CHAPTER X MISCELLANEOUS SUBVERSIONS

The major subversions to the “X” factor previously described, plus those discussed under this miscellaneous heading, by no means complete the list. However, most of those left untouched would, very likely, be similar in principle to those here treated. If not, we have at least stated a sufficient number to organize the problem.

Speculation

Play not for gain but sport. Who play for more Than he can lose with pleasure, stakes his heart—Perhaps his wife’s too, and whom she hath bore.

—George Herbert.

Gambling by anyone rich or poor, for pleasure or otherwise, may have its moral side. That issue is for the moralists. Some types may be illegal and others legalized, but that does not necessarily concern us. Of the innumerable kinds of speculation, some of which are economically sound, we are interested in ascertaining the effects on impoverishment of the gambling kind commanding large public participation: stock and bond market, real estate, installment buying and an infinite variety in which practically every person of mature age engaged during 1928–29.

Speculation by those who have surpluses of capital with which to play, capital which if lost or gained will not affect their necessity requirements, has a tendency to stabilize market conditions, that is, if the speculators win. It subjects the capital market to a well diversified cross-examination of its condition, it tends to put the market in its place. When speculation is confined to people of this wealth level and when these people confine their speculation to above-requirement surpluses, the public is not adversely affected. Looking at the problem broadly, there is no money made from speculation. That which one gains another loses. The capital used to speculate remains in the market—it merely shifts to different ownership or control as gains or losses are registered.

Broadly speaking, those who speculate do make money on occasion. They make money during a period of increasing productivity, when more goods and services are being made by more people. Those who speculate make money temporarily, and lose more later, during periods of inflation or when the market is under the influences of other artificial stimuli. But speculation, except as it perfects the market, is never the cause of increased wealth.[1] Leaving aside the artificial influences, speculation is simply a gamble as to whether or not increased wealth will be forthcoming.

An entirely different set of circumstances surround speculation when indulged in by those who do not have playing surpluses. Conditions bordering on national catastrophe can very easily result, and on at least one occasion have resulted, from mass speculation. For one thing, the market is subjected to an impetus to which it is unaccustomed and to which economically it is not, nor should it be, attuned. The unexpected stimulus given demand for ownership of productive and distributive ownership, which speculation can make possible, forces capital markets to unsupportable heights from which, sooner or later, they must tumble. During the rise, false prices and therefore false purchasing power result. Productive instruments are forced into the false economy to satisfy a false demand for goods and when the crash arrives there remains a confusing mess of maladjusted instruments, each, we have observed, seeking the political means to support its marginal position and to guarantee it an enduring, prosperous existence.

This sort of trouble would never plague the national economy if speculation were confined to those who have extra surpluses and who therefore have a right to speculate. No capital would enter the market that wasn’t earned capital. And who cares if extra surpluses swap rich men? Movement of capital in those brackets is more than likely to do no public harm.

When one with no surplus enters the speculative market, he purchases instruments of ownership, stocks and bonds, on a marginal account. The difference between the earned income representing his down payment and the value of the instrument of ownership, passing to his control, is indeed very considerable. That difference represents a false demand in the market for which, for the time being, there is no compensating deflationary supply. Millions ride the inflationary wave, for, as it goes up, it is very safe riding. In such a rising market, quick profits eliminate the necessity for covering margins and, therefore, anyone with almost nothing can get on the wave sending it ever higher to the unsupportable crest from which it must inevitably fall.

Here is a fair illustration of the evils of the gambling type of speculation by those who have acquired no surpluses: ten men, the heads of families, are seated around a table about to speculate on how some cards will turn. To make this example precisely correct we will assume that these men have their monthly pay in their pockets, that in each case it is the same and that their pay is exactly enough to purchase the necessities for their respective families during the coming month. The cards are turned again and again. As it finally ends, one man has all the money of the other nine. Nine families are left impoverished for one month. Groceries, coal, clothing and other provisions produced by the farmer and the manufacturer and stocked by the merchants for their use remain on the shelves. There is plenty but there is also impoverishment. Imagine a bureaucracy attempting to regulate supply to this kind of an unpredictable and self-destroyed demand.

