3. Three Lines of Economic Organization
So much, then, for the interdependence of the various economic groups under the present forms of society. This interdependence runs throughout the capitalist system. Farms depend on railroads, railroads on mines, mines on factories, factories on farms, and so on.
This extreme specialization of the economic system is the product of the past two hundred years, the outcome primarily of the industrial revolution. The experience of society with these specialized economic forms does not, therefore, extend over more than five or six generations. This experience is sufficient, however, to indicate, that there are three general lines along which economic organization may develop:
1. Economic "states rights" or individualism—the theory upon which the present day industry as well as the modern state was founded. Under this theory each economic group must be free to go its way, cutting a path for itself through the ranks of its competitors, and making its triumphant advance over their prostrate remains.
2. Economic bureaucracy, involving the concentration of economic authority in the hands of a centralized group which, knowing little or nothing about the requirements of particular localities, is nevertheless in a position to legislate for them and to enforce its mandates.
3. Economic federation or federalism, with local groups enjoying local autonomy in all local matters, and only so much centralized control as is necessary for the unified direction of the entire enterprise.
American industry has had considerable experience with the two first forms of organization. Until the period of the Civil War, competition was the generally accepted rule in all phases of economic life. With the formation of the Standard Oil Company in 1870, a new principle was demonstrated, and the idea of centralization was embodied in a form that served as the model for the American trust movement. By the time of the late nineties, this principle of centralization had been carried so far that a reaction set in, and when the United States Steel Corporation was organized in 1901 local autonomy was recognized as one of the essential principles around which its structure was built.
Experience points to the system of local autonomy in local matters and to the central control of general matters as the most workable in a complex society.
In the first instance, under such a system, each local unit is responsible for its own activities and for its own discipline. It is obvious that no matter how efficient the bureaucracy, it would hardly be possible for a centralized authority to control, from one point, the six millions of farms and the quarter million industrial establishments of the United States. It is only where the handling of local matters rests with those immediately concerned that the highest degree of local pride, initiative and energy can be generated and maintained.
Such a system leaves the central authority free from detail so that it may devote all of its energies to decisions on matters of general policy, and to such procedure as affects the welfare of the whole rather than of any particular part. Economic society, to be organized successfully, must be built of units that will prove self-acting and self-directing in all matters of purely local concern. At the same time, a scheme of economic life must be devised that will make it easy and natural for these economic units to function co-operatively in all matters connected with the well-being of the whole industry or of the whole economic society.