who could afford to do so from deposit- ing large amounts in the hope of a higher rate of interest than the regular banks pay. The saving branch is successful because an employe can on pay-day drop jnto conveniently located receptacles the sum that he feels may be spared. Thus the saving of small sums is made very convenient. The department is not intended to be an institution for permanent savings. Most depositors draw out their money at the close of the series but they may leave their accumulated savings on deposit, if it is desired, without partici- pation in further profits. No partial withdrawal of accounts is permitted, as this would involve a check system and lead to de- posits being withdrawn for trifling reasons. If an account is withdrawn except at the date set, the share of profits is forfeited and a small fee is exacted. There is no withdrawal charge when the deposit is withdrawn to pay off a loan or when the depositor is laid off from work or the money (i8s) 134 BUSINESS AND THE PUBLIC JVELFAJiE [Vol. II is needed on account of sickness. We have 400 depositors whose total savings amount to about $22,000 annually. It should be remembered that the depositors represent the rank and file and not the higher-paid or salaried employees. De- positors may borrow in sums of from $1 to $200. The amount on deposit bears no relation to the sum that may be borrowed, except that no loan of more than $10 in excess of his deposit will be granted to a minor vt^ithout the consent, in writing, of the parent or guardian. Practically all loans are made on char- acter. In sums up to $25 no endorsement is asked. Above that sum a second signature, generally that of a trusted em- ploye, is required. If a borrower fails to keep his agreement to make deposits regularly, or does not pay a note when due, he will not again be accommodated with a loan. Notes may run three months. We insist that deposits be made weekly by borrowers in order to help get them out of debt, and the bor- rowing of money is never encouraged for the sake of adding to the profits of the department. It is a well known fact that often in the experience of those who labor for a living, there are emergencies calling for the use of ready cash and no matter how much the borrowing of money is disparaged — generally by those who themselves never felt the urgent and immediate need of money — the practise is a very common one and no amount of theorizing will alter the fact. And, since the occasional need of temporary financial aid happens more or less often to a majority of wage-earners, it is a source of considerable satisfaction to know that one may, if of reasonably good character, obtain the necessary funds to help over a hard place in life's experience by simply filling out a business-like application for a loan. The assistance needed is rendered promptly at reasonable cost and without any undue prying into one's private affairs. In a neighboring city, a fund is furnished by a certain em- ployer to loan to employes, and the manager of the fund boasts of the very few applications for loans, seeming to take it for granted that it is because his workpeople are so well off or thrifty that they can get along without this sort of aid. The manager does not seem to realize that the conditions imposed, (186) No. 2] THE CELLULOID CLUB 135 involving " a rigid investigation into the affairs of the applicant," are considered by the employes whom the fund is intended to benefit as humiliating, so that only in cases of extreme need or with those who have little or no pride would the conditions for a loan be complied with. So the manner in which the loan must be obtained defeats the object, and the manager who boasts of how little his employes have to borrow might be sur- prised to know to what extent they patronize the professional money lenders who are shrewd enough to advertise the fact that loans may be made " without the knowledge of employers, relatives or friends." Experience has taught the managers of our fund that em- ployes who are known to be steady, faithful workers make pretty safe people to whom to loan money and it is not so much a matter of position and earnings that counts in the consideration of applications for loans as the question of the applicant's repu- tation for steadiness at work and honest dealings. In fact, an employe's record as an employe is mainly what determines whether a loan is granted or not. We find that women employes as a rule are larger depositors than men ; but they borrow comparatively little, from a feeling, it seems, that there is something to be ashamed of in asking for a loan. When loans are made to women or when they endorse notes, the board feels quite certain that there is no cause to worry about the return of such loans when due. Instead of borrowing, women depositors will often sacrifice the profits on their savings by withdrawing the deposit before the regular withdrawal date. Women employes have given the board absolutely no anxiety or trouble either as depositors or bor- rowers. One of the objects that a loan bureau such as ours accom- plishes is to prevent employes who may need a little ready money from being fleeced by fellow workmen who, partly on account of the risk involved but mainly from selfishness, charge exorbitant rates of interest on loans. All money lenders who exact hard conditions are not openly in the business and some of the mean- est transactions along these lines that have come to my notice have been arranged by men who claim to disapprove strongly (187) 136 BUSINESS AND THE PUBLIC WELFARE [Vol. II of the people who advertise salary loans, and then secretly squeeze even the lowest-paid helper who may feel forced to ap- peal to them for financial aid in time of trouble. This state of affairs exists without being even suspected by the employers ; in fact, these financial blood-suckers may be, and often are, held in high esteem by their employers, who little suspect that they are preying on their less fortunate fellows — often those under them in position, and therefore with an added reason for feel- ing that they do not dare expose the wrongdoer. We do not pretend that our loan department is run as a purely philanthropic scheme in the sense that the use of money may be had without cost to the borrower. There are expenses of operation and some losses, and in order to encourage thrift we pay a profit on deposits. So we simply must have some source of income or go out of business. The great fear of those who have been interested in the loan feature of our scheme was, and to some extent is yet, that to make it easy to borrow would lead to extravagance and un- necessary expenditures. That any such scheme of loaning money as ours would lead to some abuse of the privilege goes without saying, and this was expected. There is no doubt that money is borrowed which could be done without and that loans made without the knowledge of those at home have caused hardship in the families of members. It is freely acknowledged by the managers of the fund that this condition does exist, but in the words of a powerful friend of the association: "Any such scheme is sure to be abused more or less, but if the pre- ponderance of the influence is toward helpfulness, then the work is worth while." When the officers are satisfied that the money applied for is wanted for frivolous, harmful and foolish purposes, the loan is not granted. Applicants for loans who are known to be steady, sober and sensible men are not as a rule subjected to any questioning whatever, the board leaving the matter of going into debt entirely to their judgment. Ap- plicants for loans are not required to give any reason for borrow- ing. The officers expected at the start to examine into the reason and necessity for borrowing, but soon gave up the idea, finding that it was not feasible. Borrowers could give any rea- (188) No. 2] THE CELLULOID CLUB 137 son they pleased when applying for a loan and it would take considerable time to get at the facts. We also found that members would resent anything in the nature of an investiga- tion of their private affairs. In a few cases where the board suspected that the reason given for borrowing might not be true, a quiet investigation proved that the money was really needed in the home of the applicant and for the purpose stated. We have loaned since we started in September, 1906, about $95,000 in the manner described, and the losses have been sur- prisingly small. There are over-due notes amounting to $134, but $50 will possibly cover what the managers now consider as actually lost. This is the more remarkable because of the fact that the company will not allow employes to assign their wages, and knowing this we have never asked for such protection. The charge for loans varies from 2 ^ a month to 6 ^ per annum and these rates may be still further reduced if experi- ence proves that this can be safely done. As the funds repre- sent the savings of employes, we cannot risk incurring a loss ; for, while the department is not a money-making scheme, we must manage so as to make a profit. When the saving and loan department was organized, the factories were running full and overtime. It was claimed that if a period of shorter time with lessened pay came, we should then be swamped with applications for loans and the association would go under. Such a condition was looked forward to with considerable apprehension by those charged with the manage- ment of the fund, but when the time of lessened work did come, this was our experience : there were more withdrawals of sav- ings and less applications for loans. We investigated the cause for this unexpected and gratifying condition and found that our members did not borrow so freely as in flush times because of the fear of not being able to repay the loans when due — cer- tainly a very creditable reason for not borrowing and quite con- trary to what we had feared. Practically all of the business men with whom we consulted in regard to starting the saving and loan scheme expressed the opinion that any such venture must fail. These gentlemen now confess to being most agreeably disappointed, and express (189) 138 BUSINESS AND THE PUBLIC WELFARE themselves as gratified with the success worked out by men who have demonstrated that their faith in the common honesty of the employes of The Celluloid Company was well founded. Complete details of the rules governing our saving and loan branch will be found in the by-laws and other printed matter, copies of which may be obtained by applying to the welfare department of the company. (igo) COOPERATIVE SAVINGS AND LOAN ASSOCIATIONS EDWARD EWING PRATT Assistant Professor of Economics and Statistics, New York School of Philanthropy THE problem of the small borrower is a difficult one, and, of late, has been receiving considerable attention, not only on account of the large number of persons involved, but also on account of the insidious and tenacious effects of the system upon them. Three types of small borrowers are to be distinguished according to the security : (a) borrowers on goods pawned — jewelry and small articles, which are deposited with the lender; (b) borrowers on chattels — chattel mortgages on household effects ; (c) borrowers on salaries — on assignment of wages. Efforts to stamp out the abuses in connection with petty money lenders, usually known as " loan sharks," have taken two directions: (i) legislation and (2) competition by agencies operated by persons whose charges are small and equitable and who are pledged not to take advantage of the weak position in which the borrower is placed. We are here concerned only with the latter. There have come into existence three types of remedial loan agencies. They are: (i) semi-philanthropic societies which advance money to deserving persons on security of personal property pledged or mortgaged; (2) reputable business organizations which are satisfied with reasonable profits on their investments, but which do not attempt to discourage unnecessary borrowing ; (3) cooperative savings and loan'asso- ciations and employers' loan funds. Of the first type of re- medial loan agencies, the semi-philanthropic, there are two groups, the one loaning money on the , security of pawns, and the other on the security of chattels. Such societies are well illustrated by the Provident Loan Society of New York and the First State Pawners' Society of Chicago, both loaning on pawns, and the Workingmen's Loan Association of Boston, loaning on chattels. In the case of the semi-philanthropic societies and (191) I40 BUSINESS AND THE PUBLIC WELFARE [Vol. 11 reputable business concerns, the deserving applicant, who has security to offer, may borrow. But in the case of the coopera-' tive societies and employers' funds the situation is different. The salary loan involves not only the borrower but also his employer, since the borrower virtually mortgages the labor which he expects to sell to his employer. Any remedy for its abuses, then, should have as close a physical connection as pos- sible with the factory, the store and the office ; not only be- cause the employe has mortgaged his labor at this place, but because it is here that his creditor will seek the collection of his claims. It seems, therefore, that remedial effort along this line should begin at the place of employment. This is exactly what has been done in many places with the encouragement of em- ployers. The plans which have thus far been inaugurated may be divided into the two general classes named above: (i) the employers' loan funds and (2) the cooperative savings and loan associations. These two methods of meeting the salary loan evil represent two kinds of effort ; the former is a paternal and too often patronizing effort on the part of employers to help their workers, while the latter is an independent, cooperative effort