Journal of Political Economy. 16: 417-35. July, 1908.
Shall the Scope of Governmental Functions Be Enlarged so as to Include the Express Business?
Albert N. Merritt.
In the nature of things the local dealer cannot compete with the mail-order houses on equal terms. He cannot afford to issue the expensive catalogues, or to keep so large an assortment of goods. Moreover, the immense volume of business of the catalogue concerns enables them to quote cheaper prices on many commodities. Frequently they are able to secure, on private contracts with manufacturers, large stocks of goods at prices even lower than the jobber is required to pay. Furthermore, their expense of doing business is proportionately much lower, as practically their entire expense of distribution consists of the outlay in issuing the catalogues and in packing and shipping the goods when ordered. No experienced force of salesmen is required to display the goods and argue their merits. Moreover, it is often the case that the glowing terms in which goods are described in these catalogues cause the credulous to believe them superior to what they really are. Distance always seems to lend enchantment, and abundant opportunities are offered for deception as to the quality of the goods.
The local dealer, on the other hand, in order to fill orders promptly, must keep a stock of goods which, in proportion to the amount of business he does, is vastly greater than that of the catalogue houses. In order to purchase his goods to advantage, he must lay in a stock in the fall sufficient for six months or a year, while few, if any, of the larger mail-order houses would have at any time sufficient goods in stock to enable them to fill orders for a fortnight. Naturally, therefore, where the turnover of capital is slower, the percentage of profit upon individual transactions must be higher, and competition upon an equal basis becomes impossible.
But quite apart from a theoretical exposition of causes, the facts show that the local dealers are rapidly losing trade to the catalogue houses, and in many districts the local retail business has become so unprofitable that the number of retail stores is decreasing, and their volume of business less instead of greater as might be expected with the normal growth of population.
Not only do the mail-order houses excel in the volume of business, and in the greater assortment of goods, but they are able to effect the most efficient and economical management by the employment of the most able managers and department men, which is rarely or never the case in the ordinary country store, owing to the natural scarcity of men of that grade. In fact the business management of the ordinary country store is lamentably weak. From the economic standpoint, therefore, one is compelled to admit that, in accordance with the laws of competition and of the survival of the fittest, the catalogue houses have already demonstrated their superiority.
Admitting, therefore, that the economic position of the mail-order houses is stronger, are there not important social arguments against permitting the absorption of local business by the rapidly expanding catalogue concerns at our large trade centers?
In the first place, it should be noted that the rapid consolidation of our manufacturing industries makes it more difficult every day to conduct such enterprises in small communities in competition with the large plants in the large communities. The result has been that for a long time the proportion of the manufacturing business done in small communities has been growing smaller. With the gradual and necessary elimination of the manufacturing business in smaller communities, the mercantile business is about all that is left as an economic basis for the existence of such communities.
These forces tend to a rapid concentration of business in the large trade centers, and the resulting congestion of humanity at such points. In one generation the proportion of the population of the United States living in our large cities has more than doubled, and just at present is increasing more rapidly than ever before.
It may well be doubted whether this tendency will ultimately be beneficial to the race. Vice, crime, and disease are rampant in the slums of our great cities. Human life, under such conditions, becomes cramped. The unfolding process is impossible. The exigencies of the situation cause sporadic and abnormal development. The moral and physical culture of the individual is almost wholly neglected, and the intellectual development resulting is nearly always one sided, and too frequently resolves itself into the attainment of solely those qualities which make for greater acquisitive power. The social superiority resulting under the questionable standards prevailing in such centers may be obtained only with the sacrifice of much that is higher and nobler in human nature.
A large proportion of the population is compelled to lead a sedentary life. It may well be asked whether the conditions prevailing in our large mail-order houses and department stores make for the good of humanity. From 8:00 a. m. till 6:00 p. m. the many children and young girls employed are kept at close, confining work, frequently straining every nerve far beyond the limit of safety and human endurance, in order to make themselves independent, and to meet the conditions which city life imposes upon them. During the fall rush these girls are often asked to remain at work till 9:00 or 10:00 p. m. They realize that it is necessary for them to acquiesce in such unreasonable and brutal demands or lose their positions during the dull season immediately following the holidays.
An eminent physician not long ago remarked that it was his personal opinion, based upon long practice, that less than 10 per cent. of the girls in our large cities are as strong and healthy as their mothers were at a corresponding age. This he plausibly explained by the fact that nearly all of the latter had come from the country where they lived close to nature, with plenty of fresh air and sunshine, and with plenty of hard work too, but of the kind which upbuilds and strengthens the health rather than destroys it.
Furthermore, the wages paid in such institutions are seldom high enough to enable the individual to live at the prevailing social standards, and only too frequently the female employees are compelled to piece out their salaries by questionable means. It is inevitable that the future generation of the city-bred population should be as much beneath the present, as the present is beneath the last, unless radical reforms take place. Such progressive degeneration must be regarded as a tremendous social calamity.
Without trespassing too far upon the field of the sociologist, it may safely be assumed that an increased concentration of industry and population is far from desirable. Why then should the government take active steps to promote it? Would it not be better to allow the mail-order houses and local retailers to fight out their own battle for trade supremacy upon equal terms, on the basis of the survival of the fittest? The retailer would then at least be able to cling tenaciously to the few natural advantages which he does possess, and would necessarily retain a considerable portion of the business. In establishing the parcels-post the government would be taking action to crush the local dealer, and would thus take away the last economic basis for the rural community, and accelerate the concentration of industry in great cities.
