Part IV

PART IV THE CONSTITUTION OF THE"PRIVATE ECONOMY Beside those works mentioned in "1. Theory of Economic Society" by Wagner, Schmoller, Philippovich, Doria, Oppenheimer, Stammler, Bohm-Bawerk an.d M. Weber: the following are to be added: Sornbart, Moderne Kapitalismus, 1902, 4th ed. 1922; Mann, lVirtschaftliche Orga;n,isationsideen der Gegenwart, Welt wirtsch. Archiv, vol. XIX; Dalton, Some A.spects of the Inequality of Income in Modern Oommunities, 1920; Bucher, Die Sozialisierung, 2nd ed.' 1919; Passow, 'Kapitalismus, 1918 ; Liefmann, K(J/f'telle, Trusts und Weiterbildung der volks wirtsch. Organisation, 4th ed. 1920; A. Weber, Der ]tampf zwis.chen Kapital Urnd Arbeit, 4th ed. 1921; Pigou, 'Eoonom,ics of Welfare, 1920. § 75. THE CONSTITUTION OF THE PRIVATE ECONOMY AT THE DAWN OF THE CAPITALISTIC 'ERA Private property and the mewning of, eoonomy-The struggle, for wealth-The historical development of the constitution of the private economy-The social character of the private economy-The inequality of distribution.-Law and its supplement: charity-The Private law of inheritance-The disoiples of the olassicists.

We have so far treated the private economic order merely as an assumption, a given" fact, from which we proceeded to' follow the course of the national economic process. We inquired by what rules the private legal subjects, who meet in exchange,determine the natural performances and the price; and how, from the basis of ex change, they construct their acquisitive economy, whenever they mean to comply with economic requirements in their personal economies. With the results at which we arrived, however,our task of explain ing the spirit of social 'economy is not as yet fully accomplished. To this end, the problem' will have to be considered,whether or not, the institution of private property is consistent with the idea of a social economy. Is private property an institution of economic endeavor or is it not,much more properly, to be called an institution of superior power? Or, to be more precise, is private property an institution subservient to the economic requirements of society, or is it merely the creature and tool of' those who wield socio-economic power?

We shall not be entitled to look upon our theoretical exposition of 389 390 SOCIAL ECONOMICS the national economic process in its entire course as formally complete, until we shall have discovered the final answer to this last important question. That the institution of private property is most intimately inter woven with all the implications of the individual economy, may be demonstrated with the utmost brevity. Only such goods are made private property, as have entered into the economic quantitative rela tion. Who would ever dream of asserting rights of private property in goods abundantly free to everyone; goods from the enjoyment of which· he could· exclude noone, which no one could dispute to him Y The rationale of private property is the rationale of all economy. Being forced to husband the utility of economic goods, we feel com pelled to vindicate their possession in the face· of all other claimants; the question of Mine and Thine becomes vital; the right of property which we set up, is to confer legal security with respect to economic use. By this chain of reasoning, the theory of utility explains not only the actual progressol the economy, but leads moreover to the demon stration of its legal basis.

It must be admitted, that these facts do not fully explain the obvious outcome. It must be admitted that, just as I endeavor-to maintain and extend my ownership-interests, every other member of society will endeavor to do the same for his. The universal interest will not, ipso facto, create a universally valid legal condition, but only a universal conflict. Thus a struggle for possession is kindled, and the stronger will triumph. Since the prostrate enemy, who, as a slave, was forced to work for his conqueror, became, during centuries and centuries one of the most valuable constituents of economic wealth, the struggle for the possession of material economic goods was extended to the person of the individual, and became the struggle for personal liberty. Ever since the liberty of the person has been guaranteed by law, the struggle for personal freedom has become a struggle for the proceeds of labor. In this form, it has survived down to our own day. The struggle for wealth, with these rank accompaniments, was in the· earliest times a struggle of force against force, violence against violence. Later on, it lurked under legal forms. To the observer it -is plainlY discernible in the escheats, for feitures and sequestrations ot later periods, in the economic wrong doings of the powerful, the predatory expeditions of robber-tribes, the innumerable feuds of every type and description which, down to the colonial wars of our own times, have been and are being carried on for the sake of economic interests. Less transparently obvious is the struggle for wealth, for possessions, when carried on by conquerorTHE 0 R Y 0 F SOC I ALE CON 0 M Y 391 nations who have won dominion by sheer foree, and who, as they pro ceed, feign formal observation of a law which they have shaped to suit their own interests, and which they uphold by their superior arms. In every exploiting legal system, power is one of. the concom mitants of private property, and possibly a system of law has never existed, which suceeeded in maintaining altogether its independence from the pressure of power. Perhaps there never will exist a legal system of this sort.

Just before the beginning of the capitalistic era, too, private prop erty was by no means free from the encroachments of power; never theless all in all, it was at that time, beyond any doubt, sanctioned by public opinion as just and proper. When the constitutions of that period safe,guarded· the sanctity of private property, they gave ex pression to the sense of justice of the people. Tradespeople and peasantry, as well-to-do classes, were satisfied to see their interests protected in private property ; the proletarian workers were still a small minority, and this group had not yet, in its views of economic matters, signalled its dissent from the mass of the people; the social istic doubt as to private property had not yet raised its head; the system of private economy was the living law of the land. T~ this condition, as it existed at the threshold of the capitalistic era, we will for the present confine our investigation. This enquiry can prove nothing directly, concerning the state of things, as it exists to..-day. Before such an application of the past to the present may be made, we shall first have to ascertain whether or not the momentous actual changes which have since taken place in the economy, have essentially modified the significance of private property.

