Tomorrow

I

The Question: Is Prosperity Unlimited?

THE chronological age of this nation is just more than 150 years. As great nations go, it is nothing. Taking the whole of recorded human history as one day, the American extension of it is the last half hour. In that time we have created a material standard of living that is not only the highest in the world; so far as we know it is the highest ever attained in the experience of the human race. It is still rising; and now, more than the level, it is the rate of rise that concerns us.

Our annual product of divisible wealth is greater than our total national wealth was thirty years ago. That is to say, we now consume each year more than our total possessions were then. The Bureau of Internal Revenue finds that the income of the American people in the year 1926 was $90,000,000,000 as against $62,000,000,000 in 1921. That was an increase of more than 40 per cent in five years. If this prodigious movement continues for another ten years we shall have abolished ordinary poverty, and we are the first people since the expulsion to come within sight of that goal.

If is the theme. Will it continue?

The question in that common form has a certain implication—namely, that prosperity is phenomenal. It happens, or does not happen, or stops hapening. To ask if it will continue is like proposing a question to fate. But if you conceive prosperity to be a product of forces and ideas for which people themselves are responsible, you will ask: Can they go on with it? That is the right question. It suggests a line of inquiry proceeding from the facts.

Those who regard more the superficial wonder than the meaning of American prosperity seem to find it very difficult to reconcile a sense of its reality as achievement with a sense of its unreality in time. All this to have happened in the last half hour of history! So there is a way of speaking about Americans as if they possessed youth, with all the advantages, perils and illusions of that estate. America’s coming of age is a European topic. What after that? A fall perhaps; the beginning of disillusionment.

Not very long ago the settled Old World view of us was this: “Wait until their free land is all taken and they begin to crowd up. Then their troubles will begin.”

The refuge of free virgin land is exhausted and we are beginning to carry water to the desert, yet agriculture is more productive per man that ever before. We have begun to crowd up, yet density appears to work no prejudice upon well-being, and it is the lot of the least favored that has been most improved.

Now it is the world’s opinion that our troubles will begin when our prosperity breaks. It is this ecstasy of prosperity that holds us together in a kind of superficial amity, above antagonisms that are fundamental and reckless of problems we have yet to face. We are walking until now in a juvenile dream.

Here are two thoughts in a state of confusion—namely, the thought of youth in people as a biological fact and the thought of an inevitable period to progress, together, of course, with the vanity of foretelling.

It is a temptation to see in the rise and fall of nations an analogy to the life pattern of the individual. A nation is born, grows up, grows old, becomes senile and falls. This is probably no more than historical fable. If instead of nations you say a people, a culture, or a civilization, you produce the same impression of cycle, period, succession, which seems to account for all that happens. You may then think of people that are old and people that are young, or establish their age, as Spengler does, by the phase their works are in, and life is represented as an endless repetition, governed by no principle of progress.

This doctrine is pessimistic; it is also very consoling to people in certain circumstances. It solaced the Greeks as they regarded the spectacle of their own decline. They had lived and were old. All things had happened again and again. Even if the world should dissolve in space, it would be only to re-create itself again in the same character. The Roman barbarians, having youth and illusions, did not know this. But was old age the reason for the fall of Greece?

As the earth ages and the race continues, how can there be youth in one people and age in another? The American nation is politically young; the American people are of the same age as the human race, which means they are some 2500 years older than the brilliant Greeks. Differences among people are not differences of age; they are differences of capacity, experience, ideas and spirit. The Greeks had no idea of progress. Yet 2000 years later they stood as a symbol of progress to a height which perhaps man would be unable ever to scale again. The European mind of the Middle Ages regarded the vanished Greek civilization with as much despair as the Greeks had found in comparing themselves with a mythical Utopia in some golden age of wisdom and felicity before them.

II

Concerning the Idea of Progress

It is a strange passion of man to deny both the fact and the possibility of progress even though he stands looking at it. Thus he binds himself to the dogma of original sin, which with the Greeks took the form of a reasoned belief that the life of the World had degenerated; and he is for that reason unable to imagine that well-being in this world may be without prejudice to redemption in the next. Until he can make an adjustment between the demands of reality and the terrors of his soul he will regard the world not as a place to live, not as a perfectible habitation, but as a region through which he must pass in disgrace. Human life, therefore, is not an experience to be enjoyed; it is trial and expiation, and the only right use of knowledge is to prepare man for his exit.

The modern idea of progress, much as we take it for granted, is quite new. It was only about 300 years ago that it began to take shape at all, and so far as we know, it had never existed before in the human mind. It appeared in Europe in the seventeenth century, not complete, very vague at first, and for a long time it was regarded as a faith to be embraced not as a fact that could be proved. Even yet it is often so regarded. Someone is continually asking if the sum of happiness has been increased and what we know about life more than the ancients knew.

Nevertheless, the idea of progress has clarified. It implies first of all a sense of direction. Toward what? Toward perfecting the conditions of human existence. It supposes life to possess some value of its own, here and now, and the world to be a habitable place. And it stipulates that knowledge shall be made to serve the art of living. Essentially it is optimistic and so prefers that interpretation of history which conceives man to be slowly advancing.