By the elimination of the smaller towns the easiest and most natural market is taken away from the farmer. His small produce would then have to be shipped to the large cities, where he would almost certainly become the prey of commission-house agents, whose methods of operation are well known. Legitimate competition which means the lowest prices in view of the quality of the goods offered would be eliminated. The only competition would then be that of advertising. The one capable of producing the most attractive advertisements would win in the end. The American public is so great and so credulous that the house which has once fooled the public can again under another name and perhaps with different customers work off the same class of worthless or inferior goods.
Furthermore, the nearby location of a small country town gives to the farmer and his family immense social, educational, and cultural advantages, which would be almost wholly inaccessible if it were not for the existence of such communities. Take away the business and economic support of such a community, and immediately it becomes stagnant. Its ambitious and progressive citizens immediately migrate to other fields, and the town is left to decay.
No parcels-post could be established which would be self-supporting. The innate desire of the people to get something, as it were, for nothing, would soon express itself in a demand for a reduction of rates. No administration could be popular and at the same time effectively resist such a demand. It has been proved over and over again in history, that wherever a democratic body politic has undertaken to conduct a commercial enterprise of a public-service character, the demand for rates far below the cost of doing the business has seldom or never been successfully resisted. If this has proved true of local governments, how much more is it likely to be true of the federal government which, nearly everybody seems to think, already has a revenue so great that the principal problem with regard to it is the determination of the best method of turning it back into the channels of trade. Even at present with a nominal postal deficit of from $11,000,000 to $14,000,000, but with an actual deficit as will be subsequently shown of much more than that amount, it seems that the demand for penny postage and for the increase of salaries of certain classes of postmasters and of almost the entire clerical force is too strong to be resisted effectively.
The real issue is, therefore, Can the government expect successfully to compete with the express companies, on a business basis? If it can be shown that the government would be utterly unable to compete it follows that the government should not undertake the service.
Mr. H. A. Castle, former auditor of the Postal Department of the United States, has shown in its true light the many defects of our present postal system, and how far it comes from being that which should be expected of a private enterprise of like character. Speaking upon this point he says:
The protracted postal investigations of 1893 revealed to thinking men the disquieting fact that our national mail system, which is now the greatest business enterprise in the world, is entirely destitute of logical, coherent, business-like organization.
Among many other striking defects, he points out that there is utter lack of business methods in the accounting department. Of the one billion and a quarter dollars of transactions represented in the accounts of the 70,000 postmasters all over the United States, less than 10 per cent. have the double audit required by law. Fraud, peculation, and embezzlement of third- and fourth-class postmasters have become common occurrences and are exceedingly difficult to detect. As the salary of these postal officials depends upon the number of cancellations at their respective offices, all sorts of fraudulent schemes are continually being practiced to swell the number of cancellations beyond the legitimate amount.
Furthermore, there is no method of auditing the number of cancellations, and the department must accept the word of the postmaster, which may or may not be true. Several cases have been unearthed where an agent of a manufacturer has secured a nominal position of postmaster at some out-of-the-way point, and by drawing a salary based upon the number of cancellations has practically been able to secure a rebate amounting to about 75 per cent. on all matter mailed, the mailable matter being shipped to said point by freight. Absolutely no account is kept or record made of the number of stamps issued by the Bureau of Printing and Engraving, and no one has any means of knowing how many disappear before official record of the stamps issued is made by the Postal Department.
The weighing of mail matter handled by the railroads takes place only at stated intervals of four years. As the payment of the railroads depends upon the average tonnage during the period in which the weighing goes on, it is charged that all sorts of fraudulent schemes are continually being practiced by the railroads to increase the weight of the mail during this period.
There is no auditing of railroad accounts. Forty million dollars is annually paid out by the department merely on the statement of the railroads that the service has been performed. There is no effort made to ascertain the truth or falsity of the allegations.
There is no method of accounting for the actual amount of cash received by postmasters in payment for second-class mail. The amount of cash turned in by the various postmasters may or may not bear any relation to the actual amount of such mail received at their respective offices. It is impossible to detect dishonest returns except in some of the most aggravated cases. The average mercantile house which should practice such methods would be forced out of business in less than six months.
The slowness of the Postal Department to adopt modern business methods is strikingly illustrated by the fact that till quite recently the only method of checking the money-order accounts of postmasters was by a hasty examination of the stubs of order books turned in. No account was made or reference taken to the actual receipted orders. Imagine a bank attempting to settle accounts with its customers by the examination of the stubs of their check-books, rather than by reference to the actual checks!
We are driven to the conclusion, therefore, that the Postal Department as now organized and operated would be utterly unable to compete with express companies upon purely a business basis.
Furthermore, it should not be expected that the express companies would quietly drop out of business. They would make a tremendous fight for existence, and would at all events retain such portions of the business as they are now doing at less than the lowest postal rates. The equipment for the express service would, therefore, have to be duplicated in every town and village of the United States. It is folly to presume that the public would not in the end be required to pay for the enormous loss which would be involved in such an uneconomical procedure.
Would it not, therefore, be better to place the proper safeguards around the existing organizations which are fitted to perform the transportation service by the best and most economical means, rather than that the government should undertake the impossible, i. e., competition with private companies upon a purely business basis?