The center of gravity for the system of private ,economy is acquisi tion. That the means of enjoyment, which have been produced, are finally surrendered for private disposition, is of minor importance; even in socialistic circles the coming order of things is generally so conceived that only the means of acquisition are placed at social disposal, while the means of enjoyment produced, are to be turned over to individuals as private property. We· shall, therefore, confine ourselves to the exposition of. the private system of acquisition. The essential factors of this system as it existed prior to the spread of the capitalistic large-scale industries, may be briefly summed up as follows: The entire national-economic process of acquisition may be resolved into an incalculably large number of private economic partial processes, mostly small, some of medium size, working jointly under the division of labor. Similarly, the· wealth of the nation splits up into innumerable nuclei of individual wealth. Economic goods, per392 SOCIAL E CON OMI CS sonAlty as well as realty, are held by private owners; money-demands and all other· economically important rights are distributed among private legal subjects. The private individuals participating .. in the national-economic process, when not more cl9sely related by family ties, are related by contract, ., especially the contract of exchange in all its modifications. Incomes can be acquired only by the in dividual taking part one way or the other, by his labor, by his property or his other possessions, in the acquisitive process or else where creating values. The personal income is composed of the prices realized in the, commerce of, exchange, and falling to the share of each participant according to the laws of attribution. 'Disregard ing' enhancem.ents of value, we may' say that wealth is increased or new wealth is created by successfully. effecting savings from values received. The law of private inheritance adds to private wealth, when in case of death the estate of a decedent passes to surviving members of his family or to legatees, who become the private ~uccessors to his rights. Estates of those dying intestate ,and without heirs, pass to the state by escheat; but, with the wide circle of relatives and the next of kin entitled to lawful succession, cases of this ,sort are ex tremely rare. The state, municipalities and, also the church, as arti ficial persons, may also be private juridical subjects, and as such take part in the national economic process; but their private participation, when contrasted to that of natural' persons, is much less conspicuous.

What influence they possess over the economy as, dispensers of public powers, is not to he discussed in this place. A large part· of the current, private economic system -is written law. The civil law, commercial law and the Ictw of commercial paper regulate the material law of property and acquisition. The criminal law offers protection from offences against property and acquisition. The law of criminal and civil procedure. and proceedings out of court regulate the forms of remedial protection offered to the economy by the state. , An exceedingly large number of relations of the economic system are regulated by the administrative ,law. Constitutional law, finally, extends increased protection to the'established order, by bestow ing on private property" as a fundamental legal institution, the sanction of the state. But the essential part of the prevailing, private, economic system is unwritten law, and survives by its inherent power.

Neither the fact that the social acquisitive process is the sum of countless private partial processes; that the national wealth is the a.ggregate of any number of private, individua~ units of wealth, to gether with the proportion, according to: which the units are allotted to the participants; nor the fact that the state. and all other public THEORY OF SOC I A LE CO NOM Y 393 corporations as incumbents of private economic ri,ghts, give way to private, natural persons, has been guaranteed by written law. Yet these facts are the controlling foundations of the existing economic system. They supply to the written economic law the wide field of its validity. In the form of these traditional quasi~laws, the con stitution of the state, which orders the public legal relations of the people, is confronted by a private economic constitution, its equal in importance as regards the public welfare, and possibly its superior in prestige.

That this salient component of the social constitution should have remained unwritten law, can be explained only from the fact that it possesses the incisive power or sound historical evolution. The private economic constitution has attained the unchallenged authority, which was its own even before the beginning of the capitalistic era, because of its historical success. The historical growth of the private economic constitution runs through thousands of years. For our theoretical purposes we need not follow its course into all those details which only scientific special ization can ascertain. They are not subject-matter for the theorist's inclinations or qualifications. For our part, let us survey the develop ment in its most general features, the features which are familiar to every educated man. Even of these, we need not trace the record to its earliest beginnings. If we go back to the period of the closed domestic economy, entered upon as soon as mankind succeeded in cultivating the soil with sufficient results to maintain fixed dwellings, it will be all we require. During this period, the Germanic people were already politically organized into distinct tribes; but there was not yet a social economy. The combinations of popular strength had become imperative by the exigencies of war, for whose success ful conduct the means of common power had to be collected under.a unifying command. On the other hand, the economic calling had not yet become so extensive as to present a social issue and to excite a social economic process. For the daily demands .of the economy, taking all in all, the single unit of power comprised by the household was entirely adequate. The assembly of the entire social force and a single-voiced· command would have offered no advantage for this pursuit; endless confusion would have been the outcome of such interference. No sooner had the social army under its princely com mander fought its battles against the enemy, than it became a matter of course for it to disperse, leaving every man to attend to his economic duties in the household. The well-known tale or the Roman dictator, who, arter his military feats, retires from his high office 394 SOCIAL ECONOMICS with its power of life and death over all his fellow-citizens to the seclusion of his country-seat and there follows the plow like any other Roman, illustrates vividly, how differently the law under which men live adjusts itself to the aims of war and the aims of economy.