Some will contend that the man who got all the money will purchase the goods which the others did not buy. Perhaps, to some extent. He can’t eat any more food than he did before, if what he had before was enough. He will not heat his house any warmer if the warmth before was sufficient.

Practically, in a national splurge of speculation, many of the gains will go to those who devote all their time to the management of their capital. Much of the gain going to the rich will be accounted for by millions of small losses of the poor. The “kitty” gets it all. The rich have everything they want or the near rich have nearly everything they want. They will not buy much more no matter how much more they may gain from speculation. Gains to them only mean the management of more funds. But the poor become poorer. The rich won’t buy any more and the poor cannot buy as much.

Speculation on the part of the poor or near poor must always destroy the genuine purchasing power of the nation. It diverts earned income from the purchase of necessities and throws it into investment pools. Because of the lack of the demand for necessities, this money must go to the production of extra necessities or luxuries, these being the only things for which there can be a demand exceeding supply. This process, in turn, takes producers out of the necessity field and places them in the luxury field, and that loss to the necessity field makes for higher costs of necessities.

People without extra surpluses may well invest in instruments of ownership, but such a placement of savings should be looked upon as an investment and that alone. Any mass movement looking to enrichment by speculation and not by production and distribution made possible by thrift, frugality and conservation, makes for a greater impoverishment and is subversive to the “X” factor to the extent it is practiced.

Consumer Cooperatives

This subject merits discussion because of the consideration given to it by the general public and not because of its present effect. That, at the moment, is relatively negligible. The intentions and designs of those supporting the present movement are the important points.

Consumer cooperatives, of themselves, are just as legitimate and just as economically proper as are individual business concerns or corporations. If a consumer cooperative can do a better job of distribution and can bring goods to the consumer at lower prices than existing agencies then such a cooperative should receive every encouragement. The private business concern that cannot stand against the competition of a fairly run cooperative has no rightful complaint, nor should it be the recipient of public sympathy.

Many people, lured to the consumer cooperative fold, come because they are given to understand that they will share in the profits, thereby making the cost of their purchases correspondingly less. There are two false notions at large here. First, the assumption that there is going to be a profit. What if there is a loss? More enterprises fail than succeed. Second, that the taking of a profit, if any, should be credited to lower prices for goods purchased. It would be as sensible to invest money in John Doe’s shoe factory and subtract the dividends from the cost of goods bought at the corner grocery. An investment in a cooperative should be considered the same as an investment in any other business. Investment in a cooperative is a risk just like other investments, it may lose and it may gain. Any loss or any gain should be regarded as just that and not as a subtracted or an added cost for goods purchased. How much profit can the cooperative make? Is it a better investment than some other enterprises? At what price does it sell its goods? Are the prices lower than those of other merchandisers? Upon the answers to these questions should consumers base their decisions to invest in and to buy from cooperatives.

The present consumer cooperative movement, however, is not based on the premise of fair operation. It has an advantage up its sleeve which is at once unfair and uneconomic. This newly stimulated movement and the hope for its success is founded on the movement’s expectations of employing the political means. It proposes to take unfair advantage of competing business by obtaining government subsidy and tax exemption. Having obtained such a considerable advantage, it can then pretend it is offering goods at lower prices because its costs are lower. Of course, the costs won’t really be lower. Its costs will be the same but a part of its overhead will be paid by government, which means by all of us including the merchants with whom the cooperatives propose to compete.

In these days of growing statism, movements of this kind must be resisted to the utmost. Independent merchants seeking discriminatory legislation against “Chains” had better be careful lest they establish legislative precedents permitting cooperatives to wipe them both out of business existence. The very structure of cooperatives gives them unrivaled political power. Politicians, sensing the handy advantage of compartmentizing the people, will bend every effort to aid and abet the aims of any such well compartmentized group.

Share the Wealth

This scheme fallaciously assumes that wealth is a static thing, that all there is or ever will be is in existence, that if one is to be wealthy he must somehow secure some of the wealth already possessed by others.

