Within a century very many and various forces have been at work to produce an entire change in this system of industry. The invention of the steam engine and of the machines used in the textile fabrics produced the factory system, with a high organization of industry, concentrated at certain centers. The opening of canals and the improvement of highways made possible the commerce by which the products were distributed. The cheapening of printing and the multiplication of means of advertising widened the market by concentrating the demand which was widely dispersed in place, until now the market is the civilized world. The applications of steam power to roads and ships only extended further the same development, and the telegraph has only cheapened and accelerated the means of communicating information to the same end.
What have been the effects on industry?
1. The whole industry and commerce of the world have been built up into a great system in which organization has become essential and in which it has been carried forward and is being carried forward every day to new developments. Industry has been growing more and more impersonal as far as the parties to it are concerned. Our wants are satisfied instantaneously and regularly by the coöperation of thousands of people all over the world whom we have never seen or heard of; and we earn our living daily by contributing to satisfy the wants of thousands scattered all over the world, of whom we know nothing personally. In the place of actual contact and acquaintance with the persons who are parties to the transactions, we now depend upon the regularity, under the conditions of earthly life, of human wants and human efforts. The system of industry is built upon the constancy of certain conditions of human existence, upon the certainty of the economic forces which thence arise, and upon the fact that those forces act with perfect regularity under changeless laws. If we but reflect a moment, we shall see that modern industry and commerce could not go on for a day if we were not dealing here with forces and laws which may properly be called natural because they come into action when the conditions are fulfilled, because the conditions cannot but exist if there is a society of human beings collected anywhere on earth, and because, when the forces come into action, they work themselves out, according to their laws, without possible escape from their effects. We can divert the forces from one course to another; we can change their form; we can make them expend themselves upon one person or interest instead of upon another. We do this all the time, by bad legislation, by prejudice, habit, fashion, erroneous notions of equity, happiness, the highest good, and so on; but we never destroy an economic force any more than we destroy a physical force.
2. Of course it follows that success in the production of wealth under this modern system depends primarily on the correctness with which men learn the character of economic forces and of the laws under which those forces act. This is the field of the science of political economy, and it is the reason why it is a science. It investigates the laws of forces which are natural, not arbitrary, artificial, or conventional. Some communities have developed a great hatred for persons who held different religious opinions from themselves. Such a feeling would be a great social force, but it would be arbitrary and artificial. Many communities have held that all labor, not mental, was slavish and degrading. This notion, too, was conventional, but it was a great social force where it existed. Such notions, either past or present, are worth studying for historical interest and instruction, but they do not afford the basis for a science whose object is to find out what is true in regard to the relations of man to the world in which he lives. The study of them throws a valuable sidelight on the true relations of human life, just as the study of error always throws a sidelight upon the truth, but they have no similarity to the law that men want the maximum of satisfaction for the minimum of effort, or to the law of the diminishing return from land, or to the law of population, or to the law of supply and demand. Nothing can be gained, therefore, by mixing up history and science, valuable as one is to the other. If men try to carry on any operation without an intelligent theory of the forces with which they are dealing, they inevitably become the victims of the operation, not its masters. Hence they always do try to form some theory of the forces in question and to plan the means to the end accordingly. The forces of nature go on and are true only to themselves. They never swerve out of pity for innocent error or well-intentioned mistakes. This is as true of economic forces as of any others. What is meant by a good or a bad investment, except that one is based on a correct judgment of forces and the other on incorrect judgment? How would sagacity, care, good judgment, and prudence meet their reward if the economic forces swerved out of pity for error? We know that there is no such thing in the order of nature.
I repeat, then, that the modern industrial and commercial system, dealing as it does with vast movements which no one mind can follow or compass in their ramifications and which are kept in harmony by natural laws, demands steadily advancing, clear, and precise knowledge of economic laws; that this knowledge must banish prejudices and traditions; that it must conquer baseless enthusiasms and whimsical hopes. If it does not accomplish this, we can expect but one result—that men will chase all sorts of phantoms and impossible hopes; that they will waste their efforts upon schemes which can only bring loss; and that some will run one way and some another until society loses all coherence, all unanimity of judgment as to what is to be sought and how to attain to it. The destruction of capital is only the least of the evils to be apprehended in such a case. I do not believe that we begin to appreciate one effect of the new civilization of the nineteenth century, viz., that the civilized world of to-day is a unit, that it must move as a whole, that with the means we have devised of a common consent in regard to the ends of human life and the means of attaining them has come also the necessity that we should move onward in civilization by a common consent. The barriers of race, religion, language, and nationality are melting away under the operation of the same forces which have to such an extent annihilated the obstacles of distance and time. Civilization is constantly becoming more uniform. The conquests of some become at once the possession of all. It follows that our scientific knowledge of the laws which govern the life of men in society must keep pace with this development or we shall find our social tasks grow faster than our knowledge of social science, and our society will break to pieces under the burden. How, then, is this scientific knowledge to grow? Certainly not without controversy, but certainly also not without coherent, steady, and persistent effort, proceeding on the lines already cut, breaking new ground when possible, correcting old errors when necessary.
