The Next Step - A Plan for Economic World Federation
by Scott Nearing
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A Plan for Economic World Federation



Author of The American Empire

Ridgewood, New Jersey Nellie Seeds Nearing 1922

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By the same author








WOMEN AND SOCIAL PROGRESS. (Collaboration with Nellie Nearing)





COMMUNITY CIVICS. (Collaboration with Jessie Field)




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Copyright, 1922 All Rights Reserved

Printed in the United States of America

This book is dedicated to the task of emancipating the human race from economic servitude

"The community needs service first, regardless of who gets the profits, because its life depends on the service it gets."

"Organizing for Work."


"It is not common language, literature and tradition alone, nor yet clearly defined or strategic frontiers, that will in the future give stability to the boundary lines of Europe, but rather such distribution of its supplies of coal and iron as will prevent any of the great nations of Europe becoming strong enough to dominate or absorb all the others."

"The Economic Basis of an Enduring Peace."


"Men cannot exist in their present numbers on the earth without world co-operation."

"Our Social Heritage."


"The real way, surely, in which to organize the interests of producers is by working out a delimitation of industry, and confiding the care of its problems to those most concerned with them. This is, in fact, a kind of federalism in which the powers represented are not areas but functions."

"Foundations of Sovereignty."



Men progress in proportion as they are able to fit themselves for life, and to fit life to themselves. Both processes go on unceasingly.

Recent economic changes have brought the remotest parts of the world into close contact with "civilization" at the same time that they have increased the dependence of one part of the world upon another part. Oddly enough, this interdependence has been intensified under a system of society that deified competition. The conflicts, inevitably resulting from such a contradiction, have taken a terrible toll in life and well-being, and have left Europe in chaos.

The successful organization of the life of the world is impossible without the organization of its economic affairs. For the present plan of competition between groups, classes and nations there must be substituted a means of co-operative living. The organization of a producers society will provide that means. Local initiative must be preserved; self-government in economic affairs must be assured, and the economic activities of the world must be federated in such a way that all economic problems of world concern will be brought under some central authority which is representative of the various interests involved at the same time that it controls the disposition of economic life. A world parliament composed of representatives elected by the workers in the various producing groups would provide such a central authority, and would furnish the means of directing the economic experiments of the race.

Economic emancipation is the objective. The means for its attainment is a society organized in terms of producers groups, and living in accordance with the highest known standards of intelligent social direction.



1. A World Economic Program



2. World Economic Organization





3. Economic Progress





CHAPTER I. THE NEW ECONOMIC LIFE 13 1. The Historic Present. 2. Economic Needs. 3. Worldizing Economic Activity. 4. The Basis of a World Program. 5. The League of Nations Failure. 6. Axioms of Economic Reorganization.

CHAPTER II. THE ECONOMIC MUDDLE 28 1. Bankruptcy and Chaos. 2. Localized Problems. 3. World Problems. 4. Competition for Economic Advantage. 5. Distribution of the World's Wealth. 6. The Livelihood Struggle. 7. Guaranteeing Livelihood. 8. Distribution and the Social Revolution. 9. A New Order. 10. The Basis of World Reconstruction.

CHAPTER III. ECONOMIC FOUNDATIONS 51 1. The Social Structure. 2. Specialization, Association, Co-operation. 3. Three Lines of Economic Organization. 4. Economic Forms. 5. Limitations on Capitalism. 6. The Growth of Capitalism. 7. Effective Economic Units. 8. Classes of Economic Units. 9. The Ideal and the Real.

CHAPTER IV. ECONOMIC SELF-GOVERNMENT 76 1. Maximum Advantage. 2. The Essentials for Maximum Returns. 3. Centralized Authority. 4. An Ideal Economic Unit. 5. Rewarding Energy. 6. The Ownership of the Economic Machinery. 7. Economic Leadership. 8. The Selection of Leaders. 9. The Detail of Organization. 10. The Progress of Self-Government.

CHAPTER V. A WORLD PRODUCERS' FEDERATION 100 1. World Outlook. 2. The Need of Organization. 3. Present-day Economic Authority. 4. Federation as a Way Out. 5. Building a Producers' Federation. 6. Four Groups of Federations. 7. The Form of Organization. 8. All Power to the Producers!

CHAPTER VI. WORLD ADMINISTRATION 119 1. The Basis for World Administration. 2. The Field of World Administration. 3. Five World Problems. 4. Work of the Administrative Boards. 5. The Resources and Raw Materials Board. 6. The Transport and Communication Board. 7. The Exchange, Credit and Investment Board. 8. The Budget Board. 9. The Adjudication of Disputes Board. 10. The Detail of World Administration.

CHAPTER VII. TRIAL AND ERROR IN ECONOMIC ORGANIZATION 135 1. Trying Things Out. 2. The Capitalist Experiment. 3. The Cost of Experience. 4. Education. 5. Pacing the Future. 6. Accumulating Social Knowledge. 7. Conscious Social Improvement. 8. The Barriers to Progress. 9. Next Steps. 10. The Success Qualities.

CHAPTER VIII. ECONOMIC LIBERATION 151 1. Why Organize? 2. Freedom from Primitive Struggle. 3. Freedom from Servility. 4. Wisdom in Consumption. 5. Leisure for Effective Expression. 6. Culture and Human Aspiration.




1. The Historic Present

The knell of a dying order is tolling. Its keynote is despair. Gaunt hunger pulls at the bell-rope, while dazed humanity listens, bewildered and afraid.

Uncertainty and a sense of futility have gripped the world. They are manifesting themselves in unrest, disillusionment, the abandonment of ideals, opportunism, and a tragic concentration on the life of the moment, which alone seems sure. The future promises so little that even the most hopeful pause on its threshold, hesitant, and scarce daring to penetrate its mystery.

The war showed the impotence of the present order to assure even a reasonable measure of human happiness and well-being. Of what profit the material benefits of a civilization that takes a toll of thirty-five millions of lives and that wrecks the economic machinery of a continent in four short years? Yet the failure of the revolutionary forces to avail themselves of the opportunity presented by the war proved the unreadiness of the masses to throw off the yoke of the old regime and to lay the foundations of a new order. The world rulers painted a picture of liberated humanity that led tens of millions to fight with the assurance that victory would make that hope a reality. The workers yearned for the social revolution and for the establishment of the co-operative commonwealth with its promise of equality and fraternity. But the events that staggered the world between 1914 and 1920 shattered both ideals.

Now that the terrible conflict has ceased, we pause and reflect. Millions are weary, millions are old, millions are broken, millions are disappointed, and the weary ones, the old ones, the broken ones and the disappointed ones have lost their vision and have abandoned their faith. Yet life sweeps on—its unity unimpaired, its continuity unbroken, its force unchecked, its vigor unabated. Multitudes have been born since the end of the Great War, and other multitudes, who were babes in arms when the Great War began, are growing into young manhood and womanhood. The war, with its hardships and its fearful losses, is history. The present, merging endlessly with the future, makes of each day a to-morrow in which hundreds of millions of those who now inhabit the earth will live.


That is the question which the world to-day faces. The answer is in our hands.

2. Economic Needs

Humanity has always been face to face with the bread and butter problem because people must have food and clothing and a roof over their heads or pay the penalty in physical suffering. Under the present world order, for lack of these simple economic requirements, millions of poverty-stricken workers perish each year, of slow starvation and exposure in Paris, London, Chicago, Tokyo; of famine in China, Egypt and India.

Some issues present themselves for consideration only occasionally. The demand for economic necessaries each day recurs with tireless insistence in the life of every individual. Men have learned this fact through frightful experiences, and they look forward with hope or with dread to the comfort of plenty or to the disaster of want. So effectually have these forces entered into everyday life that they color all aspects of human existence, and people continually think and act in terms of economic hardship or of economic well-being. This simple fact of economic determinism—the influence of the livelihood struggle upon the conduct of individuals and of societies—plays a fateful part in shaping both biography and history.

The economic issues before primitive society were comparatively simple ones. The producer—the hunter, herder, farmer—snared his game and cooked it, tended his goats and lived on their milk and flesh, planted and reaped his crops, and used them to sustain life. Later, the baker, the saddler, the tailor and the carpenter spent their energies in producing the articles of their trade and in disposing of them. The herdsman could live on his hills, the farmer in his valleys and the artisans in their towns, content and at peace with the remainder of the world, neither knowing nor caring what was happening to their fellow dwellers on the planet. Confined within its narrow bounds, primitive thought was as local as primitive life.

