%&k ' i^f Class Book. P fro i Mfa f Gopigtofi?. COPYRIGHT DEPOSIT. \PITALISM VS. BOLSHEVISM GEORGE L.WALKER CAPITALISM VS. BOLSHEVISM IS; 773 BY GEORGE L. WALKER Editor Boston Commercial Author, Capital, Walker's Copper Letter, Etc., Etc. Copyright, 1919, by Dukelow & Walker & Co. DUKELOW & WALKER CO., Publishers 246 Washington St., Boston, Mass. CONTENTS. Chapter * Page Introduction 1 I The System 6 II Capital . 30 III Overproduction 37 IV War Lessons 43 V A Protective Tariff 51 VI Wages 70 VII Bolshevism . .' 85 VIII Discontent 99 IX Profits and Interest 107 X The Corporation 115 XI Wall Street 118 XII Money 125 XIII Taxation 129 XIV Luxuries 135 XV Our Opportunity 143 .A5L5697 MAY 29 I9W j INTRODUCTION My previous booklet, CAPITAL, written and published in 1914, was accorded a reception which convinced me that great numbers of peo- ple were interested deeply in the analysis and explanation of our present system of industry therein presented. Recently there has been a strong revival of the demand for it. As the last edition has been exhausted, and as many of my friends have urged me to write again in the more brilliant light which the great war has thrown upon the economics of national life, I have violated the eight-hour regulation and turned out the material that follows. It has been my plan to tell my story in lan- guage that all can understand, to employ a style conducive to easy reading and to write precisely what I know and believe to be true, without equivocation. The reader will not find it a-long- drawn-out argumentative discussion. If any- thing, it is too short. But I believed it best to 2 Capitalism vs. Bolshevism keep it within the limit of a single evening's reading. In these days when the extreme socialists, known there as the bolsheviki, are undertaking to force all Russians to accept their outrageous and impracticable social scheme by murdering those who disagree, and meanwhile dragging the whole population of Russia steadily down- ward from want to starvation; and when the propaganda of bolshevism is being carried on actively in this and every other country, it cer- tainly is desirable that something be written and published which will make clear to the wage earner and the farmer, and also to the business man and the capitalist, the nature and character of the so-called capitalistic system of industry. By devoting a great deal of my time during the past 20 years to the work of examining and valuing mining properties, and also a variety of other industrial enterprises, I have become impressed that the average man has a rather hazy knowledge of what is really going on in the world beyond the limits of his personal vision. Although I have become well acquainted with hundreds of miners, I never met more than two or three who had a clear idea of the value and Introduction 3 importance of the mine in which they worked. The one employed in a rich stope is prone to think it the greatest mine in existence, and an- other who is helping drive a connection through barren rock usually is convinced that the prop- erty is well nigh valueless. Capitalism has been camouflaged and mis- represented until hardly anybody knows where it is or what it is. It needs to be explained to the people who are the most intimately asso- ciated with it. When it is understood sane and rational thinking people never can be induced to exchange it for any other social and indus- trial system, there will be a general disposition to lose faith in the witch-doctor charms of the socialists and bolshevists and to turn to reme- dies that have been tried and proved. Although a liar is almost as unpopular as a person with a contagious disease, the truth is not anywhere near as popular as might be de- sired. To illustrate, a library in a town near Boston, the report of which is now before me, circulated 28,743 books of fiction last year and only 2,330 of history. The appeal of the good story is largely responsible for the spread of bolshevism, the advocates of which, never per- 4 Capitalism vs. Bolshevism mitting themselves to be restrained or even in- fluenced by facts, always are ready to stretch, compress, bend or twist their doctrine if they thereby may hope to bring more converts to their fold. Capitalism, however, is by far the most wonderful, astonishing and thrilling of all man's creations. Here in the United States where it has reached its highest development evidence is immediately at hand to confirm every truth- ful statement that is made concerning it. We Americans have the best of reasons to be proud of our capitalism, and the time has come for us to declare our faith. The tens of millions of socialist and bolshevik publications that are being circulated every year have made a dis- eased state of mentality more or less prevalent to which the tonic of truth must be adminis- tered. I have every confidence in the great com- mon people and in their high standard of in- telligence. I know that they would be quick to discover it if I tried to fool them. All Ameri- cans are interested in the same things, personal liberty, increasing opportunities for the indi- vidual, continuous prosperity and steadily im- Introduction 5 proving standards of living. I have written to promote these good objects and to resist the in- fluences which are being exerted to destroy them. THE AUTHOR. Chapter I THE SYSTEM Before we decide to join the bolsheviki the syndicalists or the socialists, we should make sure that we thoroughly understand a long list of things, the two most important of which are the present system, which they propose to throw into the discard, and the new system of society which those organizations are planning to es- tablish. It is not good business to throw anything away until you are satisfied that it is worn out, unfitted for the purpose intended, no longer in style or in every way valueless. On the other hand, it is not good judgment to give your all for something new merely because the demon- strator or salesman is a plausible talker. You first should make sure you are getting your money's worth, that the new thing or arrange- ment is certain to bring you great benefit and happiness. The present system, called capitalism, is The System 7 based upon personal initiative and effort, and the private ownership of property. It was a very simple system at the outset, but has grown more complicated as the wants and the purchas- ing power of the individual have increased. Now it has become difficult both to understand and to describe. Every country must have its industrial sys- tem, and the three prime factors of every in- dustrial system necessarily are production, dis- tribution and consumption. Ideals, theories, fads and all kinds of isms are secondary. First importance must be given to food, raiment and shelter, which make it pos- sible for people to live on the earth. These necessities of life have to be produced and dis- tributed before they are available for