This nostrum, like most of the others, comes from a philosophy of despair. It fails to recognize that wealth is only slightly static, that the greater part of wealth, if there is to be any considerable amount of it, must be a constantly, freshly created thing, day in and day out, year in and year out, ad infinitum.

The only static parts of wealth are the instruments used in creating wealth: farms, factories, railroads, etc. To divide these would be silly. In most instances the present ownership, schooled in efficient operation by the hard master of acquisition, is far more competent to direct these instruments in producing goods for the use of others than would be any new politically directed breakdown and realignment of ownership.

The elements of wealth in which people are interested are homes, food, clothing, the other necessities, conveniences and luxuries. These things are produced daily. They are consumed daily. All that can materially interest anyone is the getting of a sufficient amount of these goods. Merely to divide the money in existence or to divide a billion or a hundred billions of “new money” among all the people, would not add a single slice of bread, another pair of shoes or a kilowatt-hour of electricity to the total wealth we now have.

On the contrary, any such division of existing wealth or division of fiat money would seriously subtract the slices of bread, the pairs of shoes and the kilowatt-hours of electricity we now have available to us. Not only would there be an impairment of our producing machinery by the installation of incompetent management, but the inflationary forces set in motion by the division of fiat money, as has been set forth, would throw this machinery out of adjustment and create a general impoverishment.

The mere fact that one capitalist has accumulated, let us say, ten million dollars, is not of itself a deterrent force in keeping anyone else from being rich also. He can use but little of that ten millions. He can only control it and, to be of any use to him, he has to put it to the use of others. He must control it wisely and there are many natural motives forcing him to do so. In most instances that accumulation makes riches easier for others.

So long as more things for more people is our objective, we need only concern ourselves with the processes that permit their production and distribution. Sharing the wealth, as it is legislatively planned, destroys this possibility—it subverts the “X” factor.

Thinking people will do well to examine current legislative proposals for subtle share-the-wealth designs. None of these proposals are as sweeping as the Huey Long brand, but many of them are doing by bits what he planned in one fell swoop. Economic death by inches or all at once? You want neither? Then get off this road—it’s bad! Share-the-wealth schemes have a “reverse English” effect. They bring results opposite to those intended.

“Work Less and Have More”

Under this heading fall two current panaceas having no inconsiderable support. These are “share-the-work” and the “thirty-hour week.” Ironically, the chief sponsors are labor organizations, embracing in their memberships the very people who would be most adversely affected by the adoption of any such plans.

“Work sharing” is a direct invitation to a lower standard of living. A worker making $1500 a year can purchase a few things beyond bare necessities. If his employment is shared, he has less, and the one with whom he shares his work has no more, if as much. The scheme limits the worker’s opportunity to produce and to earn. It, therefore, raises costs and reduces purchasing power.

More alluring, and therefore more devastating, is the plan for a six-hour day and the five-day week. It really is the “work-sharing” idea plus the proposition that the worker will receive the same weekly pay as though he worked, let us say, forty-eight hours. From the standpoint of the worker who refuses to go beyond shallow reasoning, the plan looks grand. He can work eighteen hours less per week, he gets the same pay, he has more time to spend and therefore to enjoy his earnings and, above all, someone in the ranks of the unemployed will have the opportunity to work the eighteen hours made possible by his magnanimity and at the same hourly pay.

On the basis of a dollar an hour, here is at least $18 per week (and possibly $28.80) added to the purchasing power of labor, so it is thought. Why should “business” complain? Will not “business” sell more goods?

It would be a great world, perhaps, if all our problems could be solved this easily. But they cannot. At least reason and experience dictate that they cannot. Provided the sponsors of this scheme are sincere, and one has to allow for a lot of naïveté to be without suspicion, their methods contradict their intentions. That which they offer as a solution only aggravates the problem. They may mean well but they do wrong. They “fall” for a fallacy and pursue it stubbornly and blindly. This “thirty-hour week” proposition, when compared with factual evidence, doesn’t make sense. When one is certain that such an idea, even when sponsored by labor, is inimical to the interest of labor, is one wrong in condemning it? Should “business,” recognizing the fallacy, sacrifice long-range public interest for momentary approbation from self-styled liberals and “friends of labor”?