But such isolation is no longer possible. The currents of economic life, like most other phases of human activity, have swept beyond the local forests, the grass lands, the tilled fields, the oven and the carpenter's bench, and gaining momentum in their ever-widening course, they have circled the world.

3. Worldizing Economic Activity

The past hundred years have witnessed a speedy worldizing of human affairs built upon a transformation in the ways of making a living. These changes have been effected by the industrial revolution, which, toward the end of the eighteenth century began to make itself felt in Great Britain. Its influence spread over Europe, America and Australia during the last three-quarters of the nineteenth century, but it did not reach Japan until 1860. Almost within the memory of the present generation, therefore, the scope of trade, manufacture and finance, the search for markets, the organization and unification of labor and of popular thinking about economic problems, have passed from a local into a world field.

The inventions and discoveries which were the immediate cause of the industrial revolution succeeded one another with a bewildering rapidity that is well illustrated in the case of communication. The steamboat, first made practicable in 1807, and the locomotive, invented about 1815, provided the means of rapid transportation of goods, people and messages. The power press (1814) and the manufacture of paper from wood-pulp (begun in 1854) made possible cheap and abundant reading matter. The telegraph, invented about 1837, laid the basis for instantaneous communication. The first trans-Atlantic cable (1858) annihilated the water barrier to thought. The telephone (1876) and the wireless (1896) brought the more remote parts of each country and of the world within easy reach of the centers of civilization, while the radio-phone (1921) enables millions to sit around a common table for thought, instruction or enjoyment. The camera (1802) supplemented by the moving picture process (1890) has enabled those who do not read to secure information that was formerly reserved for the learned and the cultured. Thus steam, electricity, and a number of other discoveries and inventions in the realm of natural science have brought the minds of the world in as close touch as were the inhabitants of a fifteenth century Italian city.

The effects of industrialism date only from history's yesterday, yet its results have already been momentous and far-reaching. This is particularly true of the close dependence of industries upon supplies of raw materials and fuels, of the volume and the variety of the goods produced and transported, of the speed with which communications are sent, of the widened opportunities for travel, and of the immense amount of information on the printed page and the film that goes, each day, from one part of the world to another.

Nature has not scattered coal, iron, copper and sugarland over the earth in the same lavish way that she has distributed air and sunshine. On the contrary, the important resources from which industry derives its raw materials and its fuels are found within very limited areas to which the remainder of the world must go for the commodities that supply its basic industries.

Within each country raw materials are produced at one point and shipped elsewhere. Ore, coal, grain and meat-animals make up the bulk of the freight tonnage in Europe, in America and in Australia. A similar economic relation exists between the various countries, some of which produce far more than their proportionate share of minerals and fuels. Thus, in 1913, the United States, with but 7 per cent of the world's population, produced 36 per cent and consumed 37 per cent of the world's iron ore supply. The figures for the other important nations were: ("World Atlas of Commercial Geology," Dept. of the Interior, Washington, 1921, p. 27)

Per Cent Per Cent Produced Consumed

Germany 20 27 Britain 9 14 France 12 7 Russia 5 5 Belgium 0 4 Spain 6 1

Only in France and Spain did production exceed consumption. Four of the remaining countries used more iron ore than they produced, which meant that they were forced to depend upon some other country for their supply. Belgium, with her many industries, imported practically all of the iron ore that she used.

Coal furnishes an even more striking illustration of the economic dependence of one part of the world upon another. The production and consumption of coal, for 1913, in millions of tons, were as follows:

Tons Tons Produced Consumed United States 517 495 Britain 292 217 Germany 191 167 France 40 60 Italy 1 10 Austria-Hungary 17 30

The United States, Britain and Germany produced, in this one year, 121 millions of tons of coal that were either stored or exported. France, Italy and Austria, together with many of the smaller industrial countries of Europe were forced to depend upon their neighbors for coal. In the case of Italy, practically all of the coal used was imported.

Again, the United States and Spain are alone among the principal countries producing a surplus of copper. Out of a consumption (1913) of 127,000 tons, Britain imported 126,572; France imported 91,437 of the 91,486 tons consumed, and Germany, out of 259,300 tons consumed, imported 234,000 tons.

These figures of the production and consumption of iron, coal and copper tell the story of an economic interdependence that makes isolated industrial life virtually impossible. Manufacturing and transport depend for their maintenance upon minerals and fuels, and those countries that propose to manufacture and to transport must either produce minerals themselves or depend upon some other country that does produce them. In practice, a few countries are enabled to produce more of the minerals and fuels than they themselves use, and to sell the surplus to their needy neighbors.

With the spread of the industrial system, this dependence will increase rather than diminish because of the way in which the reserve supplies of minerals and fuels are distributed. The principal deposits of iron, coal, copper and petroleum are apparently in the Western Hemisphere, and particularly in North America. In so far as this is true, the remainder of the world will be compelled to look to the Americas for these basic commodities. Out of a total world product of iron ore (1913) of 177 millions of tons, the United States produced 63 millions (over a third) because that country is far better supplied with available iron ore deposits than is any other country. Since the war, France holds the second largest deposits, but the third largest are in Newfoundland, the fourth largest in Cuba, and the fifth largest in Brazil, whose "enormous deposits are almost untouched" ("Atlas," p. 26). As for coal, about three-fourths of the world's known reserves are in North America. The largest known reserves of copper are in North and South America—those of Canada and Mexico are comparatively important; those of Chili probably greater than any other country except the United States. Petroleum is also highly localized. Between 1857 and 1918 the world's production of petroleum was 1,005 millions of tons. Of this total, three-fifths came from the United States, while seventeen-twentieths came from the United States and Russia. Indeed, resources are limited and localized to such a point that the economic survival of many parts of the industrial world depends upon the continued importation of raw materials from other countries or from other continents.

This localization of resources has resulted in a corresponding localization of many of the basic industries. Germany thus became a manufacturing center and Argentina a producer of food. Necessarily these two countries exchange their products, the Germans eating Argentinian wheat reaped by German machinery. So complete has this specialization become, that industrial communities, and even industrial countries, like Britain and Germany, have ceased to produce sufficient food for their maintenance, and have relied, instead, on the American, African and Australian grain fields.[1]

In order to buy wheat, these countries must sell manufactured goods. In order to manufacture, they are compelled to import the raw materials and fuels—cotton, copper, rubber, petroleum, coal, iron. The countries with highly developed industries have therefore ceased to be self-sufficient. Their whole economic life has become a part and parcel of the life of the world.

This world interdependence is reflected in the growth of world commerce from a total value of 1,659 millions of dollars in 1820, 4,049 millions in 1850, and 20,105 millions in 1900, to 75,311 millions in 1919. Meanwhile, the nominal tonnage of steam and sailing vessels increased from 5.8 millions of tons in 1820 to 12.3 millions of tons in 1850, to 20.5 millions in 1900, and to 32.2 millions in 1919.

Resources are sought after, raw materials are transported and manufactured into usable products, manufactured products are exchanged for food and raw materials, and the cycle is thus completed. In its course, all of the principal countries and all of the continents are drawn upon for the means of maintaining economic life.

While the industrial revolution broke the spell of isolation that lay so heavily upon the remote parts of the world, the driving power of the economic forces that followed in its wake, has battered down the geographic barriers that separate men, almost to the vanishing point. Peoples work together, exchange the products of their labor, travel, accumulate and spread news, broadcast ideas and organize and co-ordinate business ventures and labor unions, without any great consideration for geography, and despite the political boundary lines that separate nations. A century of rapid economic development has brought the world into a physical unity the like of which it has never before experienced.

Through the ages, human brotherhood has been the theme of philosophers and poets. Recent economic changes have established a world fellowship, not, to be sure, of the kind about which utopists had dreamed, but one growing out of the exigencies of world interdependence.

Tens of millions are to-day co-operating in production and exchange, not because of any sweet reasonableness but because the pre-emptory demands of existence leave them no choice. Of necessity, therefore, since they are in constant touch with one another, they begin to learn one another's little ways; to inquire into the personalities of the "foreigners" that pass them on the street, work with them elbow to elbow in the shops, and eat with them at the same restaurant tables. This new brotherhood is an outgrowth of day-to-day relations in an industrial community.

Old time questions were of a kind that divided men. "Are you a Christian?" "Where were you born?" "Can you speak Spanish?" No matter how a man answered these questions he got himself into difficulty. If he was a Christian, he found two-thirds of the world confronting him with different religious beliefs. If he was born in France, he was compelled to assume all of the enmities, hatreds and antagonisms felt by Frenchmen for their rivals. If he spoke anything except Spanish, he was a "foreigner" in Spain. The old world was a separatist world, lined with walls, fences, boundary stakes and frontiers.

