HB 501 RB Copy 1 "THE INVESTMENT FUND" AN ADDRESS BY HON. GEORGE E. ROBERTS DIRECTOR OF THE MINT Delivered before THE FARM MORTGAGE BANKERS' ASSOCIATION OF AMERICA at Chicago, 111., October 10, 1914 c \ •&<& Gift Author (Ptrun) OCT W. F. ROBERTS CO. WASHINGTON THE INVESTMENT FUND Mr. President and Members of Farm Mortgage Bankers' Association of America: The business of investment banking, of finding free capi- tal in one place and moving it in another place where it can be profitably used, has had great development in recent years as a result of the rapid accumulation of wealth. The particular branch of the business which you represent, that of finding capital for the farming industry, should enlist an unusual degree of public interest just now, because there is much evidence that farming in recent years has not been keeping pace with other branches of industry. AGRICULTURE NEEDS CAPITAL The production of farm staples is not increasing as fast as the production of other goods, the increase of land under cultivation in this country i§;'rio longer keeping pace with the growth of population, ana! the gain in yield per acre has not been sufficient to meet the growing demand. Agri- culture is unquestionably the industry of first importance. Its products include not only foodstuffs but the materials for clothing, and the expenditures of the average family for food and clothing are so large a proportion of its total expenditures that a rise in these costs may easily offset all gains from other sources. This tendency of late has put the whole industrial situation under strain. The result of new labor-saving inventions in all departments of in- dustry, of enormous additions to capital investments, and of improvements in organization and transportation, would naturally appear in lower prices for most of the commodi- ties of trade, but these influences have been counteracted and, in part at least, overcome, by the great rise in the prices of farm products and raw materials. So I repeat that any movement that promises to give aid and encour- agement to agriculture should be very welcome at this time. Our farms need to be brought up to a higher state of cul- tivation, and there are vast areas of land in this country now idle, or practically so, which, by the use of capital by way of clearing, draining, irrigating, subduing or improving by other means, can be made to yield good returns upon the expenditures and help to supply the necessaries of life to our growing population. Agriculture, the world over, needs to be brought up in productiveness and efficiency abreast of the other industries. There is no other field in which progress signifies so much for the general welfare, and it is encouraging to see the numerous signs of a revival of interest in it. IMPORTANCE OF NEW SUPPLIES OF CAPITAL I do not intend, however, to go into a discussion of your particular investment field further than to point out how the demand for capital that you are attempting to supply is related to the welfare of the entire community, and thereby pass to a brief consideration of the value to society of the general Investment Fund upon which all branches of in- dustry are constantly drawing for the means to make fur- ther progress. Everybody understands in a general way that it is a good thing for an individual to save something for a rainy day, and that the value of land goes up when a railroad is built within convenient distance, and yet not many people act as though they had any adequate comprehension of the part that new supplies of capital play in the advancement of in- dustry and in the improvement of social conditions. Somebody who has accumulated capital will come for- ward upon your representations and advance the means for draining and otherwise improving a tract of land hereto- fore unproductive, with the result that the land itself will reimburse the investment fund and yield ever after an an- nual contribution to the national income. Similar applications of capital from the investment fund are constantly being made all around the circle of indus- tries. The entire industrial situation is constantly under- going change. The organization, methods and mechanical equipment are always changing, new and more effective means and processes being substituted for the old. Every day, in every branch of industry, the brightest minds are searching for new and better ways of accomplishing re- sults. Every night restless brains are dreaming and strug- gling with problems, the solution of which means progress for the world. All of these changes cause demands upon the investment fund. They must have capital to introduce them. Labor must be expended, men must be employed, machines must be built and installed, expenditures similar in their way to the drainage and improvement of a farm must be made in advance of any returns, and upon faith that the new idea will become a wealth-producer. ALL INDUSTRIES CONTRIBUTE TO AND DRAW FROM THE GENERAL INVEST- MENT FUND In this progressive movement sometimes one industry is making the more attractive appeal for capital and develop- ing more rapidly, and at other times other industries are offering the greater opportunities. All in their periods of prosperity yield additions to the investment fund, and each in its periods of expansion draws upon the fund for more than its contributions, so that out of the general surplus they finance each other's advancement. Some of them have had a gradual, more or less uniform, development over a comparatively long period of time, while others, revolu- tionary in character and based upon modern inventions, have grown with