on the part of the workers themselves. Almost any employer is willing to loan money to a faithful employe in time of need. Many employers have set aside funds for that particular object and have organized and systematized departments for loaning money to their employes. There are two difficulties, of no mean proportions, which these plans fail to meet. First, they are apt not to be well advertised ; hence the employes do not know that they exist or that their employer is willing to assist them. Second, very few workers wish their employer to have any knowledge whatever of their private affairs. Aside then from the larger question of policy — whether the best results will be attained by doing things for people, or letting them work the problem out for themselves — the practical handicaps of employers' loan funds are obvious and greatly limit, if they do not entirely destroy, their utility. The cooperative savings and loan associations rest on a basis of strong underlying principles. These principles are : ( i ) that a man's best security is his fellow-workmen's estimate of him ; (192) No. 2] SAVINGS AND LOAN ASSOCIATIONS 141 (2) that to provide facilities merely for borrowing may encour- age improvidence and that any real solution of the problem must encourage thrift as well; (3) that an organization among the workers will be self-advertising ; (4) that the workers them- selves are most capable of meeting properly the needs of their fellows. The forms of organization of cooperative savings and loan associations are, in general, similar. They have the usual offi- cers of any self-governing organization. The routine business of the association, such as making loans, collecting savings and investing deposits is usually conducted through a board of di- rectors. In some cases, as for example in the matter of loans for very small amounts, the functions are delegated to a single responsible officer. Loans are usually made to an employe who has proved himself worthy of the confidence of his fellow- employes. These loans, when small in amount, are made on the personal unendorsed note of the worker. If the amount is comparatively large, an endorser is required. Interest rates vary from six to twenty-four per cent ' per annum. The sched- ules of rates differ considerably in different associations ; in some the rates do not vary with the size of the loans, or with the length of time for which the loans are made ; in others, the rates of interest are comparatively high for small, short-time loans, and much less, often below market rate, on larger loans over long periods of time. Usually the borrower must be a member of the association and at the time the loan is made must agree to repay at a given rate per week. Usually membership is not restricted and any one who wishes can have the full privileges of membership. In the organization of these associations, one point of con- siderable importance should be observed. Many of them con- siderably curtail their influence and utility by limiting a mem- ber's borrowings to the amount of his savings, or approximately that sum. The result of this provision is that in such asso- ciations the real problem of the salary loan is not being met ' One cooperative association charges one per cent per week, or fifty-two per cent per annum. This is firm B in Table I. (193) 142 BUSINESS AND THE PUBLIC WELFARE [Vol. II with any large degree of success. Savings by members of these associations are usually small and the man who really finds himself in need of a temporary loan has probably already exhausted all the resources available to him ; what he needs is credit, and this door is closed to him if the cooperative associa- tion limits loans to the amount of savings on deposit. There are two essential differences between the cooperative system of saving and saving through savings banks. Saving through a savings bank is usually entirely voluntary and the depositor may withdraw at any time. In a cooperative savings association, however, the individual must save over a given period of time. If he withdraws before the end of this period, he is usually penalized not only by the loss of the interest which would otherwise accrue to him, but usually also by the loss of a part of his savings. The object, of course, is to encourage continuous saving over a considerable time. The result is the fostering of the habit of saving. A second difference between the ordinary savings bank and the cooperative association is that in the latter small savings are especially encouraged, even at the expense of large. This is accomplished by limiting the possible size of deposits, or by limiting the size of the account that may draw interest, or more often, the size of the account that is entitled to share in the profits derived from the making of loans. The cooperative system, therefore, makes the small depositor its special object. An added advantage of the cooperative savings system is that facilities for saving are placed where the worker can conveni- ently get at them if he so wishes. There is probably only a small proportion of our factory workers who can conveniently patronize a savings bank, because during banking hours they are at work, and also because the banks are at a considerable distance from the factory and the home ; but through the co- operative savings and loap association facilities for saving may be brought conveniently close to the worker. Cooperative savings and loan associations, organized and in working order, have been formed in many business and manu- facturing concerns.' While the general purposes and plans of ' ' The writer knows of fourteen such associations, and would be glad to learn of others. (194) No. 2] SAVINGS AND LOAN ASSOCIATIONS 143 organization are very similar, the various organizations differ considerably in merit. Some of them closely approach the position of the " loan shark ; " others are broad and liberal in their policies. A brief account of a few typical associations will emphasize the good and bad features in each.' The Silverworkers Mutual Loan Company* was organized among the employes of the Gorham Manufacturing Company, of Providence, Rhode Island, in 1906. It was founded for the specific purpose of competing with the " loan shark," and in this it claims to have succeeded. The organization is a joint stock company with an authorized capital of $10,000 made up of 2,000 shares of par value of $5 each. Up ,to date $4,000 worth of stock has been issued to seventy persons, all of them employes of the company. An employe desiring a loan makes out a note in the regular form, pledging from his salary a weekly payment of an amount agreed upon with the loan committee, usually from fifty cents to two dollars per week, depending on the size of the loan. The interest rate is one per cent per'month. " The pledge of a weekly payment is made in the form of a draft on the pay- master to deduct the amount pledged each week before the employe receives his wages. Loans are not restricted to share- holders." 3 Critically considered, this organization is not strictly a co- operative savings and loan association. It is a group of seventy workers out of two thousand, who have formed a loan company which is lending money at one per cent per month to their fellow- employes, who far outnumber them.^ No deposits are received by this company and no profits are paid except to the share- holders. No association where the membership is limited can be called purely cooperative. Therefore, while this kind of a ' See also paper by Mi. S. T. Simmonds, p. 132. Mr. Simmonds describes the savings and loan plan of the Celluloid Club of the Celluloid Company of Newark. The writer considers this association the highest type of cooperative savings and loan organization, and only the fact that Mr. Simmonds' full description appears in this volume permits the omission of any description of it here. 'See pamphlet by F. C. Lawton, "An argument for cooperative loan associations" The Gorham Mfg. Co., 191 1. »/*»V., p. 10. 'See Table I. (IPS) 144 BUSINESS AND THE PUBLIC WELFARE [Vol. II solution of the " loan shark " problem is a considerable advance, it still retains undesirable and dangerous features. Any organi- zation having a limited membership is open to the same criticisms. A very different type of cooperative savings and loan associ- ation is the Deposit and Loan Bureau of the Filene Cooperative Association of Boston. The Filene Cooperative Association is composed of all the employes of William Filene Sons' Com- pany, and the deposit and loan bureau is one of the many activities of that organization. Any member of the Filene Cooperative Association may deposit any sum that he chooses, from five cents upward. Although the depositor is not required to leave his money on deposit any given length of time, it will be seen from the accompanying " promise to deposit " that he promises not to withdraw it until the deposit has reached a stated amount. THIS IS THE FIKST SATUBDAY Or THE NEW TEAB AND IS JUST THB TIME TO BEGIN A REQUUAR SYSTEM OF 8AVINO MONEY Resolve to deposit a certain fixed sum in the Bank regularly every week, and not to withdraw any part of it until your savings have reached a certain amount. Fill in the following and send to the Treasurer of the Deposit and Loan Bureau. To Treasurer of D. Sr L. Bureau : I wist to deposit at least $ regularly every week in the D. ©" L. Bureau. Please have your representative call on me regularly every Saturday. I will try not to withdraw any of my money until my account has reached $ Signed Loans are made to members of the Filene Cooperative As- sociation at a rate of interest not exceeding 12 ^ per annum. All loans are subject to the approval of a majority of the board of directors of the bureau. This function of approving small loans, however, less than $25 and unendorsed, is delegated to two of the officers of the bureau. No notes are taken for a longer period than six months. (196) No. 2] SA VINGS AND LOAN ASSOCIATIONS I4S This bureau is not content to exist and take what business comes to it, but it carries on a distinct advertising campaign, using, for example, the accompanying card, which is put in the IF YOU ARE IN NEED OF MONEY DON'T GO TO OUTSIDE MONEY LENDERS OR "LOAN SHARKS." The Deposit and Loan Bureau is ready to help you in all such cases. ^o reasonable request for a loan is ever refused. In contrast to the exorbitant interest rates charged by the so-called " loan sharks," the Deposit and Loan Bureau charges interest at the rate oi only 1 c. on $L0O for one month. All loans and appUcations for loans are treated as strictly confiden- tial. An order for money advanced on a loan is exactly die same in appearance as a wiflidrawal order from a deposit account, and no per- sons in flie store, oflier flian flie officers of flie Bureau, have any knowl- edge whatsoever, as to loans made. For furflier information and advice, apply to the President or Treas- urer, or to any other member of the Board of Directors of the Bureau. Treasurer. weekly pay envelope of the employe. That this policy is a successful one may be judged from the following facts which show the increase in business in 191 1 over that done in 1910: ' Total number of employes, Feb. 28 . . . Total number of depositors, Feb, 28 , . Per cent of increase 1910-191 1 . . . Per cent of depositors to total employes Total amount of deposits, Feb. 28 . . . Per cent of increase 1910-191 1 . . . . igii igio 774 787 608 532 14-2 % 78.4 f. 68.8 % $53,929-74 $44,622.67 20.8 % An interesting plan of organization is one in operation among employes of the New York Life Insurance Company.'' The plan in brief is this : Each person desiring to become a sub- scriber to the fund signifies this at the beginning of the year. He is then required to deposit one dollar on the first Monday 1 See also Table I. ' This plan was originated and put into operation by Mr. Harry S. Tormey, who deserves credit for its many unique features and to whom the writer is indebted for the information on which this short account is based. (197) 146 BUSINESS AND THE PUBLIC WELFARE [Vol. II in January, ninty-eight cents on the second Monday, ninty-six on the third Monday, and so on, the amount decreasing by two cents each week until fifty deposits have been made. About the middle of December the member has saved $25. In the present series (1911) there are 248 members who hold 702 shares which will represent a total deposit of $17,901. Any member who is more than three days late with his deposit is taxed 10 ^ of the amount due. Anyone withdrawing before the end of the series is taxed 10 fo oi the amount on deposit. Loans are made on the unendorsed note of any employe if he is known to the treasurer of the fund, or is endorsed by some one who is known to the treasurer. This fund has many desir- able qualities, chief of which is the excellent way in which it encourages continuous saving. Its greatest limitation is doubt- less the inflexibility of the size of the deposits and the fact that deposits must begin on a certain date. The Curtis Savings Fund Society of the Curtis Publishing Company aims chiefly to encourage savings, and its loan feat- ures are therefore not so important. The association is orga- nized on a share basis, and any employe of the company may become a shareholder. A small expense fee of fifteen cents is charged each applicant. The subscription for a share in this society obligates the shareholder to pay into the association each week the sum of twenty-five cents. A fine of one cent per week is levied on dues remaining unpaid. No person may hold more than twenty shares, and no matter how many shares a member may hold he is entitled to one vote only. Loans are made to shareholders for periods of not less than one month, and for sums not exceeding nine-tenths of the amount of the share already paid