State. According to this the functions of government should be limited to the protection of life and property and the enforcement of contracts, but should not include such things as education, regulation of industry, local improvements, charities, coinage, etc. Private initiative and competition are trusted to supply these things, while the economic harmony of the interests of each individual with those of society will prevent any wrong from being done. The keynote of the whole theory lies in the view that government is an evil, though a necessary one, and should consequently be restricted. Adam Smith’s system of “national liberty” went somewhat further, as it added to the three functions named above, the construction of public works and buildings, etc.; but it excluded such activities as education and the civil courts, which we regard as most suited to government management. This theory had its origin in the reaction against the undue interference with industry by the Government under mercantilism and had thus a historic justification and value.
The theory most generally held by economists and writers in the United States is probably the modified individualism set forth by John Stuart Mill. According to him, freedom of industry or “laissez faire should be the general practice; every departure from it, unless required by some great good, is a certain evil.” Industry, he said, should be left to individuals and the Government should never interfere unless there is an antagonism between social and private interests. Individuals following their own interests will always conduct business better than the Government, which is inefficient, corrupt, and can fall back on taxation to cover its mistakes. Individualism should therefore be the rule and governmental action the exception. But Mill himself admitted that there was no theoretical limit to the extension of governmental functions, and in so doing is said to have opened the door to socialism. Nevertheless, the basic idea is still that government
is an evil and an extension of its activities is on the whole undesirable.
Opposed to this view is the culture state theory, enunciated by Roscher and very generally held in Germany, which regards the State as a beneficent, positive and constructive force in our industrial life. The advocates of this theory point out that the functions of the Government change with progress, and that in our complex modern industrial life it should seek to improve conditions positively, and not leave the people to the mercies of a blind competitive struggle; practically, it should regulate industry, conditions of work, housing, etc., and should manage all public utilities which affect the life or well-being of the citizens, as railroads, telegraphs, industrial insurance, etc. Still further in the same direction goes the view known as state socialism, of whom the best-known advocate is Professor Wagner. This advocates individualism, but insists that it is responsible for many injustices and evils, which it is consequently the duty of the State to redress. For instance, the State should correct the inequalities of wealth brought about by the distribution of the social income under the present competitive system; this should be done by the progressive taxation of inheritances and incomes, the limitation of inheritance and bequest, the government ownership of public utilities, as railroads, telegraph, telephone, coal mines, etc. This theory stops just short of socialism, but enlarges the functions of the State to the largest degree compatible with individualism. Beyond this, and at the farthest extreme from anarchism, stands socialism, which, however, demands a more careful examination than the other views have received because of its present prominence.
Socialism may be briefly defined in the words of Professor Ely[49] as “that contemplated system of industrial society which proposes the abolition of private property
in the great material instruments of production, and the substitution therefor of collective property; and advocates the collective management of production, together with the distribution of social income by society, and private property in the larger proportion of this social income.” Four features are involved in this definition, namely, common ownership, production, distribution, and private incomes. The cardinal and distinctive element in socialism is the collective or social ownership of the means of production, that is, of the land and capital. Instead of having these owned privately as today, they would be owned by the people as a whole, by the State, and used by them for production. Socialists do not oppose capital, as is often said, but only the private ownership of capital. But under such a system private business as we know it today, individual enterprise for the sake of profit, could not exist. It is often urged that socialism means a “grand divide,” and that in such an event the shrewder and more thrifty would shortly have the wealth of the idle or stupid members of society. But just that is guarded against under socialism, for there would be no private ownership of capital, and hence no one could get his neighbor’s share; it would all be held under collective ownership. With the abolition of private capital, there would disappear of course all the economic institutions that have grown up around it, as credit, banking, lease, hire, the stock and produce exchanges, etc.
Socialism also means the collective or social organization and management of industry. Socialists criticise severely our present methods of production, which they call planless and wasteful. They point to the constant recurrence of crises as an evidence of mistakes of the competitive system, which they say could be obviated under a well-organized comprehensive scheme. They also urge the wastes of modern capitalism, in the duplication of plants, advertising (which amounts to $500,000,000 a year
in the United States and serves little useful purpose), traveling salesmen, multiplication of small stores, etc. Finally, an artificial disharmony between the interests of society and private individuals is promoted by our system of private property and profit: a coal trust limits the supply, farmers rejoice over small crops, and planters burn part of their cotton, in short the bounty of nature is regarded as a calamity. Some truth may be admitted in these criticisms, but in answer it may be said that some of them are being corrected under individualism, while as to those that remain the remedy offered is worse than the disease. The first and fundamental question is the effect of socialism on the amount produced, for as we have seen any diminution would mean a worse economic condition of society, even though it were offset by a more equal distribution. Under individualism the appeal to industry and thrift is the self-interest of the individual, and under the stimulus of this motive the production of wealth has been increased enormously. It is doubtful whether the motives of altruism, desire for social approbation, and similar ones suggested by the socialists would promote industrial activity as efficiently as the individualistic desire for pecuniary gain.
Moreover the difficulties of organizing and managing all industries would be enormous. According to the socialist plan, statistics of consumption would be gathered in advance, the idle changes of fashion would of course disappear, and production could be accurately calculated. But aside from the problem of securing an honest and efficient administration, the work of organizing industry from a centralized bureau would probably prove insurmountable. The distribution of the labor force among various employments suggests another difficulty. Under individualism the necessary distribution takes place through the agency of wage payments and the choice of an occupation is left free to the individual. As the wage-system would disappear
with the abolition of private capital, some other means would have to be devised, as allotment by the Government. But more important would be the selection of the managers of industry; competition provides a process whereby the inefficient are eliminated and the able put in charge. As socialism would be an industrial democracy the selection of the captains of industry under that system would probably be made by election. Is it likely that the voters would place over themselves the ablest, that is the strictest, most economical, and most energetic man? Taking men as we find them today, this may well be doubted.