consump- tion. The work of production and distribution, regardless of the system or form of government, has to be done by the people. Nearly half of all the people now on the earth wrest their liv- ing from the soil almost with their bare hands, still using only the most primitive implements and tools; and approximately one-third of the world's people still depend upon muscle power, 8 Capitalism vs. Bolshevism upon the backs and legs of mankind, for their transportation service. When a primitive man comes to own a horse, an ox or other beasts of burden he is a capitalist. He has stored up an amount of per- sonal effort, which he exerted in excess of that required to sustain life from day to day, and is able to draw upon that stored energy for assist- ance in the work of production and distribu- tion. After large numbers of men have obtained beasts of burden, fashioned vehicles, plows, etc., the productive capacity of the community in which they live is increased and transportation quickened. The capitalism of the United States is a higher development of this idea. To domes- tic animals it has added the most effective tools, machines of unending variety, and an immense volume of mechanical power, and has organized wonderfully efficient systems of production and distribution. A few of the resulting benefits will be mentioned. First, it has added so greatly to the volume of production and so quickened transportation as to make it possible for sev- eral times more people to live and support them- The System selves upon the earth; second, it has lightened human burdens and provided leisure and sur- plus which permit of the education of the young and the acquisition and enjoyment of a multi- tude of comforts, pleasures and luxuries, and third, it has opened up almost unlimited oppor- tunities to the children of the most humble to rise to positions of influence and wealth. Capitalism is a system that holds out strong inducements to the individual to strive for himself and family. It implants in the breast of every rational man a desire to earn save and accumulate property for himself and his children. Opportunities to accomplish these things are supplied galore. A great many men take advantage of some of the'se opportunities and as many more do not. Those who have neglected or overlooked their chances and those who have spent their earnings as they have gone along are likely to see life and the system from an entirely differ- ent viewpoint than those who have practised alertness, industry, self-denial, and exercised good judgment in the conduct of their own af- fairs. Men of the first two groups want to blame something for their failure and they pick 10 Capitalism vs. Bolshevism on the system. Those in the last group attend to their own business and don't bother to reply- to the arguments or to deny the accusations put forth by the dissatisfied portion of the people, hence one side of the argument is heard from day to day and the other side rarely, if ever. Briefly, the savings and accumulations of the rich, the middle-classes and poor are in- vested in a great variety of industrial enter- prises. Men of genius and business capacity form organizations, chiefly corporations to em- ploy these savings productively so that they will earn interest and profits. Approximately 90% of all interest and profits is reinvested in industry. This method of utilizing savings in its highest development multiplies the pro- ductive power of hand labor, at least seven times over. More than three-quarters of the increased product thus gained necessarily goes to labor. When corporations are given encourage- ment and the principle of property right de- fended by the public, industrial expansion is rapid, labor is fully employed, wages are high, the people are prosperous and the volume of production is so large that the cost of living The System 11 tends to decline gradually from year to year. During periods of reform agitation and legisla- tion, of assaults by the constituted government upon the right of property ownership, of strikes and other labor disturbances, savings are in- vested less freely, there is reduced expansion, business interests hesitate, production does not grow as rapidly as population and thus the cost of living advances. What the dissatisfied portion of the public doesn't understand is that interest and profits must be invested, that their investment in- creases the country's production, that the pro- duct must be sold and that a market for an ever- growing volume of output cannot be created ex- cept by permitting the prosperity and purchas- ing power of the working people to rise steadily from year to year. This increased purchasing power may come about through declining prices just as well as by wage advances. Capitalism is an evolution. It is an ag- gregation of age-old and newer truths which have been demonstrated to be practicable and trustworthy. It comprises the workable prin- ciples, methods and processes that all genera- tions of men from the beginning of time have 12 Capitalism vs. Bolshevism discovered, developed and learned in their struggles for existence and in their dealings with one another. It is the concentrated busi- ness and social wisdom of all ages, the best of the experience of our ancestors, the part that could not be disregarded or discarded and which necessarily, therefore, has continued in use. Of course it is inconceivable that anybody should expect superior social and economic wis- dom to be evolved from the brain of "a seedy looking individual with unkempt hair and beard and clothing badly soiled who spent the most of his hours alone in the far corner of a low- ceilinged saloon over a stein of ale;" but in- creasing numbers of people have shown a dis- position to take their wisdom from such sources in recent years. Others are confident that true and trustworthy wisdom always is the child of experience. For a score of years past large numbers of irresponsible agitators have been striving untiringly to teach the ignorant, the thought- less, the weak-minded, the idle rich and the un- fortunate poor to hate capitalism; and the ef- forts of soap-box orators have been ably sec- onded by the "academic bolshevists, of whom The System 13 our colleges and universities are altogether too full." Social-uplift, socialist and I. W. W. agita- tors — many of whom are innocently ignorant and the rest corrupt — have taught millions of working people to believe that capitalism robs the poor. Absurd as this proposition is on its very face, it has provoked widespread bitterness and antagonism and even been responsible for riots and revolutions. The penniless tramp de- clared that the only time he ever entertained fears that he might be robbed was when he was asleep and dreaming. A lot of our social reform agitators should try to wake up. Of course capitalism doesn't rob the poor. It can't. The poor have nothing of which to be robbed. Capitalism urges