The Business of Life and Other Business

Proposed solutions for our larger economic and social problems can generally be classified according to the degree of confidence exhibited in governmental regulation or control. These solutions vary all the way from limiting political functions to the administration of justice and national defense to government ownership and operation of all industrial activities. There are some social programs, it is true, that ignore altogether any form of political coercion or restraint—in other words, provide for purely voluntary social action. Aside from such proposals, which are of little practical importance despite the widespread attention they occasionally receive, economic programs may be roughly classified into those characterized by a decided laissez faire attitude and those showing a bias or leaning toward governmental ownership or control.

The two books named show the contrasting viewpoints indicated, although neither publication is that of an extremist. The first is a two-volume work dealing with economic principles in their relation to present and future human happiness. In the words of the author it aims “to tie . . . economics into more of a unity with the other truths of life.” Economics is conceived of as “one leg of the tripod that supports the reality of human life.” The other legs are biological science and a sane and harmonious philosophy. The effect of economic study on human life is important only when it cooperates symmetrically and harmoniously with philosophy and with biological science. Living conditions cannot be permanently changed by governmental interference with economic and biological laws, nor human happiness achieved without a sound philosophy concerning the things that are worth while.

The first volume of “The Business of Life” is devoted to a discussion of the economic principles underlying the determination of prices, wages, rent and profits. The author’s economic theories are essentially those of the older classical writers, adapted, however, to a present-day environment. His discussion of existing social problems is characterized by keen logic, but his reasoning is marred by an inadequate appreciation of such important considerations as the relationship between general productivity and wage rates and fundamental differences in nature between interest and profits. He quotes Veblen in his treatment of various current theories of distribution, but ignores such a vital part of Veblen’s general philosophy as the connection between “wasteful consumption” or “conspicuous waste” and the inequitable distribution of wealth.

In the second volume the biological aspects of economic and social progress are treated; and the conclusions drawn from the writer’s observations on the operation of economic and biological laws are summed up in a philosophy of the “ideal state.” The Malthusian principle of population and the law of evolution, as interpreted from a strictly Darwinian or Weismannian standpoint, are accepted as the determining factors in social progress. Believing in the practical impossibility of preventing population from pressing upon the means of subsistence and accepting the prevalent view of biologists that acquired characteristics are not inherited, the author rejects as ineffective most of the proposals urged by liberals or progressives, such as minimum wage laws, progressive systems of taxation, collective bargaining and the like, in so far as these proposals are urged for increasing the minimum standard of living and the making for greater democracy. He even quotes Dean Inge with apparent approval when he says that “democracy means a victory of sentiment over reason.” To the same effect he expresses his agreement in part with Nietzsche in the latter’s declarations against “the preachers of equality.”

The author has the confidence of the older economists in the power of competition to promote efficiency. But to him competition is something more; it is an agent in selective racial purification. He quotes from Carlyle’s “Past and Present:” “In brief, all this Mammon gospel of Supply and Demand, Competition, Laissez faire, and Devil take the hindmost, begins to be one of the shabbiest gospels ever preached, or altogether the shabbiest.” And then he replies, “Carlyle, what you really wanted was not a cancellation of competition, but competition to its highest power; competition to the point where unfitness is eliminated and no more; competition to the point that there is no suffering from cycles of freak inheritance.”

This seemingly harsh philosophy of laissez faire is greatly softened by the author’s application of the Golden Rule. Unwise philanthropy is denounced, and the duty of the upper classes and the successful to reproduce is enjoined. But the elimination of the unfit is not to take place in a manner to offend the sensibilities of the kind and considerate. Charity should be a matter of state organization. The unfortunate and unsuccessful should be well cared for, but the objects of this philanthropic solicitude should not in general be allowed to propagate their kind. A far-sighted application of the Golden Rule thus serves to reduce contemporary suffering while at the same time conserving the qualities which promote race development.