War, from the beginning, was the concern of the multitude; it affected common interests. The economy of early periods was a matter of individual interest to small, localized groups; its organization and management were disjointed. To this extent, even in the days of the natural economy, there existed a private constitution of economy. However, the private economic constitution of early days by no means coincides with that of to-day. The individual economic processes were in those' days not, as they are to-day, partial processes of a great national economic aggregate. They were small, locally isolated and independent proc esses. In our investigation it is of especial significance, and should be emphasized, that nevertheless their private character was not nearly as sharply developed as it came to be after they had coalesced to become partial processes of a large social whole. In' any event it is improper to speak of private property i:n a strict sense in those early times. In like manner the relations of person to person were but little regulated by private contract. The greater part of the soil, the arable land, the pasture and the woodland, were common .property of the village or march; the individual fellow townsmen were confined to a right of personal use. When, later on, private property in the soil was recognized, the owner was essentially restricted by the rights of his family in the disposition of his property during his life or in the event of his death. The peasant owners, moreover, were hemmed in by the rights of the lord of the manor.

The peasant was· not even free to choose the methods of cultivating his land; he was bound by rights of vicinage, which were frequently strengthened into compulsory rules regarding manner and times of planting and harvesting. The relation of service, for those who were not free men, was regulated by a compulsory code. Later on, the greater number of· the peasants fell into villenage, which only very gradually was relaxed into milder forms. The urban trades, to be sure, strove from the very beginning to obtain personal freedom together with recognition of private property ,but even in their business-dealings personal freedom of action was greatly restricted. The guilds compelled all to join and preseribed to individual members the rules of technical procedure. They dictated, down to the very prices which were to prevail, the terms of the contracts which masters were to enter into with their apprentices, journeymen and customers.

THE 0 R ,y 0 F SOC I ALE CON 0 M Y 395 The power of the state, as it gained strength and made its influence felt after the beginning of modern times in order to energize the economic process" did much to protect the peasants from the ill treatment of their lords and the public from the abuses of the guilds, and to clear the way for the nascent large industries. But after all the greater part of its benefits it conferred by means which again fluctuated from beneficent tutelage to rigorous legal compulsion. Not until the economic process had finally gained impetus, were the shackles of locally restricted economy, endured for centuries, and the oppression of paternal ,government-interference felt as intolerable clogs. Liberation of the peasants, popularization of the land, trade and commercial freedom were demanded and obtained. Now, at last, the private character of economy achieved complete recognition.

Under the pressure of free comp'etition nearly all of the industries established by the state during the earlier period were repressed and dissolved. Since the greater part of the landed estates, which had also been held by the state ever since its inception, were surrendered to private owners whose management of agricultural property showed their superiority to the state, the private constitution of economy had won a complete victory. The victory was all the more significant in that it had been won against the old-established powers of the lords of the soil, against equally strong local influences, against the state itself and all its prerogatives and means of coercion. It was won by the burghers, long politically debased, and the peasants, but recently a political nonentity. No external power, only the inner power of success, the true spirit of economy, made these conquests . .As the social economy grew larger, private disposition becam.e much more prominent and unrestrained than in the beginnings of the locally scattered economy. This is conclusive proof that, under the historically presented conditions of the pre-capitalistic era, the private constitution was consonant with the inner nature of the economy.

Under the earliest conditions, the isolated economy was the result of a compelling external circumstance, altogether distinct from the nature of economy; it was the consequence of local separation, forced upon mankind while inadequate manual skill, as well as scant capital wealth, permitted neither larger concentrated populations to find means of subsistence, nor enabled them to overcome the difficulties opposed to joint economic action bYgTeater separation. But that men adhered to the private isolation of economy, even after they had combined to a social economy, had commenced to live close together and had learned to overcome the impediments of distance, can only be explained by the greater success which attended the private system SOCIAL ECONOMICS of the social economy; greater, for example, than was possible in the narrowly secluded monastic· communities or' the unitary community of the state. The fact that the private isolation was not only adhered to . but that private disposition, overcoming all early restrictions, gaIned strength and constantly increasing freedom, admits of only one interpretation. The private economic system gained constantly increasing security by the progressing social education of the indi viduals in technical art, morals and organizing capacity. Ultimately men were trained for freedom of action and the educative powers of coercion, long indispensable to evolution where personal interests had ,to be coordinated to considerations of general welfare~ could at last be spared.