in. Interest is charged at 6 ^ per annum and a charge of ten cents is made for each loan. As a savings plan, this association is succeeding admirably; in the years 1908-1909, 1909-1910, 1910-1911, the number of depositors has been 496, 62 1 , 11 74. From the fact, however, that the amount of the loan may not exceed the amount of the deposit, the organization is barred from doing any very effective work in combating or replacing the " loan shark." Two changes would make an admirable system : ( i ) the loaning of money , (198) No. 2] SAVINGS AND LOAN ASSOCIATIONS 147 without reference to the amount on deposit; (2) an arrange- ment whereby an employe could subscribe for a share or a portion of a, share at any time during the series and not alone at the beginning of each year. Cooperative savings and loan associations have been finan- cially successful. They have had to meet no deiicits; they have lost very little money, and depositors have been paid sub- stantial rates of interest on their small investments. Such organizations have increased in number, and the testimony of those who know substantiates the statement that they have been the means of doing away almost entirely with the " loan-shark " evil. To the employer who is building up his organization a co- operative savings and loan association is valuable in two ways : First, it relieves the workers from the strain and annoyance due to the importunings of the " loan shark." No employe can give his best service to his employer when he lives in daily dread of the filing of an assignment of wages. The wise em- ployer recognizes this fact ; and instead of allying himself with the " loan shark," and holding the club of discharge over the heads of his men, he provides for them a normal and equitable method of securing funds when the occasion demands. Second, a mutual cooperative organization among employes who are making common cause against a common enemy will do more to weld a labor force into a strong, unified, working whole than any other measure that an employer can adopt to accomplish this end. After all, the most important things that an employer wants are not cheap materials, not market facilities, not trans- portation rates, not machinery, not power, — none of these things is of so vital importance as the labor force. In this labor force the employer wants two things : first, efficiency in the individual ; second, efficiency in the working force as a whole, — esprit de corps. Cooperative savings and loan associations can and should, therefore, play a large part in the organization of any well-managed industrial plant or business establishment, and the employer who is alert to his own opportunities, to say nothing of the welfare of his employes, will not put aside this problem and its solution as trivial and undeserving of attention. (199) 148 BUSINESS AND THE PUBLIC WELFARE ^i * 0^ Ov 00 IT) 00 t^ o 00 en CO m VO 1« t^ 8 »n en m u^ O VO n O VO VO m tn «^ r% vO_ r^ •i ^ VO ■* 5? '-' « ^s •^ ? w ta C4 iM VO r>* VO VO ■* o> o Ov m lA oo in 00 M pn ti in !>. tH •* " CI " •* in e4 " M S u n M l-l cn O N OV Ov m ■* t^ "O »n OV tn Ol VO ov VO C4 N t^ N *^ OV VO t^ •* ■8 «g .^ li t^ u^ C4 CI t^ o o Ov Ov \ri M t^ VO OV •* m m ■* to tM u^ en M s |l ? Th M -fa M VO in en VO N VO 1 00 M s PN O m t"H OV VO M ^ o « 5 m t; «; x^ m VO 00 1 •o ^ VO •* cT fn « cg^ ^ ^ 1 •g ■* 00 in ? M M o OV VO VO ^ a. o tn N en 0\ efv ci *s. M 00 4 1 •3 U «£ 1" i#^ to r^ ^ m r^ en fO k S3 "U v: f 1 li VO „ „ "o N Tj- N ^« VO m Ov Co K. « Ov K. r^ 00 « in ON N 00 •^ 1 VO VO m *^ u-i m g s ^ 1 !> ij o o\ M- p ^ C4 OV ■* Q O o J: & »o »/> 00 •* VO m in ov ^ CO 00 00 00 o e«^ a 1 « vr> VO ^« E « CO 6 6 6 a d 6 3 a bB § .g ■a •a T3 C/3 g § "*. t d JA :c! Gd o 6 u 0) qj qj O s ■a a <£ (2 I" 1 1 1 a 1 ca 1 1 1 < 1 1 g a i^3 (200) THE RELATION OF GOVERNMENT TO BUSINESS' SAMUEL MCCUNE LINDSAY President oi the Academy of Political Science THE annual meeting of the Academy last year brought together a distinguished company of bankers and busi- ness men to discuss the currency problem. Our semi- annual meeting last spring was notable for the large attendance of lawyers, to discuss the reform of the criminal law and pro- cedure, the dinner at that time being honored by the presence of the President of the United States. This year we appeal again to the business community and have for our general topic "Business and the Public Welfare," a subject which, in the light of recent events, especially challenges the thoughtful consideration of the citizens of the republic in every station of life. At the first session of this annual meeting, held this after- noon at Columbia University, many well qualified speakers and scholars presented to us important questions pertaining to the protection of labor, discussing particularly the improvement of labor legislation and its more efficient enforcement. This even- ing for our second session we are to consider the relation of government to business. We are rapidly and of necessity, but perhaps altogether too unconsciously, developing in this country a governmental policy in dealing with private business, the organization of large business, — because business of all kinds is being conducted on an increasingly larger scale, — and corporate business, trusts and monopolies. This governmental policy finds expression in laws and the constant suggestion of new laws and new ways of enforcing old laws. It is this policy, conscious or unconscious, wise or foolish, well considered and logical in its development or hastily devised to meet the fluctuating demands ' Introductory address at the annual dinner of the Academy of Pohtical Science, November lo, 191 1. (201) 150 BUSINESS AND THE PUBLIC WELFARE [Vol. 11 of political expediency, to which we ask you to turn your thoughts this evening. Two distinguished citizens holding positions of great public prominence, one the legal head of our government, the Attorney General of the United States, Mr. George W. Wickersham, and the other the chief executive of our largest industrial corpora- tion, Judge Elbert H. Gary of the United States Steel Corpora- tion, were invited to be present to signify their approval of the effort of the Academy to encourage active public discussion from an impartial scientific point of view of all aspects of the great economic issues involved in any action the government in any of its branches, executive, judicial or legislative, may take or may fail to take in those important matters. Both gentle- men, recognizing this opportunity as a public and patriotic duty, accepted the invitation of the Academy to be guests of honor at the banquet, but both felt that it would not be wise for them to add at this time to the public utterance in which they have expressed their views. They will therefore not be called upon to speak. We appreciate the honor they have done us in be- coming our guests. The fact that there are so many widely divergent views on the subject of governmental regulation of business held by equ- ally able and sincere advocates is evidence of the complexity of the problem we have before us for discussion this evening. The Academy has tried to have as many representative views of the situation presented for your consideration as the limits of time at one session will permit. We also hope that this discus- sion will be constructive and will deal with the questions at issue as they exist practically to-day and in their bearing on proposed governmental action within the realm of possible achievement. Much confusion exists in the public mind. We lack definite- ness of issue in our public thinking. There is too much re- crimination and too vague historical explanation of how it comes about that government and business find themselves in the ex- isting relation to each other. We have been drifting with a certain characteristic lack of frankness in the development of our governmental policy. An astute lawyer who presided at one of our dinners here six months ago remarked : " I wonder (202) No. 2] RELATION OF GOVERNMENT TO BUSINESS 1 5 i how often people stop to realize how large a part, how tremend- ous a part, how essential a part of our government is carried on in just such meetings as this." It is the aim of the Academy to serve in that important stage of the proceedings which is preliminary to crystallization in public policy, the stage which has been so fittingly described by the brilliant English essayist, Walter Bagehot, as the era of discussion. We want to make our modest contribution in efforts to clarify and stimulate fair and honest thinking that in turn will lead to fair and wise action for the permanent good of all. One more word by way of general introduction of the topic of the evening. At the present moment, when public interest is aroused on this subject of government and business, and politi- cal and even party feeling is excited, we must not forget that back of all the issues involved are large groups of citizens with real interests at stake, with outraged feelings at real wrongs they have suffered. Politicians in the lower sense of the term may for a season play with these feelings for personal or party ad- vantage, but we must not forget that agitation cannot long endure if it is a manufactured and artificial product. If it does endure, it is because it represents real feeling on the part of large bodies of citizens who will in the long run find an outlet for political expression. Such agitation will not down until the issues that cause it are found out, clearly defined and harmonized in a statesmanlike fashion. The interests of big business in this country are not confined to a few malefactors of great wealth, nor to the much larger but also relatively exclusive group of capitalists. They concern directly a very large group of wage- earners employed by great corporations and a very large group of people not in active business but in the educational, philan- thropic and public-service work of the world, whose activities are necessarily limited by the support they get from the social surplus created by what we call industrial prosperity. On the other hand, wholly apart from these groups, there is a still larger body of consumers of the products of big business who feel and realize better than we imagine the abuses, actual and potential, of monopolistic power in all of its degrees from absolute monopoly to near-monopoly. This group of consumers is be- (203) 152 BUSINESS AND THE PUBLIC WELFARE coming increasingly impatient of rising prices, increased cost of living, exploitation through adulterated products, and all the advantages taken of its helplessness to protect itself in the com- plexity of modern markets and merchandising. It blames, justly or unjustly, the large aggregations of capital, whose power it can see, and holds them responsible for the correction of many of these abuses, whether they are directly responsible for them or not, and also whether or not they are only a little less helpless than the consumers themselves in providing adequate remedies. In between these two groups there is, of course, another group, relatively quite as large as either of them and made up of persons who belong to both, but whose interests as producers or whose incomes are dependent in some way upon large corporate organization of business, and whose interests as consumers are so commingled with their interests as consumers or as income receivers that they are in utter confusion and less able than either of the other groups to formulate a policy that seems to meet their exact needs. The discussion before us must attempt to reconcile and harmonize the interests of these three groups and to suggest plans by which we can maintain and in- crease the effectiveness of large aggregations of capital, and at the same time protect adequately the smallest consumer from extortion or unreasonable charges. No policy that fails to ac- complish both of these things, however attractive it may look for the time being, will lead to a permanent solution of our difficulties. (204) I THE RAILROAD VIEW OF GOVERNMENT REGULATION' ROBERTS WALKER General Counsel of the Chicago, Rock Island and Pacific Railway Company HAVE been asked, upon short notice, to take the place of one whose opinions would have been well worth hearing. Men like Robert Mather constitute the most essential factor for the satisfactory solution of the problem of the just relationship between government and business. He was emi- nent in that, as a corporate officer, he never lost sight of the just balance that must be maintained between the rights of the corporation itself, of its bondholders and stockholders, of the public to which it sells its wares, and of the larger community in which it leads its corporate life. As his executor, I happen to know that he was engaged in assembling material for an ample presentation of some of his matured views, and I wish that he might have lived to give them to you. To set before you completely the current relations between government and business, it is indeed indispensable that the railroad side be heard from. More than any other form of industry (with the possible exception of distilleries and cigar factories under the internal revenue act) the railroads have been made to feel the paternalistic and at times grandfatherly hand of government upon their affairs. It may even be that some of our present difficulties have arisen from regulating railroads too much, and other business activities not enough. From ancient chronicles it would appear that the early reputable activities of men were love and war ; that business as we know it was then unknown, and that the small merchant was deemed a low order of being; and that if a line of trade developed broadly enough to attract notice in high quarters, it was promptly made a monopoly for the ruler or some favorite. * An address delivered at