If there is progress, naturally it will not be equal in all directions at once. It is more likely that one people at a time will lead. Hence contrasts. And it may be that the phenomenon of lethary seeming to fall upon people here and there in place and time is first a necessity of the historian and otherwise a matter of contrast. There is now a strong contrast between the state of common well-being in Europe and the prosperity of America. But the standards of living in Europe are actually higher than was ever the case before. It is not that Europe has fallen back. It is that the Americans have advanced.

People may advance with no theory of progress. The Greeks did. An increase of wealth is in every case a condition. Thucydides, tracing the history of Greek civilization, was bound to conclude that the key to it was the increase of national wealth. But we begin now to distinguish between wealth as fortune and wealth as idea. Wealth from conquest, discovery or invention may be only a rise in fortune, and if that is what it is, then it will presently be exhausted. Certainly if there is no conviction of social progress to govern its use it will not be distributed with systematic anxiety for the common well-being, which is to say, it will not create sustained prosperity. In the historic case wealth in that character is either destroyed by the mob or surrendered to the enemy by a populace that has no sense of participation in its benefits and therefore no incentive to defend it. Thus, limitations upon the increase of wealth as fortune and sudden periods to its existence.

III

Two Fears

But need there be either limitation or period to wealth as idea? This is to speak of wealth which, whether old or new in form, certainly is new in meaning. It is to speak of material things increasingly produced and proportionally divided under a conviction of social progress. Wealth in such character is the pursuit of people who believe that life has some further business in this world and cannot imagine that to neglect it is a way to acquire merit in any world that may come after this one.

Almost one would say, as the strength of this doctrine is among us, so is the degree of American prosperity. That is not to say the idea of progress belongs to us. It is a common possession of Western civilization. But wholly to possess the imagination it requires a casteless social structure. That was here. Two other conditions were satisfied—namely, optimism as the dominant mentality and a strong preference for the practical use of knowledge.

These conditions and qualities are durable. So also are the ways of thinking and feeling that have produced an American science of management, an American profession of business, an American theory of proportional division, liberating the forces of production in our economic scheme. The way is proved.

Nevertheless, there is a kind of vague anxiety among us. People have advanced before, sometimes very fast, as if each step forward accelerated their speed; then suddenly they have stopped and lost their momentum for no exact cause, unless it was that they had no idea of social progress as a principle and were simply on a rise of fortune.

Assume that with us the idea is complete, even that we are the first to possess it completely, and still, is there not some hazard in the pace? It has been terrific. Can we keep it? If so, for how long? Is progressive prosperity at this rate a reality?

In these searchings of the horizon you may recognize two fears; and then, having discovered what they are, you will be struck by the fact that one logically annuls the other. They cannot both be true.

One is the fear that we may be touching the extreme limits of machine craft, method and science as means whereby until now we have increased the productive power of labor and thus multiplied the annual output of wealth in a consistent and prodigious manner.

The other is a foreboding that the power of the machine will turn out to be uncontrollable. It will overwhelm us at last. The multiplication of things under a system of mass production will reach a point at which we shall be unable either to consume or sell our surplus output. Then the catastrophe. Depression, unemployment, social distress and disrhythm as phenomena of overproduction, on a scale perhaps never before witnessed.

The first is a rational anxiety. The other is founded on a riddle. But if one fear is valid, the other is false. If there is any reason to suppose that we have nearly exhausted the scientific possibilities of mass production, it would be silly to fear overproduction; conversely, if there is danger of overproduction, then it is absurd to worry as to whether or not the wizardry of machine craft, method and science is at its apex.

Nevertheless, these two fears lie side by side and give rise to the question: Can we go on?

Since there is no denying the riddle, it may be well to take that fear first.

IV

Overproduction Classically Regarded as a Menace

Overproduction is a word that makes no sense whatever to people who have yet nowhere near all they need or want; on the other side, its meaning is quite clear to the industrialist who has on his hands more goods than he can sell and may be ruined by them. Such discrepancy of view naturally did not escape the scrutiny of the economists. Long ago they began to say there was no such thing as overproduction; the trouble was underconsumption. That might be so; yet there were the crises all the same. And in each case the fact was that industry had ruined its profit by producing more goods than people could buy. If that was not overproduction, what was it?

The economists said the confusion was from thinking of general overproduction. Certainly there could be no such absurdity. It was only that certain things had been excessively produced in relation to the total of things. Nevertheless, these certain things were desirable things and the wanting of them in general had never been satisfied. Next it was perceived that when the industrialist said he had produced more goods than he could sell he meant only to say more than could be sold at a profit. At this point the whole economic subject comes open. What is profit? What is value? What is price?

Having wrestled with the slippery monster of overproduction until their minds were sore, it was not uncommon for the economists to propose that he be chained. One hundred years ago, before railroads, telegraph, electric power or gas engines, one Sismondi, a famous economist, believed the state should intervene to retard production and check invention because wealth, increasing so fast, had become unmanageable, and in any case it was not worth the crises. A few years later John Stuart Mill, expounder of classical economic doctrine in England, doubted whether mechanical inventions had any social value whatever and despaired of a rational way with such problems as that of apparently an overproduction of divisible wealth in a world yet so full of poverty, until society had reverted to a stationary state, with no fetish of progress.