Modern questions bring men into touch with one another. "Can you repair a locomotive?" "Do you understand coal mining?" "Can you carry us safely to Japan?" "Will you take shoes in exchange for petroleum?" "Are you able to get along with people?" "Have you any surplus wheat?" "How do you suppose we can get rid of the boll-weevil?" "Let us show you a new style tractor." If a man can repair an engine, he is wanted in an engine shop. If he can dig coal, he is needed in a coal mine. If he has shoes to exchange for fuel, he finds a ready customer. If he can get along with an odd assortment of his fellows, he is in demand everywhere. The new world is a co-operative world in which people are working together, living together, thinking together; and a test of man's capacity to take part in its activities lies in his ability to be an effective, co-operating member of a world group.

[Footnote 1: Before the war Great Britain imported about half of her food. By 1920 she was importing about three-quarters of it. On the basis of the 1919-1920 harvests, British wheat sufficed for less than a third of the British population. See "The Fruits of Victory," Norman Angell, Glasgow. Collins, 1921, p. 9.]

4. The Basis of a World Program

With economic life established on a world scale, it is inevitable that the range of men's thoughts and the lines of their social groupings should assume the same general scope. The late war made it quite apparent that war means world war, and that a real peace is impossible unless it is a world peace. The post-war experience has shown with equal clearness, that prosperity means world prosperity, and that it is impossible to destroy the economic well-being of an integral part of the world without destroying the well-being of the whole world. These things were suspected before the war, when they formed the themes of moral dissertations and scholarly essays, of syndicalist pamphlets, socialist programs and revolutionary appeals. But it required the hard knocks of the past eight years to lift them so far out of the realm of theory into that of reality, that any thinking human being who faces the facts must admit their truth.[2]

The economics of the modern world make it inevitable that thinkers on public questions, particularly on economic questions, should frame their thoughts in world terms, and that the practical plans for the organization and direction of human affairs should be built around an idea which includes these three elements:

1. Any workable plan for the organization of the world must have an economic foundation.

2. Such a plan must include all of the economically essential portions of the world. It will be ineffective if it is confined to any one nation, to any one group of nations, or to any one continent.

3. Such a plan must rely, for its fulfillment, on world thinking and world organization.

These propositions do not imply that economic forces and world organization must become the centers of exclusive attention. There are potent forces, other than economic ones, and there are forms of local organization that must be developed or perpetuated as a matter of course. But for the moment the economic forces and the world phases of organization have assumed a position of primary importance.

[Footnote 2: The Manchester Guardian Commercial, Supplement for April 20, 1922, page IV, carries an advertisement signed by Sir Charles W. Macara, Chairman and Managing Director of Henry Bannerman and Sons, Ltd., Chairman of the Manchester Cotton Employers Association, etc., which contains a very forceful presentation of this point. "It is impossible for any country to expect to win economic success at the expense or in total indifference to the success of others.... The good of one country is bound up with the good of another, and it is only by studying what will be mutually advantageous that we shall find the key to our good fortune.... The whole world is interdependent, and you cannot injure one member of the international body without injuring all the rest."]

5. The League of Nations Failure

The principal scheme recently advanced as a means of co-ordinating the life of the world—the League of Nations Covenant—violates all three of these essential principles. In the first place, the League Covenant, with certain minor exceptions, is a political and not an economic document, devoting its attention to territorial integrity and the preservation of sovereignty, and passing over such economic problems as resource control, and the competition for raw materials, markets and investment opportunities as though they were non-existent. In the second place instead of concerning itself with all of the integral parts of the world, it treats nations other than the "big five" (Britain, France, Italy, Japan and the United States) as though they were of second or of third rate importance. China, India, Germany, Russia and Latin America, with considerably more than half of the world's population, and with at least half of the world's essential resources, were slighted or ignored. In the third place, the League Covenant is not based on world thinking. On the contrary, it was designed to set up one part of the world, the victorious Allies, against four other parts of the world: the enemy countries, Soviet Russia, the undeveloped (unexploited) countries, and the small and powerless countries. Political, sectional and provincial in its point of view, the League, as a means of world organization, was destined, from its inception, to pathetic failure. World economic life is an established fact of such moment that it must be reckoned with in any scheme for social rebuilding.

A capacity for organization and for conscious improvement distinguishes man from most of the animals. In the past, men have organized the army, the church, the city, the nation, the school. The events surrounding the industrial revolution have placed a new task on their shoulders—the task of organizing world economic life.

Without doubt this is the largest and the most intricate problem in organization that the human race has ever faced. On the other hand, the interdependence of economic life invites co-ordination, while the advances in organization methods, particularly among the masses of the people, render the transition from local to world organization quite logical and relatively easy—far easier, certainly, than the first hesitating steps that the race took in the direction of co-operative activities. Even though the task were far more difficult than it is, the race must perform it or pay an immense price in hardship, suffering and decimation.

The work is already begun. Private capitalists have built world systems of trade, transport and banking. Soviet Russia has made an heroic attempt to organize one portion of the earth's surface along economic lines. For the most part, however, the task of co-ordinating the world's economic life awaits the courage and the genius of a generation that shall add this triumph to the achievements of the race.

6. Axioms of Economic Reorganization

Certain well-defined and widely understood principles, that might almost be called axioms of social procedure, are to be reckoned with in any effort at world economic reorganization. For convenience of discussion, they may be summarized thus:

1. The wheels of industry must be kept turning smoothly, regularly and efficiently.

A country like Russia, consisting, for the most part of agricultural villages, can survive, even though machine industries practically cease to function, while such countries as Germany and Britain, built of Bremens, Hamburgs, Essens, Glasgows and Manchesters are dependent for their food supply as well as for their supply of raw materials upon the continued production and transport of commodities. The State of Rhode Island, with its 97.5 per cent of city and town dwellers, typifies this dependence. Given such concentrated populations engaged in specialized industries, and the cessation of production means speedy starvation for those that cannot migrate.

2. Provision must be made for improvements and betterments.

The increase of population and the normal advances in science and industry both demand a volume of product adequate to cover the necessary increases in equipment.

3. The people who do the work must dispose of the products they turn out.

They may consume them all, or they may reserve a portion of them for new roads, for additional rolling stock, for the advancement of art and learning. Whatever the character of the decision, the right and power to make it rests with those who produce the goods of which a disposition is being made.

4. Justice and fair dealing must be embodied in the scheme of production and distribution.

This does not mean absolute justice, but as much justice as the collective intelligence and will of the community are able to put into force. For the attainment of such a result, the forms of social life must be constantly altered to keep pace with economic change.

5. The foregoing principles must apply, not to one man, or class, or people, but to all men, all classes and all peoples.

Recent events have shown that an injury to one is an injury to all. Reasoning, foresight and experience will convince the people of the world that a benefit to one is a benefit to all. While men continue to live together, their livelihood problems must be thought about collectively, and the solutions that are determined upon must be applied to all, without discrimination.

How shall such results be obtained? By what means is it possible to lead men to a world vision? Who can persuade them to work toward the building of a sounder society than that with which the world is now laboring?

Of all the issues that confront the teachers of men, this is one of the most pressing and most insistent. Those who have taken upon themselves the task of seeking out and of expounding ideas have seldom faced a graver responsibility than that with which they are at the moment confronted. World facts demand world thoughts and world acts, before the human race can adopt saner, wiser and more enlightened economic policies. World thoughts and acts are impossible without world understanding. Therefore it is world understanding that is most imperatively needed in this critical hour.

The people of the world have many things in common—economic interests, science, art, ideas, ideals. Ranged against these common interests there are the traditions, prejudices, hatreds, national barriers, sectarian differences, language obstacles and racial conflicts that have proved so effective in keeping the peoples separated. The common interests are the vital means of social advancement, and it is upon them that the emphasis of constructive thinking must be laid in an effort to promote world understanding.

There is no need to apologize, then, for adding to groaning library shelves a book dealing with world economics, the purpose of which is to propose a plan that will pull together the scattered threads of world economic life. The time is so ripe for an examination of these problems that no man may consider himself informed who has not pondered them deeply, and no man may consider that he has done his duty as a member of this generation, who has not helped, at least in some degree, to unify the world's economic activities. Most particularly does this apply both to the statesmen and other public men who are striving to rejuvenate a dying order, and to the organizers and leaders of the new order that is even now pressing across the threshold of the western world.


1. Bankruptcy and Chaos

World economic affairs are in a muddle. Famine has gripped Central Europe since 1918; unemployment is rife in Japan, Argentina, Britain, and the United States; business depression is felt in all of the principal industrial countries; producer and consumer alike find the world's economic machinery sadly out of gear.