the annual dinner of the Academy of Political Science, November lo, 191 1. (20s) 1 54 BUS/NESS AND THE PUBLIC WELFARE [Vol. II Gradually business attained a more dignified status and became a proper calling for men of parts and energy. In the dis- integration and reintegration of European governments during the dark ages, the private monopoly or private agreement to maintain prices sometimes became, in the hands of shrewd and able traders, a public calamity, and many strange and heavy- handed expedients were resorted to for their suppression. The English common law had to set its face against regrating and forestalling. I have in my possession a price act adopted and published in the Massachusetts town of Ipswich as late as 1777, wherein are fixed rates of transportation by coach or boat, prices for groceries and meat, and many other items, as for instance that a meal at an inn shall cost one shilling. (I noticed a year ago, however, that this legal rate for luncheon is no longer observed at Ipswich in the case of wayfaring motorists.) Thus business has constantly gained in importance and repu- tation until to-day it is the chiefest of our human activities and the most absorbing, and it calls for training and application no less than the learned professions require. But, contemporan- eously with the steady growth of business, the governmental at- titude toward business has veered and changed incessantly. Neither the object regulated nor the method of regulation has displayed any settled human policy. Sometimes there has been the practise of creating monopolies by royal act, some- times laissez faire has been the rule, and sometimes the statutes or the courts have sternly repressed monopolies and have found vigorous methods for supervising other business practises. Out of the entire mass of experiments made, but few principles emerge, and those few so elementary as to antedate -the experi- ments. We know that government has no justifiable relation- ship to business, except to encourage it for the general good of the nation, and to afford it police protection. The prevention and punishment of wrongs committed in business are a part of the government's relationship with individuals, not with busi- ness. Mr. Whitridge hit the nail on the head when he reduced the matter to the Ten Commandments, and in our intricately interwoven modern industrial life is even more vitally needed that other commandment, " Thou shalt love thy neighbor as thyself." (206) No. 2] THE RAILROAD VIEW 155 Our case to-day presents some peculiar characteristics. Our regulation has directed its attention to railroads almost to the exclusion of all other objects, and such other regulation as has been adopted or suggested has been aimed at " big business." To put it another way, our regulation has seemed too often to spring from resentment or envy, from yearning for a shining mark, and not from dispassionate consideration of what will be best for the public weal. I hate to believe that this is one of the necessary concomitants of popular government ; an enlight- ened people ought not to require the inflaming of its feelings to anger, nor should it approve acts of its legislature passed in a spirit of revenge or of malicious triumph. It should insist that the general welfare be the criterion of sound legislation, and should frown upon legislation that gives mere temporary relief by curtailing the permissible earnings of some one industry. As indicating that we have overdone the thing in the case of the railroads, consider the existing rate situation. The present general level of lawful rates is that of boom years, and is inces- santly being made even lower by the Interstate Commerce Com- mission. Now, rates on a boom-time basis are too low for ordinary years. The slender profits that they would afford in a season of expansion, shrink to nothing in normal or sub-normal years. Railroads cannot stand still. They are not completed structures, like a Norman tower or a stone-arched bridge, but re- quire unremitting expenditures for maintenance and betterment. The increasing demands of the public and the growth of busi- ness constantly enhance the cost of maintenance. To illustrate, that splendid property, the Atchison Railway, spent in 1901 $824 per mile for maintenance of way and structures, and in 1910 it spent $1796 per mile, an increase of over 100 'jo in only nine years. The same doubling of costs occurred in maintenance of equipment ; and during the same period further immense sums were expended for additions and betterments. Roughly speaking, there is in this country a growth of some 7 fi per year in the gross earnings of railroads. This means approximately 2,600,000,000 additional tons to be hauled one mile. These additional tons call for longer passing tracks, for double tracks, for more room at terminals and for more equip- (207) 156 BUSINESS AND THE PUBLIC WELFARE [Vol.11 ment. But in the lean years these earnings give no surplus for these improvements. Some of our critics say that such matters ought to be paid for with bond issues, and not out of earnings. This sounds well for a moment, but does not really help the case. For the public must forever pay rates suflScient to meet the bond interest ; and the bonds sell less and less advantageously as the annual surplus of earnings dwindles, thereby augmenting the public's burden. We only deceive ourselves when we think that earnings are enough if they pay operating expenses, and proceed to create fixed charges upon all items of growth. No business man would think he was doing well under such circum- stances. So I contend that the general level of railroad rates should be such as to yield moderate surpluses in lean years, and to enable the plant to be fully maintained and improved. For these reasons, it seems to me clear that we have gone too far in regulating railroads ; too far, that is to say, for the good of the very public on whose behalf the regulating is done. I have also said that our governmental efforts have been too localized, directed principally at the railroads. The carriers and a few of the larger enterprises have borne the brunt of the regulative measures. It would seem that the case calls for a more accurate definition of business. We have been wrong in thinking that the only businesses requiring regulation are the great ones: the railroads, the steel, oil, mining, tobacco and sugar companies. The word " business " includes farming and wage-earning, and likewise every sort of manufacturing, buying or selling, no matter how small or how humble. All are alike subject to the supreme law of supply and demand. Yet our laws have taken an utterly perverse course. We have discrim- inated shamelessly. The states have passed reams of regulative statutes containing express exceptions of farmers, laborers or stock raisers. The illustration that I am about to give, while petty, lends point to my idea. At Washington, the Department of Agriculture gives seeds and valuable advice to the farmer free of cost to him, but at a cost to the public of some $15,000,000 per year ; the Bureau of Labor benevolently looks out for the laboring man and helps him get wage increases, without charge to him, and seeks to better his conditions at his employer's ex- (208) No. 2] THE RAILROAD VIEW 1 57 pense ; while, not far away, the Bureau of Corporations and the Interstate Commerce Commission persistently compel indus- trials and railroads to compile expensive statements and con- form to costly regulations at the sole expense of the carriers and industrials, who have also to pay for their own research work and experimentation ! These governmental practises have gotten into our way of thinking, so that we all feel it better that rates should be reduced, that the economies of consolidation should be surrendered, than that wages should be lowered or that the price of wheat or cotton should fall. Yet it is too clear for argument that all classes ought to be regulated together, if at all, and that all classes should share proportionately in good times and in depressions. Obviously, the present relations between government and business are neither ideal nor coherent. Some classes are fostered and favored, and the other class is thwarted, restrained or handicapped. That the burdens imposed upon one class are instantly shifted in large measure to the favored classes, and that the latter pay dearly for the privilege of adding to the expenses of the former, are propositions of which legislators and public seem to be oblivious. We are a commercial nation. We are competing for, and are getting, a constantly growing share of the world's com- merce. We ought to get much more. There is just one justi- fiable function for our government to exercise under such cir- cumstances. It should foster business, large and small. In the vigorous language of the west, it should "boost" Ameri- can business. While it should sternly repress improper prac- tises, it should not do so by trying to chop down each industrial tree and replant each separate branch. Any forester or fruit- grower can tell you that you lose most of your lumber by that process, and have to wait a long, long while for fruit. So I suggest that we ought to develop a national business code, the vertebrae of which might be as follows : 1 . The word " business " shall include every gainful occupa- tion except education, law, medicine, engineering and the min- istry. 2. The cardinal principles of all regulations by law shall be (209) I 58. BUSINESS AND THE PUBLIC WELFARE fairness to the form of business directly affected, and the great- est possible advantage to all forms of business. 3. The aim of legislation shall be to provide deterrents, rather than to establish principles on the basis of which acts done innocently or in good faith may or may not be adjudged unlawful at some future date. 4. No one form of business shall be inflexibly safeguarded as regards the others, but regulations must aim to give to all forms of business their due share of prosperity or burden of adversity. (210) GOVERNMENT REGULATION— NEW YORK'S RESPONSIBILITY • GEORGE W. PERKINS New York City IN Washington we have our national capital. There sits our national congress. This congress is composed of men from every state in the union. They are charged with a great responsibility, viz., that of representing the people of their respective districts in shaping national legislation in the interests of the whole country. This is a matter of common knowledge. In New York we have a national financial capital, so to speak. This is also a matter of common knowledge ; but it is perhaps not fully realized that at this financial capital there is what might be termed a business congress, composed, not of New Yorkers, but of men who have come here from nearly every state in the union, and that these men are likewise charged with a great responsibility, viz., that of representing large numbers of people whose money is invested in the concerns which they direct and manage and whose welfare largely depends upon the degree of success with which these men meet and discharge their responsibilities. Only a few years ago the situation was exactly the reverse of this, for the New York business man of that time was New York born and bred. He was a proprietor. His business was a New York business. It reached out into the country, but only to a limited extent, and the money handled was largely local capital. All this has changed. The man of affairs in New York to-day is not New York born ; he has come here from some other town or city. He represents constituents liv- ing in all parts of the country — in some cases in all parts of the world. He is not a New Yorker himself ; he is not handling • An address delivered at the annual dinner of the Academy of Political Science, November lo, 191 1. (211) l6o BUSINESS AND THE PUBLIC WELFARE [Vol.11 New York business ; he is not handling New York money. He is not a proprietor ; he is a servant. There is a feeling throughout the country that the New York business man acts arbitrarily — more or less as he pleases — with- out proper regard for the welfare of the rest of the country. The New York man is spoken of as though he were a different sort of product from his brothers in the New England, southern, central or western states — almost as though he were a different species of man ; yet, as a matter of fact, if you will look over the directorate or the executive staff of any one of the important companies in New York you will scarcely find a man who was born in New York city. The men who occupy almost all the great positions of trust and responsibility in New York have come here from other parts of the country within a comparatively few years. They are undoubtedly the best product in their particular line that the community in which they lived was capable of producing. A quarter of a century ago this same type of man would have remained in his local community, well up in his chosen line of occupation if not at the head of it ; but with the enormous development and growth of intercom- munication, through the myriad of inventions that have been the direct cause of unifying and centralizing industrial affairs, this type of man, through natural causes, has been drawn to New York, until we have in this city this great commercial congress, composed of men selected, because of their fitness, to represent and manage large business affairs. This congress, in a way, has had as much to do with shaping the commercial develop- ment of the United States in recent years as has the congress in Washington with shaping our political development. For courage, energy, resourcefulness and all-around skill, it is safe to say that these men in New York have been the peers of any company of business men in any financial or commercial capital in any country in the world. Their great