, As its success became greater, the economy naturally also increased in 'social importance. In the success of the closed domestic economy, only the individual family is interested; but all at once the general interest of the state was· connected with the circumstance, that the peasant provided food for the burgher and. that the burgher was to enrich the state. While, formerly, economy had to be subordinate to war, to statesmanship and to cultural efforts; while, the "consti tution" of economy was subordinate to genealogy and the constitution of armies, to the constitution of churches and states, everyone of which was more important to the preservation of society, it now nn fC!lded in their midst and was able to display the essence of its nature. The private economic system is the' only historically tried form of a la~ge social economic combination. The experience of thousands of years furnishes proof tha t, by this very system, a more successful social joint action is being secured, than by universal submission to one single command. The one will and command which, in war and for'legal unity, is essential and indispensable as the connecting tie of the common forces, detracts in economic joint action from the efficacy of the ageney. In the economy, though it have become social, work is always to be performed fractionally. Some part of the total labor is always t'~ be applied to some particular goods, in order that the grea;test poss,ible utility may be realized in this segment and that the margin of use may be extended as far as possible. Part performances, of this sort will be executed far more effectively by thou ~ands and millions of human beings. seeing with thousands and mil lions of eyes, exerting as many wills; the~r will be balanced, one against the other. far ,more accurately than jf all these 1lctions. like some complex mechanism, had to be guided and directed by some su perior control. A central prompter of this Rort could never be in formed of countless possibilities, to be met with in every individual THEOR Y OF SOCIAL ECONOMY 397 case, as regards the utmost utility to be derived from given circum stances or the best steps to be taken for future advancement and prog ress. In such situations, therefore, subordinate officials would have to be left to follow typical rules, rules which, naturally, obstruct ready efficiency and demand. costly reconsideration, here and there. Even were ,greater freedom o£action conferred on the individual official he would lack sufficient interest in the matter to assume the increased re sponsibility incurred in departing from the beaten path and attempt ing new methods. The case of the private producer is different. His income depends on the yield of the venture. His vitally felt interest calls all his energies into action. The private constitution of economy is what is needed to enlist the stupendous force of egoism in the serv ice of economy-the force which, in case of impending war, submits without demur to the command of one leader.

This egoism, which from scattered, personal beginnings has erected the structure of the national economy, is a social egoism in· the true meaning of the term, which we explained in our brief outlines of social theory. It has stood the test socially, adding section after section to the labor-dividing edifice of national economy, and proving in the market for group after group of commodities its faculty to fulfil the sense of social economy more fittingly than it had been ful filled theretofore. It was fit that society should free it legally; the individuals under its influence are sufficiently bound to social co ordination of their egoism by their actual dependence, in regard to their partial processes, on the national economic process. The liber ated private economy remains one· with the national-economic whole. It is not the individual economy of a Crusoe but a s.ection of the national-economic process in which the right of personal disposition is legally reserved. The egoism which guides it never ceases to be so cially controlled; it remains under the regis of law after, as it was be fore its recognition. Socially approved, recognized and controlled, it is appreciated by man as a social power of his freedom, fit to receive its supreme sanction in the approval of the law of the land.

Taking into consideration the great inequality between the rich and the poor, which has prevailed in the distribution of wealth at all times and even at the threshold of the capitalistic era, one can scarcely overcome a doubt whether an egoism is to be called social, which leads to' a condition so unsocial. Economic principle demands that, at all times, the highest attainable satisfaction of needs should be the aim of economic efl'orts. Goods should never be applied to lower needs, while higher needs call for satisfaction and could be covered accordingly. But the private constitution of economy permits the rich to satisfy. their luxuri ous needs, while the poor are scarcely able to satisfy the needs of this existence. Is this not, after all, the grossest egoism which we here find tolerated? Does 398 SOCIAL ECONOMICS not the economic constitution become the handmaid of the egoism of' power in Ii. manner to offend shamelessly the spirit o~ social economy?

The answer to this question cannot be deduced from the psychology of the model man, from which we deduced our assumptions in the theory of the simple economy. Law is of historical growth. It has been formed under the influence of success, as it had to be in order that living men might perfor,m, in the most successful manner, the tasks of the economy. "Vere the task of, economy to consist merely in distributing stores of goods, given without human cooperation, to the most needy, then indeed no other distribution could be tolerated but one guided by "the rational needs," as the well known socialistic formula prescribes. But the most important task of economy consists in acquisition. The stores of commodities, are not turned over to man by nature, ready for immediate us~e; they have to' be procured painstakingly before they can be enjoyed. And to t.his principal problem of acquisition the economic law, now become a fact of history, is fittingly adjusted. It is not a simple law of enjoyments to be ob tained; it is a rigorous law of acquisitions to be made; it is a law shaped, as it should be, for men as they are, disposed to do their best only for them selves and their flesh and blood. When, in a scheme like this, the shares of individuals are unequally cut and allotted-very unequally, it may be-no in dictment of the wisdom of the legal system can be based on that fact. It may well be that a system of rules, which distributes very unequally the enormous gains to which it is instrumental, is after all more beneficial to the mass of the citizens than another, doling out its much smaller proceeds according to "principles of right and reason."

The unequal distribution of income is to no small degree caused by inequali ties of personal talent, skill and will-power. When the man who is not willing to work, is sent home empty-handed, no one will take umbrage. He is able to work; so let him work, then, if· he would live. He certainly shall not be permitted to live on the efforts of others. So, too, that the less gifted, less skilful worker should' gain less than the more gifted or the more skilful on~, is too well founded in the laws of economic and· social attribution generally to be seriously denied. Society dares not withhold the higher wage from the competent worker. To do so, is to risk losing the most vaJuable services. But when the strict rule declares against him also, who, without fault of his own, lost what he had and perhaps even his working-ability as well, sympathy pre vails and we cannot quite approve of the rigorous discipline. So, too, the excessive incomes and riches which go far beyond moderate wealth, can no longer be sanctioned by the general conscience, when they lead to idleness and dissipa tion or when, more iniquitous still, they have been handed down to the present owner as wholly unearned wealth, an inheritance from earlier generations who, perhaps, themselves acquired them by wrong-doing and abuse of power. In the distribution of property and income, as it existed at the threshold of the capi talistic era, inequalities against which a sentiment of fairness revolted were to be observed in plenty. Still, taking all in all, the private constitution of the economy at that time might well have satisfied a general sense of justice. On the whole, a satisfactory state of affairs had been reached. An attempt to repla.ce the historically settled rule by a different one, and to obtain for it the ratification of popular approval, would have proved a failure. There was no cause for an individual to feel uneasy in enjoying that which was his, where the mass of others were al80 satisfactorily fixed. Where sentiment was THE 0 R Y 0 F SOC I ALE CON 0 M Y 399 pained at the rigors of the law, he might surely extend a helping hand and mollify its severities.