and assists the poor to better their condition. Both the capitalist and the worker thrive best when a very large volume of business is being done on a narrow margin of profit. Therefore capitalism is in- terested in following a line of development and progress that gives all labor constant employ- ment and large buying power. It is impossible to demonstrate exactly how much capitalism contributes to the work, 14 Capitalism vs. Bolshevism or the volume, of production or how far it as- sists in distribution; but Bulletin 102, part 5, issued by the Smithsonian Institution, con- tains these estimates, first, that the amount of power in use in the United States is about 150,- 000,000 horsepower, second, that this is equiva- lent to "the labor of three billion hard-working slaves." That the number of people engaged in gainful occupations in the United States is 40,- 000,000 is a government estimate also. It would seem to follow, therefore, that capitalism is contributing 77 times more energy to the work of production and distribution than the wage earners are; yet it is impossible to show that capital receives as its share as much as 20% of the benefits accruing. If the govern- ment estimates are not more than 25 times too high, indeed, even though they are 77 times too high, capitalism clearly is not to be spoken of as robbing labor. To follow this matter of power a bit fur- ther, it has been estimated that the farmers of America feed 40% of all they raise to their horses. For the limited benefit the farmers get from this rather awkward form of power • The System 15 they apparently give up twice the proportion of their product that capitalism withholds from labor. Horses supply only a portion of the power requirements of farmers, as they do not help weave the cloth for his clothing, mill his grain, saw his lumber or draw the wire for his fences. Capitalism supplies power and facilities for which labor unhesitatingly would surrend- er half or two-thirds of its products provided they were unobtainable at lower prices. Cap- italism also pays for the plans, the organiza- tion and the management that double the ef- fectiveness of power and machinery, and charges only 10 or 20% of the product. Hasn't it been stated wrong all along? Isn't it labor robbing capital instead of capital robbing labor? Everybody is aware that capitalism has reached its highest development in the United States. Before the great war more than a mil- lion poor people were coming here from other lands every year. There was no such volume of emigration to any other country. Capitalism was creating here a heaven on earth for the poor, and the poor of the outside world were coming to take advantage of it as fast as they 16 Capitalism vs. Bolshevism could get together the money to buy steamship tickets. One who has read and analyzed history has only to look about him to see and appreciate what capitalism has done for the people who work with their hands. It has made it possible for them to rise from slavery and serfdom to citizenship and independence, to obtain a con- tinuous and abundant supply of the best foods that land and ocean yield, enabled them to dress comfortably and in accordance with personal tastes, to occupy dwellings equipped with all modern improvements, and- provided educa- tional advantages and opportunities such as were not enjoyed even by the aristocracy as re- cently as a century ago. Before the great war capitalism had brought almost everything worth while within the reach of the American wage earner, includ- ing newspapers, magazines, books, music, gas and electric lights, telephones, phonographs, moving pictures, theatres, baseball, golf, travel on steamships, railroad trains and electric cars, and ownership of his home; and thousands of wage earners were riding to and from their work daily in their own automobiles. The The System 17 working people of no other country in the world enjoyed these things to one-fifth the ex- tent that they did in the United States. Oppor- tunities to rise from the ordinary walks of life to the most honorable and highly compensated positions and to acquire fortunes were multi- plying and the sons of workingmen were fore- most in taking advantage of them. Ambition was encouraged and industry rewarded. Capitalism had accomplished all this while it was constantly under fire. The labor organi- zations claimed all credit for it, on the ground that their never-ending agitation and strikes for fewer hours and higher wages had made the working people prosperous. Every act of theirs had served to retard the progress of the Amer- ican people toward a more uniform prosperity and a higher average standard t)f living. Labor organizations or no labor organiza- tions, the working people of the various coun- tries of the world are prosperous or indigent in the ratio with which capitalism has been de- veloped there. Proportionate to their national wealth and population the people of England and France were not as prosperous as ours ; but that was due to the fact that England and 18 Capitalism vs. Bolshevism France had invested a large proportion of their capital in foreign countries, while substantially all of the capital of the people of the United States had been invested at home, together with a very large amount of borrowed capital. Less than 25% of the world's people live under full-fledged systems of capitalism. Capitalism expresses itself in power-driven ma- chinery and highly efficient business organiza- tions. Its purpose is to reproduce capital with capital, and then to go on reproducing capital in multiple, accomplishing this by multiplying the productive power of human labor. In the earlier days of modern capitalism it was the habit of people to speak of "labor sav- ing machinery," and also of "labor displacing machinery. ,, With feelings of uneasiness they pointed out that machinery enabled one man to do the work of several men, thus reducing the demand for labor. Later on it was stated in another way, that machinery enabled one man to produce as much as several men, thus increas- ing very greatly the supply of desirable pro- ducts. Then machinery began to be looked up- on in a new light. Of course it was recognized then, as it The System 19 should be now, that the end and aim of practi- cally all labor were production and distribu- tion. If more of these desirable results could be accomplished with less labor, so much the better. People never were as fond of work as of products. Modern machinery was only fairly well along toward general adoption before it devel- oped that its multiplication of the effectiveness of hand labor resulted in overproduction, which caused frequently recurring industrial depress- ions. This overproduction presented one of the most puzzling economic problems of all time. How capitalism solved the problem of over- production is told in another chapter. It was the crowning development of all economic his- tory. Although