achievements have been the envy of the capitals of Europe. They have forged ahead with their plans, keeping pace with the electrical age in which they have been living. The natural function of the congress in Washington has been to keep in touch with the people ; to talk with them and to (212) No. 2] GOVERNMENl REGULATION i6l them. The natural function of the congress in New York has been to deal at first hand and with lightning-like rapidity with the commercial evolution that has been going on throughout the civilized world. The former has worked little and talked much ; the latter has worked much and talked little. These men in New York have been so engrossed in their gigantic task ; they have so firmly believed that they were on the right track, doing that which was for the ultimate best in- terests of the American people, that they have not taken the time to inform the people regarding their plans and ultimate objects. The congress at Washington, on the other hand, has been in constant touch with the people, presenting its views on the problems of the day. The New York business congress has taken no part in this discussion. The dissemination of informa- tion has been left to the politician, the newspaper, the magazine writer, and as a result the great business problems of the day are before our people at the present hour on a one-sided presen- tation of the case. The politician has been constantly advertising his wares ; the business man has done nothing to offset this. The politician's views and acts have received constant publicity, while business has sat sphinx-like and, too often, behind closed doors. Yet, under modern business methods, the business leader does business on such a large scale that he is handling vast sums of other people's money, and he is just as accountable to his con- stituents for what he is doing as is the politician to his constitu- ents for what he is doing. What is known as " big business " has unquestionably been under deep suspicion by the people, and the disinclination of business men to come forward and state their case has not helped to dispel this suspicion. New York, with its great responsibility, should welcome and not repel federal efforts to unearth wrong- doing and set up a higher standard of moral worth. There should be less tendency to cover and condone wrongdoing and more courage openly to condemn it. There should be ostracism for those who transgress, no matter what their ability to produce results. The large business corporations of the country, having head- (213) 1 62 BUSINESS AND THE PUBLIC WELFARE [Vol. II quarters in New York, whether insurance, railroad or industrial, have in our day become not only vast business enterprises but great trusteeships. Many of these corporations have been popularly called "trusts" and, in one sense of the word, the term is more aptly applied to them than many of us have taken thought to realize ; for they are organizations to which the con- sumer has looked for fair dealing, to which the public has en- trusted its money and labor its welfare. The managers of these great corporations, therefore, assume in a very real sense a trustee- ship, and it is largely because some of these managers have in many instances failed to appreciate this and have acted as though they were proprietors and owners, and not trustees, that we are to-day confronted with the distrust which is involved in the corporation problem. As Washington is responsible to the people for our national laws and political welfare, so New York, in a large measure, has come to be responsible to the people for our national commer- cial welfare ; and we have reached a point where New York cannot, if it would, shirk this responsibility. This responsibility is a very great one. New methods have rapidly followed old ones; old, time-honored business customs have been aban- doned; new customs have been adopted. One change after another has followed so rapidly that the people are more or less confused. They feel that the great business congress has been arrogant and selfish ; that it has been progressive in one way and retrogressive in another way ; that it has been progressive in ideas for industrial development and making money, for keeping abreast of the times in foreign trade, but retrogressive in almost everything that has had to do with questions of public policy; that it has come to believe in cooperative methods in business in which it is interested, but at the same time has failed to cooperate with the country when questions have arisen broadly affecting the public interest, and has almost always opposed any and all measures that have seemed to many people in other parts of the country to stand for progress and reform. This latter attitude is partly accounted for because the natural interest that the men composing the business congress had in the public affairs of their home towns did not continue when (214) No. 2] GOVERNMENT REGULATION 163 they came to New York. They had no such natural interest in New York city itself. They felt no responsibility for local public questions, and in this way rather naturally drifted away from interest in all public or semi-public questions. They came here for just one purpose, viz., business, and they threw them- selves into it body and soul. Public questions, whether local or national, have received little of their thought and almost none of their attention. All their energy and intelligence has been centered on pushing business, and when the public has ad- vanced new ideas and these men have seen in these suggestions what appeared to be a disarrangement of their business plans or a check upon them, in place of taking the time to consider thoroughly the suggestion and its ultimate effect, to thresh it out and perhaps meet it with a counter-suggestion, the almost universal policy has been to object strenuously and offer no counter-solution. This policy has been pursued so long and so constantly that the country has come to feel that New York is supremely selfish in its business aims and objects. This feeling has been augmented by the fact that in the great rush of changing conditions in recent years some mistakes have been made and some improper methods and practises have been followed, with very little, if any, attempt on the part of the business men resident in New York to lead in a movement to rectify the mistakes and prevent a recurrence of the wrong- doing. We cannot have cooperation in one direction without having it in another. If New York would retain its supremacy in commercial and financial affairs it can do so only by a keen realization of its full responsibility to the country as a whole ; by cooperating with the people ; by seeing their point of view and giving due consideration to the ideas they advance. If New York wants financial supremacy, if it wants to be the com- mercial leader, it must pay the price ; and the price is broad- minded, statesmanlike leadership. We must have the sort of leadership that anticipates, that is far-sighted, broad-minded, willing to cooperate for the best good, not of one city or one group of men, but of the whole country and all men. In the great evolution that has been going on throughout the world our business leaders have been keenly ahve to the fact (215) 1 64 BUSINESS AND THE PUBLIC WELFARE [Vol. II that it is just as important to save waste motion in business as to save and utilize waste product ; that it is just as important to conserve ideas, to conserve methods, as it is to conserve coal and timber. Indeed, the last quarter of a century has been pre-eminently the age of the brain-worker, the inventor, not only of machines, but of methods ; and whatever may be said for or against the profits that New York men have made in business in recent years, we must not overlook the fact that we have been passing through an era when extraordinary ability was necessary to guide the ship safely. We could easily have taken a secondary place in the commercial development of the world, whereas we have easily taken a leading position ; and this has been possible because of the resourcefulness and masterly leadership of our industrial captains. They have made money while leading ; but so has the country, — for who can measure the value to this country of some of the methods, some of the ideas that have emanated from the brains of our industrial leaders? Our government and all civilized governments protect by patents the product of the inventor's brain. It is universally recognized that an invention, which, after all, is a brain product, belongs to the individual, and for a number of years the inventor is pro- tected in his right to whatever pecuniary reward he can reap. One cannot patent a new business method or device or a new system for promoting efficiency in an organization, but in recent years these brain products have been proving at least as valu- able as many patents that have yielded great fortunes. We also recognize a man's right to a large fortune if he simply walks out over the land, stakes out a claim and discovers gold. Yet is such a man really as fairly entitled to his great fortune as the man who produces with his brain an idea which is of great value to his f ellowmen ? Surely the brain-worker is as worthy of his hire as is the hand-worker. The country is facing purely business problems. It wants in- formation on these problems and wants it on all sides of the problems. It is not necessary for a man to be an orator in order to talk business to the people. At the present moment our people are not yearning for eloquence ; they are yearning for facts. They want to hear from the business men on business (216) No. 2] GOVERNMENT REGULATION 165 questions, and the business men owe it to the country to speak out and present their side of the questions. The country's cor- porations are on trial before the federal government and New York business methods are on trial before the country. New York gives millions a year for religious, scientific and educational purposes, all to improve the average condition of the people, to stimulate independent thought and action, and yet when this investment begins to pay dividends in the form of new ideas, are we not apt to become resentful? Each day it becomes more and more apparent that all ques- tions in this country aref settled at the bar of public opinion. Moreover, in every emergency the people make their power felt ; they assume responsibility ; they are assuming responsi- bility now ; you can feel it in the very air. While this is true, it is equally true that we must still have leadership, but that leadership must be of a higher order, more statesmanlike in its quality, more unselfish, more open and above-board than the leadership of the past. This is so because of a higher order of intelligence among the people. It is pre-eminently a time to think not only hard but straight. One cannot contemplate our problems, intricate and vital as they are, and cannot watch the trend of events without being convinced that while we are moving very rapidly and are con- fronted with great and important problems, we are, after all, broadly speaking, moving in the right direction. While our people have become independent thinkers they are, at the same time, educated thinkers. They fully realize the vast opportunities that are theirs. They will never throw away such a rich heritage as they enjoy. They are honest, indus- trious, fair and ambitious. We have no room for the pessimist ; ours is the natural home of the optimist. The time has come for the business men of the country to take a hand in public questions, to think them out wisely, to decide judiciously as to the best course for the country to take, and then openly to champion that course to the full measure of their ability. If this is done in each community, done honestly and fearlessly, we can trust to the good sense of our people to render a sane verdict. (217) THE OBJECTIONS TO GOVERNMENT REGULATION' FREDERICK W. WHITRIDGE I AM deeply appreciative of the honor which is done me in asking me to participate in a discussion of the relations of business and government before an assemblage of this character. If I may say so, the most remarkable thing about the relations of government to business seems to me to be, that it is necessary to discuss them at all. The mere fact that an institution of this sort considers it necessary to have such a dis- cussion, recalls to my mind an observation of the late Horace Greeley, who said that the three objects of the care of Divine Providence were fools, children and the United States. Another great man said that the United States was continually playing pranks. The explanation of those observations and of the trepidation of business before the government, which you all know exists throughout the country, is the youthful, and perhaps I may say, foolish exuberance with which we exercise our power of making laws. Every man with a grievance in this country, every man with a fad proposes a statute. Our annual output of statutes is one hundred and fifty times that of Great Britain — and there is no third in the race. Very few of those statutes are necessary: an astonishing number of them fall into desue- tude, but they exist : and when the administration, as has been done under President Roosevelt and President Taft, takes out the supposedly dormant Sherman law, and begins to enforce it, it seems almost revolutionary. I do not at all sympathize with the criticism which has been lavished upon the officers charged with the enforcement of the law — that law or any other one. They have had an odious task. They have discharged their duty manfully, as they were sworn to do. Still less do I intend to discuss particularly the Sherman ' An address delivered at the annual dinner of the Academy of Political Science, November lo, iqil. (2I8) OBJECTIONS TO GOVERNMENT