At all times the private legal order has been supplemented by an extensive charitable system of philanthropy, beneficence and altruistic care for others, supported by the force of morality, religious sentim.ent and the dictates of the church. These charitable provisions are designed to bridge over the hiatus, felt by human sympathy to occur here and there, in the strict application of positive law, and resented as harsh and cruel, in the absence of some sort of mitigation. The system of poor-relief has, in progressive development, even been cast into legal form, though it naturally was restricted to the necessities of existence. The extreme individualists have energetically opposed the organiza tion of charity, as tending to impair the energy of economic forces and in creasing the dangers of overpopulation. Still, it is quite clear, that, whoever, out of his affluence or plenty, aids the needy, cannot be said to proceed, like the spendthrift, uneconomically. Although not demanded by the immediate in terest of his own economy, his action is justified by the spirit of the social economy, from which his private economy can never be detached. In these cases, an undefined consciousness of the insufficiency of legal rules guides human conduct, the social egoism is felt to be inadequate to the occasion, too egoistical in individual instances, too little social, to prevail without supplementation from other springs of 'action. The legal system is not disturbed by measures of this sort; it is, if anything, supported and strengthened, whenever the gaps are prop erly closed, which interrupted its continuity.

The private right of the inheritance will stand or fall with the institution of private property. While private economy is held to be socially demanded, the private law of inheritance cannot be repudiated. Should all property of decedents be seized by the state, as it is for want of heirs, the state would very promptly be the owner of all the means of acquisition. This the state cannot be permitted to become, so long as its administration of the means of acquisition cannot be as efficient as that of private owners. A man's economic forethought, moreover, is greatly stimulated by the desire to leave an inheritance to his children on his demise. The economic equilibrium obtaining between the present and the future, would be greatly disturbed, should this desire be re pressed by legislation. The seizure ~f decedents' estates in behalf of the state would sensibly diminish all savings out of income. Condemnations of the law of inheritance are an indication that the distribution of we.alth does not impress the public as taking place according to principles of equity and reason. Where the distribution of wealth meets with the approval of common sense, the private law of inheritance is accepted as a matter of course.

The classical masters have clearly recognized the social significance of the private constitution of economy. It was one of their greatest achievements, when they discovered and described the interconnections between personal and social interest. They were never individualists in the sense of exalting the in dividual interest of the powerful above the universal interest of the people. The doctrine, that the individual interest coincides with the universal interest of society, they derived from the more simple economic conditions of their own time, idealized as these had been under their oontemplation, and:they had hemmed in their theory with all sorts of provisos.. That their successors ad hered to the doctrine, even after capitalism had become. powerful, this alone, in fact, constitutes the serious error into which these writers had fallen. The 400 SOCIAL ECONOMICS doctrines of the founders of the school left to the disciples an abundan~e of starting-points, whence to develop and elaborate their teachings after the con ditions of .life had materially changed; but preoccupied with dogma, the epigones remained blind bef~ore the new facts which developed rapidly as capitalism waxed larger and larger. When the revolution had already come to the pass, when Lassalle could describe as hopeless the future of the men who had fallen victims to the brazen law of wages and could liken their fate to that of the lost souls in Dante's inferno, a man like Schultze-Delitzsch, himself full of good will, still held to the view that, even in the capitalistic era, "every man's for tune was of his own making."

§ 76. THE DOMINATION OF CAPITALISM IN MODERN NATIONAL ECONOMY Sense and non-8en8e of economic power-Freedom in law and· ff1eedom in faot -Proudhon's antinomy of eaJohange-valtte-Karl Marx and the doctnne of sur plus value. At the threshold of the capitalistic era the conditions, prerequisite to the private constitution of economy, had matured to an extent never known before. It seemed as though all the historically transmitted methods of tutelage and restraint on economic freedom had been need lessly imposed. The traditional education of the burghers, which was to fit them for economic cooperation, seemed completed. The problem of unity in the social economy seemed to have found its solution for all civilized nations in the· gradually unfolding germs of the powers of freedom. This was the soil from which presently sprang the classical theory of freedom. It was called forth in large part by· the spread of large industries for whose success complete freedom of action was required in order that they might blaze new paths by which to carry to society the fruits of the latest conquests of the technical arts.