capitalism is one of the most re- markable, and doubtless the most vitally impor- tant, of man's creations, it is not the outgrowth of the acceptance of a carefully matured plan. No statesman, economist or philosopher of past generations left behind him a written line to in- dicate that he had any mental conception of an 20 Capitalis7n vs. Bolshevism industrial future that tallied at all with the one that has developed. It seems that primitive man must have been following the dictates of his own practical experience and common-sense judgment when he broke over the boundary line from barbarism to civilization. Evidently he continued to fol- low them and they led him to capitalism. There are good reasons for the belief that man liyed on the earth for at least two hundred thousand years before he was able to take more than a very few steps forward industrially. Af- ter he had developed the ability to make crude stone implements, spears, bows and arrows, in- vented fish-nets and a few traps and snares to catch wild animals his progress appears to have stopped and left him stationary at that stage of his advancement for countless generations. If man had grown wings and thus been able to fly rapidly back and forth from the north to the south, as some of the migratory birds do, visiting each and every spot on the earth's surface in nature's harvest time, he might have continued a benighted barbarian to this day. It is quite apparent., however, that The System 21 the Creator had a very different plan in view when man was fashioned. Man was made to be a worker. Unless he foolishly prejudices himself against it, work is one of the most pleasing occupations of his life. It is a game that is interesting every moment of the day. There are prizes for all of the play- ers, and for those contestants who apply them- selves most faithfully, never permitting their personal enthusiasm and ambition to relax, the prizes are very large. Our ancestors of primitive times who were obliged to work with so few mechanical helps and to endure such severe hardships and priva- tions, undoubtedly carried about with them a big fund of common-sense and were both re- sourceful and ambitious. Why they did not be- gin accumulating capital thousands of years earlier and using it to lighten their labors and to increase their productivity is not entirely clear. There is a great deal of evidence, how- ever, that stealing and a general disregard for property rights prevented accumulation, and that man's progress toward a higher civilization did not begin until after property rights had 22 Capitalism vs. Bolshevism become a generally accepted and established moral and social principle. Early civilization was extremely strong for property rights. Until a few generations ago +he crime of theft was punishable by death. That custom probably did not bespeak a prevailing standard of cruelty so much as it did a popular determination to stamp out a tendency or habit which the people as a whole had come to con- sider as severe a crime against the public wel- fare as murder. It is evident, therefore, that the people of those generations that witnessed the emergence of mankind from barbarism to the borderland of civilization were convinced that the recognition of the individual's exclu- sive right to have, hold and use his savings and accumulations was to be the basis of human progress. In recent times the people have been taught to believe that the one quick and certain way to improve the condition of the wage earners is to, give them a larger share of the profits of cap- ital. If it can be demonstrated that this coun- try has been making too rapid progress indus- trially than it will have been proved that profits have been too large. More than 90% of all The System 23 savings, interest and profits remaining af- ter taxes, have been reinvested in enterprise. Should we discontinue doing this and thus rob in advance the generations that are to come af- ter us? The most important of all products is the food crop ; but the annual crop of new capital, made up of interest, savings and profits, is a close second. This capital crop is a prime es- sential to the advance of civilization. It builds, extends and expands transportation systems, mills and factories, opens the mines and installs the machinery that enable man to produce and distribute, with constantly decreasing effort, an ever-increasing abundance and variety of the necessities and luxuries of life. It replaces fire losses and other unavoidable destruction, and makes it possible to scrap machines and even whole plants the moment something better has been developed to supplant them. To the ex- tent that profits are cut down the progress of the people toward a higher standard of living and civilization necessarily must be delayed. Capitalism in its hustle for profits carries the people up the hills of progress in palace cars, offers them every delicacy that appeals to 24 Capitalism vs. Bolshevism the palate, takes every care of their comfort and health, and humors their every whim. The more it gives the less, in proportion, it takes for its services; and as it grows bigger and stronger and more all-pervading its power to domineer and to dictate steadily diminishes. Nothing else, not even education, exerts the influence that capitalism does to develop the initiative, the self-reliance and personal confi- dence of the individual. It is an individualistic system of industry. Millions of individuals are watching constantly for evidence that one or more of thousands of commodities and services are in demand, and hastening to supply them the moment it becomes possible to do so with profit. Not the human frailities of one, but the watchfulness and wisdom of millions are de- pended upon to see to it that all needs and legitimate desires are supplied. And what is the result? Except when the egotism and per- sonal ambitions of politicians clothed for the time with the power of government, interfere with and attempt to regulate this wonderful in- dividualistic system of production and distri- bution there always is enough of everything The System 25 each day at all of the world's numberless centers of supply. Capitalism is a plant of tender growth. It thrives only where the rights of property are recognized and respected, w T here stability of government exists and conservative thought prevails. Thievery, either private or public, whether it be called banditry, piracy, socialism, bolshevism or by any other name, is a preven- tive of capitalism, capitalists being unwilling to take the chance of their property being de- stroyed by insurrections, stolen by bandits or confiscated by the government, in addition to the business risk which always is present. Contrast the condition of the working peo- ple in China, where capitalism never has devel- oped beyond the primary stage, with that, of the wage earners in America. The Chinese have very little machinery, few