The Evolution of the Trust: Its Evil Element and the True Remedy

John Moody

[Reprinted from The Arena, 1907]

THE YEARS 1830 to 1835, when the famous Frenchman, Alexis DeTocqueville, visited America to gather material for his well-known book entitled Democracy in America, were years of of great eventfulness for this country. These years marked a pronounced turning-point in the history of American institutions. It was at this period that the steam railroad began to take the place of the stage-coach; that the factory system began its fuller and broader development; that Andrew Jackson began his efforts for the overthrow of the United States Bank, and that the abolition movement, under the lead of William Lloyd Garrison, got under way.

Looking back now, over a space of more than seventy years the thoughtful man cannot but realize that the particular time referred to was a critical turning-point in American history, and that the three and one-half score years that have followed, have been productive of many astonishing changes in American customs, institutions, methods and standards of living, attitude towards government, as well as in opportunities for the advancement of freedom and equality.

DeTocqueville's great book, which made its appearance in 1835, opened with the following remarkable paragraph:

"Amongst the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of conditions. I readily discovered the prodigious influence which this primary fact exercises on the whole course of society, by giving a certain direction to public opinion, and a certain tenor to the laws; by imparting new maxims to the governing powers and peculiar habits to the governed.

"The more I advanced in the study of American society, the more I perceived that the equality of conditions is the fundamental fact from which all others seem to be derived, and the central point at which all my observations constantly terminated."

After reading the foregoing is it not an astonishing, or one might say, a dramatic fact, that only seventy years later a book should be published, attain wide circulation, and create great comment, which begins its introduction in this wise?

"What is the cause of the great changes that are coming over the American Republic - the extraordinary inequality in the distribution of wealth manifested on every hand; the rise of class feeling; the growth of the aristocratic idea; the lapse from morals in business and private relations among the very rich; the growth of elements of physical, mental and moral deterioration among the working masses; the appearance of militant trades-unionism; the perversion of the injunction principle and the use of soldiers in strikes; the corruption of federal, state and municipal politics; the deterring of press, university and pulpit from an open expression; the centralization of government; the advances in foreign aggression?"*

*The Menace of Privilege, by Henry George, Jr., MacMillan Company, New York, 1906.

What an astounding contrast in these two descriptions! And yet a period of only seventy years has intervened between the time of writing the two paragraphs.

While to those who have lived through this period the change of conditions may have seemed to be brought about very gradually and perhaps imperceptibly, yet, if we view the situation in the broad expanse of history, we will find that in the past ages such vastness of change has seldom occurred in such a brief period of time. In the case of the old Roman Republic we find that its complete change from a condition of equality of conditions to one such as is here described involved a period of several hundred years. This was also true of ancient Greece and has been true of other nations. While history teaches us that sudden revolutions have often occurred, taking men at a single leap, as it were, from conditions of serfdom and bondage to conditions of comparative freedom and equality, yet the changes in the reverse direction have nearly always been far less rapid and have spread over many pages of history.

Thus, our own short revolution from conditions of comparative equality to conditions of comparative inequality has been strikingly unique and dramatic, and has been the result, not of a long evolution, but apparently of a short, silent, nonbelligerent, but still inexorable revolution.

In view of these remarkable changes let us examine briefly what has been going on in the American Republic during these 70 years.

In 1835 the population of the United States was about 14,000,000; the estimated wealth of the nation was $4,470,000,000. The wealth per capita was $319. By 1890 the national wealth had increased to $65,000,000,000 and the population of the country to about 60,000,000 people; in 1900 the wealth had increased to $94,000,000,000; and the population to about 80,000,000 people; and today it is conservatively estimated that the national wealth aggregates $120,000,000,000, while the population has grown to more than 90,000,000 people, not including the population of the Philippine Islands. It is further estimated by experts that by 1910 the population will have increased to about 100,000,000 people and the national wealth to $140,000,000,000; and that by 1920 the population will possibly reach 125,000,000 and the national wealth will exceed $200,000,000,000.

Now on the figures already given the wealth per capita in 1835 was $319; in 1890 it was about $1,090. In 1900 it was $1,175; and today it is $1,333 per capita. On the estimates of the future already given it will be in 1910 about $1,400 per capita, and in 1920 $1,600 per capita. The actual increase, therefore, of the wealth per capita from 1835 to 1905 has grown from $319 to $1,333, a four-fold increase.