There have been innumerable predictions of "better times ahead," but among those who are closely connected with industry, there is serious concern over the future of the present economic system, while a formidable array of students and investigators agree with Bass and Moulton that: "It is not at all beyond the bounds of possibility that all of continental Europe might in the course of the next twenty-five years, or even sooner, go the way that Russia has already gone. It would not necessarily be through the instrumentality of Bolshevism; it might easily go in the Austrian way." ("America and the Balance Sheet of Europe." New York. Ronald Press. 1921. p. 138-9.)

The cause for such gloomy utterances may be found in those superficial indications of chaos such as the breakdown of exchange and of international trade; the severe business depression; the waste and inefficiency of industry; the prevalence of unrest and sabotage, and the preparations for future wars.

Traditionally, the old institutions still exist and are cherished by those who believe that they will be rehabilitated and re-established. But as the months succeed one another and lengthen into years, without any evidence that "things will right themselves as soon as the war is over," it becomes increasingly apparent, even to the conservative that the situation is far from what they had promised themselves it would be. Europe's day-to-day experience between 1919 and 1922 has convinced millions that some disaster impends. For the most part, however, they fail to realize that the "disaster" is already upon them.

The disorganization of the world's financial structure, following on the drains of the war and the debauches and exactions of the peace, has been the object of much comment, with the emphasis laid on the aspects rather than on the essential characteristics of the breakdown.

One of the basic assumptions of the present economic order is that promises to pay must be redeemed at par. Failing in this redemption, the promisor is declared bankrupt, and beyond the pale of reputable business society.

During the past eight years, most of the leading countries of Europe have become bankrupt. Before the World War, the sixteen principal belligerents had total debts of 28,660 millions of dollars, with a total note circulation of 5,000 millions, making a total of promises to pay amounting to something more than 33 billions of dollars. When the Treaty of Paris was signed, these sixteen countries reported debts of 171,633 millions of dollars and paper money issues of 77,954 millions, making a total of promises to pay about eight times the volume of 1913. Since the signing of the Treaty, most of the European countries, belligerents and neutrals alike, have continued to pile up obligations. According to the estimates of O.P. Austin, of the National City Bank of New York, world indebtedness was 43 billions of dollars in 1913, 205 billions in 1918 and 400 billions in 1921. ("Our Eleven Billions," R. Mountsier. Seltzer. 1922. p. 43.) A point has now been reached where the French, Russian, Italian, German, Austrian and Hungarian debts are equal to at least half of the total estimated national wealth. When it is remembered that most of this wealth is in private hands, and heavily encumbered with private mortgages; that the cities have issued enormous numbers of bonds against the same wealth, and that even though the wealth were in public hands it could not be liquidated for anything like its estimated value, it must be apparent that the capitalist world—particularly that part lying in Central Europe—has put itself into a position where its governments cannot meet their promises to pay.

Nor is this the worst. The war experience taught European government officials that it was possible to make money and pay debts with the aid of printing presses. The rapid increase in prices, and the unwillingness of the owning classes to pay for the war by means of a capital levy, placed the governments in a position where the ordinary expenses, plus the costs of the war, the interest on the war bonds, the costs of reparations and other extraordinary expenses amounted to far more than the total government revenue. As lately as 1920, all of the European belligerents, with the exception of Great Britain, all of the European neutrals, except Sweden, and all of the other principal countries of the world except Peru and the United States, reported expenditures in excess of receipts. The deficit for Austria amounted to 38 per cent of its expenditures. In other principal countries the ratio of deficit to expenditure was:

Belgium 69 per cent France 57 " " Germany 46 " " Italy 21 " " Japan 17 " "

("Our Eleven Billions," p. 40-41).

These events led inevitably to a demoralization of the foreign exchange market, which reflects the measure of confidence felt by the business men of one community in the promises to pay made by the government of another community. The exchange values of the non-warring countries remained generally near to par during the entire war and post war period. Japanese exchange fluctuated very little; British pounds, which up to the time of the war were recognized the world over as the standard of value, fell to about three fifths of their par value as expressed in dollars; the French franc and the Italian lira fell to a quarter of their par values, while the Russian ruble, the German mark, the Austrian and the Polish crowns fell to less than one-tenth of one per cent of par. In addition to the serious depreciation of these various currencies, their values fluctuated from day to day and hour to hour, making business transactions difficult or impossible.

Coupled with the disorganization of exchange has been the economic depression which, beginning in March, 1920, spread like a tidal wave, bringing disaster and hardship to workers, farmers and business men. With abundant crops, with industries united into great combinations, with the banks more efficiently organized than ever before in modern times, there should have been no crisis according to the accepted economic philosophy, or, if there was a temporary set-back following the strain of the war, it should have been a regulated panic. But despite the predictions the depression came, and proved to be one of the most severe that the modern world has experienced. The thoughtful man noting these facts, and then learning that, beginning with the hard times of 1814, there have been seventeen of these breakdowns in the economic machinery of the United States, with corresponding derangements in France, Britain, Germany and the other industrial countries; and learning further that there is a tendency for such catastrophes to become more, rather than less severe, begins to wonder whether the difficulty is not very much more deep-seated than many public men would have him believe. Even the most stalwart supporters of the present order must agree that the system does not function smoothly. There are many bumps, jars and hitches, and considerable friction.

Another evidence of economic chaos is furnished by the extent of industrial waste. Studies in industrial efficiency have led recently to the publication of a number of reports, the most ambitious of which, "Waste in Industry," issued by the Committee on the Elimination of Waste in Industry of the Federated Engineering Societies of the United States, describes waste under four aspects:

1. Low production caused by faulty management of materials, plant, equipment and men.

2. Interrupted production, caused by idle men, idle materials, idle plant and idle equipment.

3. Restricted production, intentionally caused by owners, management or labor.

4. Lost production, caused by ill health, physical defects and industrial accidents. (Page 8.)

With these various kinds of waste in mind the committee made a survey of some of the leading industries in the United States, and drew up a table showing the percentage of waste found in each industry. The figures were as follows:

Men's Clothing Manufacturing 63.78 per cent Building Industry 53.00 " " Printing 57.61 " " Boot and Shoe Manufacturing 40.93 " " Metal Trades 28.66 " " Textile Manufacturing 49.20 " "

The bulk of the responsibility for this waste is placed on "management,"—the lowest percentage (50 per cent) in Textile Manufacturing, and the highest (81 per cent) in the Metal Trades. The remainder of the responsibility is shared by labor, with a minimum of 9 per cent in the Metal Trades and a maximum of 28 per cent in Printing, and by miscellaneous causes, with a minimum of 9 per cent in Men's Clothing and Printing and a maximum of 40 per cent in Textile Manufacturing. (Page 9.)

There are a number of angles from which this result may be viewed. Waste may be looked upon merely as the index of industrial inefficiency due to the failure of the industrial mechanism to adjust itself to the demands made upon it. In that case the remedy for the waste is superior adjustment of the present system to itself. On the other hand, if the waste is the result of friction generated within the system, there must be some change in the system before it can be eliminated. The latter explanation seems to tally with the facts more thoroughly than does the former. Certainly, the unrest, bitterness and general sabotage which are encountered throughout the industrial order would point to the conclusion that the economic system is generating its own condition of chaos.

Sabotage, or "go slow," is becoming the dominant note of the entire economic system. "Get the most you can out and put the least possible in," is the theory upon which both workers and owners are operating. There has been much comment upon the tendency of the workers to use the go slow tactics. The real withholding of productive effort, however, takes place among the owners and managers of industry.

Industrial leaders are well versed in the law of monopoly profit: "Minimum product at maximum price." The railroad men have rephrased the law thus: "All that the traffic will bear." Industry has been organized and capitalized and is now owned by a group whose interests lie, not in the extent of production, but in the volume of profit. When profit is no longer forthcoming, the owners practice the conscious withholding of efficiency. In accordance with this general policy the control of industry is shifting from the hands of engineers into the hands of financial experts "who are unremittingly engaged in a routine of acquisition, in which they habitually reach their ends by a shrewd restriction of output; and yet they continue to be entrusted with the community industrial welfare, which calls for maximum production." ("The Engineers and the Price System," Thorstein Veblen. Huebsch. 1921. p. 40-41.) The recent cry of the American farmer: "Produce only what you need for your own keep," is a crude effort to imitate the successful tactics of the business world in limiting production to the volume that will yield the greatest possible profit to the owner.