tools and hardly any- thing in the way of modern transportation fa- cilities. Although they work hard, 12 to 14 hours daily, they are able to produce only a tri- fle more than the bare necessities of life. The Chinese cultivate the ground with pointed sticks, still weave about half of all the cloth used there on hand looms, saw boards 26 Capitalism vs. Bolshevism from logs with elbow-grease and lug the water supply of considerable cities long distances in preference to piping it. The gross average pro- duction of the Chinese workingman is only a trifle more than the average American work- ing man wastes. It is so small that the 10 to 25 cents a day they are paid when they work for wages constitutes no robbery. Yet the Chinese are noted for their indus- trious habits, and as hand workers they are highly efficient. The trouble is that they have neither domestic animals nor power machinery to help them increase their productive power. They are opposed to capitalism. Somebody has told them it would deprive them of employment and exploit them. Perhaps we shouldn't laugh at the silly ob- jection of the Chinese to machinery. As recent- ly as 50 years ago their white brothers in Eng- land and the United States were organizing strikes against the introduction of labor-saving machinery. Our socialists and single-taxers haven't anything on the Chinese either. The govern- ment of China confiscated the large land hold- ings and distributed them to the people 2,000 The System 27 years ago. It also loaned the farmers money at 2%. For once the Chinese rested. With plenty of land and money there was no occasion to work. As a result insufficient foodstuffs were raised to feed the people and they experi- enced a famine, hundreds of thousands dying of starvation. That particular famine was caused by social reform, not by nature — unless it was human nature. Now the Chinese are awakening. They have overthrown the old government and are discarding their old ideas. If their new gov- ernment takes an unqualifiedly firm stand on the right of the individual to own, acquire ac- cumulate and defend property, the industrial progress of China during the coming 50 years will be likely to astonish the world. What's the matter with Russia? Nothing, except that the people have been denied the benefits of capitalism. Before the great war 82% of all the Russians were engaged in agricultural pursuits. They raised compara- tively little for export. Of course they were il- literate. The children had to help their parents cultivate the ground with pointed sticks. The whole country didn't earn enough to pay for 28 Capitalism vs. Bolshevism education, or if it did, the people needed other things more than they did the ability to read, write and figure. No one will deny that the Russian people were "exploited" by the government; but it was a foolish exploitation. Capitalism would have increased the productive capacity of the Rus- sians seven-fold, given the people five times the amount they had been getting and returned ad- equate income to the government and big profits to capital. The capitalists of the world were afraid to establish industrial enterprises in Russia, because the revolution that now has come had been anticipated for many years. The pet indictment of capitalism in the United States is the slum. What is a slum? It is a place where Russians and the peoples of other misgoverned and backward countries con- gregate when they come here. The cheaply con- structed and crowded dwellings of the slums are more comfortable, cleaner and better ventilated than the sod huts from which such people emi- grated. To them the slum is promotion pro- gress. They save money, too, as is proved by the fact that 83% of all the deposits in the The System 29 postal savings banks of New York City belong to people of foreign birth. When the people come to understand capi- talism they will array themselves in its defence. They will insist that the government stop inter- fering with the business of individuals and at- tend to its own. Strikes and everything else that tend to restrict the country's yearly vol- ume of production will be made criminal offences. Property rights will be respected and defended. Chapter II CAPITAL (Capital: That portion of the produce of in- dustry which may be directly employed to support human beings or to assist in pro- duction.) Generally speaking, all of that great va- riety of things which primitive man by no pos- sibility could have possessed, and which all civilized peoples have come # to feel that they must have, are capital. The cave dwellers had nothing but a few crude weapons and implements and their own physical powers. Their descendants of today have productive machinery and conveyances driven by steam, electric and gasolene power, which spare muscle, save time and multiply man's productive capacity. Capital is the savings of past generations, to which the savings of the present generation are being added. It is that portion of the sur- Capital 31 plus product which has been saved and de- voted to the work of production and distribu- tion. Everybody has the privilege of spend- ing all of his income for self-gratification, for luxuries, comforts and entertainment, and for this reason those who save a portion of their income and use it to speed up industry, to raise the general standard of living and to strengthen the nation, are entitled to own it, and they also deserve great credit for having performed a valuable public service. Ships and railroad trains are capital. So long as they convey a man and his goods much more quickly, safely, satisfactorily and cheaply than he and his property possibly could be transferred by any other known method, he doesn't, or at least shouldn't, care who owns them. Textile mills and shoe factories are capital. If they supply a greater abundance of cloth and shoes, and enable us to purchase cloth and shoes at prices that represent smaller amounts of money than we can earn in the time it would take us to make them for ourselves, they cer- tainly benefit us to that extent. Foodstuffs, domestic animals, raw and 32 Capitalism vs. Bolshevism partly manufactured materials for further manufacturing, growing timber — to the ex- tent that it will sell for more than the cost of cutting, transportation and sawing — devel- oped waterpowers, ores, coal, oil and other use- ful earth products are capital, and also im- proved agricultural lands, farm buildings, farm machinery, fences, seeds, fruit-trees and vines. Education and all the acquired knowledge of scientific and effective methods of producing, manufacturing and distributing the necessary and desirable things of life are capital, and it was the use of capital that made them possible. Natural intelligence, practical knowledge, resourcefulness, ability to handle and direct men and to make effective plans and execute them, a good character, the habits of truthful- ness, reliability, industry