But the superiority of the large industries turned into autocracy and despotism in their uncontrolled development. In a short time the equilibrium of the private constitution of economy was so disturbed that, in wide fields of the national economy, the doctrine of freedom ceased to apply. In our exposition of the modern economy of acquisition we have dis.. cussed the particular conditions which favor the rise of capitalistic power. Our former discussion must now be concluded; we must view as a whole the stages of formation of the capitalistic power, and fol low through the problem it presents and at which we stopped in the precis of social. theory. The process of development,which immediately attracts our atten tion, is the same process that is met with in all fields of joint social action where the common work is sufficiently important to demand THE 0 R Y 0 F SOC IA L E CO NOM Y 401 forceful leadership and the subordination of the masses, if effort is to be crowned with success. The superiority of the leadership, secur ing success to the masses, results in power to the leaders. This power ultimately becomes autocracy, despotism. The lament that the people are oppressed by powers whose efficacy is the gift of those who become its victims, is as old as the history of the human race. Where the masses degenerate, lasting oppression is the outcome of the process.

However if the people preserve the vigor of their manhood, they will eventually throw off the yoke of their oppressors under new leadership. They will recover their liberty at the stage of development which they had attained. Then in the process of evolution the same cycle is re peated with new actors. Not a few of the undulations observed by the historian, find their explanation in the rise and fall of the su premacy of leaders and the liberation of multitudes. The historical process of the rise of modern empires, now almost complete, exhibits in its earliest division, reaching its apex in dynastic ascendency, a process closely analogous to the growth of capitalistic supremacy and furnishes instructive insights into its relationships. We cannot more fitly usher in our examination of the capitalistic supremacy in industry and commerce, than by heralding it concisely in an exposition showing the rise of the great empires which have stood foremost among the family of nations. The second division, showing absolutism ousted by more liberal institutions, is of interest as an illustration of the collapse of a power which, so long as it was unassailed, seemed invincible. This is of interest, although the capitalistic development has not yet come near enough to the end of its career to enable either the historian or the theorist to draw com parisons as to the closing stages of the phenomenon.

The establishment of the great states was a boon. The peace which it promised met a profoundly felt need of peoples who had suffered unspeakable distress through the endless feuds of the petty kingdoms and principalities of Europe. These great empires extended the peaceful enjoyment of civil rights and a unified administration over far greater territory. And when the great states strove to introduce between themselves as well a condition of equilibrium, a balance of rights and powers less and less frequently broken in upon by wars and dissensions, there resulted increased security to person and prop erty even beyond the borders of states. Towns and provinces sub mitted cheerfully to the authority of the vigorous dynasty whose leadership promised exemption from untold horrors and perils. After the first and most hazardous victories had been won and the rising dynasty had gained an ascendency over neighboring rivals, it 402 SOCIAL ECONOMICS might well rely upon the allegiance of its faithful subjects and master the more easily all remaining opponents, until the empire had been consolidated within its natural boundaries.

These advantages secured, the historical tendency toward absolu tism was manifested. Thereafter, the contrast of ruler and ruled becomes prominent. Their interests diverge; but the historical power, once acquired, outlasts its justification. In the absolute ruler is united the power to dispose of the entire forces of the people. No one, however influential he may be, dares to oppose him. Whatever large schemes may be set on foot, are carried out by him, and there fore for him. Sense becomes nonsense. The absurdity comes to pass, that he may use and abuse the forces of the people to his own' sin~de advantage. He uses them, if he will, to the undoing-of the people. At all times, he is able to defeat the resistance of individual groups and individual persons by the superior instruments of his power. The resistance of the entire people he need not fear, so long as the main -springs of the public mechanism are united in his hands.

He may justly say of himself, "I am the state." The great states of antiquity, one and all, finally perished under the crushing power of their despots. Certain states of modern .Europe seemed doomed to share their fate. But much was· still sound of their active inner forces. When the occasion arose, they responded to the call and established under new leaderships the unvanquished capacity of their masses for renewed progress, so that at last the detested yoke was thrown aside and liberal constitutions were wrung from the op pressors. As the transition to the modern empires was accomplished under dynastic leadership, so the transition to the modern mammoth in dustries was brought about under capitalistic leadership. It never could have been brought about in any other way. Just as conquerors by nature, like Cortez and Pizarro, were needed to establish Spanish dominion in Mexico and Peru, so economic conquistadores were needed to create the organizations of the trusts. The overnumerous majority of small and less important businessmen could not free themselves from the traditional narrow confines of their trade and industrial handicaps, however much they were threatened by the com petition of their mammoth rivals. As little as their masters, did the equally endangered workmen evidence ability to call into existence large industries of cooperative unions. At first it was not the pos session of capital but personal strength, which was the decisiveele mente Frequently the new leaders rose from small beginnings or from the strata of the laboring-classes themselves. Those men of THE 0 R Y 0 F SOC I ALE CO NOM Y 403 keen insight were destined to be leaders, who discerned the superior efficacy of· the large establishment and who, in conjunction with this vision, possessed the unswerving fortitude to discover the avenues to the new methods.

In its own territory, the modern large industry showed itself as much superior to the old petty workshop, as the great,modern empire was showing itself to be in comparison to the petty principalities of bygone days. For numerous problems of commercial and industrial enterprise, victory was assured to these mammoth undertakings in the competitive conflict. The ease with which economic relations may be arithmetically expressed, the distinguishing characteristic of economic activity above all other human pursuits, is the factor which allows an unmistakable numerical expression of the elements which control this success. In numerous branches of acquisition computation shows reduced costs of production for the large plant, which enable the entrepreneur on the larger scale to undersell smaller competitors and secure the demand for his own output. He can well afford to attract fellow-workers by higher wages, if they are not to be otherwise ob tained; and he is also in a position to employ much cheap help, which the old trade was unable to employ for want of sufficient training.