War-menace constitutes another indication of the chaos existing in modern economic society. The purpose of economic activity is to produce wealth. The purpose of war is to destroy it. The two are therefore in direct antagonism; yet the greatest war machines are maintained by the greatest industrial nations. To reply that they have the big war machines because they can afford to pay for them, is no conclusive answer. The organizing of nations for war came into present-day society with the present industrial system. Industrial leaders have engaged in a great competitive struggle from which the final appeal was always the appeal to arms. Furthermore, one of the most profitable businesses has been that of making the munitions and supplies required for the prosecution of war. Nor is there wanting evidence that modern wars have been made for profits—that they have been "commercial wars," as President Wilson put it.

There is no longer any question but that the forces behind the world war were in the main economic. The war was fought by capitalist empires, for the furtherance of capitalist enterprises. The publication of the secret treaties entered into by the Allies in 1916 gives conclusive proof of the land grabbing character of the Allies' intentions. There can scarcely be any question of the existence of similar intentions on the side of the Central Empires. The forces that constituted the war menace in 1914 were the economic forces arising out of the competitive economic regime that dominated the European world at that time.

Since the ending of the war, these forces have been augmented rather than abated. To them there must be added the other element of danger that threatens to throw Europe again into turmoil. Soviet Russia is and for a time must remain a source of international bitterness among the great capitalist nations, while the struggle for the control of the Near East is fraught with consequences as momentous as was the pre-war German dream of a railroad from Berlin to Baghdad. Unrest in Egypt, India, Korea, and the other countries held in subjection by the power of the bayonet; the contest between Japan, Britain and the United States for the control of the Pacific and the exploitation of China; the unrest and revolution that are stirring in China; the keen intensity of the struggle for foreign markets and for such strategic resources as the supply of petroleum, are all suggestive of a situation resembling an open gasoline can surrounded by lighted matches. And to add the last, and the most realistic touch to the picture, there are a million more men under arms in Europe than there were in 1913, while the military and naval authorities in all of the leading countries are busy planning how and where the next war is to be fought. (See "The Next War," Will Erwin. Dutton, 1921; "The Coming War with America," John MacLean. British Socialist Party, 1920; "War in the Future," F. von Bernbardi. Berlin, 1920; "The Inevitable War between Japan and America," F. Wencker. Stuttgart, 1921; "Coal, Iron and War," E.C. Eckel. New York, Holt, 1920, etc.) Before the grass was green over the graves where lies the flower of Europe's manhood, leaders of the present order were busy with the blueprints of another carnage.

The facts speak for themselves. The existence of such chaos is a matter of every day comment and experience. Though its nature and its causes are little understood, there is no issue of more immediate concern to the western world than the intelligent solution of the vexing questions arising out of the production and distribution of wealth.

Until the Russian Revolution of 1917, the entire western world was so organized that one group or class owned the land, the machines and the productive devices with which other groups or classes worked in order to live. The establishment of this "capitalist" system between 1750 when it had its start in England, and 1860, when it secured a foothold in Japan, has raised certain questions of economic procedure which lie at the background of the economic problems which men are seeking to understand and to solve.

There is no necessity for an elaborate discussion of these problems, since they are at the moment quite generally under the dissecting knife of social students, reformers and revolutionaries. They may be divided into two main groups:—those which are localized in character and those which are world-wide in character. Perhaps the latter group might be called "worldized."

2. Localized Problems

There are a number of outstanding economic problems that affect locally, each community that has adopted the capitalist system. Among the most important of them are:

1. The relations between the job owner and the job taker.

These relations involve the question as to whether job control shall be vested in those who hold the property or in those who do the work. The issue is an old one, intensified to-day by the absentee ownership which stocks and bonds make possible, and aggravated by the presence of vast industrial establishments in which there are employed thousands of workers without the possibility of any direct contact between job owners and job takers.

2. The distribution of wealth and income.

Another old issue has returned to plague a society that makes it possible for some to enjoy "progress" while others must suffer from "poverty." Labor saving machinery has increased the quantity of the industrial product, but as yet there has been no general effort to see that the advantages of this wealth production go to those who are in need of food, clothing and shelter. Indeed, under the present order, millions of those who work are called upon to accept a standard of living which represents less than physical health and social decency, while those who own the land and the machinery with which the wealth is produced are able to exact a rent or unearned income that keeps them permanently on easy street. This embittering contrast between the house of have and the house of want is leading to-day, as it has in any historical society, to division and conflict, for, as Madison wisely observed in the Federalist, "The most common and durable source of factions has been the various and unequal distribution of property."

3. The interrelation of industries.

So long as there was a direct connection between a worker and the product which he turned out, economic life was simple. When, however, the coal dug in eastern Pennsylvania was used to heat houses in Minneapolis, while wheat grown in Dakota was milled in Duluth, made into crackers in Boston and sold all over New England, there arose the problem of the relation between mining, wheat raising, transport, manufacturing, and merchandising. Thus far the banker has acted as the go-between in holding this machinery together, but he labors under two important disqualifications: first, he does not represent anyone except himself and his fellow owners and is therefore not socially responsible for what he does; in the second place, like every other business man, he is out to make a profit rather than to render the community a service. Hence the structure of industrial society rests in chaotic dependence upon the ambitions and foibles of self-selected financiers.

4. Attempts at government control of industry.

The irritated people, incensed by repeated acts of economic tyranny, have turned to the political state, which has been thought of as the guardian of popular rights in a democracy, and through regulatory legislation the appointment of commissions, and even through state competition they have sought to bring obstreperous business interests under the wing of state control. These efforts have generally failed: the business interests, through their control of the economic surplus, have dominated the commissions and have used the machinery of the political state as the instrument for further exploiting ventures; the police, the courts, the executive power, the military—all have been employed by the owners and exploiters against the workers. The issue between the empires of industry and the political state still remains one of the most vexing in the field of public life.

These problems of job control, of wealth and income distribution, of industrial inter-relations and of the relation between the state and industry are pressing for solution in every important centre of modern economic life. Each constitutes a disturbing element and contributes its mite to the aggregate of social instability and unrest that are racking the economic world.

3. World Problems

Aside from these problems, localized in character, though world-wide in their distribution, there are a number of other problems of a world character which also are factors in the disorganization of economic life. One of these world problems is the competitive struggle between economic groups for trade, markets, resources and investment opportunities; another is, the excessive concentration of the world's wealth in a few centres.

4. Competition for Economic Advantage

The issue of non-redeemable promises to pay has crippled the world's credit machinery. The competition for economic advantage has played havoc with the world's social stability.

Theoretically the coffee grower of Brazil and the agricultural machine manufacturer of Illinois produce and exchange those things that they can turn out most advantageously. Practically the resources of the world are monopolized by powerful financial interests each striving to destroy its rivals, each seeking its own enrichment, and each busy reinvesting the surplus wealth which piles up as the result of exploitation at home and abroad.

Competition for economic advantage has followed the line of greatest profit. The present age inherited from the medieval economic world certain time-honored trade rivalries such as those which had existed between Rome, Carthage and Corinth in classic times, or between Holland, France and England in more modern days. These trade rivalries concern themselves with:

1. The transport of goods and people.

2. The financing of such transactions through bills of exchange, and the like.

3. The insuring of trading ventures.

The people which succeeded in obtaining the carrying trade quite generally secured the banking and insurance business, both of which until recent years, have been principally concerned with trading.

The trade of the middle ages was small in volume, and was carried on, for the most part, in valuable commodities, since the cost of transporting bulky, cheap articles was generally prohibitive. With the emergence of modern industry, and its production of large amounts of surplus commodities, important industrial groups like Britain and Germany which depended for their prosperity on their ability to find foreign markets for their surplus commodities, have been driven to a fierce struggle for these markets.

Latterly the effort to dispose of surplus has taken a new form—the investment of capital in foreign enterprises. Instead of trying to sell an electrical plant to the city of Buenos Aires, a German business adventurer (enterpriser) secures a contract to build the plant, buys the equipment from the German General Electric Company, takes the bonds of the City of Buenos Aires in payment for the plant, and finances the transaction by selling the bonds to a German banking syndicate. Through this process, the German (or Belgian, or British) business world invests its funds in "undeveloped" countries.