REGULATION 167 law itself. But there is growing up around that law a body of doctrine which seems to me to contain more economic delusion than anything else I know about. And there are certain in- direct consequences of the enforcement of that law which it seems to me are entirely evil, and which it is the duty of every one of us to resist. The gist of that doctrine, as near as I can make it out, is that we are to have competition whether we like it or not : we lived under it once and we can live under it again. On the other hand, there is to be no restraint of trade : there is to be no monopoly : and finally, every combination which tends to stifle competition, or raise prices, or create a monopoly, is unlawful. The word " reasonable " has been sprinkled over those propo- sitions by the Supreme Court, but substantially they state the new doctrine surrounding this law. What do you think about them ? Did anybody ever hear of a business man who was not trying to restrain the trade of his competitors? If you can conceive of a complete competition, is not the result the sole survival of the fittest, and the issue a monopoly? Can any one imagine a competition in which the competitors were prevented from lowering their prices to their rival's customers? And can any one imagine that people can be compelled to compete, when it is cheaper for them to combine? These propositions taken together seem to me to be self- contradictory and impracticable, except under a counsel of perfection : and I venture to think that in the discussion of them, we are most of us, about half the time, deluding ourselves with mere phrases. Whether we are or not, it is plain that the trend of all industrialism is toward combination: and it is mainly combination which is attacked. The United States is not the only place in the world where these things are being considered. When I look abroad and contemplate the numerous governmental monopolies of Europe, such as tobacco and matches, and I don't know how many more things : when I consider the numerous German trusts, in which the German government is a partner, the Brazilian valorization scheme and the Italian consorzio, I say to you that we in the (219) 1 68 BUSINESS AND THE PUBLIC WELFARE [Vol. II United States are endeavoring to swim against the stream. Perhaps we can do it, but the men here at least will remember how some years ago they found it very difficult. Moreover, we are not candid with ourselves. Only a few days ago five governors met in the south to consider how the southern farmer — who votes — could secure better prices for his cotton. That is to say, those five governors met to invent means by which the price of cotton could be raised to the con- sumer. That is what the Supreme Court calls " conscious wrong-doing." It makes a great deal of difference whose ox is gored in these matters : for I remember with shame at the time of the Mc- Kinley tariff the exultation we were called upon to share, be- cause that tariff made it absolutely certain that the Welsh tin- plate industry would be destroyed, that the pearl button industry, somewhere in Bohemia, would also be destroyed, and incidentally that the men and their families who were engaged in them would be ruined. Has anything worse than that been done by any of your clients ? Through all this discussion, also, there runs the assumption, that a combination is an &v'Aper se, dangerous and wrong; but is that sound ? So far as I know every successful combination has lowered the price of the commodity it produces ; has bet- tered the condition of its employes and has benefited mankind. Take the worst case of all — the Standard Oil Company, con- trolled by an individual who is a social and psychological curi- osity ; grant everything which has ever been said against the institution; and after all that is granted, the colossal and mountainous fact remains that this man and his associates have put heat and light into the possession of millions and tens of millions of human beings, who but for them would not have had it. Of much greater importance to my mind than the determina- tion of the ultimate economic philosophy underlying the Sher- man law, is the fact that the government has come down into the arena, and is waging battle for all sorts of private interests with which the public has very little concern. I suppose the fact to be that the department of justice is overrun with people (220) No. 2] OBJECTIONS TO GOVERNMENT REGULATION 169 who have failed in business, or with discharged employes with grievances, asking the government to right their wrongs ; and the government has been quick and zealous to respond to their expectations. Most of them have a remedy for their wrongs, if they have any wrongs, under the common law, or the Sher- man law itself ; but they want the government to do their work for them ; and the government has been zealous to undertake it. The inevitable consequence of that is that the department of justice and the whole administration of the Sherman law has gone into politics. As a result of that, in order to do their work more thoroughly, I am told that various departments of this government have embarked upon a system of espionage, that the employes of great railroads and industrial corporations have been seduced from their allegiance to their employers, and bribed to become traitors, spies of the government. I should not dare to say that if I did not know of the treasury spies wandering through the shops of Europe, tracking foolish women ; and if, of my own knowledge, I did not know of a case of a United States official who tried to bribe a government telegraph operator in Europe to give him copies of what he supposed to be the cables of an American trust. Now, if that system of espionage exists, it is abominable. I know it can be defended, but only as the tampering with the mails used to be defended in the land of King Bomba and else- where. But I venture to say to you that if it is true, the Amer- ican people, when they understand it, will have none of it. Of even more importance, from a purely legal point of view, is another thing which the government has done in the enforce- ment of this policy. Whether this espionage is a fact or not, it is a fact which I believe cannot be denied that the Attorney- General and his subordinates throughout the country are using the grand juries of the United States as committees of investi- gation into all sorts of corporations. The corporations are com- pelled to produce their books in order to incriminate themselves, if possible, as if there were no such thing as a bill of rights. This system is quite as abominable as that of espionage ; but it is especially offensive only to lawyers, and not to the public. That thing cannot go on. (221) I70 BUS/N£SS AND THE PUBLIC WELFARE [Vol. II Perhaps, however, the most lamentable consequence of this view of the Sherman law and its enforcement is the fact that it has entirely destroyed the Attorney General's sense of humor. I expected to see him here tonight, and I regret particularly that he is absent. He used to be, before he began his political career, and cele- brated his appointment by going up to Yale and lecturing to the students on " how to succeed in politics," a man with a very pretty humor. But I have been reading lately his bill against the steamship trust, and that cross between a stump speech, an epic poem and a bill in equity, which he has filed against the Steel Corporation, and I am bound to say to you that he is lost. The portion of that latter document in which he describes how that poor, innocent lamb in the White House was tricked and deceived, how those miserable scoundrels in the Steel Corpora- tion took four hundred millions out of their earnings and spent them in improving their property, and how the heads of the subordinate corporations sat around the table with Judge Gary, like Knights of the Table Round, and did what it was their obvious and plain duty to do, shows to my mind that Wicker- sham's last laugh has left him. The steamship case is even worse. The trans-Atlantic lines made some contract or agree- ment in London — where it is well known the Sherman law is in full force and very much respected — regarding the rate of steer- age passage ; and they have been sued for unlawful combina- tion, conspiracy and so on. The second prayer for relief in the bill against them is that " each and every and all of the said defendant steamship lines be enjoined, restrained and forbidden either to enter or dock any of their ships or vessels at the port of New York or any other port of entry whatever of the Unitefi States of America." That seems to me so extraordinarily foolish that I attribute it, not to the mere loss of the sense of humor, but to some deep design, which I cannot comprehend. Think of it a moment. See what that means : every ship tied up, no letters, no pas- sengers, no exports, no imports, nothing for the custom house to do, and half of the revenue of the government cut off in an hour ! Contemplate it for a moment, and then say if you can, (222) No. 2] OBJECTIONS TO GOVERNMENT REGULATION 171 that the conscious endeavor to enforce the Sherman law has not destroyed the sense of humor and imperiled the common sense of a good lawyer and an honest man ! I see he was out with a letter day before yesterday, like Fitz James, in " The Lady of the Lake," saying, " Come one, come all; whatever happens, the Sherman law is going to be enforced as it was never en- forced before." If he were here I would say to him, " Think again, Mr. Attorney-General; think again. Can't you find something better ? " Suppose, for instance, that the United States were to adopt the Canadian law, called Combines In- vestigating Act. That is a sensible law. It provides for an application to any judge of certain enumerated courts for an order directing an investigation of any combine alleged by the applicants to operate to their detriment as consumers or pro- ducers, and in general to the detriment of the public, the appli- cation to be made by six British subjects resident in Canada. If a prima facie case is made out before the judge, an inves- tigation is ordered before a board consisting of three persons appointed by an officer to be known as the Registrar of Boards of Investigation, one member of the board so appointed to be nominated by the applicants, another by the alleged com- bine, and the third to be a judge of any court of record in Canada nominated by the two appointees already chosen, or in default of such nomination, chosen by the registrar, the judi- cial appointee to be the chairman. The board is directed to make an exhaustive inquiry as to whether " the price or rental of any article concerned has been unreasonably enhanced, or competition in the supply thereof unduly restricted, in conse- quence of a combine." The report of the board is to be public. If it appears " to the Governor in Council " that a wicked combine exists and that " such disadvantage to the consumer is facilitated by the duties of customs imposed on the article, or any like article," he may direct the admittance of such article free of duty, or reduce the duty thereon. If the board reports that a patent has been made use of by the combine to injure or restrain trade, the minister of justice may bring proceedings to revoke such patent, and jurisdiction is conferred upon the Exchequer Court of Canada to revoke the patent for such cause. (223) 172 BUSINESS AND THE PUBLIC WELFARE " Any person reported by the board to have been guilty of unduly limiting the facilities for, or restraining, or injuring trade or commerce, or enhancing the price of an article, or unduly preventing competition, shall be guilty of an indictable offense, if he continues so to offend, and liable to a penalty of one thou- sand dollars a day." Suppose that the United States had a statute similar to that, would not every man with a grievance have a cheap and speedy remedy? Would not the government of the United States be relegated to its proper functions, and wouldn't the Attorney General be delivered from the temptation to do foolish things ; and the House of Representatives from the temptation to play childish politics? I have only one final observation. All over this country, from all sides we hear of regulation by the government as the remedy for all evils. Regulation by the government, a wise, dispassionate, disinterested unity, is an alluring thought. But remember, the government always speaks through persons ; and it has taken the Interstate Commerce Commission twenty-five years to become respectable ; and in the case of the new regu- lations you are going to apply, you will not meet the dispassion- ate entity you imagine you are going to meet, but almost in- variably a few spavined, broken-winded politicians. I know of my own experience how the highest motives can actuate people vested with authority in these matters, who show an ignorance in dealing with them as deep as their motives are high. Great numbers of people in this country are mainly con- cerned with the various symptoms of their own bodies, which they treat with innumerable quack medicines, and they revel over the description of their ills printed on the bottles. When they come to consider the body politic and detect " symptoms " they rush for a remedy. State regulation is being prescribed in enormous doses, and the mass of our people have gone daft on that subject. Take it if you will ; but you will not be cured, and you will spend more money than you dream of. In heaven's name, do not believe all that is printed on the bottles. (224) THE RELATION OF THE GOVERNMENT TO BUSINESS ' T HENRY ROGERS SEAGER Professor of Political Economy, Columbia University HE business of this country finds itself to-day in a most unhappy situation. Twenty-one years ago, when the trust movement was still