There is much in the author’s treatment of Malthusian-ism and evolution that is suggestive and sound. The writer recognizes the problems discussed by such men as Madison Grant and Lothrop Stoddard without, however, falling into some of the absurdities that these authors fell into. On the other hand competition does not always operate in such a way as to promote the survival of either the industrially fit or the socially desirable. Investigations by the Bureau of Corporations and later by the Federal Trade Commission have shown instances where great technical inefficiency combined with aggressive and fraudulent practices was more than a match for high-grade productive ability combined with commercial honesty. Governmental regulation of a scientific character is absolutely necessary to make competition an adequate sifting process for the selection of the industrially fit.

Thompson’s work on “Public Ownership” is a book of very different character and illustrates an attitude toward economic problems almost entirely opposed to that of the work just reviewed. Unlike Sanford the author makes no attempt to outline a social philosophy. His chief purpose is declared to be the presentation of an impartial survey of what has actually been done in the field of public ownership. In making this presentation, however, his attitude is that of an advocate rather than a judge. He dwells upon the advantages of public over private ownership and closes his book with a chapter devoted to answering current objections to government ownership. In adopting this attitude he does not argue for the complete or universal socialization of capital, and therefore is not to be classed as a socialist. In the realm of what is commonly called public utilities, however, he makes it clear that in both the service performed and prices charged he is convinced of the superiority of government owned and operated industries.

The most illuminating part of the book is the revelation of the extent to which public ownership has been realized in the United States. The author begins with such familiar forms as the postal service, state roads, public schools and libraries, passing on to various phases of the Federal Government’s business, like the administration of the public domain, forest reserves, Panama Canal and the printing of public documents, and to certain state activities in connection with the operation of public elevators and mills, and then devotes five chapters to municipal ownership enterprises. In addition to the discussion of public ownership in the United States he refers to the spread of government control and operation in foreign countries, especially in the cases of railroad, telegraph, telephone and even radio services. One chapter is also given to the well-known Ontario Hydro-Electric Commission of Canada and another to the proposed public super-power system of the United States.

Discussions concerning the relative merits of private and public management generally fail to carry conviction because of the criteria employed to determine their respective merits. There is nothing magical about either private or public management. The success of either depends upon the incentives and conditions making for efficiency. To show that rates or prices tend to be lower under one form of control than under another requires not only comparison of quality of services but also a consideration of general price movements during the periods covered, changes in technique, and the kind of accounting systems used in measuring costs. Railroad rates in the United States, for example, showed a pronounced upward movement after 1916.

It would be absurd, however, to ascribe this increase to private management, especially in view of the fact that the advance began long after commodity prices in general had commenced to increase. The taking-over of electric light plants by several municipalities in recent years has coincided with many important technical improvements in electrical appliances which have materially reduced costs and consequently made possible rate reductions. It should be further remembered that a publicly owned utility is not always obliged in its accounting system to make provision for depreciation and amortization of plants. Public taxation is often resorted to for meeting such charges, while a privately owned concern must meet all such expenditures out of its own earnings.

An adequate analysis covering these and other items required for any comparison of the respective merits of public and private ownership is not made. The standards of comparison are too superficial. In speaking of government regulation of privately-owned utilities the writer says that “the United States are spending something like $6,000,000 a year on its Interstate Commerce Commission.” He then asks, “Have rates been reduced? Have freight rates or passenger rates been reduced?” To make rate reduction the all-important test of the efficiency of public regulation of our privately-owned railroads, especially in a period of rising commodity prices, shows a rather narrow conception of the complexity of the problem presented.

On the other hand the author’s recital of what is being done by government owned and operated utilities is impressive. Some of his analyses of the accomplishments of certain publicly owned industries, such for example as the achievements of the Hydro-Electric Commission of Ontario, Canada, are strong refutations of the rather commonly accepted idea in this country that government business is necessarily uneconomical and inefficient.