Such was the form of the riddle and such was the confusion of thought among economists, some blankly despairing and some upholding the doctrine of cycles, down to the year 1914. At that time there were only five great industrial nations, called surplus nations because they had a surplus of machine-made goods to sell—three in Europe, one in America, one in Asia. And these five, with the whole world to be their market, were continually passing from one crisis to another in consequence of having overproduced things of use and value. Business generally was conducted on the assumption that crises were inevitable and periodic. There was no help for it.

During the war the industrial capacity of those five nations was enormously increased. That is not all. Since the war, machine craft has spread to the four ends of the earth. This is for two reasons. The war left, among other lessons, the one that when force is abroad in the world a nation without machine power of its own is helpless and contemptible. That is the political reason. The machine becomes a symbol of strength and liberation to millions of people who had never thought of it before. The other reason derives from example. Which were the richest nations? Those, of course, that were most highly industrialized, exporting manufactured goods in exchange for food and raw materials. Therefore industrialism was the open road to national wealth.

So now, moved by thoughts of power, independence and profit, people that formerly were the principal customers of the five great surplus nations are founding industries of their own, with intent not only to supply themselves but to compete in foreign trade for gain. Italy is bent upon an industrial career and is seriously competing in motors and textiles with England, Germany, France and Belgium. Next Poland has the same ambition. China is doing it, notably in textiles, and that is why she is resolved to get control of her tariff gates. Japan now goes to Egypt looking for a place to sell cotton goods because the Chinese market is increasingly self-supplied.

But Egypt is England’s market, and the English textile trade is groaning. India is vowed to become industrially independent. Instead of selling raw cotton to Manchester and buying it back in the form of cloth, she will spin and weave her own raw material and is beginning to export cotton goods. Australia, instead of selling raw hides, prefers to make shoes for export, and is doing it. Brazil, where there was almost no industry before the war, now is self-contained in a long list of manufactured goods. Ireland, the Union of South Africa, Greece, Spain—they are all fostering infant industry.

One at a time, they come to the wonder of quantity and find the law of it, which is an inverse relation of cost to volume. The more of a standard thing you can produce, the cheaper it is to make and the lower the price at which you can afford to sell it. Thus competition tends to become fixed in staple machine products rather than in things unique and naturally less competitive. Already there are more ships on the seas than can be made to pay; yet nations that can afford it are building new fleets in which to send forth their goods, for that also is in the example.

Now as you look about the world you see in every direction what is called excess industrial capacity. Machine power has multiplied faster than buying power. The five great industrial nations that were the principal suppliers before the war—England, France, Germany, the United States and Japan—have the capacity to flood the markets of the world with goods; and there are, besides, all these other nations becoming industrialized for purposes both of self-containment and competition. If there was any profit in it the world’s output of industrial wealth could be increased perhaps one-half in thirty days and doubled in six months; but if the power of production were so released prices everywhere would collapse. Again the calamity of overproduction. Generally the effort is to restrain production, especially in Europe, by such means as cartels, international trusts and agreements to partition markets.

V

Its Other Meaning

Well, there is the riddle again. The need of the world is to increase its wealth; at the same time this apparent economic necessity to limit the production of it.

In this country, though actual production runs very high, still there is an excess capacity against which one sets the symbol X because nobody knows how great it is. Some estimate it conservatively at 25 per cent; others say it may be 50 per cent. In the motor industry it is definitely accounted for. There is capacity enough to produce 9,000,000 motor cars a year; there is a market for not more than half that number. The excess capacity in that case is 100 per cent.

The existence of all this excess capacity is a restraint upon prices and therefore a kind of horizontal limitation upon profits. If the demand increases, the output rises. The tendency is for prices to fall and profits to shrink. A new phrase has appeared in the world of business—profitless industry. The volume is large and rising; the profit tends to decline, and there is constant dread of such overproduction as will swallow up profit entirely.

Europe’s contemplation of the prospect takes a gloomy turn. In Italy, for example, you will be told that notwithstanding their handicaps, such as the want of native fuel and ore and fibers, the Italians will succeed in the competition because the people will endure a low standard of living. This is a characteristic way of Old World thinking. That nation whose people will perform the most work for the least wage will triumph in the industrial struggle. Thus, parallel, a tremendous increase in the world’s power of wealth and a worldwide competition in poverty! Is it an illusion?

We understand, of course, that the Europeans are obsessed by a fallacy. Low wages and low standards of living do not spell low labor costs. We have proved that high wages and high standards of living not only are compatible with but do actually favor, low labor costs. It is all a matter of increasing the productivity of labor. Therefore we say the European thought is wrong, and so it is. But we have an enormous fallacy of our own, deriving from the same riddle. Regard it.