amazing rapidity. APPLICATIONS OF ELECTRICITY The applications of electricity belong to the latter class. The practical use of electricity for generating light and power dates back only about thirty years. The United States Census Bureau in 1912 found the total investment in central electric lighting stations and hydroelectric sta- tions in this country to be $2,175,000,000 and that it had increased 227 per cent in the previous ten years. The same authority reports that in 1890 there were 1,262 miles of electric railway in the country, and in 1912 40,800 miles. At the latter date the investment in electric railways was $4,500,000,000. The total of all investments based upon the use of electricity in this country today is probably not less than $8,000,000,000. THE TEXTILE INDUSTRIES The manufacture of cloth, on the other hand, one of the primitive household industries but now standing first among factory industries in the employment of capital, with an investment in the United States of approximately $2,000,- 000,000, has reached its present development by constant progress over a period of one hundred and fifty years. Changes in the technical processes have been very numer- ous, many of them of minor importance standing alone but in their cumulative effect accomplishing great gains in which the general public has shared. Not to go back of 1880, and selecting the year 1906 for comparison with it, because the price of raw cotton averaged practically the same in these two years, we find that the staple cotton goods, sheetings, shirtings, drillings and standard prints, aver- aged from 14 to 30 per cent lower in the latter year than in the former.* Some of the greatest gains to the cotton cloth industry have been made in facilitating the production and preparation of raw cotton, notably in the invention of the gin and the compress and in the utilization of the cotton seed. The economies thus effected have reduced the cost of producing raw cotton and been the most potent of all factors in reducing the cost of cotton goods. The increase of capital investment which has accompa- nied the development of the cotton goods industry is shown by the following figures from the United States Census reports : 1831 — Capital per employee $651 1880— " " " 1207 1899— " " " 1899 1909— " " " 2170 IMPROVEMENTS IN THE STEAM ENGINE The gains that are being constantly made in the efficiency of the steam engine are causing a continual reconstruction of power plants, for which heavy outlays of capital are re- quired, but, resulting, are new economies in all branches of industry and new contributions to the investment fund. It is estimated that the average consumption of coal to gen- erate a horse-power today is only about one-half what it was forty years or fifty years ago. In other words, if we had to generate the same amount of power we are using today with steam plants of the type of fifty years ago we would be obliged to mine and transport and handle twice as much coal as now, and would be exhausting our coal supplies twice as fast as we are; all of which, of course, is only figurative, because industry would not be what it is if the steam engine had not been made what it is. *Copeland: "The Cotton Manufacturing Industry," page 268. 7 IMPROVEMENTS IN TRANSPORTATION The industry ranking next to agriculture in importance, and which is more dependent than any other upon the gen- eral investment fund, is the industry of transportation. It is a vital factor in modern life. The development of the railways has had almost as much to do with the develop- ment of other industries, and with the enormous increase in the consumption of all products, as the developments within the other industries themselves. Moreover, the rail- way business, taken as a whole, has never been in position to finance itself out of earnings. If the earnings above operating expenses of all the railways in the United States were turned into a common fund for extensions and im- provements, all interest and dividend payments upon capital being suspended, the fund so created would not be large enough to make the extensions and improvements that are required to keep the railways up to the growing require- ments of this country, and this has been the situation from the first. Expansion in all of the other industries is fo- cused upon the railways and requires more service from them. A large part of the new capital is always going to pro- vide for efficient and economical operations in the future. It is being used in substitutions, as well as additions, to install superior equipment, which will save in labor more than the interest on the investment and permanently lower the costs. The gains of efficiency in the steam engine are reflected in similar gains in the locomotive. Large expendi- tures have been made upon the railways, in straightening curves and reducing grades, to lighten the locomotive's task. In order to reduce the dead load, freight cars have been more than trebled in capacity since 1870, and nearly doubled in the last ten years. In 1870 the typical freight car in the United States was of 20,000 pounds capacity, but on June 30, 1913, the average capacity of all the freight cars in use in the United States was 38.26 tons.* Along *Report of Interstate Commerce Commission, 1913. 8 with the increase of train loads there had to be a recon- struction of roadbed, track and bridges, calling for heavy outlays of capital. This policy of increasing the capital investments in rail- ways in order to reduce the operating expenses is simply an extension of the policy under which railway transportation was first substituted for wagon transportation. The gains from 1880 to 1910 are shown in the following figures from the reports of the Interstate Commerce Commission : No. railway Tons of freight carried one mile. employees. Total. Per employee. 