The victims of his conquests, the competitors driven from their employments, the workingmen turned into proletarians, are at first as little taken account of as the victims on the battle-fields where the great empires offered sacrifices to their ambitions. Public opinion becomes subservient to the new master, in whose train come progress ahd improvement as he carries into practical execution the economic inventions of the technical arts. He is the man of the day; he him self has been instrumental in calling into being the new methods of the mammoth-industries. He may well say, "I am large-scale in dustry!" When workmen become rebellious, he can break down all rebellion by discharging the discontented. The market never fails to supply him new forces to replace the old ones. The number of men 'fit to be entrepreneurs is too small, the number of mammoth estab lishments is at first too limited, to think of effective competition.

Just as the success of an army is ascribed, in the first place, to its commander who revels in glory and booty, so to the successful economic leader falls the lion's share. Once more the ready accessibility of economic interconnection of affairs admits here of numerical expression of the law of distribution. The personal ascription of the success becomes specific attribution; by this method the entire newly acquired surplus yield is turned over to the entrepreneur who leads the way. And still, at this stage of the development, his extraordinarily -large 404 SOCIAL ECONOMICS profits are not looked upon as prejudicial to the public; in the eyes of public opinion, they are deemed' justified by the social advantage, the social signific'ance of his leadership. The social conditions of economic power offer to capital, in its money form, still other opportunities for growth and the acquisition of additional influence. With the abrupt leaps of modern develop ments and the enormous extension of the markets, money-capital is in a position to profit most effectively by its prompt mobility. The speculations of the promoters and on the Exchanges are constantly discovering new opportunities for an activity, wide in its sc·ope and promising munificent gains in the event of success. .As we have shown on an earlier page, the founder and the speculator, too, are called to perform social services of economic· leadership in pursuits in which the multitudes need leadership; but we have also shown, how pro moters' speculation and speculation on the Exchanges may degenerate and realize gains by deception and exploitation. Urban building speculation is more nearly akin to the operations of' founders, urban land-speCUlation to that on the Exchanges, where the intent is, more pronouncedly, to operate by force of capital than by achievements of leadership.

The most comprehensive opportunities for the exertion of power fall to the share of the large money-capital, when it succeeds in ob taining monopolistic control of a market. The profits which may be realized in this way are so tenlptingly high, that the endeavor is con stantly renewed, difficult as it may be, to gain exclusive control of the extensive markets of national and world economy. Kartels and trusts, in their final development, are monopoloid institutions establishing control of the market on a foundation of the control of production. Pools and corners endeavor to operate merely by control of the market; they resemble somewhat the old-time money-usury which, today, by a superior organization of credit has been largely suppressed in the open market. They work greater mischief than usury in so far as their aim is to levy their extortions upon the entire demand; usury seeks its victims among individuals and occupations of the least power of resistance. On the other hand, it must be admitted that pools and corners do not imperil economic existence, grievously as their effects may sometimes be felt, while usury, if left ample scope, seldom fails to ruin its victims.

A.ll gains which mammoth-capital realizes merely by control of the market without rendering services of social leadership, are justly con demned, as unearned, by public opinion. They are offences against the social spirit of economy; they displace, at the expense of the THE 0 R Y 0 F SOC I ALE CO NOM Y 405 public and in favor of the capitalistic despots, the distribution of in comes and property. They do not only this, but, as soon as the newly rich capitalists come to the market with their increased purchasing power, such gains displace the distribution of natural values in favor of these latter purchasers. Burdensome as these effects may be to society, they do not mark the climax of capitalistic supremacy. Ascendency in its fullest signif icance, a despotism which crushes, accrues to entrepreneur's capital, once it has become strong enough to turn the power of its historical growth against weaker competitors and the body of workers. This supremacy becomes a social evil as soon as large-scale industry has reached a point where it operates as a mass-phenomenon. Next will occur a general lowering of industrial strata, a concentration of many in a proletariat of working-people. When it comes to the worst, there is a mechanization of labor and a lasting, physical and moral degradation of the proletarian strata. At this point, we have arrived in national economy at the same social absurdity which we have met with in the despotism of dynastic usurpers; we have arrived at a na tional economy that destroys the economy of the people or, to say the least, of multitudes of the people, who labor as a part of the system but are none the less crushed by it.