In this same period of seventy years the most astounding advances have been made in material civilization, in modes of traveling, of carrying on industry and commerce, and of living. Take the cost of transportation for example. Today you can move a car-load of wheat from Dakota or Manitoba to Liverpool for one-tenth what it would cost in 1830 to move a wagon-load of wheat 25 miles. Steadily, as the production of the country has increased in magnitude, so has the cost of production fallen. And yet in spite of these remarkable facts, I have just pointed out in the two extracts quoted a description of conditions which does not seem to harmonize with these facts in any respect.

To merely realize that only seventy years ago the estimated wealth of the nation was but $4,470,000,000, while today it is over $120,000,000,000 should in itself indicate that if the American nation was in 1830 the wonderful civilization that DeTocqueville described, then how much more wonderful should it be today. If DeTocqueville noted a remarkable state of prosperity and equality and great absence of poverty in 1835 when the wealth per capita was only $319, how much greater should be the prosperity and absence of poverty today with the wealth per capita at $1,333. And yet in face of all this we find it admitted on practically all sides that "an extraordinary inequality in the distribution of wealth is manifest on every band."

Does not all this seem astonishingly paradoxical? But let us analyze the situation a little more closely.

I have stated that the estimated wealth of the nation is today about $120,000,000,000. Of this about one-half or $60,000,000,000, is what might be called created wealth, and the balance is spontaneous or unearned wealth - what is sometimes called the "unearned increment." Now of the so-called total wealth about $50,000,000,000 is today in corporate form, and of this $35,000,000,000 is in the trust corporate form. Of the wealth in trust corporate form only about 40%, I should say, is actual earned wealth and 60% is spontaneous value or unearned increment.

Let me try to show a little more clearly what I mean by these two different kinds of wealth. Take one of the large transportation trusts as an example, the Union Pacific Railroad system. Eight years ago its capital (market) value was approximately $130,000,000 and this represented chiefly the real, tangible, created property at that time. Since then less than $150,000,000 more has been invested in the Union Pacific Railroad and yet the market value of its securities today is not $230,000,000, as you would naturally suppose, but is over $600,000,000. The Pennsylvania Railroad system 15 years ago was worth $1,500,000,000; today it is worth over $2,500,000,000; the Reading system in 1896 was worth only about $120,000,000; today it is worth $600,000,000. The Great Northern Railroad in 1890 was worth only about $40,000,000; today it is worth over $500,000,000. The public utility corporations of New York City cost to construct less than $200,000,000, and yet today they are capitalized for over $1,000,000,000." The Standard Oil Company represents an original investment of far less than $50,000,000, and yet it is worth in the markets today nearly $600,000,000. The great Steel trust has actually cost only $400,000,000, and yet it is worth nearly $1,500,000,000.

The difference between the cost of these things and the market value represents the unearned increment or capitalized value of their monopoly or special privilege. This increment, created of course, by the community, the growth of population, and general increase of produced wealth, has, as the country has grown, increased with it and will necessarily continue to do so.

I have been describing the process which has brought what is known as the trust into existence. For with these gigantic strides in population, wealth production, and wealth inflation, the tendency has inevitably been to concentrate, reduce cost, eliminate competition and divert the product from the pockets of the producer to those of the privileged few. And it is because of this diversion of wealth that there is a trust problem. The next thing to do, therefore, is to trace how this diversion comes about.

"Self-preservation is the first law of nature," and in his most primitive state man is bound to develop a capacity for preserving his physical life before he does anything else. He must first feed and clothe himself. Until he can get a living he can do little else, and the history of the vast majority of mankind from the most primitive times to this hour is really little else than a history of the struggle for material existence.

But under unobstructed natural law, men can and do always get a living; and they can and do develop from a lower to a higher state. They do this first through primitive labor. They apply themselves to the work of producing consumable things from the soil. These things they either consume themselves or exchange for other consumable things, thus bringing trade into existence. Some things they store up for future use and these they call wealth; others they store up to use in creating more wealth, and these they call capital. Capital is purely and simply stored-up labor. It is something which has been produced or brought into being and made of value by the combined forces of land and labor - the sentient labor of the hands or brain. The three factors of wealth production are land, labor and capital; land being the primary passive factor, labor applied to land directly or indirectly being the active factor; and capital being simply stored-up labor.

Land, labor and capital being the three producers of wealth (capital being stored-up labor), is it not logical enough, that while men can get a living of some sort without access to capital, they cannot get it without access, directly or indirectly, to land? Give me all the land in the world and you can have all the capital and all the created wealth, and with all your possessions I will be in a position to force you to either to pay me tribute or make you starve to death, assuming, of course, that I have the physical power to carry out my legal privilege which is embraced in the ownership of the land. In other words, I will have the right to charge you in rent all the wealth you possess in exchange for giving you the privilege to live upon and use the surface of the earth. But give me all the wealth and capital in the world and you retain the soil, and if you see fit you can order me off the earth or else make me pay in rent all of my possessions and perhaps all of my labor for the privilege of existing upon the soil. But if, on the other hand, you take away all my capital, all my wealth, but leave me free to use my body and mind and give me equal access with others to the use of the earth, then I can snap my fingers at you, and the primary problem of the struggle for existence becomes for me no more the heartrending and pressing question which it is today for all peoples and in all civilized countries.