1880 418,957 32,348,846,693 77,213 1890 749,301 76,207,047,298 101,704 1900 1,017,653 141,596,551,161 139,140 1910 1,699,420 255,016,910,451 150,061 1913 1,815,239 301,398,752,108 166,038 These figures show that since 1880 the efficiency of the railway plant has been more than doubled. If its efficiency had been the same in 1913 as in 1880 twice as many men would have been required to handle the volume of busi- ness. This expansion of traffic, however, would have been impossible without the improved facilities. INCREASING IMPORTANCE OF CAPITAL IN MANUFACTURES Similar evidence of the steadily growing importance of capital as a factor in all the industries appears in the United States Census returns. The following figures show the percentages of increase in capital, wages, number of wage- earners, primary horse-power employed and value added by manufacture, in twelve leading and representative in- dustries, and in all manufactures combined, for the ten years 1899-1909, as reported by the Thirteenth Census:* ♦Volume VIII. w X H >* PQ Q W CO H fa ft ft O & Ph H w O ft < fa GO w ft D 2 ID w PQ ft oo u £ £ GO ►H fc fa fa o o H 25 fa O ft fa Oh •sau^snpuj P 3 !UV P UB S[BDIUJ3ll3 sq •spnpojj Xtjq oq tN •dinj poo^w pun jad-Bjj ^ •j3q;H3q so so •saoqs pun sjoog co •J9qiurr[ lo •siph isuo puB .moy; •siuauia^duij p3.m:qnDuSy r\j io •saqddng pue ^ j\\l3UiqDT2J\f P3DUP3J3 so Os ' S IUW 3uhio^ pire sjjjom. ^ pa;g aoBuanjj }SBjg O •saipxaj^ pauiquio3 o snsua^ A(\ papnpuj O) saanpBjnuBj\[ ny ^ CM K H t\ lo On CM LO r— I LO O lo O to -^f *- • iO 0\ fO CM SO t-h IN; ^ CO vd ^t- io Ot -t "*. *""! ^ On CM h *-< ^ Os «— I OS y— I CO LO O CO OS »-H lo d in 00 CM LO fO K ^ lo I t\ Os CM CM so lO -^J- LO 00 tN cm' CM SO In o CM CM o o ^f CM *-h CM Th co LO LO O CM lo SO i— i SO In. ^h CM Os lo CO LO W rj- SO co O O lo Th tN O Oh^ o Si LO LO tN o LO t^ Os SO O 00 CM SO SO CM 00 CM SO Os IN. CM d CO CM SO tN. SO t< so SO tN U ■ ^ a s o > O O a -a rt 2 U > O cd <-H Oh Those figures show that this country gained enormously in the productive capacity of its manufacturing establish- ments during these ten years, and that the amount of capi- tal employed in manufactures more than doubled. The in- crease of 85 per cent in amount of power employed must be considered in connection with the higher efficiency of factory equipment generally. The increase in railway ton- nage shown above, and the fact that the consumption of coal doubled in the same ten years, correspond with these fig- ures, and show that we are making progress by tremendous strides. The population of the country increased during the same period by 21.4 per cent. RAILWAYS LESS THAN ioo YEARS OLD It should be remembered in this connection that the world's entire investment in railways has been made within less than one hundred years. On Stephenson's railway in England, opened in September, 1825, a locomotive was able to draw a trainload of 92 tons at the rate of five miles per hour. Today the steam and electric railways of the world represent a cost for construction of not less than $50,- 000,000,000, all of which had to be saved and withheld from current consumption in order that it might be applied to this purpose. THE BEGINNINGS OF CAPITAL IN INDUSTRY The locomotive followed naturally upon the successful development of the steam engine, and the factory system of production, with the enormous gains resulting from the organization and division of labor, began at the same time. From this period dates the application of capital to produc- tion under modern methods. Prior to this time production had been by the handicrafts and household industries, and the investment in tools was small. Money-lending was to traders, or to rulers for warfare. So little of it was for 11 productive purposes that there was no popular comprehen- sion of money-lending for such use. The Church con- demned the taking of interest, which in all cases was called usury, upon the theory that money was unproductive and that borrowers were usually people in distress, from whom it was unchristian to exact a fee for an accommodation. This idea, that a debtor was necessarily a person who had met with misfortune or was falling behind in his affairs, has been prevalent even down to the present day, and there is enough basis for it so far as the implications of trouble are concerned to keep it alive indefinitely. The average man still finds it hard to get out of debt. ENGLAND'S LEAD IN INDUSTRY, SHIPPING AND BANKING Previous to the wars of Napoleon Holland was the chief market for what little international borrowing was done. The wars were very exhausting to all of the European coun- tries, but although England was constantly involved, in- dustry was not interrupted there as it was on the conti- nent. Considerable continental capital, particularly from Holland, was sent to England for safe keeping and invest- ment during the wars. These twenty years were in the period of the introduction of steam power, and at the over- throw of Napoleon England was a generation ahead of Europe in industrial development. The United States was barely making a beginning in manufactures. This start gave England the pre-eminent position in manufactures and international commerce which she has since held. She en- tered upon her wonderful career as the world's banker and carrier and as an exporter of capital and undertaker of en- terprises in all countries. English