Throughout its sphere of action, capitalistic supremacy has cut the ground from under the classical doctrine of freedom. The laborer, despoiled of his best possessions by sup.erior forces, is no longer able to enjoy his legal rights, to exercise his legal privileges in actual life. Rodbertus spoke truly when he asserted that for these men hunger is what the scourge was to the slave. Only the strongest individuals will be able to escape unharmed; they may rise to strata of greater liberty. The vast majority, of average or inferior powers, will cease to be able to make rational use of liberty; they will be driven to appraise their needs and to effect their exchanges with the weak. In order to satisfy the gross demands of the moment, they will have to sacrifice vitality, physical health and the dignity of their manhood. Every po·wer, even the merely personal superiority of the more gifted or the more active individual, restrains the freedom of choice for the less gifted, the less active; the stronger individual, prei"hnpting the more favorable opportunities, leaves the less desirable ones to his less fortunate brother. Domination, however, even though economic, aholishes once· for all the freedom of the oppressed. It turns freedom into slavery and compels its victim to work his own destruction. Personal ~upremacy has this effect in individual cases; with the social supremacy of the capitalistic class it is a mass-effect, 406 SOCIAL, ECONOM.ICS enforced by the compulsion which the compliance of companions ex erts on crowd-instincts. Even in itself the capitalistic class expe riences a certain social compulsion to despotism; the individual entre preneur feels himself bound by the example of his companions, forced to proceed farther, perhaps, than he had meant in the path he once chose to travel. Competition compels him, if he would save himself, to squeeze more tightly the men whom he employs. In the organiza tions of the capitalistic entrepreneurs, the social compulsion to which this class also is subject, finds its most pronounced expression. On the part of the laboring population, competition' is intensified to over competition. Not until the workers have been taught to organize themselves, do they gain increased powers of resistance; then the feeling of solidarity unites them in organizations, exerting social powers of their own and thus enforcing universal membership and common action under unified leadership. It may possibly be that a beginning has been made here to break down the domination of the entrepreneur strata which, surely, must be vulnerable when even the absolute power of hereditary rulers can be overcome by new social movements. Initial efforts, though largely latent, are surely indicated towards a new legal constitution of the large industries, efforts starting from displacements of the actual constitution, i. e., displacements in the conditions of supply and demand; but the movement in this behalf is only preparatory. The unions have so far been successful only among' groups of more highly trained and better informed workers. Capital istic despotism still dominates wide fields of enterprise. If -its ef fects do not seem too outrageous, society is indebted to the protective legislation of the state for this result. In the absence of such legisla ..

tion the abuses would be even greater, the misery more unbearable and the restraints on freedom more oppressive .than now. The extreme partizans of the prevailing order decline to recognize the evils of the existing disproportion of economic power. They deem it sufficient to maintain that the capitalistic mammoth-industry is victoriou~ by its superior efficiency, which assures· it control of the market demand. They contend that the capitalistic power, having in this way sprung from the spirit of the economy, cannot but continue to be of permanent service to the economy. The opponents of the existing order look upon it as nothing more than a con trivance to serve the egoistic interest of those in power. Without any enquiry whatever into the origin of the capitalistic power, they pronounce it, more often than not, an example of brute force, breaking into the fold from outer regions and foreign in every sense to the spirit of economy.

Of more deeply rooted theoretical significance are the arraignments which endeavor to deduce capitalistic exploitation from. the laws of THE 0 R Y 0 F SOC I ALE CON 0 M Y 407 exchange-value. For men of these convictions, economic exchange value presents an essentially irreconcilable antinomy; it is a value directed against the spirit of the social economy, and society will never be able to restore this spirit, except by replacing the private com munity of exchange by a superior social order. Proudhonhas shown himself a disciple of this school. He speaks, point blank, of an antinomy of the exchange-value. He reasons from the well-known experience that, certain premises assumed, the price yield may be increased by diminishing the quantities carried to the market. We have already shown in the theory of value that from this circumstance the conclusion of a paradox of value is not logically permissible, that profit is always the controlling consideration of economy. When the seller diminishes the stock, he does so simply, because from the higher yield thus expected, he promises himself higher profit, and because the power is· his to further his individual advantage at the expense of the demand. Concerning the origin of this power, which is the important thing, the doctrine of the antinomy of exchange-value makes no disclosures whatever.

Another representative of these objectors is Karl Marx in his theory of excess-value. The theory contends that the exchange-value takes its measure from the working-time devoted to and socially required for the production of an article; that, therefore, the wage must re ceive its measure also from the working-time which is socially neces sary for producing the means of subsistence for the commodity, labor. The theory further contends that to the entrepreneur, who finds it in his power to keep the laborers at work beyond this length of time, accrues the product of their excess-labor. As we know, this argu ment is not conclusive, if for no other reason than simply because it takes the ground of the labor-theory which cannot be maintained for the developed conditions of national economy. But even if Marx's reasoning were conclusive in other respects, it would never explain the origin of capitalistic power. This power is alone decisive, because through it the entrepreneur controls the working-hours. Karl Marx fails to grasp the spirit of economy, not merely in his attempt to de duce it from labor only, but also in losing sight of the connection which the power of capital, admitting its origin, possesses over the spirit of economy. He chooses to veil the interconnections of the exchange-traffic· in ghostly obscurity; determination of value is to him, "a social process, shunning the eye of the producers" ; the law of value, a self-regulating law of nature, prevails by sheer force, "like the law of gravity, bringing the house down, on occasion, over its owner's head." He quotes Engels who harangues about a law of' 408 SOCIAL ECONOMICS nature, "supported by the unconsciousness of those consciously con cerned." 1 But laws of nature never guide human economy. What is attempted to be accomplished by economy, is attempted in the spirit of economy. Even the opponent of the prevailing order will have to admit that every power, growing contemporaneously with the economy, can thus grow, simply because it fulfills the intent of the economy; just as the champion of the prevailing order will have to admit that every power at the apex of its growth will be transformed into social unreason, unless opposed by forces sufficient to keep it in check.