The “thirty-hour week” philosophy gives a false credence to one point and fails to recognize the stumbling-block nature of two others:

A. Real purchasing power does not consist of money. If it did we could all be prosperous by the simple expedient of printing money at any time we wanted any commodity or any service. Real purchasing power is created when we make something or render some service which has a market, something which, if in excess of our own requirements, we can trade for something else we more ardently desire. Money has only two functions: first, it serves as a medium of exchange in facilitating this trading of products and services and, second, it serves as a repository of value so we can conveniently account for our position in this productive process. If we create goods and services of greater or lesser value than we consume, we register the credits or debits in the form of money. We have a surplus of money or we owe money. Money is only the symbol of purchasing power. Purchasing power comes only from production. If this point were better understood, more people would be producing rather than trying to get rich by symbol-tinkering.

B. When a forty-eight-hour worker, getting $48, works only thirty hours, still getting $48, and someone else works the eighteen hours’ difference, getting $ 18, the production remains the same and the cost jumps from $48 to $66, From where is this tremendous cost coming, this extra cost from multiplying $18 by millions of legislated eighteen-hour lay-offs? That cost must be added to the price of the products. Labor, with no more dollars per laborer, will pay higher prices for goods and services. Labor will be able to buy less, not more. Labor won’t need any extra time to spend its money—labor cannot buy as much on a $48 thirty-hour week as it can buy on a $48 forty-eight-hour week.

C. If labor could produce as much in thirty hours as in forty-eight hours, then perhaps something could be said for this idea. But that is sheer nonsense. To be sure, there is a point at which every person reaches the peak of productive efficiency, but that point, except in cases of physical or mental deformity, is far above thirty hours a week. The following is a sample of sound reasoning, typically perverted:

“It was progress when we reduced from a fourteen to a twelve-hour day and more progress when we reduced from a twelve to a ten-hour day. Therefore, will it not be progress if we reduce to eight, to six, to four—?”

What should be the duration measure of weekly labor? Until everyone has everything needed, the measure should be the point at which the greatest productive efficiency is reached. This point should not be subjected to a national generalization. It does not lend itself to that. Climate, class of workers and conditions of work unite to create a variety of efficiency points which in one circumstance might require a 20-hour week—in another, a 60-hour week. Hourly reductions in labor below this point, whatever it may be, should come only as rewards for achievement, as gifts from a perfected economic system. Fewer hours, below the productive efficiency point, can never be the cause of more goods for more people.

Another way of seeing this theory clearly: worker A can make four chairs in eight hours. These chairs are his purchasing power. In six hours he can make only three chairs. Therefore, in six hours of labor he will put less not more purchasing power in circulation. More pay for less work creates less and not more purchasing power.

The wage earner should recognize that he, more than anyone else, has the greatest stake in lower costs and therefore lower prices for goods and services. The normally well-to-do and the rich do not like a high cost of living. But twenty-cent bread, twenty-five-cent milk and twenty-dollar shoes do not keep these higher-bracket people from having bread, milk and shoes. These higher prices may force them to play less golf, to buy cheaper automobiles and to thin out their pleasure trips, but they will continue to eat all they want and to enjoy, to the full, the other real necessities.

What happens to the wage earner, with merely a necessity-furnishing income, when bread, milk and shoes and the other necessities double in price? The answer is obvious: he has only half the bread, milk and shoes and the other necessities. A commodity price raise in relation to labor income is the most disastrous thing that can happen to labor. Such a circumstance half starves the wage earner—it merely keeps the well-to-do from enjoying all of their accustomed luxuries. It pinches the rich man in his automobile—the poor man in his belly.