contractors did the early railway construction on the continent, the rails and equip- ment were made in England, and even the labor of grading and tracklaying was largely performed by English laborers taken out by the contractors because they were experienced 12 in such work. The first machine shops and factories on the continent were equipped with English machinery and manned with English mechanics. A report of a Parliamen- tary committee in 1824 showed that there were three engi- neering works near Paris owned and entirely conducted by Englishmen, from 300 to 500 English artisans being em- ployed in each. The same report estimated that 16,000 English artisans had emigrated to France in the two years 1822 and 1823. It was estimated that in the ten years fol- lowing the close of the war English investments abroad averaged $50,000,000 per year, a very large sum for that time.* In 1840 another Parliamentary committee reported that the cotton mills in Vienna, at Rouen, Liege, and in Holland were manned by foremen from Lancashire and Glasgow, and in many instances had been built with British capital. England was exporting capital in the form of engines, ma- chinery, and all kinds of equipment and manufactured goods. ENGLISH INVESTMENTS IN THE UNITED STATES The story of England's investments in the United States is familiar. She equipped our early railways and factories. In 1825 several issues of United States Government bonds and of State and municipal bonds were listed on the Lon- don Stock Exchange, and shares of the Bank of the United States were traded in. In 1836 the first American railway loan was recorded, Baring Brothers purchasing $2,000,000 of the bonds of the Baltimore and Ohio Railway. In 1869 David A. Wells, Special Commissioner of Revenue, in an official report, estimated the total of foreign investments in the United States, including the holdings of our Govern- ment debt, at $1,465,500,000, much the greater part of which was owned in England, although Holland and Ger- K J. A. Hobson: "The Export of Capital," p. 106. 13 many held considerable amounts. Thirty years later, in 1899, although our national debt had passed almost entirely out of the hands of foreigners, and large amounts of our railway securities had been returned during the preceding decade, Prof. William Z. Ripley, of Harvard University, estimated the total of foreign investments in the United States at $3,100,000,000. About that time began the new era of reorganization and reconstruction with our railways when capitalization, which had only increased ten per cent in the preceding ten years, which had been a period of agitation over the standard of value, increased seventy per cent in the next ten years. In 1909 Sir George Paish, the English economist, in a paper prepared for the United States Monetary Commission, stated that the sum total of American issues quoted in London was $9,000,000,000, and that Great Britain's investments in this country amounted to $3,500,000,000. He calculated French investments here at $500,000,000, German invest- ments at $1,000,000,000, and placed the total amount of European holdings in the United States at $6,000,000,000. INVESTMENTS ADVANTAGEOUS TO BOTH LENDERS AND BORROWERS England has profited largely by the part she has played in the development of other countries, but they have profited as well. The capital received from her has enabled them to increase their production, to make savings, and to create investment funds of their own, with which they have not only continued their own development, but made ad- vances to other countries less developed than themselves. New England, originally financed by old England, in turn financed the Middle West, and now the Middle West has an investment fund of its own, and is a great market-place for securities. When I was a boy in Iowa ten per cent was the common interest rate on farm mortgages. 14 The United States has overflowed into Canada, Mexico, Cuba, and Central America with investments no doubt ex- ceeding $1,000,000,000. France, Germany, Holland and Belgium in recent years have been investing heavily abroad. The older and more advanced countries are constantly equip- ping and developing the new or more backward countries, thereby opening up new sources of food supplies and raw materials. EFFECTS ARE CUMULATIVE As we have seen, the effect of these savings is cumulative. A part of the increasing production is absorbed in better living, which makes the population itself more efficient, and a part is saved for the investment fund, and goes into more efficient equipment, with the result that more gains are made. GAINS IN ioo YEARS About 100 years ago, before the effects of the introduc- tion of machinery were fully appreciated, the outlook for the masses of the people was thought to be very gloomy. The command of man over the resources of nature did not seem to be equal to the task of providing even a miserable living for the increasing population, to say nothing of ameliorating their conditions. People seriously discussed starvation and plague and war as inevitable and possibly beneficent means of limiting the population. Since then, and as a result of the changes in industry and transportation, the population of the United Kingdom has grown from 18,000,000 to 45,000,000, or 150%; its wealth has grown from $12,500,000 to $85,000,000,000, or over six hundred per cent, and its annual income has in- creased from $1,500,000,000 to about $12,000,000,000. During the same time the population of France has grown about 33 per cent, but its wealth has expanded from about $10,000,000,000 to nearly $50,000,000,000, and