It is not because of the "iron heel of capital" that there is a trust question. Capital is a good thing and a harmless thing. It is like labor; it is a producer of wealth and in itself is harmless. Were there no other factor to be reckoned with in the trust than capital there would be no so-called trust question and people would not fear these great aggregations nor feel injurious influences from them any more than they now feel injurious effects from the growth of a church or library or other institution of the kind. Capital and labor are fundamentally one; there is no conflict between them and essentially never can be - but "capital and labor clash because they are both robbed alike by their common enemy, monopoly." Monopoly is the overpowering factor in the trust question and it is by searching for and finding out this element that our problem can hest be solved.

Just as soon as you mention the word "monopoly," a great many good and well-meaning people will say you must be a demagogue and that there is no such thing as monopoly in America. The trouble with such people is that they do not get down to fundamentals; they take the say-so of other people and of newspapers; they listen a little to the superficial sophistry and often inspired statements of political platforms and of interested politicians; or they get their opinions from certain religious teachers and other educators, many of whom are unfortunately prone to ally themselves on the side of the strongest battalions. It is easy to explain why people do this. When the monopoly element has so thoroughly permeated our civilization; when it controls and dominates the press and a large portion of the pulpit; when it makes its influence felt in the home, in society and in our legislative halls; and in many ways, most important of all, when it is a factor of such moment in business and industrial life that the average man is scarcely able to distinguish it from the legitimate elements of capitalistic production and distribution, we cannot blame men very much for being echoes of those who guide and dictate their destinies so largely in modern industrial life. It is quite to be expected as long as people persist in being so short-sighted and stupid as to let others think for them. Most men are guilty of this very thing all the time; they let others think for them. They appeal to the editorial column of the newspaper; they appeal to those in authority, or to others who are "eminent," and of course, they think such authorities as these are "infallible."

And so it is with this question of trusts and its element of monopoly. Let us look at it as though it were not a political question, but simply a human question. Let us eliminate bias and see what it is that makes the trust question a burning issue. I say it is monopoly-power, or privilege. Now what is monopoly-power? It consists in the possession of the right to extort in one form or another. And it is this power or right that makes the average trust obnoxious; be it a steam or electric railroad, a gas or electric-light company, a manufacturing company or any other money-making aggregation. If a trust does not possess this special privilege in some form, then it will be found in every case that there is nothing obnoxious or injurious about it. It is not mere size, as some think, for many of the smaller trusts are, in their special spheres, obviously more unpopular than some of the larger ones. It is not the mere method of management, nor the personnel, nor the particular line of business. But it is this factor of privilege which enters in and interferes with the harmonious operations of natural law in the production and distribution of wealth, which is at the bottom of the irritating trust question.

As I have pointed out, land, labor and capital produce and distribute wealth. Now what does monopoly do? It diverts wealth, and here is the crux of the whole trust problem. Let me illustrate:

Way back in the '60s a man named Andrew Carnegie came to this country and after a while got into the iron business. In the course of time he became very successful and by means of railway rebates and discriminations and tariff restrictions he was enabled to amass a great fortune, running up into the millions. He did not amass this fortune by the combined efforts of labor and capital, but was greatly assisted by the power to extort. He extorted big profits by reason of tariff benefits; he extorted special rates from the railroads, the latter in turn extorting in other ways to make up what they suffered at Carnegie's hands. In the course of time Carnegie and his associates reached a point where they thought it wise to retire with their booty, and they did it in true Jack Sheppard fashion. They had various rivals who were engaged in the same lines of business, most of these being dominated by Mr. J. P. Morgan. Morgan's companies were not so strong as Carnegie's; their point of vantage was not so good, but the Morgan interests had great financial resources and Carnegie decided to force them into buying him out. He thereupon began the tactics so familiar in corporate contests nowadays, and threatened to construct new railroads, tube mills, and so forth, which would seriously jeopardize the condition of Morgan's properties, the latter being already rather "toppy" and fearfully inflated in capitalization. Morgan was clearly caught in a comer and simply had to buy Carnegie out at the latter's own price. Carnegie made him pay in securities, an equivalent in market value of $494,000,000, for a group of plants which had earned in normal times, only three years before, a yearly profit of less than $10,000,000. Carnegie got in all for the share of himself and family, more than $250,000,000 in good securities. In brief, Carnegie and his associates extorted from Morgan and his, about $300,000,000 more than the plants were worth, the value of these plants themselves being largely represented by their owners' powers of extorting artificial prices through monopoly privileges. Morgan then found it necessary to organize his great Steel trust with its gigantic capitalization, and ever since, the latter has been trying to live up to the standard of its over-capitalization by taking the greatest possible advantage of its tariff and other monopoly benefits. It could doubtless be replaced today, aside from its monopoly rights, for less than $300,000,000, and yet it is capitalized for five times that amount. The entire difference between the $500,000,000 and the $1,500,000,000 is not real capital but merely the capitalization of monopoly-power or privilege - the legal privilege to extort. And in order to satisfy its owners and stock-holders it must earn sufficient income to pay a return on this capitalization.