and thrift, a disposi- tion to be just and fair, to avoid bitterness, jealousy and envy toward your fellows; these attributes and accomplishments constitute per- sonal capital and they bring prosperity as well as happiness to their possessors. Unimproved land and undeveloped natural resources, monuments, the Egyptian pyramids and a great variety of things which have little Capital 33 or no use value, including works of art, gems, jewelry, excessively costly residences and busi- ness structures, etc., more properly are denned as wealth. Factories and mines are fixed capi- tal and their products, ready for sale and use, are liquid capital. It is highly desirable that the existing sup- ply of capital be large and that it increase rapid- ly. Every individual should strive to acquire, save and accumulate capital. So far as the public welfare is concerned, however, it matters little whether the ownership of capital is con- centrated or widely diffused. All a billionaire gets out of his wealth is a living, such luxuries, pleasures and privileges as he may think it wise to indulge himself in, assurance that he will not be compelled to beg or starve and the satisfaction and pleasure that arise from the pride of ownership. He can't spend more than a small fraction of his income.' His wealth and at least 95% of its earnings, therefore, are devoted to the service of the public. If the profit on invested capital is large, then there is a greater amount of new capital to be invested each year. Big profits both in- 34 Capitalism vs. Bolshevism vite competition and supply the capital to finance the competition. Immediately following a period of exceptional prosperity for invested capital there invariably is a period of indus- trial construction, development and expansion. The power of capital over the lives of the people decreases as the amount per capita em- ployed in industrial occupations increases. Where the capital supply is insufficient the owners of what there is can demand their own terms of the public. They are in as strong a position relatively as wage earners were dur- ing the last year or two of the great war, when a shortage of labor enabled labor to dictate working conditions, hours and wages. Wage earners and consumers somehow or other have been taught to believe that "vast ag- gregations of capital are being built up which eventually will become strong enough to defy the people and dictate both wages and the prices of all living necessities." It would be as sen- sible to say that eventually there will be such an immense amount of rain that all vegetation will dry up and die of drouth. Owners of capital must employ it to get profits, interest and dividends. As the, supply Capital 35 of capital increases it competes for employ- ment and accepts lower and lower rates of in- come, just as an over-supply of labor leads to the acceptance of lower and lower wages by workingmen. If all the people of the United States could be made to understand the perfectly simple economic fact stated in the preceding para- graph they easily could make this country the paradise of the whole world before the end of another decade. By enacting laws that would make the owners of property feel secure in its possession and free from governmental attack and excess- ive taxation, by a protective tariff and an im- migration law that would keep both cheap labor and its products from coming in, the surplus investment capital of the whole world Would be attracted here. There soon would be a full, if not excessive, production of everything and wages not only would be high, but a day's pay eventually would buy nearly double the amount of the necessities and luxuries of life that it would anywhere else in the world. Such a condition would not result in over- production, followed by business stagnation 36 Capitalism -vs. Bolshevism with unemployment of labor and declining wages. This old theory of economics, though absolutely sound 50 years ago, no longer holds. How capitalism has corrected the old-time evil of periodic overproduction is told in another chapter. Chapter III OVERPRODUCTION In the early days of capitalism the one foremost and universal desire of peoples was to be supplied fully and at all times with the necessities of life. Previously human existence had occupied for the most part the narrow span between shortage and famine. There had been few comforts and fewer luxuries. Therefore capitalism at first was engaged almost exclu- sively with the work of producing and distrib- uting necessities. Introduction of power machinery into in- dustrial operations and the use of steam rail- roads for transportation released great num- bers of men from the more arduous occupations such as lifting, lugging, pulling, hauling and carrying. A much larger supply of labor and an immense increase in its productive capacity came at about the same time, therefore. Naturally an overproduction of necessities 38 Capitalism vs. Bolshevism soon resulted. Whenever more had been pro- duced than could be sold there was nothing else to do but discontinue producing. Cessation of operations, however, threw men out of employ- ment, cut off their wages and deprived them ot the ability to make purchases. Long periods of industrial depression fol- lowed, commonly spoken of half a century ago as "hard times. " They originated, almost in- variably in those earlier days, in overproduc- tion and were prolonged by "underconsump- tion. " Only two remedies for them were known — industrial expansion and war. Both of these reduced the ranks of those engaged in the production of necessities and, by providing employment and compensation for workers in another field, created a market for the surplus products. War not only used up materials, but killed off a portion of the labor supply and also consumed and destroyed capital. During "hard times" there was no en- couragement to expand industrially, overpro- duction itself being convincing evidence that more than sufficient productive capacity ex- isted already. Few if any capitalists ever favored war as a remedy for industrial depress- Overproduction 39 ion. Nearly all wars have been brought about by need of or desire for more territory, or by ambitious sovereigns whom the people entrusted with too much power. Formerly wars made, but in these days of capitalism they unmake monarchs. Prosperity, overproduction and then a long period of depression; prosperity, overproduc- tion and then more "hard times." These oc- curred in what came to be called cycles. No- body was able to suggest a feasible remedy. They were responsible largely for the rise and development of such doctrines as socialism and a single tax on land values. Labor organized to combat the introduction of labor-saving ma- chinery and on that issue there were thousands of strikes. The individual initiative, which capitalism encourages, solved the problem without know- ing it was going to do it, and for a quarter