her annual 15 income has increased in about the same ratio. Germany in the same time has seen a growth in her population from 24,000,000 to 65,000,000, and from being a comparatively poor country to a stock of wealth estimated at $70,000,- 000,000. And while these countries were making gains as shown, they were all contributing largely to the population and prosperity of the United States. Our population in one hundred years has grown from 8,000,000 to 100,000,000, and the national wealth from about $1,750,000,000 to ap- proximately $150,000,000,000. The national income is es- timated by Sir George Paish to have increased from $500,- 000,000 to $35,000,000,000. ANNUAL SAVINGS According to Sir George Paish, the annual savings, or net gains, of the United Kingdom are approximately $2,000,- 000,000, of Germany about $1,500,000,000, and of France about $1,000,000,000. The United States Census volume upon "Wealth, Debt and Taxation," issued in 1907, gives the wealth of this country in 1900 at $88,577,306,775 and in 1904 at $107,104,192,410, showing a gain of $18,586,- 685,635 in four years or about $4,650,000,000 per year. This included the rise in land values, but the actual accu- mulations are now probably close to that amount annually. INVESTMENTS IN OTHER LANDS Sir George Paish estimates that of the wealth of Great Britain not less than $50,000,000,000 is now employed by others than the owners, or, in other words, is in the general investment fund, and that $20,000,000,000 is invested in the colonies and foreign countries. He calculates that upward of one-half the annual savings or about $1,000,000,000, is supplied to States, municipalities and corporations by the purchase of bonds and stocks. He is of the opinion that 16 the lending countries now have invested in other countries upward of $40,000,000,000, and, discussing the effect of these investments upon the trade and progress of the world, he says, in part:* "The investment of this vast sum of over £8,000,000,000 of foreign capital, mainly in the young countries, has not only brought about this great expansion in the income of the lands in which it has been em- ployed, but has added immensely to the income and accumulated wealth of the nations which supplied the capital. It is true that the propor- tion of the created income accruing to the lending country is ex- tremely small, and that almost the whole is derived by the citizens of the country in which the capital is placed ; nevertheless, the lending nations largely participate in the wealth created, as the increased pro- ductions of the borrowing States enables them to exchange much larger quantities of goods with other countries. In fact, the profitable employment of capital in any part of the world not only gives a great stimulus to production in the countries in which the money is placed, but increases the production and commerce of all countries, and espe- cially of the lending nations. "Two generations ago the nations of Europe depended almost en- tirely for their means of subsistence upon their own productions ; and not only did they seek to be self-contained as far as possible and to avoid reliance upon other nations for necessaries, but it was impos- sible for other countries to supply them with any large quantity of goods. The aggregate value of the imports of what are known as the five lending countries of Europe at that time was less than £250,000,000 per annum. Mainly in consequence of the willingness of these five countries to supply other States with the capital needed for their de- velopment, an immense impetus was given to production throughout the world, and these five States are now purchasing over £2,000,000,000 of goods per annum from other countries Indeed, not only do they pay for all these goods, but they are supplying capital to other coun- tries for permanent or temporary use to the extent of nearly £400,000,- 000 per annum." CAPITAL AND INCOME AS THEY ACTUALLY EXIST We talk of capital and income in terms of money, and people are apt to think of them as money. We would com- prehend them better if we thought of them as they actually exist, i.e., in the form of useful things. The gains of a *London Statist, May 23, 1914. 17 people in an economic sense are in the things that minister directly to their comfort and culture, such as houses, fur- nishings, food, clothing, means of transportation, libraries, education, recreation, etc., or in equipment that enables them to produce these things more easily in the future. Obviously a large part of the gains of society in the past hundred years have been in the latter class, and as a result the effectiveness of the average worker is enormously greater now than it was a hundred years ago, the total amount of goods produced and distributed is correspond- ingly greater, and the average man lives among comforts and conveniences and beneficial influences undreamed of at that time. EFFECT UPON SOCIAL CONDITIONS If we want to properly appreciate these gains we must not only compare the lot of the average person living in the above-mentioned countries now with that of the aver- age resident one hundred years ago, but endeavor to imagine what the lot of the average resident would be if the pres- ent populations were trying to live in those countries under the conditions of 100 years ago. With the increasing population of all countries the struggle for existence, to say nothing of a struggle for better conditions, must be increasingly severe unless improvements are made in the methods of production. The entire population of England has been benefited by the accumulation of its investment