Herein lies the key to the trust problem, and you will find that this same characteristic of special privilege or monopoly-power runs through the entire group of enterprises, industrial, public-service and transportation, which are generally classed as trusts. In some form or other nearly all possess the legal privilege to extort and they all capitalize this privilege to the fullest extent possible.

And so you will find it all through the fields of industry. Wherever there is a monopoly element the power of privilege makes its influence felt in the prices of the things we consume, the clothes we wear, the ornaments in our houses, our comforts and our luxuries. There are a thousand ways in which this power operates as a wealth diverter in the common walks of life, as well as in the franchise, the tariff and patent monopolies and special privileges of other kinds. But the chief monopoly of all, and the one that bolsters up the others and makes their existence possible, is the fundamental land monopoly. In this connection it is worth while again to repeat that without free use of capital man can preserve himself, but without free access to land he at once becomes more or less dependent. Whatever way you look at it, the trust question leads directly to the land question.

Let me give a concrete illustrate of this:

We will go to the manufacturing state of New Jersey, and suppose a factory is built half way between Elizabeth and Rahway, which is to employ 5,000 people. It is far from the railway and difficult of access. Let us assume that labor of the same kind is paid in Elizabeth and Rahway at the rate of $15.00 per week, and is in normal demand. In order to get operatives the factory out there in the fields will have to offer some inducement, so that they must pay enough in addition to the regular rate of wages to cover the railway fare, which we will say is 20 cents per day or $1.20 per week. The operatives thus get $16.20 per week, of which $1.20 goes for carfare, leaving them the net wage of $15.00 per week for their own use. Now let us assume that a trolley line is put through, reducing the cost of travel to 10 cents per day or 60 cents per week. The labor market remaining the same, the factory will now be able to employ hands at 60 cents per week less, and the wage-rate will drop to $15.60. The employe will be just where he was before. Suppose fares are reduced to 3 cents - 6 cents per day or 36 cents per week. The wage-rate will fall again, still netting the operative his $15.00. Now suppose travel is done away with, a village springs up about the factory, cottages are built and rented to the operatives. He no longer has his fare to pay, but he is subject to competition with other laborers - perhaps the rents in the new village are lower than in Elizabeth - the operative can perhaps live for $1.00 per week less, therefore, men are willing to work in this new village for $14.00 per week, as it costs $1.00 less than in Elizabeth. The wage-rate goes to $14.00. In time, the cost of living increases in the village, improvements are introduced, taxes are increased on property, and a man cannot live any cheaper than in Elizabeth. In obedience to supply and demand his wages go to $15.00 again, but as it now costs him $1.00 more for increased rent and so forth, he is really in the same condition as he was in before. And so it goes - twist conditions as you will, the rise in real wages is offset by the rise in rents and other increased cost of living. If there has been no loss, neither has there been any gain - and the average rate of wages will be governed by the bare cost of subsistence, and to an extent by the supply of and demand for labor in given industries.

But the situation is different with the comparatively small class who possess the title to land, or have the advantages of other privileges. The owner of the factory, for instance, will not merely make his legitimate profit, but will benefit enormously by the unearned increment daily being created by population in the village which he has started. Buying the land for a song, he will perhaps rent a part of it at increasing rates as population grows, hold a large portion of it out of use awaiting future appreciation, etc. Other land speculators may come along and do the same. And they can afford to do it, because the taxation is not concentrated upon their unused ground, but is spread over improvements and everything else; they may manufacture goods which are protected by a tariff and which may enable them to sell at prices 50% higher here than they are glad to take abroad, the consumer, of course, paying in this way a tribute, not to the government, but to them.