We are lending to foreign countries, principally Europe, as much as two billions a year, and from this lending comes the delusion of a thriving foreign trade. In reality a great deal of it is not trade at all. Trade is exchange. When, systematically, you lend your customers out of your till the money with which they buy your goods, that is not trade. You are neither selling nor exchanging. You are simply lending.

If one attacks this delusion, how is one answered?

In this manner one is answered: “Unless we lend them the money they cannot buy our goods. If they cannot buy our goods, what shall we do with our surplus? It is true, we may never be repaid. We may be obliged to treat our foreign lending as a permanent investment abroad, actually unrepayable. Nevertheless, in this way we do find an outlet for the surplus product of our machines. At any cost our machines must be kept going at ideal capacity, for if we begin to idle them, up will go the costs of production and goods will become dearer. Not only that; buying power at the same time will fall, because people who tend the machines will be disemployed. Better even to give our surplus away than to slow down our industrial mechanism.”

What a preposterous dilemma—that a people whose own wants are still far from a state of full satisfaction should nevertheless be obliged to lend or give away a large proportion of their annual product of wealth just to be rid of it, for unless they are rid of it quickly it will assume the diabolical form of overproduction and react upon them in a disastrous manner.

Yet this passes among us for sane economic doctrine. As a logical projection of it, one may imagine a time to come when we shall have to sink our industrial surplus in the sea or invent a Moloch to consume it.

We know better. Guided only by our faith in the idea of human progress, we have stumbled beyond doctrine and logic into a region of common sense. We have found the road to unlimited prosperity, but with no light of theory, so that although we are moving in the right direction, still we are in semidarkness.

More than any other people, we do consume our own surplus. That is why we are prosperous, why our standard of living rises. We do not consume all of it. We have carried the riddle along with us, not realizing that in the body of our experience there is already enough truth to reduce its terms to reason.

First take overproduction in the reverse aspect of under consumption. Why is it ever the case that people are unable to buy the wealth they have produced by their collective exertions? They have created it, yet they cannot enjoy it. There it lies, unsalable, a liability on the hands of business and a provocation to those whose labor is locked up in it. Seeing that what people lack is the money to buy it, the solution seems very simple to a naïve type of mind. Increase the volume of money. But that is no cure at all. You might print money and hand it around and all that would happen would be a rise in prices.

VI

Two Reasons Why People May Be Unable to Consume What They Produce

There is no hope of cure until you have properly diagnosed, the disease. Underconsumption is an effect from one or both of two causes—namely, first, that the distribution of national income as wages, profits and interest is not such as to represent a proportional division of the annual product of wealth through the whole body of society; or, second, that too much of the annual product of divisible wealth is reserved for capital purposes.

Wealth devoted to capital purposes takes the form of more industrial capacity—that is, more plant, more machines, more power—and if you go too far with this, adding up capacity when there is already an excess of it, you withhold from society the means wherewith it might otherwise have satisfied a great number of immediate wants.

Such statements have unfortunately a very abstract sound. It is a weakness of the economic language. Imagine the simplest case. A farmer who already has all the barn space he can use decides nevertheless to build a second barn, thinking he may some time need it or that building is a good way to save money. The cost of the barn will be one-third of his year’s income, and because he devotes that part of his income to this unnecessary capital purpose, his family is obliged to do without such things as a motor car, a radio set, silk stockings and electric lights. There you have a true case of underconsumption. The barn is an addition to plant and equipment; but the money locked up in it had better been spent to increase the family’s enjoyment of life. You have on one hand an increase of capacity to excess—barn capacity—and on the other hand a minus demand for automobiles, radio sets, silks and electrical appliances.

We have by no means solved the problem of underconsumption, but we have discovered the two causes and now attack them.

Here for the first time in the world appears a theory of proportional wages, which means such a distribution of the nation’s total annual income as will enable labor to participate proportionately in the increase of divisible wealth. It displaces all former wage theories. The last and most advanced theory before it was that wages should be calculated on the cost of living. That was to maintain a certain high standard of living.

The proportional theory goes much beyond that. It contemplates no certain standard of living. What it intends is that the wage earner’s way of living shall rise as the national output of wealth is increased. Under no other theory is it possible for people to enjoy their own surplus. If wages are so calculated as to insure a fixed standard of living and then wealth goes on increasing, what shall be done with the increase? It cannot be sold to those whose labor has contributed to the production of it, because, with wages based on the cost-of-living theory to provide a certain standard of living, the buying power of labor will be stationary.

From the idea of a proportional wage distribution it is only a step to the idea of proportional profits. One in fact entails the other. There cannot be a proportional distribution of the annual income in the form of wages and a disproportional allotment of it in the form of profits.

There is left the other cause of underconsumption—namely, that too large a proportion of the annual product of wealth is devoted to capital purposes, like the unnecessary barn. This also we are attacking with original thought. That trend of thinking among us which puts emphasis on use and consumption, or the utmost satisfaction of human wants as an end, over wealth regarded as a possession, is illustrated in a new idiom of speech. Where formerly we spoke always of capital when we meant such things as factories, machines, power plants and raw materials, now more and more we say, inclusively, producer goods. And we understand that producer goods also are to be consumed and have no other use. Machines, structures, railroads, mills, ships, all forms of capital, are consumed in the process of creating the kind of wealth we call consumer goods. The only difference between divisible and indivisible wealth is just this difference in the use of things. They are all to be consumed—consumer goods immediately, producer goods ultimately.