fund, and by its use in the construction of steamships and in the development of the new countries from whence have come its supplies of food and raw materials. Food is cheaper in England now than it was 100 years ago, and so are practically all of the comforts of life, although the population has multiplied two and one-half times. Furthermore, as the capital sup- plied by England to other countries has been mainly ex- ported in the form of machinery and other manufactured 18 goods, an enormous demand for labor has been created thereby, employment has been provided for the increasing population, and with capital increasing faster than popu- lation average wages have more than doubled in that time. COMPLAINTS OF INEQUALITY OF DISTRI- BUTION It seems almost superfluous to recite the foregoing well- authenticated facts showing the development of industry and the enormous accumulation of capital that has resulted during the last hundred years, and that is now going on at a constantly increasing rate. The facts are known and nowhere disputed. And yet while the facts are familiar their full significance is certainly not generally understood. On all sides there is complaint that this newly created wealth has not been fairly distributed. A great many peo- ple are unable to find any satisfaction in this record of accumulation because, as they say, the people do not share in it with any fair degree of equality. Some very distin- guished leaders of our public life have gone so far as to declare that society is no longer interested in increasing production, the important problem now being that of dis- tribution. Now, with all respect for the excellent and well-meaning people who advance these opinions, I am sure that they are to a great extent erroneous, and based upon a hasty and superficial view. A MISTAKE OF THE CRITICS It is evidently quite impossible to set up and enforce any abstract rule by which a direct distribution of the entire social income can be made to each and every member of society according to the value of his own contribution to it. Without entering upon any such vague discussion as that, the comment I wish to make upon these complaints is that they leave one of the most important factors in the 19 situation entirely out of the account. They make no allow- ance for the community gain from the accumulation of pri- vate capital. They ignore all the benefits I have been re- viewing. They assume that nobody is interested in the investment fund except to the extent that he is a part owner of it. They make up their case as though all of the in- creasing supply of goods resulting from the increasing em- ployment of capital was absorbed by the capitalists. Of course, this is not a true representation of the facts. It is as though they should claim that nobody had ever benefited by the steam engine but the owners of engines ; that nobody had ever benefited by the railways but the owners of rail- way shares, that the progress in the textile industries con- cerned only the manufacturers, and so on all around the circle of industries. It would seem that the position needs only to be stated for its fallacy to be apparent. But, the critics will say, granted that the millions of wage- earners derive some benefits as consumers from these vast accumulations of capital in the form of industrial equip- ment, their share of the total benefits is manifestly too small ; they have a living, and little more, to show for their labors, while the comparatively few capitalists are owners of all this property. Very well, if it is admitted that all of the members of the community as consumers derive benefits from the in- creasing production of goods, let us now turn and see how much benefit the capitalist derives from own- ing the equipment. Can he absorb any benefits except in the same capacity, i.e., as a consumer? Evidently not. It is true that he will probably consume on a larger scale than his employee. He may live in a larger house, keep an auto- mobile, travel abroad and spend more on his table and in many other ways. But these expenditures, representing consumption, include the only part of his income that is de- voted to himself. All the rest of it is added to the invest- ment fund, in which it is now agreed the entire community is interested. 20 CONSUMPTION, NOT OWNERSHIP, REPRE- SENTS THE REAL DISTRIBUTION If this statement is correct, whenever a person reaches the position where his income is permanently above his per- sonal and family expenditures, all additions to it go to bene- fit the public. This, of course, is provided the surplus is invested for productive use and its proceeds reinvested con- tinually in the same manner. There is no escape from this conclusion after the admission is made that the public does share in the benefits of the investment fund, for if the owner continually returns his share of the fund's earnings nobody but the public draws from it. It appears then that if we wish to measure the actual division of gains accruing in the last hundred years, as be- tween capitalists and the rest of the community, a wholly different basis must be adopted from the one commonly used. The entire industrial plant that has been built up in this time must be left out of the calculation. This plant is permanent, except as it is from time to time replaced, and is of no use to anybody except as it produces a flow of bene- fits. All of the values of the plant come out in this flow, hence it is the division of the flow that should be measured. The idea that all of the capital invested in the modern in- dustrial plant has been taken away from the public and ap- propriated by the owners to their own exclusive use is a chimera. The truth is that the plant is devoted to public use, in supplying public wants, as truly as if owned by the State, although the private owners have a first claim on the net product for what they want to consume themselves. The rest of the product goes to the public, either directly in articles of consumption or in additions to the equipment for production. 