Yet, strange as it may seem, paradoxical as is the truth, the average labor organization sponsors measures that, if adopted, would assure this circumstance. On the other hand, enlightened business organizations, which labor is constantly admonished to regard as enemies, oppose these measures with all the vigor they possess. Labor will do well to scrutinize more carefully its alleged friends and its supposed enemies. Anyway, the opponents of “work less and have more” are the real friends of labor whether or not organized labor and its professional promoters ever recognize or admit it. These nostrums are viciously subversive to the solving of impoverishment.

Union Wage Scales

Only that relevant to our problem need be discussed on this broad subject. Present trends, however, seem to point to policies, likely of adoption, that must command more and more attention when considering impoverishment.

No one, having a philosophical understanding of the American system of free enterprise, will deny labor the right to organize, the right to bargain collectively or the right to charge for its work what the market will bear. That is, provided the collective bargaining does not assume monopolistic proportions. Industry bargains collectively when several small shoe factories merge into one company. But industry is not permitted to merge until there remains no competition. All the shoe factories in America cannot merge into one big corporation. Sound economics and the public interest demand that this condition shall never be otherwise.

All labor should be regarded as a commodity whether it is common labor, school teachers or corporation presidents. It should be regarded as that because it is a commodity, nothing less, nothing more. A university president is president only so long as there are more reasons for keeping him on the job than for employing others who may be seeking the position. His service is a commodity in competition with others able to render a similar service just as much as the products of a factory are in competition with comparable products from other factories. His service is subject to the same laws of supply and demand and the incident price-level variations as any commodity of common utility.

A monopoly of any commodity, except in rare instances like the telephone business, is contrary to the public interest. Monopoly cannot long endure, unless politically protected. Monopoly in industry exists when an industry is able to advance the political means to its side. Industry will tend toward the use of the political means to attain monopoly if the public will permit it to do so. The present business demand for another kind of NRA is sufficient witness to that statement.

Likewise, labor tends toward monopoly but can acquire it only if it can successfully employ the political means. It attempts to secure government backing for its wage scale and working conditions demands which, temporarily at least, would take labor—organized labor anyway—out of the market as a competitive commodity. Irrespective of the fact that competition is, in the long run, in the interest of business, labor and the public, most groups instinctively seek to exempt themselves from its many exactitudes. Most groups want competition for other groups, few ever demand it for themselves.

If a thousand plumbers said, “We have organized ourselves into a union; our work is superior to the ordinary run of plumbers; we will conform to certain specifications as to hours, grade of work, quality of work, etc., and we want $1.50 per hour for our work; we will work for nothing less,” that proposition, of itself, would be no different than Mr. Ford producing a car of known specifications and saying in effect, “The price is $650. F.O.B. Detroit. Take it or leave it.”

But if Mr. Ford attempted an industrial coup d’état, which amounted to a monopoly of the automobile market and said, “Here is a Ford car. The price is $1000. If you want an automobile take this one. There are no others,” we would readily understand this acute disadvantage and probably wouldn’t stand for it very long. As it is today, although few outside of the automobile business contemplate competition with Mr. Ford, we know that we are enjoying all the advantages of competition. Should the present manufacturers become inefficient, should they not follow their present rule of pressing for every possible price reduction and every possible improvement, some of us would not be long in organizing the capital and the technical staff to compete in what might be termed an “easy” market. The automobile industry has attracted some of the best men in the nation and the best men in the nation recognize these facts, are not adverse to competition, press for every improvement and lower prices and, as a consequence, they have brought the automobile within the purchasing range of millions of consumers.

Organized labor, today, is attempting to avert competition. When a union goes on strike it doesn’t say to the industry, “We refuse to work unless we get certain conditions and pay. If you think you can do better by employing some non-union labor, go ahead and see how you like it.” Oh, no, the attitude is far different than that. It says, in effect, “We refuse to work unless we get certain conditions and pay. We will prevent anyone else from working in our places. Those who do not choose to belong to our union cannot work in your plant and they will have no say-so whatever about working conditions or pay.”