Now it may be argued that this so-called monopoly does not work this way. It is not true that men are so completely at the mercy of those they work for nowadays; and this is partly true, but it is because of the fact that labor now operates cooperatively and in large aggregations, just as capital does; and thus we have the trades-unions and the problem of organized labor as an added factor in modern industrial problems. The labor-union is a defensive movement, contrived by workingmen themselves as an effective weapon for fighting the injurious effects of monopoly. Labor does not fight capital, as is erroneously thought; it endeavors to fight monopoly. And of course it makes mistakes; its measures are often unjust and bring injuries in their train which are serious. The trades-union is a somewhat clumsy device to protect the laborer from being entirely exploited.

The inequitable conditions of society which we see all about us are due, not to natural or unavoidable causes, but to a denial of justice between man and man. We have been trying through legislation, for more than a decade, to solve the trust problem and yet it will not down. Beginning with the movement inspired nearly 25 years ago by the disclosures of secret relations between the Standard Oil trust and the railroads, the movement for trust regulation has continued interruptedly down to the present day. And still, in the face of all this legislation, the issue is the most vital one before the people today, and no immediate settlement of it seems to be in sight.

In the philosophy of Henry George I believe is found the solution to this trust problem. He has shown us that this great economic question is at bottom a moral question, and he has studied and analyzed the question in such a way that his solution is in harmony with natural law and human justice. If you once understand the economic philosophy of Henry George you will see that the economic inequality of modern times is fundamentally due to the fact that in the effort to progress and accumulate wealth men make use of another factor besides the legitimate ones of land, labor and capital. They make use, consciously or unconsciously, of monopoly, which gives them the power to extort. The result is that general progress and the development of civilization, instead of being a harmonious growth, is largely a grand inequitable scramble; the doctrine of "every man for himself and the devil take us all" largely becomes the standard for action, and practical men laugh at the idea of abstract justice and say that this is a purely selfish world, governed by unjust natural law.

I, for one, cannot take this view of life. I do not for a moment believe that it is the niggardliness of nature or the crudity of natural law that brings inequality and poverty and suffering and low ideals into the world. But I do thoroughly believe that the fault lies in men themselves, and that in the practical teaching of Henry George they can find the key to this great problem.

There can be nothing so vicious in their effects on society, as well as on posterity, as false ethical standards, and it is in the propagation of these false ideas and standards that the bad effects of monopoly and special privilege are most potent. Young men are in many ways taught nowadays, either directly or through a little surface experience, or by implication, that the highest ideals of life are to be reached through money getting; that is, through amassing great fortunes and becoming powerful factors in commercial or industrial life. A great captain of industry, with his fifty millions, is pointed out as the model for our youth to follow, and every effort is made by his elders and advisers to start him along this road. In extenuation for this devotion to mere wealth, it is said that it gives power for good, for the guidance of the ship of state, and for the promotion of material well-being. But when we read or study the life of this or that great general of finance and see how his work is often lauded by press and pulpit, it indeed seems a hollow mockery that we should call such careers ideal. To my mind, there is nothing so pathetic in modem life as to see some of these captains of industry passing middle life and entering the period of old age. With every material want, with wealth and comfort of every kind, they have usually lost their brightest jewel - character. Their ideals are gone, their spirituality stunted, and in many ways they have become the master meterialists.[sic] And this is but natural, for how can even thoughtful and discerning men, who see life with all its injustice, who are taught that their own ideals of success are right, and yet that to achieve them largely involves cruelty and injustice to their fellow-men - how can even thoughtful men, under such guidance, have any true ideals or develop any real religious side? And it seems to me that here is one of the great reasons why our churches are so empty; why public, business and social morality is so low, and why in this strenuous twentieth century we seem to be growing more and more away from the ideals of justice and of true Christianity. If the daily experience of practical men, both as employers and employes, goes to confirm the theory that the establishment of natural justice will always be an unattainable dream, then the hope for the triumph of Christianity is poor indeed, for surely, if there is no such thing as justice there can of course be no God. In this the materialistic socialist is logical. To make his premises fit the theory he must of necessity deny the existence of abstract justice and in doing that he must deny his God.

But the truths brought to light by Henry George, showing conclusively that the great ills of society are the direct result, not of unjust natural law, but of man's own inhumanity to man, do not kill but do awaken the old ideals; they revive the dying faith in justice and by their teaching we get the inspiration of a true religion.

In understanding and living in the spirit of George's philosophy, which is entirely based on the simple doctrines of equal freedom and natural justice, we are enabled to harmonize and explain many apparently conflicting tendencies and theories of life; we can see the wisdom of Tolstoy's teaching of non-resistance and the possibility of its practical application in the years to come; we can look with hope and confidence into future generations and confidently believe that a better, happier and more ideal, not a poorer civilization, is in store for mankind.