21 EXPENDITURES FOR CONSTRUCTION MUST CONTINUE When this is seen the division which troubles so many good people takes on a very different aspect. They have been thinking about an equalized division of all income, in- cluding what now goes into the investment fund. But if all profits were distributed for current consumption the enlargement and improvement of the industrial plant would stop and progress come to an end. If society is to go on perfecting its control over the forces of nature, and con- stantly increasing the flow of desirable things, as it has been doing in the last hundred years, it must continue its expenditures for experiment and construction. Even if the State owned all of the industries it would have to do the same. WHY MEN STRIVE FOR MORE It may be asked why, if all this is true, men will labor and struggle to add to their fortunes, which already afford income beyond their personal or family requirements? That question has been always asked. The answer is that it is in them to strive and to accomplish, and that the great- est satisfaction any human being can have is found in the exercise and development of his faculties and in successful achievement by their use. The title deeds of property are to a successful man like titles of nobility. They are titles of achievement. He goes on adding to them because there is satisfaction in doing so, but it does not signify that more titles bring him one iota of tangible return or reduce by one iota the income of any other man. On the contrary, his efforts increase the common fund from which he has ceased to draw. 22 THE QUESTION OF STATE OR PRIVATE MANAGEMENT ONE OF EFFICIENCY It appears then that there is nothing to be equalized but personal expenditures. The problem is reduced to the question whether the captains of industry and their de- pendents consume an undue share of the products, and whether the net product would be greater if private own- ership was abolished and the management of all industry placed in the hands of a steering committee, nominated in the primaries and elected at the polls. I do not intend to enter upon that subject further than to refer in passing to the recent statement, attributed to the Postmaster-General, that $20,000,000 a year could be saved in putting the rural delivery of mail under the contract system. It is apparent that whatever the possibilities of gradual development may be, and I would not set limits upon progress in that man- ner, there is such a thing as going too fast in the Govern- ment operation of industry. EQUALIZING TENDENCIES The experience of the past has shown that certain equal- izing or levelling tendencies are always at work. They are constantly reducing the value of what has been inherited or handed down from the past and adding to the rewards of what is done today. The productive equipment of fifty years ago, which was wealth then, is worthless today, made so by new ideas, born of our own time, and the equipment of today will lose its value in the same manner. Even the knowledge or skill of a trade, which is capital to its owner, loses its value if he fails to keep pace with the changes in the trade; and in like manner the good will and prestige of an old business, and all similar acquirements and advan- tages, will lose their value unless the management is con- stantly reinforced by new vitality and kept abreast of the times. This is a levelling process that never ceases and yet 23 never establishes equality, for there are always new leaders forging ahead. All the advantages of "being first in a new industry or with a new process are speedily lost. They enable a new set of fortunes to be made, and for a time the benefits go chiefly to the owners and to the investment fund, and then as the entire industry advances to the new level of efficiency the direct distribution of benefits to the public increases. And so the whole industrial organization moves up from one stage of productiveness to another, de- stroying the value of past investments as it rises, but con- stantly increasing the annual output. As a result of this movement there is now a nearer approach to equality in expenditures for what are commonly recognized as neces- sities and comfort than at any time in the past. There are smaller differences now between people of various occupa- tions or degrees of wealth, as to the food they eat and the clothing they wear, and as to housing conditions, sanitary surroundings, medical and surgical care, education, recrea- tion, facilities for travel and communication, and the gen- eral conditions of life that make for culture and opportu- nity, than ever before. These are the things as to which it is really essential that there shall be equality. It is not important that there shall be equality in anything else — certainly not in costly dinners, extravagance of dress, or mere display of possessions; these are superfluities and vanities which nobody should want, and which genuine cul- ture will ultimately eliminate. INEVITABLE DISTRIBUTION The truth is then that notwithstanding much said to the contrary the natural development of society is steadily toward equality. There are inherent and unseen forces that work everlastingly to this