"Was this so before the great Revolution?"
"Certainly. It was a truism among economists that either England, Germany, or the United States alone could easily have supplied the world's whole consumption of manufactured goods. No country began to produce up to its capacity in any line."
"Why not?"
"On account of the necessary law of the profit system, by which it operated to limit production."
"In what way did this law operate?"
"By creating a gap between the producing and consuming power of the community, the result of which was that the people were not able to consume as much as they could produce."
"Please tell us just how the profit system led to this result."
"There being under the old order of things," replied the boy Frank, "no collective agency to undertake the organization of labor and exchange, that function naturally fell into the hands of enterprising individuals who, because the undertaking called for much capital, had to be capitalists. They were of two general classes--the capitalist who organized labor for production; and the traders, the middlemen, and storekeepers, who organized distribution, and having collected all the varieties of products in the market, sold them again to the general public for consumption. The great mass of the people--nine, perhaps, out of ten--were wage-earners who sold their labor to the producing capitalists; or small first-hand producers, who sold their personal product to the middlemen. The farmers were of the latter class. With the money the wage-earners and farmers received in wages, or as the price of their produce, they afterward went into the market, where the products of all sorts were assembled, and bought back as much as they could for consumption. Now, of course, the capitalists, whether engaged in organizing production or distribution, had to have some inducement for risking their capital and spending their time in this work. That inducement was profit."
"Tell us how the profits were collected."
"The manufacturing or employing capitalists paid the people who worked for them, and the merchants paid the farmers for their products in tokens called money, which were good to buy back the blended products of all in the market. But the capitalists gave neither the wage-earner nor the farmer enough of these money tokens to buy back the equivalent of the product of his labor. The difference which the capitalists kept back for themselves was their profit. It was collected by putting a higher price on the products when sold in the stores than the cost of the product had been to the capitalists."