in its infancy, a statute was passed which was allowed during three successive administrations to remain practically inoperative. In that period industrial combinations embracing a large part of the manufacturing and mining industry of the United States were organized. Then, under an aggressive president, the necessary measures were taken to secure the enforcement of the law. Suits were begun against several of the largest of the industrial combinations and within six months the United States Supreme Court has un- animously decided that the first two of these combinations to be passed upon fall clearly under the condemnation of the statute. The present administration has declared its intention to continue the rigid enforcement of the law. As an evidence of the seriousness of its purpose it has just begun suit to dissolve the billion-dollar Steel Corporation. Similar suits are pending against nearly a dozen other large corporations and scores of lesser ones are living in fear lest their turn may come next. So far as I can see, this vivisection of great business organiza- tions is likely to go on. Some persons were encouraged by the pronouncement of the Supreme Court in the recent decisions that the " rule of reason " must prevail. We must not forget, however, that the " rule of reason " that is to be applied is com- mon-law reason, not common-sense reason. There is little else in the language of these decisions to justify the expectation that relief will come from that quarter. The outlook in Congress is even less promising. A Republican president, a divided Senate ' An address delivered at the annual dinner of the Academy of Political Science, November lo, 191 1. (225) 174 BUSINESS AND THE PUBLIC WELFARE [VpL. II and a Democratic House constitute a combination, if not in re- straint of trade, at any rate in restraint of legislation needed to relieve trade. It seems probable therefore that prosecutions, dissolutions and reorganizations will continue to darken the busi- ness horizon at least for many months to come. Mr. Morgan is credited with the aphorism that the recent trust decisions are like an order to a cook to " unscramble " the eggs which have just been prepared. To this the government may quite justly retort: " Gentlemen, you scrambled these eggs after Congress told you not to ! " But the situation is too grave to be disposed of by an interchange of pleasantries. Will the prohibitions of the Sherman Act, now that the law is being made effective, really result in a satisfactory solution of the trust problem? Our coming together this evening is pretty clear evidence of a wide-spread belief that it will not. As a preparation for discussing the policy toward industrial combinations which this country should adopt, may I invite your attention for a moment to what is going on in Germany? That country has never enjoyed the blessings of the English common law. This has meant that there has never been in the German legal system any condemnation of combinations in restraint of trade or monopolies as such. On the contrary, the courts have recognized from the first the potentialities for good in the com- bination movement, and the government has sought to direct and regulate it rather than to suppress it. German manufactur- ers were as quick as our American manufacturers to realize that modern conditions call, in Mr. Gary's phrase, for a policy of reaching for your rival's hand rather than for his throat. In Germany, as in the United States, the resulting picture of busi- ness competitors clasping hands in frieijdly cooperation has been clouded by the danger to which Mr. Dickson has alluded that they might reach for the consumer's throat. Here the govern- ment has stepped in. At the same time that it has allowed pooling or cartell agreements to have the binding force of legal contracts it has insisted on publicity of cartell operations. As owner and operator of the railroads of the country, it has, of course, never been troubled by the rebate or other unfair ad- vantages in the domain of transportation. Finally, when it has (226) No. 2] RELATION OF GOVERNMENT TO BUSINESS 175 believed it necessary, it has taken a hand itself in the game of combination, by becoming, through the Prussian potash mines, for example, a member of the cartell. As such it has asserted its right to control cartell policies as the public interest has required. In consequence of this policy of publicity and wise regula- tion, of which a rigid corporation law has of course been a part, there has never grown up in Germany any anti-combination sentiment such as we have known in this country. In fact so favorable is German public opinion to the cartells that when the Chancellor of the Exchequer had occasion a few years ago to announce to the Reichstag that the Westphalian coal cartell or trust had been successfully reestablished, his statement was greeted with cheers by the representatives of all parties. Im- agine Mr. MacVeagh announcing to the House of Representatives that notwithstanding rumors to the contrary, the anthracite coal combination, let us say, was still in full and successful operation and having Democrats, Republicans, insurgents and Mr. Berger break out into spontaneous applause ! Such has been Germany's policy with reference to industrial combinations. No one would be so rash as to claim that it has yet assumed final form. There is very general agreement, however, that it has contributed, and contributed largely, to the great business prosperity which that country has on the whole enjoyed in recent years. Is a policy which has proved so successful for Germany im- possible for the United States? We are told that it is, and for two reasons. It must lead eventually to socialism, and mean- time, it is paternalistic. It is amazing how often the bugaboo of socialism has been invoked to put an end to the intelligent discussion of public questions in this country. For many per- sons the mere assertion that a proposed policy will lead to socialism appears to settle the question. I do not wish to pose as an economic prophet. I think I am safe in saying, however, that if there is one principle that is proved by economic history it is that progress is never long in a straight line toward a definite goal, but rather that it is zigzag. In one period gov- ernment regulation justified by contemporary conditions will be (227) 176 BUSINESS AND THE PUBLIC WELFARE [Vol. II pushed to an extreme. There follows a laissez-faire reaction which carries the policy of non-interference to unwarranted lengths. The reaction from this is again toward government regulation. Present-day business conditions call, in my judgment, for a considerable extension of government regulation. That this will lead to socialism I do not believe. As in the past, so in the future, after we have moved along this line for a time a reaction is bound to set in, which will start the car of progress in a new direction. The policy of government regulation is no doubt a policy opposed to the laissez-faire theory of government. For those who believe confidently that socialism is the goal toward which we are moving it must, of course, seem a step toward socialism, but for those of us who regard the policy of socialism as impracticable it seems rather a step calculated to take the wind out of the sails of the socialists. The present spread of socialism is due to the existence of evils which we must all de- plore. Every successful effort to remove these evils will con- stitiite an argument against the necessity of socialism. From this point of view, governmental regulation of industrial com- binations is a policy that will help to make socialism unneces- sary, rather than a policy that will tend to bring it about. Whether this view be correct or not, socialism, actual social- ism, is not going to be tried wholesale but piecemeal. The idea that by some sudden revolution the government is to assume the herculean task of owning and operating all national indus- tries belongs to the nursery stage of social speculation. It is so obvious that such an experiment would result in disaster that sensible socialists — and there are many sensible socialists now- a-days — want it as little as do non-socialists. If, then, socialism must be introduced piecemeal, if introduced at all, why should we be diverted from a policy which is in itself wise and benefi- cent by the fear that it may lead to socialism ? Is it not truer statesmanship to adopt the good that we see and reserve our opposition to an extension of governmental activities until such extension appears to us objectionable? This may be a policy of opportunism, but I submit that it is also the policy of com- mon sense. (228) No. 2] RELATION OF GOVERNMENT TO BUSINESS 177 The charge that government regulation of industrial combi- nations is paternalistic seems to me equally inconclusive. Cer- tainly in this country our whole form of government makes " paternalism " applied to state activities a misnomer. A gov- ernment of the people, by the people and for the people signi- fies not " paternalism " but " fraternalism." All about us are evidences that fraternalism, the brotherhood of man, is becom- ing more of a reality and less of an empty phrase. I believe in this fraternalism for business as for other departments of life. When the prosecuting officers of the government solemnly aver in their brief against the Steel Corporation, as one evidence of guilt, that " when bidden by the chief executive of the Corpor- ation, they (the officers of other steel companies) came at any time, from any distance, ready, willing and anxious to turn over to him and his friends all that was in their minds and in their hearts concerning their own business," I can only wonder at their lack of a sense of humor. If business men who have learned by sad experience that reckless competition is suicidal and that frank cooperation is better for all concerned, cannot act on that conviction without violating the anti-trust law, all that I have to say is, so much the worse for the law. Such legislation stands self-condemned, since to prevent men who hold such views from meeting together to discuss and agree about their common interests is practically impossible and eco- nomically undesirable. It is unnecessary before this audience to enlarge on the ad- vantages of combination. I believe that these advantages are real and substantial, not only for those in the combination but for the public. But if we are to enjoy these advantages in this country, if we are to permit this fraternalism in business, is it not clear that the big brother of us all, the government of the United States, must be a party to it? We must have full pub- licity. We must have a federal incorporation law that will put a stop to inflated capitalizations, that will protect minority stock- holders and that will hold directors up to the same high stand- ard of responsibility that we impose on trustees. We must have a commission like the Interstate Commerce Commission, to supervise industrial combinations as the railroads are supervised. (229) 178 BUSINESS AND THE PUBLIC WELFARE [Vol. II Finally, and more important than all else, we must have an at- titude toward the government that will cause any one of us cheerfully to lay aside his private interests to serve the state in time of peace, as we should all be willing to serve it in time of war. How are we going to get such a system in the United States ? That, gentlemen, rests with you and the thousands of other able business men throughout the country. For, if the relation of the government to business is unsatisfactory, what is to be said of the relation of business to the government? You business men have been so absorbed in your private affairs that you have forgotton your duty as citizens. Leaders in business and in philanthropy, you have allowed leadership in the far more im- portant field of politics to fall into other and less competent hands. Worse than this, as business men your relation to the government has not only not been helpful and elevating ; it has been demoralizing and corrupting. If the law of the land is to-day out of harmony with your interests, even inimical to them, you are yourselves to blame. A striking illustration of the indifference of the business men of the community to their civic responsibilities was afforded in this city only last week. Last July the legislature added im- portant new positions to the New York department of labor. For reasons which it would perhaps be best not to inquire into too minutely, the civil service commission exempted these posi- tions from the operation of the civil service law. Through the efforts of various reform organizations the commission was induced to hold a public hearing in reference to its action in this city last Tuesday. At that hearing were representatives of these reform organizations and several public-spirited citizens, but not a single representative of the hundreds of influential employers' associations in this state. The just and impartial enforcement of the labor law should be as much the concern of the right-minded employer as of the employe. And yet this is a fair illustration of the amount of assistance we are getting from the employers of this state in our efforts to make the department of labor a highly eflScient arm of the state gov- ernment. (230) No. a] RELATION OP GOVERNMENT TO BUSINESS 179 The attitude which this incident typifies must be changed and changed radically. To bring about the modifications in our policy toward combinations which the common sense of this audience knows to be desirable, you must organize, — not to oppose the government as some have suggested, but to carry on a nation-wide campaign of education — self-education as regards your duties toward the state; education of others as regards an understanding of the legitimate