3. It is another feature of the modern industrial system that, like every high organization, it requires men of suitable ability and skill at its head. The qualities which are required for a great banker, merchant, or manufacturer are as rare as any other great gifts among men, and the qualities demanded, or the degree in which they are demanded, are increasing every day with the expansion of the modern industrial system. The qualities required are those of the practical man, properly so called: sagacity, good judgment, prudence, boldness, and energy. The training, both scientific and practical, which is required for a great master of industry is wide and various. The great movements of industry, like all other great movements, present subordinate phenomena which are apparently opposed to, or inconsistent with their great tendencies and their general character. These phenomena, being smaller in scope, more directly subject to observation and therefore apparently more distinct and positive, are well calculated to mislead the judgment, either of the practical man or of the scientific student. In nothing, therefore, does the well-trained man distinguish himself from the ill-trained man more than in the balance of judgment by which he puts phenomena in their true relative position and refuses to be led astray by what is incidental or subsidiary. If, now, the question is asked, whether we have produced a class of highly trained men, competent to organize labor, transportation, commerce, and banking, on the scale required by the modern system, as rapidly as the need for them has increased, I believe no one will answer in the affirmative.
4. Another observation to which we are led upon noticing the character of the modern industrial system is that any errors or follies committed in one portion of it will produce effects which will ramify through the whole system. We have here an industrial organism, not a mere mechanical combination, and any disturbance in one part of it will derange or vitiate, more or less, the whole. The phenomena which here appear belong to what has been called fructifying causation. One economic error produces fruits which combine with those of another economic error, and the product of the two is not their sum, nor even their simple product, but the evil may be raised to a very high power by the combination. If a number of errors fall together the mischief is increased accordingly. Currency and tariff errors constantly react upon each other, and multiply and develop each other in this way. Furthermore, the errors of one nation will be felt in other nations through the relations of commerce and credit which are now so close. There is no limit to the interest which civilized nations have in each other’s economic and political wisdom, for they all bear the consequences of each other’s follies. Hence when we have to deal with that form of economic disease which we call a commercial crisis, we may trace its origin to special errors in one country and in another, and may trace out the actions and reactions by which the effects have been communicated from one to another until shared by all; but no philosophy of a great commercial crisis is adequate nowadays unless it embraces in its scope the whole civilized world. A commercial crisis is a disturbance in the harmonious operation of the parts of the industrial organism. During economic health, the system moves smoothly and harmoniously, expanding continually, and its health and vigor are denoted by its growth, that is, by the accumulation of capital, which stimulates in its turn the hope, energy, and enterprise of men. Industrial disease is produced by disproportionate production, a wrong distribution of labor, erroneous judgment in enterprise, or miscalculations of force. These all have the same effect, viz., to waste and destroy capital. Such causes disturb, in a greater or less degree, the harmonious working of the system, which depends upon the regular and exact fulfillment of the expectations which have been based on coöperative effort throughout the whole industrial body. The disturbance may be slight and temporary, or it may be very serious. In the latter case it will be necessary to arrest the movement of the whole system and to proceed to a general liquidation, before starting again. Such was the case from 1837 to 1842, and such has been the case for the last five years. It is needless to add that this arrest and liquidation cannot be accomplished without distress and loss to great numbers of innocent persons, and great positive loss of capital, to say nothing of what might have been won during the same period but must be foregone.
The financial organization is the medium by which the various parts of the industrial and commercial organism are held in harmony. It is by the financial organization that capital is collected and distributed, that the friction of exchanges is reduced to a minimum, and that time is economized, through credit, between production and consumption. The financial system furnishes three indicators—prices, the rate of discount, and the foreign exchanges—through which we may read the operation of economic forces now that their magnitude makes it impossible to inspect them directly. Hence the great mischief of usury laws which tamper with the rate of discount, and of fluctuating currencies which falsify prices and the foreign exchanges. They destroy the value of the indicators, and have the same effect as tampering with the scales of a chemist or the steam-gauge of a locomotive.
In the matter of prices we have another difficulty to contend with, which is inevitable in the nature of things. We must choose some commodity to be the denominator of value. We can find no commodity which is not itself subject to fluctuation in its ratio of exchange with other things. Great crises have been caused in past times by fluctuations in the value of the commodities chosen as money, and such an element is, no doubt, at hand in the present crisis, although it had nothing to do with bringing it about. It follows that any improvement in the world’s money is worth any sacrifice which it can possibly cost, if it tends to secure a more simple, exact, and unchanging standard of value.
The next point of which I wish to speak is easily introduced by the last remark; that point is the cost of all improvement. The human race has made no step whatever in civilization which has not been won by pain and distress. It wins no steps now without paying for them in sacrifices. To notice only things which are directly pertinent to our present purpose: every service which we win from nature displaces the acquired skill of the men who formerly performed the service; every such step is a gain to the race, but it imposes on some men the necessity of finding new means of livelihood, and if those men are advanced in life, this necessity may be harsh in the extreme. Every new machine, although it saves labor, and because it saves labor, serves the human race, yet destroys a vested interest of some laborers in the work which it performs. It imposes on them the necessity of turning to a new occupation, and this is hardly ever possible without a period of distress. It very probably throws them down from the rank of skilled to that of unskilled labor. Every new machine also destroys capital. It makes useless the half-worn-out machines which it supersedes. So canals caused capital which was invested in turnpikes and state coaches to depreciate, and so railroads have caused the capital invested in canals and other forms to depreciate. I see no exception to the rule that the progress won by the race is always won at the expense of some group of its members.