As consumers, all of us, we know a great deal about the state of consumer goods, whether they are scarce or plenty, dear or cheap. Every bargain we make tells us something about it. We know very much less about the state of producer goods—that is, whether they are increasing or decreasing and at what rate in either case. And until very recently producers themselves, meaning the managers of industry, knew very little about the state of producer goods in general. Each separate industry might know a good deal about its own and little or nothing of conditions for industry as a whole.

Recall again the unnecessary barn. That represented a use of income for what we had formerly called a capital purpose. But you see also that the barn properly comes within the definition of producer goods. Nobody eats a barn. A barn is something a farmer needs in order to produce what people do eat. The effect of building the barn was to deprive the family of its proper enjoyments. That is precisely the effect upon society in general from increasing producer goods too fast or unnecessarily, and therein appears the importance of a balance between the proportion of a nation’s annual income that must be reserved for capital purposes and the proportion that may be set free for purposes of immediate division and enjoyment.

It was only five or six years ago that Mr. Hoover began to talk of underconsumption as a social liability. We were saving too much and spending too little. What was the good of developing our power to create wealth faster than we diffused the enjoyment of it? Too little of the annual income was distributed and too much was taking the form of indivisible producer goods, with two consequences. Excess industrial capacity was created and consumption was restrained.

Since then Foster and Catchings, of the Pollak Foundation for Economic Research, have made several important contributions to a new literature, uniquely American, on the subject: Why, with the wants of society still unsatisfied, does industry from time to time slow down for want of consumer buying power? Their conclusion is that overproduction—still regarded in the reverse aspect of underconsumption—is owing mainly to the fact that the means of production do not expand in any orderly, preconceived manner, but by sudden impulse, like the farmer’s impulse to build the unnecessary barn, with spasmodic effect upon the buying power of society.

The idea is taking ground. Presently it will strike the imagination, and when it does we shall see that to progress in wealth by a series of violent wavelike movements is wasteful and unintelligent. A new responsibility will be added to business—namely, to see that a balance is kept between the power of production and the means of enjoyment. Thus the problem of underconsumption will be solved.

How the balance shall be kept is a matter that may be left to our genius for trial and error. The principal difficulties belong to vision and administration. It will be necessary, certainly, for business to be able to see itself whole in relation to entire society. Exactly suited to this purpose, as if there had been some instinctive foreknowledge of its use, we have been developing a system of new sense organs. These may be called our statistical eyes. They are set in different bodies, such as trade associations, chambers of commerce, the Bureau of the Census, the Department of Commerce and various private organizations that furnish weekly and monthly index numbers, graphs and tables to show the state of production in separate industries, barometrics of trade, the strength of demand, the trend of prices, the level of wages, the buying power of money, the rate of national saving and what disposition is making of the annual income in certain significant directions, as in building.

Nowhere else in the world does business receive and give information as it does here. It has not been possible in other countries to develop the statistical sense organs to a high point for the reason that business will not surrender the data about itself. Only recently a census of production in Great Britain, which in any case would have been three or four years old when it was finished, practically failed for want of data. Business refused to supply the figures.

American business was like that twenty-five years ago. Its affairs were conducted in separate yards, each one jealously guarding its own secrets. And its secrets were not so important, after all. There were no statistical records, no diagrams, no charts—no way whatever whereby business could visualize itself. A business possessing a record of its own customers was very rare. There was no exchange of ideas or information. How far away that time seems!

VII

Overproduction Regarded as the Price of Greater Plenty

With all this to the sign of progress, yet the riddle is not resolved. Underconsumption is, after all, only one aspect of the problem of overproduction. Suppose that between the power of production and the means of enjoyment an equilibrium has at last been established. The rhythm is perfect. There is no such thing as a surplus of divisible wealth which those who have produced it are unable to buy. This is ideal. But now there is the danger that society will tend to become static; and if there is not that danger, then there is the certainty still of overproduction.

What is it that happens? A textile manufacturer discovers a way to double his output with no increase of labor. That means he has found a way to reduce his costs and improve his profit. Naturally he will double his output. A shoe manufacturer makes a similar discovery and so acts accordingly. There are like occurrences in various industries. With what result? More or less suddenly there is an abnormal supply of goods, beyond the normal growth of demand. Prices fall. Manufacturers who have not changed their methods have to shut up. Labor is let out; its buying power is impaired. Again that old chain of distressing social and economic consequences from an increase in the output of actual wealth.

It was at this point that Sismondi prayed for the intervention of the state to retard the increase of wealth and check the wild onrush of invention.

Consider, however, that the consequences, no matter how severe, are immediate and temporary. Ultimately, from the cheapening of goods the use of them expands, demand rises, rhythm is restored and society is richer than before. How are these consequences to be regarded? What do they represent? The answer is fairly obvious. They represent the price we pay—a price nobody can think how not to pay—for the continuous readjustment of costs downward.