At the outbreak of the World War, foreign investment had become a science, with the British leading all of the investing nations. C.K. Hobson, in his book, "The Export of Capital," and in a later article in the "Annals of the American Academy" for November, 1916, throws some important side-lights on British foreign investments. He notes that for some years preceding the war, Britain had never invested less than 500 millions of dollars per year in foreign countries and that just before the outbreak of the war, the annual export of capital had reached a total of a billion dollars per year. In 1913 the British foreign investments were approximately 20 billions of dollars, distributed geographically in a most significant fashion. The largest investment (3,750 millions of dollars) was in the United States; then came Canada with 2,500 millions; following were India, 1,800 millions, South Africa, the same amount, Australia, 1,500 millions, and Argentina a like sum. The British investments in Belgium, France, Germany and Austria were negligible. Thus it was in the new and undeveloped countries, not in the old and developed ones that Britain sought her investment opportunities. In their efforts to play at this great game of imperialism, and to win their share of profitable business, Germany, France, Japan, Belgium and the United States were dogging the British heels.

Each of the important producing countries must provide itself with the essential raw materials—coal, iron, copper, cotton, rubber, wheat, etc., upon which the continuance of its industrial life depends. Consequently each of these countries busies itself to secure the control of the largest possible reserves of the raw materials most needed by its own industries.

The case of petroleum is peculiarly instructive. When it became apparent, in the early years of the present century that oil burning ships, motor vehicles and air craft were bound to play a determining part in the economic life of the immediate future, various interests such as the Shell Transport, Royal Dutch and the Standard Oil, with the open or tacit backing of their respective state departments, entered on a campaign to secure the world's supply of petroleum. In Mexico, Central America, the Near East, Russia and the United States this struggle has been waged, and it still continues to be one of the most active contests for economic power that has been fought in recent times.

Petroleum-hunger is only one of the many economic factors that drive modern nations. The efforts to control the coal and iron of Alsace and Lorraine, the Saar and the Ruhr undoubtedly played a leading role in making the War of 1914 and the Peace of 1919. The partition of Upper Silesia was based on the same contest for iron and coal. Wherever the coal veins or iron deposits are, there, likewise, are gathered together the representatives of industrial enterprise, which depends for its life upon iron and coal.

As the resources of the earth become better known, and their extent more definitely established, there is every reason to believe that, with the continuance of the present economic system, the necessity for exploiting them will become greater, and the attempts to dominate them will become more aggressive.

Whether the object of the contest be trade, markets, investment opportunities or resources, the result is the same—rivalry, antagonism, bitterness, hatred, conflict. Probably it is fair to say that these economic rivalries constitute the largest single force now operating to keep people apart and to continue the economic desolation and chaos under which the world is suffering.

5. Distribution of the World's Wealth

There is another problem of world scope—the concentration of wealth in a very few countries. At the present moment the wealth of the world is distributed roughly as follows:

Great Britain 120 billions of dollars France 100 " " " United States 330 " " " —— Total 550 " " "

Germany 20 billions of dollars Russia 40 " " " Italy 25 " " " Japan 40 " " " Belgium 15 " " " Argentina 25 " " " Canada 25 " " " —— Total 190 " " "

Probably all of the other nations combined could not show a wealth total of more than 100 billions. Great Britain, France and the United States have just about 12 per cent of the population of the world, yet they probably hold somewhere in the neighborhood of two-thirds of the world's wealth. The United States alone, at the moment, has nearly half of the world's gold supply and more than a third of the world's wealth. Of course these wealth estimates are not to be accepted in detail, particularly in view of the wide fluctuations in the exchange rate. They serve, however, to give an idea of the relative wealth positions of the leading countries.

The present economic position of the United States in particular, is a perilous one. The estimated wealth of the United States is greater than that of the four richest nations of the world combined. Within a decade, the country has become the world's chief money lender, the world's principal mortgage holder, the world's richest treasure house. The results are inevitable. The United States will be an object of envy, jealousy, suspicion, cajolery and hatred in the eyes of those peoples who concern themselves with the present system of competition for economic supremacy. She holds the wealth and power that they desire and they cannot rest content until they secure it.

Past periods of civilization have witnessed the concentration of wealth and power in some great city, like Carthage, or in some isolated region, like Italy. All around were the "barbarians"—those who had less of the good things of life than were at the disposal of the citizens of the metropolis. Where two of these centres existed at the same time, they warred for supremacy until one or both were destroyed.

Before the war the centre of the world's economic power was Great Britain. To-day the economic centre has shifted to the United States, while Britain is still the world's greatest political power. The struggle between these two empires for the political suzerainty of the planet must continue until one is victorious, or until both have been reduced to impotence.

6. The Livelihood Struggle

Behind these struggles between various political and economic groups, there is a broader reality in the shape of a billion and three quarters of people, inhabiting the surface of the earth,—people of various races, religions, nationalities, who, with all of their differences, have this in common: that they are seeking life, striving to improve the opportunities for its enjoyment, yearning for its enrichment, and, despite the innumerable disappointments which they have suffered in the past, willing to pay handsomely, in vast and patient effort for each tiny gain that they secure.

One of the chief concerns of these human multitudes is the struggle for livelihood—for the means of continuing physical existence and of gaining the surplus and leisure out of which grow the higher life satisfactions.

All men have certain simple economic needs—for food and shelter. Denied these, they perish. Given them, they are able to devote their remaining energies to one of the many lines of activity that men have developed.

What are these other wants of men, aside from the primitive needs for food and shelter? Most prominent is the desire for human companionship, friendship, love. Again, mankind has accumulated a vast store of knowledge, of philosophy, of imagery, of artistic expression. Love, truth and beauty sound an appeal that finds some answering echo in each life. The leisure and the culture of the world, in the immediate past, have been the heritage of a favored few: to-day they are the objectives of the many. Heretofore it has been the belief of the aristocrats that the best of life was none too good for them. To-day that idea has spread among the people. Dimly, inarticulately, they feel that the world's advantages are for them and for their children.

Before the cultural advantages of life may be enjoyed by the many, wealth must be produced in sufficient quantities to provide food and shelter. This provision of the economic necessaries is not a far goal. Livelihood, when secured, does not make of man either a saint or an artist, but it is a necessary step in the pursuit of either goodness or beauty. The body must be fed before it will function, just as the engine must be fed with fuel before it will run. The provision of a supply of economic essentials is not the ultimate object of life, but until some such provision is made, life in its fullest terms is impossible.

7. Guaranteeing Livelihood

The millions who inhabit the earth have a direct and immediate interest in organizing economic life in such a way that the supply of economic goods is made regular and certain. This is the premise on which all constructive thinking about economics is necessarily founded.

How is this hope to be realized? What means are at hand to insure the ultimate success of these efforts to guarantee livelihood?

Nature has provided an ample supply of the resources out of which the economic necessaries may be produced. These resources fall mainly into three general classes:

1. Climate, including those conditions of light, air, rainfall and temperature that make possible the maintenance of life in its many forms.

2. Fertility, including those qualities of the earth that are useful to man in the pursuit of his economic activities.

3. Power, including those forces of nature which man may harness and compel to do his bidding.

Climate, fertility and power are variously distributed over the earth. The heat near the equator and the cold of the arctic regions make any highly organized forms of economic life difficult. Consequently it is in the temperate zones that industrial civilizations have developed. The deposits of minerals and fuels are quite uneven. Take iron as an example. The available deposits of iron ore are concentrated mainly in Brazil, Cuba, the Appalachians and the Great Lake Basin, so that the Americas and particularly North America have far more than a proportionate share of the iron ore supply. Copper, coal and petroleum are distributed with even greater irregularity. Equally uneven is soil fertility. Beside a garden spot, like the Mississippi Valley, lies a great Colorado-Utah desert. Nature has provided those requisites upon which man must depend for his economic life. They are scattered it is true, and with the present political barriers holding peoples apart, many of them are politically unavailable but, economically, they are an open door to the future.

Men have met with considerable success in availing themselves of nature's bounty, and of converting it into useful and pleasing forms. All of the tools, weapons, textiles, metals, wheels, machines, have been the result of human effort and ingenuity, spread over long periods of time, and gradually accumulated and concentrated. At last a day seems to have dawned when machinery, applied to nature's bounty, could produce the wealth necessary to support the world's existing population on a minimum standard of living. Certainly the energy and wealth which went into the five war years would have fed and clothed the people for that period.

8. Distribution and the Social Revolution

Men have succeeded in kindling fires, making wheels, separating the metal from the ore, harnessing electrical power and communicating their thoughts to one another and to their descendants, but they have not made themselves masters of those forces which work through fire and wheels. Men have met the immediate economic problem by devising methods for producing food, clothes and roof-trees, but they have been overwhelmed by the social implications of these productive forces. Before the problem of sharing the proceeds of their labor, they have stopped, and the whole economic progress of the race now stands like an engine stalled, awaiting some solution of the problems of distribution.