of a century past there has not been a single period of industrial depression in the United States that was due directly to overproduction. Overproduction and then depression, or overproduction and then war followed by a long period of prosperity, had come to be consid- 40 Capitalism vs. Bolshevism ered a sort of necessary process of economic law; but it was overthrown when capitalism finally evolved a substitute for war, something that withdrew an ever increasing army of men and women from the ranks of the necessity producers and compensated them liberally for serving in another field of activity. The substitute for war was play. Some 30 or 40 years ago luxuries, entertainments, comforts and conveniences began to be multi- plied with astonishing rapidity. The bicycle, the trolley line and then the gasolene launch and the automobile ; professional baseball, mov- ing pictures, phonographs; running water in the home with bath-tubs, illuminating gas and electric lights — all these and too many other things to enumerate, not necessities, because our forefathers had managed to get along very nicely without them — soon became matters of almost universal enjoyment. A large and steadily growing number of men and women, a sort of joy army, was pro- ducing, distributing and dispensing luxuries, comforts and conveniences. All of its products soon were brought within the reach of the wage earners. The men and women in the joy army Overproduction 41 no longer competed with the necessity pro- ducers, but they still were buyers and consum- ers of food, raiment and shelter. It was one of the wonderful triumphs of capitalism. Investment of capital and reinvest- ment of profits, interest and savings had raised the standard of living of a great people to a higher level than the most imaginative ever had dreamed possible. Power machinery had so greatly increased the productive capacity of industry that these additional blessings could be provided, and not alone the owners of the machinery, but the whole people were enjoy- ing the benefits. At last capitalism had reached a position of almost perfect balance. Continuous pros- perity had become a reality. It was no longer possible to bring forward a logical economic argument against industrial expansion or in favor of war. A large volume of production would not bring industrial stagnation, but would enable the people to enjoy more luxu- ries and pleasures. Overproduction had ceased to be a bugaboo. All of the panics and industrial depressions that occurred during the following 25 years 42 Capitalism vs. Bolshevism were due to political interference with business, to ill-considered legislation and ill-advised ac- tivities of labor organizations. Chapter IV WAR LESSONS The great war has taught us that when the demand for anything exceeds the supply — when more is needed than is being produced — we either must pay high enough prices to en- courage an increase of production or fail to have our wants supplied. This is something the people of America had forgotten, because for more than a genera- tion before the war capitalism had provided constantly a relative abundance of all the de- sirable products. Therefore the people had be- come accustomed to believe that there could be no such thing as a shortage, except as a result of "deliberate connivance on the part of the trusts." The war also demonstrated forcefully that the law of demand and supply can exert a pow- erful influence on wages. There was a decrease 44 Capitalism vs. Bolshevism in the supply of workmen and an enormous in- crease in the demand for them and wages ad- vanced in all parts of the country, the rise be- ing greater in some trades that were not or- ganized than in others that were. Again, the war demonstrated that the prices of everything and the cost of living al- ways must go up with wages. Even fixed prices, those fixed by custom as well as those fixed by government decree, had to be raised to keep step with advancing wages. Railroad and trolley fares, freight rates, gas, electricity, and even the daily newspaper advanced in price. Although the wages of newspaper employees rose comparatively little a portion of the increase in the pay of pulpwood cutters, of paper, ink and printers' roll makers, of coal, lead and antimony miners, and of the workers in a great variety of other industries, had to be paid by the newspapers, and their publication costs doubled. There is some difference of opinion as to whether advances in wages, shortage of sup- plies, governmental intermeddling with labor and business or the tremendous addition to the volume of paper money previously in cir- War Lessons 45 culation was chiefly responsible for the aston- ishing increase in the cost of living. It is cer- tain that all four contributed their generous share. Ample evidence was supplied by the war that governments, powerful as they always think themselves to be, cannot pay their ex- penses with the product of a printing press without bringing about a disarrangement of prices and values that eventually will cost un- told billions in business and financial hesitancy, delayed industrial progress and unemployment of labor. The war must have convinced all the peo- ple that rich men and their sons are made of human clay, that they are every bit as patriotic and self-sacrificing as those having less capi- tal, that they always can be depended upon in time of emergency to give up their money and fight bravely for their country. Their devotion, their sacrifices, their support of the several war charities — also the more recently published lists of names of those to whom evidence points as having been beneficiaries of the secret Ger- man slush-fund — prove that many of the agi- tators and editors of the yellow press knew 46 Capitalism vs. Bolshevism that they were not telling the truth when they said it was a capitalist war. The war must have made clear to every- body the value to the nation of the privately owned capital of its citizens and also of our much maligned "capitalistic industrialism." Unquestionably the privately owned mines, mills, factories, railroads and ships of France, England and the United States made possible the winning of the war, just as the lack of capitalistic development rendered Russia help- less the moment her accumulated stocks of am- munition were exhausted. With the relatively small amount of pow- er machinery at their disposal Russia's 180,- 000,000 people were unable to feed and supply an army of 10,000,000 in the field even though fighting on their own soil. If the war had gone on three years longer the ability of the United States to place an army of 10,000,000 in Europe and supply it there would have been demonstrated. How many soldiers and sailors this coun- try did feed and munition never will be known ; but it is certain that without the food, ammu- nition and other supplies which were produced War Lessons 47 here and exported, Germany would have