What has been supposed in the illustration is actually all the time taking place in modern industry, else there would be no cheapening of goods and no progressive enjoyment of wealth. Take any great industry and see how the members of it fall into three groups. One group, normally the largest of the three, is making no profit. A middle group is making ends meet and no more. The third group, almost invariably the smallest, is making a handsome profit. It is so generally true that the no-profit-makers and the bare-end-meeters together constitute the majority, that you are bound to wonder if normally there is any profit in industry as a whole. Probably not, just as probably there is no profit in agriculture as a whole. The profit makers in the minority group are the low-cost producers. The no-profit-makers are the high-cost producers. What they stand for is obsolescence.

No one could put it more tersely than Henry Ford. He was asked to say what he understood overproduction to mean.

“Overproduction,” he said, “means something out of date. That’s all it means.”

“Something out of date would be a thing obsolete in either price or kind—is that it?”

This he studied for an instant, and said: “Of course you could overproduce buggies at any price. Nobody wants them at all.”

Recently an entire industry presented itself at the Department of Commerce Clinic, asking for someone to tell it what it should do to be saved. Profit had departed from it and the cause of this was overproduction. The assistant chief physician took it in for examination. True, the industry as a whole was in a bad way and profitless. Nevertheless, some members of it were doing very well. There were others who had changed neither their methods nor their products since before the war. Yet these, all in a state of obsolescence, were those who complained most of overproduction. They could show, of course, that the industry was over developed. Its capacity was excessive. Therefore, merely to keep going, they were bound to produce a surplus. What could not be proved was that there was any excess of up-to-date capacity, efficiently handled, with low costs of production. Merely, there had accumulated in that industry an abnormal amount of obsolescence.

From this the question: Who is to blame for the surplus? Is it the high-cost producers who cling to their old methods and keep going until their capital is gone or the low-cost producers who come in with new methods? There is the same question in agriculture. Is it the one-mule cotton grower in the old South or the machine farmer in Texas who makes the cotton surplus? The competition of the Texas tractor farmer with his low costs is very hard upon the cotton growers of the old South and sometimes reduces them to distress. What then? There can be no doubt as to which contributes more to the wealth of society. All you can say is that progress is not without cost.

The high-cost producer is losing his capital. And surplus, or overproduction, considered in this light, is not what at first it seems to be. What it really represents is the destruction of antiquated capital. The realistic view is to say the sooner it is lost the better.

As concerning the immediate social consequences, which in the instance may be very harrowing, we appear to have no new thought about them. But they are greatly mitigated in this country by two facts.

The first is that as you solve the problem of under-consumption by a theory of proportional division, the rhythm that may be broken by a sudden increase in the supply of cheapened goods is much sooner restored. There is at all times a tremendous buying power in reserve; thus demand quickly overtakes a new supply.

The other fact is that as we destroy capital faster than any other people in the world, so at a corresponding rate we create new capital in place of it, even faster than we destroy it, so that the total body of it is always growing. In the motor-car industry, for example, there is hardly a trace of the capital that existed fifteen years ago. A few old walls, perhaps; all the rest has disappeared, some of it lost, some of it purposefully destroyed to make way for new. In order to produce a new motor car to succeed the obsolete Model T, the Ford Motor Company alone in six months probably junked more capital in the form of machines and equipment than the motor-car industry of all Europe had scrapped in ten years.

The American motor industry is doing this all the time. That is one reason why it is the largest single body of dynamic capital in the world. It is the great symbol of our economic philosophy. In no other state of society had it been possible, certainly not where the ownership of industry is dynastic and feudal.

VIII

The Second Fear Annuls the First

And what was the other fear—the one before the riddle? You may have forgotten. It was that we had begun perhaps to touch the effective limits of machine power and method. If that were true, further progress in wealth would be at a much slower rate; the curve of our ecstasy would begin to fall.

To be rid of this fear, one needs only to change the point of view. If the first sign of wisdom is a conviction of ignorance, the beginning of efficiency is a sense of not possessing it. Hardly have we passed that point.

Judged by other people’s standards, we are industrially efficient. There is a worldwide legend of it, just as before the war there was a legend of German efficiency, which turned out to be something we had imagined about them. They had no word for it themselves, nor have they one yet. They were only intensive. Efficiency requires imagination, and they were not imaginative. Judged by any ideal standard of our own, our practice at its best is imperfect and at its worst so bad that one wonders how we can be prosperous at all in spite of such appalling waste of labor, time and material.

Efficiency, as now we perceive it, is a new dimension of thought. We have been exploring it for only a short time. Five years ago a motor company advertised the fact that its material traveled 3.5 miles from the point at which it entered the factory to the point at which a car stood completed. It advertised this. Now a motor company boasting that its material made a long journey through the factory would be supposed to have fallen into the hands of lunatics. Anyone would know better. Distance is time and time is cost.

Owing partly to the kind of mentality that went into it to begin with, and partly to the fact that there were no traditions of how, the motor-car industry is our highest example of efficiency. Yet the rule is that where you find it at its best, there also you find a management so disgusted with the waste and awkwardness it still sees in its own practice that it wants to tear the whole layout down to the ground and start all over. What is more, it will.