Through the ages various methods of making a living were inaugurated successively. Medieval Europe had worked out a combination of herding, agriculture, craft industry and trade that made a stable life for an agricultural village a practical possibility.

This period of economic stability—this golden age—was followed by a series of events that threw the fat into the fire. First in England, and then in all of the important countries of Europe, the industrial revolution turned the simple grazing, farming, craft-industry life of the village topsy-turvy, by providing a new method of converting nature's bounty into goods and services calculated to meet the increasing needs and wants of mankind. So far-reaching was the change that it has compelled a reorganization of virtually all phases of social life, but for the present purpose, it has been felt chiefly in four fields: manufacturing, commerce, wealth-surplus and population.

The efficiency of the new manufacturing processes has provided a large surplus of goods that must be taken somewhere, exchanged for food and raw materials, which must, in turn, be brought to the producers of manufactured goods. In the course of these transactions, a generous share of the values produced goes, in the form of profit, to the owners of the industry, another considerable portion goes into reinvestment, thus swelling the volume of productive capital.

The increased wealth, the larger capital and the greater amount of surplus all make possible the maintenance of a larger population. Thus it has come about during the past century, that the production of goods, the transport of goods, and the population, have all been increasing at a rate unheard of during the previous thousand years.

The suddenness of these economic changes has swept the world away from its accustomed moorings, out upon an uncharted sea. Only yesterday the race was struggling to make a meagre living: to-day the centres of industry are glutted with bulging warehouses and equipped with idle machinery that will produce unheard of quantities of shoes and blankets and talking machine records, if the owners will but give the word to the workers who are eager to perform those services that yield them a living. Only yesterday the world was maintained by local production: to-day it depends upon transport and exchange. All of these changes in the accustomed ways and acts of men have been brought about in the course of an economic revolution.

The tidal wave of the industrial revolution has not stopped with the economic world. No phase of life has been exempt from the power of its magic. The school, the church, the family, the home, the state, have all felt its transforming might. The aggregate of these changes is the profound social revolution that has been for some time, and that is at present tearing the fabric of the old society to tatters, while beneath its surface-chaos is forming the nucleus of a new social order.

9. A New Order

The results of profound changes such as those that are now occurring, must be chaos except in so far as the ingenuity and organizing capacity of man re-establishes order. The people in the world are in very much the position of a valley population suffering from a disastrous flood. Their houses and fruit-trees—the product of generations of labor—have been swept away. The valley is filled with debris. As the water recedes, the wreckage must first be picked up, then the whole population must fall to with a will and rebuild the community—put up houses, re-plant trees, re-make gardens, repair roads.

The social revolution has not swept everything away, but it has modified the form of social institutions, and some of them, such as the old time farm home, the individual workshop and the agricultural village have been obliterated in many localities. How shall the new society be rebuilt? Only as the old was built—by the expenditure of human effort and under the guidance of the best wisdom that the community can muster.

There are a number of points of view from which the present-day economic chaos may be regarded. The humanitarian feels pity for the suffering and hardship imposed upon multitudes of the world's population. The conservative laments the alterations which are being made in the established order. The liberal regrets that the changes are occurring so rapidly that construction cannot keep pace with destruction. The radical sees, in these fundamental changes, the dawn of his millennium. The scientist and the engineer upon whose shoulders will rest the burden of rebuilding the new society, tighten their belts and turn to the mightiest task that men have ever faced.

The economic muddle in which the world now finds itself is one of many transition periods in the history of civilization,—a phase of the great revolution. Like any period of chaos, it is the seed-ground of the new order—the demolition which precedes construction.

Some day men may be wise enough and sufficiently well organized and equipped to demolish and construct at the same time. As yet no such stage has been reached. During the intervals of chaos which separate two periods of forward movement (the dark ages of the world, as they are sometimes called) the masses agonize and suffer, groping blindly and crying out for guidance. Such is the period in which the world now finds itself.

Out of this chaos, men must bring order; and to do this they must discover the foundations upon which the new order can be successfully built. This is the work of the engineers, the constructors of the new society.[3]

10. The Basis of World Reconstruction

Asiatics, Europeans, Africans, Americans, Australians—all people who follow the movement of events realize that the crisis confronting the capitalist world is a serious one. Informed men like J.M. Keynes and Frank Vanderlip believe that the situation is perilous. While many persons see that something is wrong, and while some see what is wrong, there is a great diversity of opinion as to the remedies that should be adopted. What most of the writers fail to see, or at least to realize, is that economic organization is the basis—the only possible basis—for the reconstruction of the world.

The time has passed when political readjustments will meet the world situation. The events accompanying the industrial revolution have hammered the world into a closely knit economic whole, and until this fact is understood, and made the basis of world thought and world building, there can be no permanent solution of the world's problems.

The present chaos in world relations cannot be met and settled by war, legislation, diplomacy or any similar means. All of the steps in these fields imply some adjustment of political relationships, and it is the economic institutions rather than the political institutions of the world that are in need of constructive effort.

If a town is suffering from a break in the water-main, there are two things that may be done! The old pipe may be patched or a new pipe may be put in its place. It is sometimes possible for the engineers to patch the old main temporarily, while they are getting in a new one. The same situation confronts the people of the world. Their economic life is disorganized and chaotic. Shall it be reorganized along old lines, slightly modified in the light of experience, or shall it be built on fundamentally different lines?

[Footnote 3: "Engineering is the science of controlling the forces and of utilizing the materials of nature for the benefit of man, and the art of organizing and directing human activities in connection therewith." (Resolution of the Engineering and Allied Technical Societies in creating the Federated American Engineering Societies. "Waste in Industry" 1921, p. IV).]


1. The Social Structure

When a town or a city decides to repair a water system or to replace an old system by a new one, the plans are made and the work is carried on in accordance with the soundest principles known to the engineering profession. There are communities which neglect their water systems, and which suffer accordingly. But for the most part, the water supply is looked upon as so vital a factor in the common life that no pains are spared to have it reflect the last word in sanitation and efficiency.

The same reasoning must apply to the economic machinery upon which a community depends for the supply of its necessaries and comforts. Economic life touches every home. No human being who eats food, wears clothes, lives in a house, rides on street cars or reads papers and books can escape its all pervasive influence. Therefore when changes are made in an established system of economic life, or when a new economic system is substituted for an old one, it behooves the people concerned to see that the work of reorganization is done in accordance with the soundest known principles of social science.

The principles of social science, like the principles of engineering, are matters of profound concern to those who are compelled to depend for health and livelihood on the outcome of a social experiment. The social scientist studies society as the natural scientist studies nature, by examining the social forms, the social forces, the ways of handling or of administering these forces, and the means of making social improvements. The social scientist, like the scientist working in any other field, is concerned with making those additions to knowledge which will prove of the greatest ultimate advantage to the human race.

The principles of social activity are not yet so well known as those of astronomy, physics, mechanics or biology, but they operate none the less surely. Until these principles are understood, and until men plan their activities in relation to them, there will be no possibility of a rationally organized and wisely managed society. The physicist who planned a pump on the supposition that water is always liquid in form would get no farther than the social scientist who advocated social changes on the theory that the only motive that animated mankind was the economic one.

Mankind is not wholly ignorant of the principles underlying social structure and social activities. Philosophers and statesmen worked over them in the ancient world. Within the past two centuries a flood of books and pamphlets has appeared dealing with social organization. To be sure, most of these publications have been of a political nature, but the effort was made none the less to understand society and its workings. The investigations, analyses, comparisons and conclusions are formulating themselves gradually into certain well-defined social laws, which men recognize as essential factors in social thinking.

Some of the more important among these social laws or principles which have been determined by the painful processes of trial and error are those relating to the manner in which the structure of society is built up. Society is not a collection of people, in the sense that a basket of eggs is a collection of eggs. Quite the contrary, society is a structure formed through the association of individuals and of groups having some common interests and some co-operative functions or activities. A family, for example, consists of a number of persons, usually connected by blood ties, living together in a common dwelling. A chamber of commerce consists of individuals, firms and corporations, doing business in one locality, and all concerned with the maintenance of certain property rights. The British Miners Federation is composed of local and of district organizations, which are built up around collieries, towns, and coal deposits. The local union is composed of individual mine workers. The district organization is composed of a number of locals in the same field. The federation is composed of these lesser organizations. No matter which one of the many forms of human association is examined, the same thing will be found true. Each social group is composed either of individuals or of lesser social groups which have certain common interests and certain co-operative activities, and which band themselves together in response to their interests and in pursuance of these activities. It is this organic structure of society to which Hobson applies the phrase "the federal units which society presents." ("Work and Wealth." J.A. Hobson. Macmillan. 1914. p. vi.)