end. The leaders and or- ganizers who are effective in enlarging production come, by virtue of their functions, into control of the productive machinery, but they consume an insignifi- 24 cant portion of the product. The rest goes to the public, by one route or the other. If they seem to apportion, and in some instances do apportion, too small a share directly to their employees in wages, the remainder goes into the investment fund and creates a new demand for wages and a new supply of products, thus strengthening the employee's position both as a wage-earner and as a consumer. What is withheld from the wage-earning class at one point is thus restored to it at another. Individuals, in instances, may not have justice, but the broad movement is beyond con- trol. Natural laws never have taken much account of in- dividuals, but it should be remembered that as individuals we have all benefited by the labors of those who have gone before us, and if the fruits of some of our own labors escape us and are passed on to our children it is only an equalization of benefits. We are glad to work for our children, and it is reassuring to know that what one gen- eration fails to divide and consume becomes capital for the generation that follows. With capital increasing faster than population, and production increasing faster than pop- ulation, the race is constantly lifted to higher levels of life and opportunity. The new man, the child born into the world today, has a higher and more commanding position and possesses in his own faculties the equivalent of greater wealth than the child of any other year since the world began. THE KIND OF EQUALITY DESIRED So far as ownership of the industrial plant is concerned the public is chiefly interested that the management shall be intelligent and efficient, and that the flow shall be as large as possible. As the general standard of living rises, and as all of the people come into the enjoyment and ap- preciation of new opportunities for culture and develop- ment, the way will be open for a broad approach toward equality in those mental and moral traits that make men 25 efficient and successful, and that fit them for responsi- bility. This is the kind of equality toward which, let us hope, the race is moving, and as it makes progress the question of equality in the ownership of property will take care of itself. The mistake of the critics is in thinking that con- ditions are fixed and permanent except as they can labori- ously change them, whereas society is in process of evolu- tion by its own natural forces. WHEN THE VALUE OF THE INVESTMENT FUND IS KNOWN When the value of the investment fund as an agency of social progress is fully understood, a vast change will come over the attitude of classes toward each other, and in the efficiency of the industrial organization. The essentially cooperative nature of our present form of society will be seen. Everybody will be interested in having everything done by the most efficient and economical methods, in order that the fund may rapidly increase; and if fortunes result from successful innovations and from savings that had previously gone to waste, the public will rejoice in them as new wealth for the benefit of all. Most of the bitterness of present-day controversies will disappear. The owners of fortunes and managers of industries will themselves comprehend more clearly their true position in society and the responsibilities that belong to them. The wastes of war will appear more terrible and more reprehensible even than they do now, for with the cooper- ative character of industry clearly made known it will be seen that no nation is in the way of any other nation, or can ever be injured by the prosperity of any other nation. The richer each nation becomes, the more capital it has to invest; the greater its powers of production, the more help- ful it is to all the rest of the world. 26 And not only will but so also will be 4 everyday life — the v ance, of inefficiency, trained, undirected, i> which may be reclaim and clothed in its righ A CON( I am persuaded, in closing, lu gi^e one concrete example which illustrates the wastes to which I have just alluded, and also the value of the investment fund in dealing with them. The International Health Commission (Rockefeller Foundation), located at Washington, at my request has given me the following memoranda of a case of which I had incidentally learned something: "The family was on the pauper list of Lamar County, Mississippi. The county had spent about $2000 on this family. Some- thing over three years ago Dr. Whitfield, one of our field directors in Mississippi, was conducting the dispensary work in Lamar County for the relief and control of hookworm disease. This family was examined and found to be heavily infected. They were treated. Soon after being treated they were taken off the pauper list. We have a letter from Mr. J. D. Hatton, a member of the Board of Supervisors of this county, living at Sumrall, Mississippi, stating that this family had been taken off the pauper list as a result of their treatment for hookworm disease. On September 9, 1914, we received a letter from Dr. W. S. Leathers, State director of the work in Mississippi, stating that this family is now living in County, Mississippi, and that the family made more than 10 bales of cotton last year." Copies of this pamphlet can be had by addressing H. M. Hanson, Secretary-Treasurer, Farm Mortgage Bankers' Association of America, 518 Merchants' Loan and Trust Building, Chicago, Illinois. LIBRARY OF CONGRESS 013 730 093 A • ,. LIBRARY OF CONGRESS 013 730 093 fle Hollinger Corp.