It has not been generally enough recognized that business men owe it to investors to do their best to see to it that they get fair returns on their money invested -and only fair returns. There are a number of ways in which, on the one hand, the investing public is "skinned," and, on the other hand, stock in a business, largely owned by the management itself, has been rewarded with undeserved dividends at the expense of the public.
(1) There are, in the first place, the get-rich-quick swindles, the out-and-out impostures, which have deceived the credulous into investments that never could pay. Bonanza mines, impractical inventions, town lots laid out on the prairie, orange groves that existed only on paper-such bogus hopes have enticed many an honest man and woman, who could ill afford to lose, into turning over their small earnings to the brazen exploiters.[Footnote: For cases, see World's Work, vol. 21, p. 14112.]
(2) But such arrant deception is not the commonest form of wrong. A more usual practice, and more dangerous- because it deceives even the intelligent-is to overcapitalize an honest business, to issue "watered" stock-that is, stock in excess of the actual value of plant, patents, and other assets. These stocks are issued merely to sell. If the business is very successful, its profits may pay a fair return on all this capital; if not, low dividends or none can be paid until the business slowly catches up with its overcapitalization. In all investment-as our industrial organization at present goes-there is risk; but to create a needless risk and deceive the public into taking it is plain dishonesty. The extra money thus sucked from the public goes sometimes to pay excessive salaries to the officials of the company, sometimes to pay excessive prices for patents or plants purchased; there are many subtle ways, known to "high finance," of misappropriating stockholders' money and diverting it to the pockets of the promoters. Many great fortunes have been made in this way; such exploitation is so new to society that it has not yet awakened to its essentially criminal nature. Even if the business is able to pay good dividends on watered stock, the crime of overcapitalization is not lessened, though the harm done is now not to the investor but to the public. Stocks should represent only the actual value of the property, so that dividends may be only a fair return for capital really invested in the business. Where there is sharp competition, the possibility of overcharging the public to make returns on watered stock is cut out, and the loss falls upon the investor. But in the case of monopolies, such as railways, or of combinations which practically stifle competition, the public may be charged enough to "pay a fair dividend to investors," although the money upon which dividends are being made went not into improving the service, but into fattening the promoters' purses. [Footnote: On stock watering, see Dewey and Tufts, Ethics, pp. 561-64. Outlook, vol. 85, p. 562. Political Science Quarterly, vol. 26, p. 88. International Journal of Ethics, vol. 18, p. 151. C. R. Van Hise, Concentration and Control, pp. 115, 142, etc.]
(3) A third method of "fleecing" investors lies in skillful manipulation of the stock market. In ways which are known to the initiated, it is often possible artificially to raise or lower the market value of stocks. Unwary investors are lured in; timid investors are frightened out; through all ticker fluctuations the brokers win their commissions; the skilled financiers and organizers of combinations rake in unearned sums that are sometimes immense, while the losses fall mostly to the lot of the are honestly seeking to put their savings into solid investments. The ethics of the stock market has not yet been clearly decided, and the subject is too big to discuss here. It is mentioned only to point out one more form of social sinning, as yet inadequately punished or rebuked, whereby men of capital and brains have been able to pocket money for which they have given no return to society. [Footnote: For cases, see C. Norman Fay, Big Business and Government. Outlook, vol. 91, pp. 591, 636.]
III. TO COMPETITORS?
(1) The most conspicuous form of wrongdoing, perhaps, to be charged to modern business is the attempt to get monopoly by foul means. The story of too many of our great trusts is a story of competitors ruined by ruthless and unscrupulous methods. The competitor may be hurt by the circulation of falsehoods concerning his business, his right to patents, or the worth of his goods. He may be denied outlet to markets by control of the railway upon which he must depend. If the capital of the concern that is seeking monopoly permits, the price of the article manufactured may be lowered until rivals with less financial backing are forced out of business-after which the price can be raised and losses recouped. With skill and foresight worthy of a better cause, some of the great industrial leaders of our day have eliminated one rival after another and attained that unification of a business which has, indeed, its great economic advantages, but is not to be won at such a bitter cost. [Footnote: See, for example, I. Tarbell, History of the Standard Oil Company.]
(2) Even where monopoly is not sought, there are many unfair methods of competition-unfair to competitors and to the public that both should serve. One method, much discussed in recent years, is that of railway rebates. By this is meant favoritism in freight rates between shippers and between localities. One manufacturer, who is in a position to ship his goods by either of two railways, perhaps by a water route, is given a low rate to get his freight; another manufacturer of similar goods, not so favorably situated, is made to pay a higher rate. Rates from seaboard or river cities, where water competition exists, have often been considerably lower than rates from inland towns on the same line, with a very much shorter haul. In such ways the railway squeezes those whom it can squeeze and is content with a bare profit where it can do no better. Where the railway is controlled by the same interests that control some industrial combination, the favoritism may go even farther, and the railway's profits be sacrificed entirely for the cheaper marketing of that particular trust's article. Against all such inequalities in the treatment of shippers the public conscience has lately protested; the railways are recognized as a public instrument of transportation, which should be open to use by all upon equal terms, at a price which will repay the cost of carriage plus a fair profit. [Footnote: On railway rebates, see H. R. Seager, Introduction to Economics, chap. XXIV, secs 260-63. F. W. Taussig, Principles of Economics, chap. 60, secs. 7, 8. Outlook, vol. 81, p. 803; vol. 85, p. 161.] IV. TO EMPLOYEES?
