Twentieth Century Socialism: What It Is Not; What It Is: How It May Come

by Edmond Kelly

Even when Nature is most bountiful the competitive system results in misfortune. For example, the President of the Boston Chamber of Commerce in a speech to the Chamber said in 1891:

"In 1890 we harvested a cotton crop of over eight million bales—several hundred thousand bales more than the world could consume. Had the crop of the present year been equally large, it would have been an appalling calamity to the section of our country that devotes so large a portion of its labor and capital to the raising of cotton."[28]

In 1905 the newspapers announced "the South is proposing to burn cotton so as to keep up its price."[29] And still more recently the same suggestion has been made regarding the tobacco crop in Kentucky.

Again, the competitive system under which every man goes into the business where he sees most profit, inevitably leads to periods of overproduction, and overproduction leads to unemployment and misery.

No political economist denies the obvious fact that whenever an industry is known to be profitable, capitalists are likely to engage in this industry—indeed, this is one of the automatic processes which the Manchester school has put forward as constituting the chief merit of the system. It is, of course, important for the community at large that prices should in no one industry become excessive; and obviously the disposition of capital to rush into industries where profits are high, does by competition tend to reduce prices, and thus prevent them from becoming excessive. But economists, especially those of the Manchester school, have not been willing to recognize that this disposition of capital to flow into productive enterprises may, though sometimes beneficial, be also sometimes ruinous; may, indeed, often result in a devastating deluge. These economists, therefore, it may be well to confront with a brief history of one or two of our largest combinations. Let us take as a first example the sugar trust.

Just before the organization of this trust, overproduction had become so excessive that of forty refiners in the United States eighteen became bankrupt. Of the twenty-two that remained, eighteen combined. Of the refineries belonging to these eighteen, eleven were closed, leaving seven to do profitably the work which had previously been done unprofitably by forty.

The history of the whisky trust shows overproduction to a still more aggravated degree. Before the organization of the Distilling and Cattle-Feeding Company, agreements were entered into by the majority of the distillers; under one of them they agreed to reduce production to forty per cent of what it at that time was; subsequently they agreed to reduce still further to twenty-eight per cent; and of eighty of the principal distillers who organized the Distilling and Cattle-Feeding Company, the establishments of sixty-eight were closed, leaving only twelve distilleries operating.

The same succession of events is found in the history of the American Steel and Wire Company, and indeed of practically all American trusts.

This inevitable tendency towards overproduction vitally concerns workingmen, for it is upon them that the evil consequences of this process first and most fatally fall. As soon as the process results in the inevitable reduction of prices to near cost, the manufacturer must either throw workmen out of employment or reduce wages. Wages constitute the only elastic element in cost, and it is therefore the workingman who first pays for the evil working of this system. And not only does the workingman pay for it, but the employer pays for it also; for workingmen, to protect their interests, strike, and only the wealthiest employers can stand the strain of a strike; the rest are ruined by it.

Even a reduction of the hours of work or the days of employment in the week will, if it lasts long enough, ruin the employer, for he has still to pay the fixed charges of the factory, and if prices get low enough, and he cannot sell his goods except at a ruinous loss, he ends by not having means to pay these charges; and this process is illustrated in the cases just mentioned; for example, eighteen out of forty sugar refiners became bankrupt; and it was not till the eighteen were ruined that a combination was possible amongst the rest.