Even this unjust attitude is not the worst in present practice. On the West Coast, where radical, left-wing labor leaders are in control of maritime labor, the issue is control of the “hiring hall.” These labor leaders are demanding control and are saying to the employers, “You not only cannot hire non-union labor, but you will have to take the union labor we dictate.” Here is a case of labor usurping the functions of management, a practice viciously destructive of productive efficiency. It is “dictatorship by the Proletariat” raising its ugly head in America—a condition in which the “X” factor cannot possibly exist.

While much of the present labor attitude is of this militant variety and not in the interests of even labor itself, there is also a semi-peaceful but nearly as uneconomic an attitude on the part of many organized labor groups. Some of the best unions, like the carpenters’ for instance, have monopolized the competent carpenter market and set a very high price on their services. They allow no competition to exist within their trade nor will they work on jobs where non-union men are employed, even in other trades.

To understand the effect of this monopoly, one must think of the annual national income as a whole. That income is the aggregate of all production. That aggregate is some given amount, say fifty billions of dollars. Monopolistic groups, like the well-intentioned carpenters, take from this national income an amount disproportionate to the service they render. When this is done, the unorganized, the less skilled, the agriculturists and others have just that much less for their share. They have to suffer for the greediness of the others. These maladjustments create impoverishment.

The answer to this by the collectivists would be, “Let the others organize also.” But, let it be pointed out, that organization would not increase the national income. It would merely increase the competition for exploiting the national income. Class strife would be even more in evidence.

The consequence of these rigidities, whether by wage fixations through union organization or price fixations on industrial goods through NRA regimentation, are lower standards of living. The ingenuity of man is given the wrong emphasis: business, laborers, agriculturists, bankers, veterans, home owners, and all the other compartments of a nation’s population get to thinking of their main objective as the grabbing of a disproportionate share of the nation’s income and not in terms of producing more goods at lower costs which will add to that income.

The carpenters, plasterers, plumbers, lathers, floor-layers, electricians, bricklayers and painters set up a Chinese wall within which they impose non-competitive wages, wages they wish and not wages the market commands; the manufacturers of lumber, concrete, plumbing, electrical supplies and paint hope to do the same sort of thing, and what happens? When they all get through with their non-competitive wages for labor and prices for materials, what happens? The price of a finished home is so great that only higher bracket income classes can afford to build one. And even they must build a home inferior to the one they otherwise would build.

Impoverishment is a relative term. If no one can afford a home then the people are impoverished in respect to homes. A home is only one of the elements of wealth. If everyone had a home, everyone would be wealthy in that respect. The same principles apply to acquiring a general wealth as apply to acquiring a wealth of homes. All we care about in solving the problem of impoverishment is that every element of wealth—homes, furniture, food, clothing, education, fuel, transportation, et cetera—be produced so cheaply that they will be within the price range of those in the lowest income brackets. This can only be accomplished by more and more production. Every impediment to production is an economic vice, including artificial wage levels or artificial commodity or service levels. If every group would comprehend that purchasing power does not come from high wages or high prices but that higher wages and higher prices are merely the symbols of greater purchasing power which, in turn, is based exclusively on production, our economic troubles would be little short of over. For we do possess everything but the correct thinking as to how our efforts should be directed.

As inferred previously, subversions to the “X” factor are almost without number. The few discussed here only scratch the surface—they are merely illustrative. Every folly, all our ignorances and mistakes, wars, class conflicts, ill-conceived legislation and the maintenance of out-moded institutions combine to effect impoverishment in the midst of plenty—tend to jam the natural flow of wealth to greater numbers of people.

What folly it is to suppose some panacea can create a material millennium when the real causes of our difficulties are rooted in the frailties and the weaknesses of millions of individuals!

There is no cure—there can only be modest improvement and even that depends on individual willingness to contribute many personal virtues. “. . . deducing the rules of right living in the world as it is . . . wearisome and commonplace tasks. They consist in labor and self-denial repeated over and over again in learning and doing.” For such is the price of a more abundant life.

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[1] We do not here refer to the type of speculation in which a farmer engages when he plants a crop or in which a business man enters when he introduces a new product to the market.