con- quered France and probably England too, long prior to the date on which the United States en- tered the war. Capital in use and the wonderfully effec- tive organizations created by capitalism en- abled the United" States to finance its own par- ticipation in the war and meanwhile extend billions of credit to its allies, to provide for its own people and army while it was supply- ing the deficiencies of the several other na- tions that were dependent upon it in part for materials with which to continue their fight against German autocracy. Lack of capitalistic development was re- sponsible for Russia's failure. German prop- aganda and intrigue did not weaken the gov- ernment or the military forces until after the defeat of the Russian army was practically complete. Russia didn't have the industrial or- ganizations and machinery to equip and muni- tion an army, the credit or the taxpaying abil- ity to finance a war. Statistics prove this con- clusively. Of Russia's vast population 82 1-2% were engaged in agricultural pursuits prior to 48 Capitalism vs. Bolshevism the war. This indicates that the average Rus- sian farmer was able to produce only 25% more than enough to feed himself and family. By comparison, only 32% of the people of the United States were on farms, indicating that the average American farmer was able to raise enough to feed his own and two other families. The difference wasn't due to the' amount of work done or the fertility of the soil ; but to the fact that Americans are able to employ the most modern machinery and cultivate a very large acreage per man, while the Russian peas- ant is limited almost to a spade and a picked stick. Our own academic bolshevists reply to this with the statement that the Russians were "ex- ploited," that they were denied educational facilities in order that this exploitation might be continued unrestrained. The truth is that the Russians did not produce enough surplus capital to pay the cost of an educational sys- tem such as is supported by the taxpayers of America. Russia's middle-class constituted only 5% of her people. Let it be admitted that the Russian people were "robbed ;" but it must War Lessons 49 be as plain as day that the robbers got hardly- enough to make the robbery worth while. What did the "robbers" of the Russian people do with their booty? Presumably they exported it and invested the money abroad. The gross value of Russia's exports for the year 1912 was $782,181,000, or a fraction less than $4.35 per capita. For the same year the value of United States exports was $2,362,696,- 056, or $23.62 per capita. Russia's imports for the same year were valued at $603,463,000 and those of the United States at $1,812,978,000. Apparently what little capitalism there was in Russia was required to enable the people to keep alive. The surplus produced was barely enough for safety, far less than sufficient to pay for education and capitalistic industrial ad- vancement. The foregoing figures spell the doom of the bolshevik government of Russia. That country hasn't the productive capacity, with its people obliged to labor as they do almost with their bare hands, to provide itself with modern in- dustrial equipment. It must borrow capital, and under bolshevism this is impossible, be- cause the bolshevists have confiscated all the 50 Capitalism vs. Bolshevism property of the rich and middle classes, and nobody will lend money to an avowed thief. The real proof of a nation's greatness is its ability to add constantly and substantially to its industrial strength, to provide its people employment and enable them to raise their standard of living from year to year. In Rus- sia the standard of living has been practically unchanged for 50 years. Perhaps the most important thing the war has demonstrated is the fact that absolute na- tional safety is dependent upon the ability of a nation to supply all the needs of its people and to munition its armies in time of war. No other great country in the world was in as good a position to do this as the United States, even Germany being a bad second. Chapter V A PROTECTIVE TARIFF Practically every organized nation in the tvorld collects tariff duties on a portion of its imports. All but a very few of them use the tariff as a means of giving encouragement to home industries, levying higher rates on goods that are or can be produced by their own peo- ple. The industries of the United States have been built up under protective tariff laws. It is partly as a result of this that wages are higher and living conditions better here than in any other country. The rapid accumula- tion of capital, the disposition of investors to reinvest their income at home, and the mag- nificent industrial development resulting, are to no small degree due to our national protec- tive tariff policy. The world war made it plain to every- 52 Capitalism vs. Bolshevism \ body that ability to produce all of the prime necessities of life and of warfare is essential to national independence. Germany's won- derfully complete industrial organization, created under a scientifically administered sys- tem of protective tariffs, enabled her to sup- port her enormous population and carry on the war for four years during which period she obtained hardly any supplies from out- side. Free trade Britain found herself depen- dent upon other countries for food and a very long list of essentials from the outset, and only by keeping the lanes of shipping open was she able to continue in the war. The country which is equipped to supply the ordinary requirements of its people from the farms, mines, mills and factories within its own borders is independent. It is not ren- dered helpless when revolutions occur in, or wars break out between, foreign countries, and it is able to provide for its own population and defend itself whenever it becomes involved in an international controversy. At such times it is neither obliged to depend upon ships nor to draw heavily upon its own capital supply to establish new industries. Foreigners are A Protective Tariff 53 not in a position to regulate the compensation or wages of its employers or employees. Almost all academic economists are free traders. The reason for this surprising phe- nomenon has been sought and found. They give no thought to the law of demand and sup- ply in its broader aspect when theorising upon the subject of international trade. Economists reason it out that as sugar can be produced more cheaply from cane in Cuba and other tropical islands than from beets in California, Colorado or Utah, the peo- ple of the United States should obtain their sugar from the lands where cane grows, get it more cheaply and benefit by the difference in price. Apparently it never has occurred to them that if the manufacture of beet sugar were to be discontinued there would be a con- stant world shortage and that the fluctuating output would cause prices to average at least 50