(1) The first duty of employers is to give to all employees a fair wage. If the business does not pay enough to allow this, it has no right to exist; if the owners are pocketing large salaries, or giving dividends to stockholders, this money should be used first for a proper payment of the workers. So many laborers are at the mercy of the employing class, because of their ignorance, their lack of capital and necessity of work at any wage, and often their unfamiliarity with the language and customs of the country, that it has become possible in many cases to treat them like animals and give them less than enough to sustain life in decency, not to say in comfort. Such a case as that of our benevolent Mr. Carnegie, who million dollars in one year's earnings of his steel trust, while many hundreds of his employees were getting but a miserable pittance and living in vile surroundings, is exceptionally glaring; but in lesser degree the same injustice is being wrought in many industries. Wages have, indeed, been raised gradually, here and there; but not usually by the free will of employers. The callousness of some of the privileged classes toward the underpayment of the lower classes is almost on a par with the attitude of the nobility before the French Revolution.[Footnote: See, for example, Outlook, vol. 101, p. 345.] Fortunately, the public is coming to see not only the wrong done to the helpless poor, but the cost to the community in breeding underfed, ill- housed, criminally tempted classes, and the danger that lies ahead if these classes realize their power before amelioration is effected from above. As a recent writer has put it, Addition Division=Revolution. [Footnote: S. Hearing, Wages in the United States; Social Adjustment, chap. IV. Ryan, A Living Wage.]
(2) Another phase of modern industrial injustice is the overlong hours of work still required in many industries. The race for cheapness of product has blinded manufacturers and the public to the cost in terms of human happiness. An eight-hour day is quite long enough to produce all that is necessary, with the aid of modern machinery; every man should be given a margin of leisure for education, recreation, and social life. And every man should be given the benefit of that one day's rest out of seven which is so precious a legacy to us from the Jewish religion.[Footnote: A joint legislative committee in Massachusetts in 1907 estimated that 222,000 persons in that State were working seven days in the week. Similar, or worse, conditions exist throughout the country.] Those industries that require continuous use of machinery should employ three complete shifts of workmen; and those that must be run every day in the week should have enough extra helpers man. This humanizing of hours cannot be done by individual action, where competition is sharp; but by legislation that bears equally upon all, a generous standard-the eight-hour day and six-day week -can be maintained, with hardship to none and a great increase in the health and happiness of the masses. Especially jealous should the law be for the welfare of women workers. In cotton mills in the South women work ten and twelve hours a day; in canneries in the North they work, during the short season, fifteen and eighteen hours a day, eighty or even ninety hours a week. Particularly should women be protected during the weeks before and after childbirth; as it is, women workers are often ruined in health for life, the rate of infant mortality is shockingly high, and the children that survive are usually subnormal. Girls through overwork are weakened too seriously to bear strong children- which, in any case, they have had no time or opportunity to learn how to nurture and rear. No doubt women should work, as well as men; if not in the home, then outside the home. But the contemporary economic pressure that bears so hard on so many girls and women must be eased not only for their sakes but for that of coming generations. [Footnote: Dorothy Richardson, The Long Day. S. Nearing, Social Adjustment, chap. X. J. Rae, Eight Hours for Work.]
(3) The most piteous form of industrial slavery is that of young children, who should be in school or out of doors, developing their minds and bodies into some measure of readiness for adult work and responsibility, instead of prematurely losing the joy of life and stunting their mental and physical growth. In 1910 some two million children under sixteen were earning their living in this country. Even many thousands of children of twelve years or less are set to work in our factories and canneries. These children get almost no development and wholesome recreation; in great numbers they die early, and if they live it is commonly to fall into some form of vice or crime, and to breed an inferior race. Nothing is more inhumane or more mad than for the community to permit cheapness of goods at such a price. Indeed, child labor means, in the end, economic waste; the ultimate loss in efficiency on the part of these undeveloped, uneducated children, far more than overbalances the temporary industrial gain. The situation has been incredibly shocking; the employers who seek such an advantage over their humaner rivals, and the legislators who have winked at their inhumanity, deserve no mild reprobation. But legislation alone is not adequate to meet the situation; the underlying cause is the insufficient payment of adult workers, which practically necessitates supplementation by what the children can add to the family income. This is one illustration of the way in which all our social problems are tangled together so that it is impossible fully to solve any one without solving the others. When every adult receives wages enough to support a normal family-and when he is content to restrict his family to normal size; when the public schools are made efficient enough to show their evident worth to parents and to attract the children themselves, and a strict truant system takes care that the law is really obeyed; when the sick and defective and aged among the poor are cared for at public expense as a matter of course, there will be no need for children to work to help support the family; and we must endeavor, by the arousal of public opinion and by nationwide legislation, to keep children out of the factories, the shops, and the mines, till they are full-grown and educated. [Footnote: S. Nearing, The Solution of the Child-Labor Problem. J. Spargo, The Bitter Cry of the Children. E. N. Clopper, Child Labor in City Streets. Reports of Annual Meetings of the National Child Labor Committee. (Free literature. 105 East Twenty-second Street, New York City.)]