Obsolescence is from inertia of the mind. And this disease, you will find, is the basic trouble in the low-wage industries that still wish for cheap foreign labor to keep down their costs, complain of overproduction and exist in a state of chronic liability. A poor industry is a sick industry. It is governed by men who say the nature of their product or the conditions surrounding them make it impossible for them to do what the motor-car makers have done.

If you could look at a motor car without knowing what had been done with it, or how it was produced, you would say it was of all industrial products the one least likely ever to be acted upon successfully by the principles of mass production. Comparing it with a brick, a pair of shoes, a bolt of cloth or a piece of furniture, you would say that any of these things might be more easily submitted to intensive multiple manufacture than an automobile, which perhaps forever would have to be made one at a time, slowly. Then when you see how motor cars actually are made—first the automatic multiplication of parts from patterns and then the bringing together of the parts with such precision of time and action that from the moment an automobile begins to take shape it picks up its wheels, its engine, its transmission, its body, and so on, as it moves and never stops until it is finished—seeing this, you might say, “Yes, but how does this method apply to a brick that has no parts?”

How does it apply to glass that has no more parts than a brick? Henry Ford asked that question. He thought of making his own glass, and asked: “Why can’t glass be made by a continuous process like an automobile?”

He was laughed at by the glass makers. A man who thought glass and automobiles were similar things! But they are similar things—that is, they are both artifacts derived from raw materials. Now the glass makers come to look at his glass plant, the first of its kind in the world, where the sand and other materials spill out of a chute upon the hearth of a furnace and never for one instant stop moving until the glass is polished and cold and stands on edge before the inspector.

IX

Efficiency as a New Dimension

Mass production, you see, is not a method. It is an idea. The method is what will be determined by the nature of the problem in a specific case. The idea is to move materials through the process of manufacture with the least possible expenditure of time and labor. Not only is that idea applicable to any industry, and to agriculture as well; the limits of it have never yet in any case been touched. Moreover, it is only beginning to be understood. Take but a few examples of the spread between relative efficiency and obsolescence in the important industries.

“Most brickmaking plants in the United States today,” says Ethelbert Stewart, Commissioner of Labor Statistics, “are using precisely the same method as that used in Egypt with Hebrew slave labor at the time Moses led the great brickyard strike, which I suppose the Egyptian brick manufacturers considered a failure, since the strikers’ places were taken by strike breakers.”

He finds expenditure of human energy per thousand bricks to be in one plant four man hours and in another plant 13.5 man hours. Thus in the better plant the productivity of labor is more than three times as great as in the other. He found in one Chicago plant a machine delivering 50,000 bricks an hour and calculated that if the whole brick industry were so equipped it could release 80 per cent of its workers.

In the iron industry, the Department of Labor finds there are blast furnaces that require eleven hours of human labor to make a ton of pig iron and blast furnaces that require only one hour. There the productivity of labor in one case is eleven times what it is in the other. There are shoe factories where the output is two pairs of shoes per worker per day and factories where the output per worker per day is twelve pairs. There are sawmills where the output per man hour is fifteen board feet and others where it is 350 feet. There are flour mills with an output of 9000 barrels of flour and other flour mills with an output of 2500 barrels, per man per year.

In every case the obsolete plants pay lower wages and have higher labor costs than the efficient plants.

Coal mining is one of the sick industries. The output of coal per man is very much higher here than in England, and the American miner’s wages for that reason are higher. Comparing our coal industry with England’s, we may think it fairly efficient. Testing it by our own common sense, we know how inefficient it is. The Department of Labor says that one-quarter of the best American mines, highly equipped and working 306 days a year, could produce all the coal we could use and sell, with only 60 per cent of the miners now engaged.

“In other words,” it says, “250,000 men in this industry must be out of work all the time, which means that the entire 700,000 are being wasted one-third of the time.”

There was a question to be answered. Were we approaching the end?

From the most casual survey of American industry one is obliged to say that the idea of efficiency is only beginning to seize our imagination. It has yet very far to go.

Until now the competition between manual labor and machine power has survived. There is still that competition in other countries, and to challenge it in principle causes the utmost bewilderment. A European manufacturer, seeing in this country an operation performed by machines that in his plant is done by hand, inquires the cost of the machine. Then he says:

“But, you see, in my case wages are so low that hand labor is just as cheap. In any event, the difference is so small in favor of the machine that it might take me five or six years to save the cost of it. Therefore it would not pay.”

X

Vast Margins

Here machine power is preferred in principle. For that reason competition between manual labor and machine power is disappearing. In a few years more your emotions at the sight of human beings performing any labor that might be done by a machine will be very disagreeable. We are on the way to abolish drudgery. That is another goal.