needs of big busi- ness. If as a result of this conference to-night such a move- ment can be started, we shall not have come together in vain. (231) SOME SOCIAL RELATIONS OF BIG BUSINESS ' JOHN HAYS HAMMOND OTHER speakers, Mr. Perkins and Mr. Whitridge particu- larly, have stated that the trend of industrial development, not only in this country but the world over, is along the lines of large-scale production, or big business as it is sometimes called. This is following the economic law of industrial evolution from which I do not believe there can be any future deviation. To return to operation in small units would be as inadvisable as would be the introduction into this country of small loco- motives and freight cars such as are operated in Europe. Such a change would, it is true, result in the employment of a few more locomotive engineers and other laborers in the handling of freight trains; but it would, at the same time, inevitably result in an increased cost of transportation, for which the consumer would have to pay. Large-scale production is justified from every point of view. First, it is an advantage to the employer of labor, affording him an opportunity for profitable investment in enterprises which, conducted on a small scale, would not pay. Second, there- fore, it is obviously in the interest of the wage-earner as it affords him employment in new enterprises that otherwise would not be established. Third, it is of benefit to the consumer, as the cost of production is lessened, and therefore, while he may not obtain an equivalent reduction in the prices of commodities, he nevertheless does obtain a substantial decrease. The conduct of large operations often involves consolidations and combinations of capital, which tend, unless legally checked, to the creation of monopolies. Herein lies the necessity for government control. Such control may insure the maintenance of individualism as against the tendency to collectivism which might result in socialism. It is important at the outset, as > An address delivered at the annual dinner of the Academy of Political Science, November lo, 191 1. (232) SOME SOCIAL RELATIONS OF BIG BUSINESS 1 8 1 Professor Seager states in his standard Introduction to Eco- nomics, to discriminate between monopoly and the differential advantages to be found in nearly every branch of competitive business. Many economists oppose government control, favoring rather the enactment of legislation supplementary to the Sherman Act. Owing to the intricacies of the problem, others believe the creation of a federal industrial commission will be found necessary to give elasticity in the interest of economic progress to the basic law governing the conduct of operations of large combina- tions of capital. It is especially necessary in the conduct of big business to prevent the monopolization of the natural resources of the nation. Strict supervision of big business is also not only necessary but amply justified, where industries are dependent upon the maintenance of a protective tariff. Business of this nature should be subject to federal incorporation to enable the consumer to know whether or not the profits derived are reason- able or are excessive. If the government were to start its " regu- lation " at the time of the formation of the companies there would be much less complaint on the part of the public against big business; that is to say, the Government should regulate the promoter, thereby obviating the subsequent necessity of " un- scrambling the eggs." The publicity of federal incorporation would, I believe, likewise inspire confidence among foreign investors, whereby cheaper money could be secured for industrial developments. While it is, of course, desirable to encourage healthful com- petition, we should aim to stimulate competition between big corporations rather than endeavor to create many small com- petitive enterprises ; for what we need is more trade rather than an excessive number of traders. Drastic laws fostering com- petition must inevitably prove ineffective if competition reaches the ruinous, or "cut-throat," stage, which must ultimately estab- lish monopoly on the part of the successful survivors. Competition is commonly called the life of trade ; but, as a matter of fact, it often works irreparable injury to industrial communities by lowering wages; by causing fluctuations in (233) 1 82 BUSINESS AND THE PUBLIC WELFARE [Voi.. II prices, which depress business, and by leading to the loss of investments which deter other investors from new fields of in- dustrial enterprise. Reasonable stability in prices is the basis of prosperous trade. In some of our national industries we are approaching dan- gerously near the Charybdis of cut-throat competition in order to avoid the Scylla of monopoly. Take for example the condi- tion of the coal-mining industry. In many coal-mining dis- tricts competition has so reduced the price at the pit's mouth as to render impossible the production of coal, without financial loss, by any other method than that which is known in mining parlance as " gutting the mine." This means the extraction of the higher grades of coal, or of that which can be for the time more cheaply mined, leaving the rest of the coal in the aban- doned workings beyond the hope of future recovery. Indeed, in many districts one-half of the coal is, in pursuance of this policy, left unmined, and is irretrievably lost. There is another phase of large-scale production which has not been referred to this evening. In periods of business de- pression, which are bound to recur, we find, owing to the over- extension of our manufacturing plants during boom times, a large surplus of mill products which cannot be absorbed in our home markets. This condition necessitates either the restric- tion of output by closing down parts of the mills, or a resort to foreign markets for the sale of the surplus products in question. To close down the mills is highly undesirable, for by so doing the effective organization which has been built up is impaired, and likewise many wage-earners are thrown out of employment. The alternative is, as I have said, the sale of our surplus pro- ducts in foreign markets. It is difficult to develop new markets speedily, and we are therefore compelled to seek the markets of Europe, where American commerce has already been established. So great is the interdependence of the commercial nations of the world that we find in times of depression in this country similar con- ditions prevailing in Europe. To compete successfully, there- fore, with the minimum prices of our European competitors it is often necessary for us to make quotations lower than those at (234) No. a] SOME SOCIAL RELATIONS OF BIG BUSINESS 183 which the same commodities are sold in our home market. This practise has been made use of as a political argument against our protective tariff policy ; and while it is one difficult to justify upon a political platform, it is, nevertheless, unquestionably jus- tified by the economic considerations I have already advanced. A further vindication of such a policy is that, by adopting this method of securing foreign trade, we are enabled to prevent the expansion of the industries of our great commercial rivals, and thus to prevent them from attaining the low cost of production that we ourselves enjoy. This enables us tp compete success- fully with them in other foreign markets where highly developed industrial organizations do not exist, but where the revenues are chiefly derived from the exportation of raw material. It is in such markets that the great export trade of England has been developed ; whereas Germany and America, her formidable com- petitors, have confined their activities for the most part to the highly competitive markets of Europe. To relieve the conges- tion of our home markets, and to increase the credit balance of our foreign trade, which is susceptible of enormous expansion, we should take steps for an energetic exploitation of the great markets that are being opened up in Africa, South America, and the Orient. (235) PROCEEDINGS OF THE AUTUMN MEETING OF THE ACADEMY OF POLITICAL SCIENCE HELD IN NEW YORK NOVEMBER lo AND ii, 1911 The Annual Meeting of the Academy of Political Science held in New York on November 10 and 11, 191 1, had for its general topic Business and the Public Welfare. Three sessions were held at Earl Hall, Columbia University. The program was as follows : * FIRST SESSION Friday, November 10, 191 1 Joint Meeting with the New York Association for Labor Legislation Topic The Improvement of Labor Legislation The Efficient Enforcement of Labor Legislation P. Tecumseh Sherman Provision Against Consequences of Industrial Accidents Miles Menander Dawson The Compensation Constitutional Amendment Henry R. Seager Discussion by John Calder, Dwight W. Morrow and Edward T. Devine SECOND SESSION Saturday, November 11, 1 9 1 1 Topic Social Efficiency in Business Industrial Hygiene as a Factor in the Conservation of Human Energy Irving Fisher Provision for the Safety of Employes Raynal C. Boiling (236) PROCEEDINGS OF THE ANNUAL MEETING 185 Discussion by Dr. G. W. Price, Miss Jane Seymour Klink, Dr. John B. Andrews, Dr. W. Gilman Thompson, Miss Lillian D. Wald and Mrs. John Hays Hammond THIRD SESSION Saturday, November 11, 191 1 Topic Financial Facilities for Wage-Earners Investments on the Instalment Plan William E. Harmon Discussion by Isaac N. Seligman and H. R. Mussey Remedial Loans : A Constructive Program Arthur H. Ham Discussion by Raymond B. Fosdick, S. T. Simmonds and Pierre Jay Professor Samuel McCune Lindsay presided at the first and third sessions and Professor Edwin R. A. Seligman at the second session. CONFERENCE DINNER The Annual Dinner was held at the Hotel Astor on Friday evening, November xo, President Samuel McCune Lindsay presiding. Hon. George W. Wickersham, Attorney General of the United States and Judge Elbert H. Gary, Chairman of the Board of Directors of the United States Steel Corporation, were the guests of honor. Addresses were delivered by Mr. Roberts Walker, General Counsel of the Chicago, Rock Island and Pacific Railway Com- pany, Mr. George W. Perkins, Mr. Frederick W. Whitridge, Receiver of the Third Avenue Railroad, Professor Henry R. Seager of Columbia University and Mr. John Hays Hammond. The papers read at the sessions, the discussions and the addresses at the dinner are printed elsewhere in this volume. THE ACADEMY OF POLITICAL SCIENCE IN THE CITY OF NEW YORK President Samuel McCune Lindsay Vice-Presidents Albert Shaw Paul M. Warburg Secretary Henry Raymond Mussey Treasurer George A. Plimpton Assistant to the President Emma S. Lake Editor of the Political Science Quarterly Munroe Smith Editor of Proceedings of the Academy Henry Raymond Mussky Trustees Robert Erskine Ely Frank J. Goodnow A. Barton Hepburn Thomas W. Lamont William R. Shepherd Henry R. Sbager Edwin R. A. Seligman Munroe Smith Frank A. Vanderlip Advisory Council Nicholas Murray Butler Charles E. Hughes J. PiERPONT Morgan Elihu Root Francis Lynde Stetson The Academy of Political Science, founded in 1880, is com- posed of men and women interested in political, economic and social questions. The annual dues are $5. Members re- ceive without further payment the four issues of the Political Science Quarterly and the four issues of the Proceedings, and are entitled to free admission to all meetings, lectures and receptions under the auspices of the Academy. Two regular meetings are held each year, in April and November. The Fall meeting of 1910 was made the occasion of a National Monetary Conference, and the Spring meeting of 191 1 of a Conference on The Reform of the Criminal Law and Pro- cedure. The papers presented at these meetings, together with other important contributions, are published in full in Volume I of the Proceedings of the Academy. The Fall meeting of the Academy, held on November loth and I ith and was devoted to Business and the Public Welfare. The proceedings are published in full in this number. Communications regarding the Academy should be addressed to The Secretary of the Academy of Polit- ical Science, Columbia University. PROCEEDINGS OF THE ACADEMY OF POLITICAL SCIENCE The Proceedings are issued by the Academy as a record of its activities and as a means of giving detailed treatment to special subjects of importance. Each volume consists of four numbers, published in January, April, July and October. Two numbers of about two hundred pages each are devoted to the scientific treatment of special subjects, and consist in part of papers read at the meetings of the Academy. The third number contains an important address or a short monograph, and the April number is the annual report of the Academy. Volume I (1910-1911) consists of four numbers: I. The Economic Position of Women II. The Reform of the Currency III. The Year Book of the Currency. IV. The Reform of the Criminal Law and Procedure. Separate copies of numbers i, 2 and 4 may be obtained in paper covers at $1.50 each. "The Reform of the Currency" and "The Reform of the Criminal Law and Procedure" may also be had in cloth binding at ;^2.oo each. Volume II, Number i, Capital and Labor Unified, by Wil- liam E. Harmon, is an essay on the application of the instalment system to investments. It may be obtained separately at 50 cents. Gomiuiinicatioiis in reference to the Proceedings should be addressed to the editor, Henry Raymond Mussey, Columbia University. Subscriptions should be forwarded and all business communications addressed to the Secretary of the Academy of Political Science, Columbia University. Members of the Academy receive the Proceedings without fur- ther payment. ^p ^H ^m iuullMliiuiiliTiliiii ljljE|[*J|{|m[fc!fEuog SBS^SKp^l' ' ^B^Sfeifeg ^M^^^^^ l^vrf^ff^gfiS ^^^^^ ^^^^S ^ffi^^' ^m ^B ^m mHBl H l HaBaBtESEiiilUttetlnilH la l'iWiss