Among primitive peoples who have simple forms of social organization, each individual is connected with some association like the clan or tribe which is state, church and family, all in one. The stories of the Jewish patriarchs are good illustrations of this stage in social evolution. In advanced and complex societies, however, each individual belongs to a number of groups—to a town, a factory, a school, a home, a political party, a fraternal order, a church. In complex societies these groups are united to form the whole social structure. The individual belongs to society, therefore, because he belongs to one or more of the groups composing society, and his membership in society is dependent upon his membership in a social group.

Without making too much of the comparison between a living organism, like the human body, and a society, the similarities between the two are striking. The human body consists of various systems, such as the circulatory system, the nervous system, the digestive system. Each of these systems is composed of many parts, having separate functions to perform. The circulatory system, for example, consists of the heart, veins, arteries, capillaries, the blood, etc. These various parts of each system are in their turn made up of different kinds of tissue. The heart is a complicated organ consisting of muscle tissue, nerve fibers, blood vessels, etc. Muscles, nerves and blood vessels are in their turn composed of living cells, each of which contains the mechanism of a life cycle. Among the unit cells, the various tissues, organs and systems of the body, there is a working harmony. The whole complex machine functions in unison. If one of the organs fails to do its work,—if the heart fails to pump blood or if the lungs fail to inhale oxygen,—the whole body ceases to function or "dies."

Throughout the series, from the single cell to the entire organism, the human body is built up compositely. This method of composite structure holds equally true in the composition of modern society.

A modern society or community consists of various systems, such as the educational system, the economic system, the political system. Each of these systems is, in its turn, composed of institutions. Thus, for example, the educational system consists of the common schools, the high schools, the normal and professional schools and universities, the special schools, and so on. Each city school system is a going concern with its pupils, teachers, officials, school buildings, textbooks, courses of study. Each school building, each class room, each group of pupils, is a social unit, composed either of individuals or of groups. Like the single cell of the human body, the individual pupil is a living organism, and it is out of a multitude of such organisms variously grouped that school systems are built.

The social machinery, like the machinery of the body, must work smoothly, otherwise misery will be the inevitable result. If the educational or the economic life of a community breaks down, the whole community suffers, as does the body through the failure of an important organ. If the stoppage is significant enough, as for example, a stoppage of the economic machinery like that experienced by central Europe since 1919, the social organism "dies,"—that is, it is resolved into its constituent elements, some of which may disappear.

Those who object to the comparison between society and a living organism like the body, find more satisfaction in likening the social machine to an automobile, with its self-starter, its ignition system, its lighting system, its steering gear, its driving mechanism. Each of the systems is in turn composed of parts. Each part is made of wood, iron, copper, rubber, and these materials are, in turn, composed of molecules and atoms in certain combination. The automobile is not self-acting, like the body or like society, but the failure of one of its essential parts like the ignition system, means the failure of the whole machine.

Society, like the human being, or like the engine, is a highly complex mechanism, and like them it cannot function successfully unless its various parts function in harmony. The major problem before a society is therefore the working out of a system of inter-relations between its parts, that will make harmonious functioning possible and easy. Just as the mechanical engineer who builds the automobile puts into it the results of his wisdom in an effort to make it effective, so the social engineer devotes himself to the problem of making society function in the way that will yield the largest results to the individuals composing it.

2. Specialization, Association, Co-operation

Every social group except the horde, which is an aggregation of unspecialized and non-co-operating individuals, is constructed on the principle of:

1. Specialization

2. Association

3. Co-operation

The social group—the family, the school, the factory—takes upon itself the performance of a particular social function—it specializes itself. Each group associates itself with other groups—families with families, schools with schools, factories with mines and stores. Finally, these associated groups work together or co-operate, exchanging the products which their specializations have created, and uniting their efforts in the furtherance of their common interests. These developments take time, and some communities are more highly specialized than others, but all societies which enter intimately into the life of the modern world are thus constituted.

The more advanced the society, the more numerous and the more complex are the relations between its component parts. The agricultural inhabitants of the Ganges Delta have evolved a far more complex society than that of the aborigines of Australia, but the civilization at the mouth of the Ganges is simplicity itself compared with that of Britain, Belgium or Japan. In the Ganges Delta each family group has a homestead. Outside of the homestead, the community life is almost wholly unspecialized. Even where the homesteads are clustered together there are no stores, no recreation centres, and few churches or schools except in the larger towns or in the market towns, of which there are a very few, since only about one per cent of the people live in towns or cities. Practically the entire population is occupied with the work of the homestead, and the work of each homestead is very like the work of every other homestead. ("The Economic Life of a Bengal District." J.C. Jack. Oxford. Clarendon Press. 1916. pp. 1 to 40.)

How different is the French, German or Italian village, with its various crafts, trades, professions, industries, recreation centres, schools, churches and the like. Every such European community of three or four thousand persons is in itself a complex society, while the industrial city of fifty thousand people is a hive of related social activity.

The more highly specialized the group, the more complex, intricate and precise are its workings.

This principle of social federation through specialization, association and co-operation is nowhere better illustrated than in the case of the present economic system. In each centre of population, in each town or city, in each state, in each nation, in the world at large,—the economic system is divided into various elemental economic groups or units, falling under six main headings:

1. The extractive units, which are concerned with the taking of wealth from nature's storehouse—the farm, the mine, the lumber camp.

2. The fabricating units, which are busy changing the products of farm, mine and lumber-camp into semi-finished or finished forms—the mill, the smelter, the factory.

3. The transportation units, which carry goods or people or messages from place to place—railroads, ships, trucks, telephones.

4. The merchandising units, which assemble the goods turned out by the fabricators and distribute them to the users, wholesalers, jobbers, retailers.

5. Personal service units, which render a service to the consumer in some direct, personal way—housekeepers, educators, entertainers, health experts.

6. The financial units, which are concerned with the handling of money and of credit (the counters of the economic system) banks, loan associations, credit houses.

These are some of the main divisions of the economic system as it exists at the present time. Each division is a great net-work of economic inter-relations, specialized and subdivided into individual plants, factories, departments and the like. Take, as an example, one group, the manufacturing industries of the United States. When the Census of 1914 was compiled, the manufacturing industries were classed in fourteen groups,—food and food products, textiles, iron and steel and their products, lumber and its remanufactures, etc. There were 496,234 wage-earners working in 59,317 food and food products establishments, 1,498,644 wage-earners in 22,995 textile establishments, 1,061,058 individuals working in 17,719 iron and steel establishments, and so forth. Each of the fourteen subdivisions of the manufacturing industries of the United States employ hundreds of thousands of men and women who are at work in tens of thousands of establishments in thousands of cities and town. The same kind of specialization is to be found throughout the various modern industries, and in the different industrial countries.

Each one of the larger establishments—each factory or plant—is in turn composed of departments, divisions, shops and the like.

Whether the individual establishment or the individual department be regarded as the unit of economic activity, the outstanding feature of the manufacturing industry is the immense number of units that must be in working order and co-operating harmoniously with the others before the whole can function smoothly. And this is but one of the general divisions of industry. At the time of the Census of 1920 there were in the United States alone, 6,447,998 farms; in 1914 there were 275,791 manufacturing establishments; in 1910 there were 1,127,926 retail dealers and 50,123 wholesale dealers. Literally, there are millions of productive economic units in this one country which are specialized, which are associated in their activities and which must be put on a co-operative basis if effective results are to be obtained from them.

3. Three Lines of Economic Organization

So much, then, for the interdependence of the various economic groups under the present forms of society. This interdependence runs throughout the capitalist system. Farms depend on railroads, railroads on mines, mines on factories, factories on farms, and so on.

This extreme specialization of the economic system is the product of the past two hundred years, the outcome primarily of the industrial revolution. The experience of society with these specialized economic forms does not, therefore, extend over more than five or six generations. This experience is sufficient, however, to indicate, that there are three general lines along which economic organization may develop:

1. Economic "states rights" or individualism—the theory upon which the present day industry as well as the modern state was founded. Under this theory each economic group must be free to go its way, cutting a path for itself through the ranks of its competitors, and making its triumphant advance over their prostrate remains.

2. Economic bureaucracy, involving the concentration of economic authority in the hands of a centralized group which, knowing little or nothing about the requirements of particular localities, is nevertheless in a position to legislate for them and to enforce its mandates.

3. Economic federation or federalism, with local groups enjoying local autonomy in all local matters, and only so much centralized control as is necessary for the unified direction of the entire enterprise.

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