Old industries have to learn the idea. New industries begin with it. For example, there is the beginning in this country of rubber culture. We could not hope to produce rubber as the method is on the great plantations of the Far East. American labor would not undertake it; nor could anyone wish it to do so. What was the alternative? To import cheap labor? No; but to bring the idea to bear on the problem. That was done. And as American rubber culture now is contemplated, with machine power, the output will be 25,000 pounds per man per year instead of 1700 pounds in the Far East. That should make it worth our time. Wages such as no Malayan or Javanese could dream of and lower costs per pound because the output per man is fifteen times more. For the same reason we can grow rice in California with high-priced labor and sell it at a profit to Japan in competition with rice produced by low-paid Chinese labor in China.

Productivity per man hour is one thing. Until now we have been rather preoccupied with that effect. Productivity of labor as a whole is another thing, and there is a field in which enormous difficulties are still to be overcome. From a study of pay-roll data for industries employing 11,000,000 wage earners, the Department of Labor concludes that instability of employment, seasonal idleness, turnover, drifting and such causes, all more or less removable, entail an annual waste representing the labor of 1,750,000 men, in normally good times. Hitherto a condition of fluctuating employment has been taken to be inevitable. At least, no one was to blame for it.

Now occurs the thought that continuity of employment is one of the great responsibilities of business. Why take such pains to increase the productivity of labor while it is employed, thereby saving it, and then let it run to waste wholesale in unemployment? There is the average annual productivity of labor as a whole to be considered; and that, of course, is reduced by unemployment, with exactly the same effect upon the buying power of society as if its productivity had been limited in any other way. Progress in wealth is retarded; anything that checks the continuous flow of wealth last and first is bad for business. People cannot consume unless they also produce. The idleness of 1,750,000 men for want of stable employment is a load upon society and a liability to business. The only excuse for it is that the idea of efficiency has not yet extended to the ultimate problem of business, which is to solve the terms of its universal relation to life.

There are many signs that it will do this, not so much because it proposes to do it as because it is bound to do it, from an impulse taking strength in its own nature. A fact we seem continually to slight is that business is no longer trade, pursued primarily for gain by a minority cohort with certain more or less common characteristics. We used to speak of the instinct for trade, and not without justification. It was by no means the highest human trait.

Modern business is a new condition of life. It directly absorbs much more than one-half, possibly two-thirds, of all the genius, imagination, intelligence and greatness of spirit produced by society. Leadership, passing over to it, wears down the ancient barrier. Where should leadership be found if not where the dominant qualities of a people are?

The war called it forth in a surprising manner. The function of business in any war before had been that of purveyor. Then for the first time the life of war, like the life of peace, assumed primarily an economic aspect, with problems as to which statesmen, generals and military bureaus were quite helpless.

When the war was over, the dollar-a-year men returned to business, and now you will find them, one in a banking office who for his services as administrator in some foreign country whose language he did not know has been decorated by three governments, another quietly pursuing the profession of engineer who with more power than any czar partitioned the sinews of war among the Allied combatants, or another in retired circumstances who held in one hand the entire economic power of America and with the other moved food, munitions and raw materials to and fro in the earth as if it were a two-foot chessboard, and so on—hundreds of them.

This new power of leadership strikes downward. We are beginning to understand it. There was a fine illustration of it in the handling of the Mississippi River disaster. It is Mr. Hoover’s story. He and his staff were working ahead of the flood. First they picked the towns of refuge. Then they thought of someone, Y or Z, who knew the people in each of those towns. They called Y or Z on the telephone asking, “Who is the man in X town best qualified to take command in a great emergency?” Having got a name, they called it on the telephone, and said to the person who acknowledged it: “You will receive in your town 5000 homeless people in four days. Go to the local bank for money. Your checks will be honored there. Appoint a committee with arbitrary power to do anything that is necessary. Build some barracks. You will need a commisariat, doctors, nurses, and so on. . . . All right? . . . Good-bye.”

Only one town in ninety-one failed. The point is that the natural local leaders upon whom the responsibility fell in this sudden manner were in every case men of business, with here and there a type that might be called the business farmer.

Once it was, not long ago, that the power of business had an ominous meaning, for it was increasingly a power over the means of life, having within it no controlling sense of social responsibility. With that sense rising, the view deepens. What business now seeks is power over itself, with intent to discipline the anarchic impulse. As it conquers the exploiting motive it will discover the principles whereby the law of competition is reconciled with what Bellamy called complex mutual dependence. Each for himself and each for the other.

What follows is scientific control of the economic circumstance. More and more what happens will have been intended. Then we shall not ask what the business augury is or whether we are happily to receive another year of prosperity, as if we were navigating an economic sea in a sailing ship, with headway, leeway or disaster a dispensation of weather. We shall ask, instead, what the program is; it will be published beforehand as a common plan, so that everybody may know what is expected, and there will be a statistical score, as simple as the weekly report of freight car loadings or the daily standing of base ball clubs, to show the rate and scale of performance. How strange it will then seem, that people once referred the state of prosperity to a theory of cycles, or supposed their material progress was conditioned by a wriggling line on a sheet of quadruled paper showing the level of money reserves in banks!

That is to say, all as may be. It is rationally possible. Certainly there is no longer any reason in nature why the production and exchange of wealth need be limited otherwise than by human intention.