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BOOK IV

POLITICAL AND SOCIAL CONSEQUENCES OF PUBLIC OPERATION

CHAPTER I

SOCIALIST PROGRAMS AND THE FACTS

1. An American Idea.
2. Facts and Programs.—Organization of Public Service. Legal Monopoly.—Natural Monopoly.—Actual Monopolies Transformed into Legal Monopolies.—Restoring the Profits of Capitalism to the Community.—Exhaustion of Taxable Property.—Fiscal Monopolies.—A Quotation from Montesquieu.—Fraud.—Resolution of the French Chamber of Deputies in Favor of the Alcohol Monopoly.—Georges Cochery and the Alcohol and Insurance Monopolies.—Significance of His Words. Adoption by the Budget Committee of 1901 of a Proposal to Set up a Petroleum Monopoly.—Proposal to Monopolize the Importation of Wheat and Flour.
3. Daring Theories.—Timidity in Application.—Socialism Under Cover and Socialism on Parade.—Ramsay Macdonald.
4. Municipal Socialism.—Platform of the Three Political Groups in Great Britain.—The International Socialist Congress of 1900 and the Municipal Program.—The Claims of M. Lafferre in the Name of the Radical and Radical-Socialist Party.—The True Founders of Municipal Socialism.—The Congress of St. Quentin.—Method of Combating Capitalism and Middle Class Political Conservatism.
5. The Dupes.—A Project of Municipal Bakeries and Butcher Shops.

1. In opposition to the principle of freedom of commerce and industry held generally throughout the United States, Twentieth Century Socialism, 1 a posthumous work by an American named Edmond Kelly, offers the following remedy for contemporary political, social and industrial unrest:

The Socialist organization recognizes both private and public property. Certain industries will be fully socialized. In such industries capitalist direction and operation will be wholly eliminated. The production of those things for which the demand is great, and especially those which can be most easily and fraudulently adulterated, will be socialized, as will be the case also in industries of which a monopoly is readily established. Other industries, as petroleum, will be given over to the regulation of a syndicate of workingmen with a board of directors in which the state will be represented in order to insure state control.

The private ownership of farms will be maintained, but private ownership in cities will be suppressed.

I mention this book, because it has attracted some attention, although the childish simplicity of its proposals is sufficient for an estimate of its value.

2. In the Socialist vocabulary the establishment of state and municipal monopolies is called “the organization of public service,” and a distinction is made between legal monopolies and natural monopolies. In the end, however, this difference disappears, for private property is to be confiscated, whether it be under the name of railway operation, mining or the distribution of hydro-electric power. Ministerial offices are to be abolished, and notaries, attorneys and bailiffs transformed into functionaries.

Socialists are quite willing to acknowledge that the refining of sugar or of oil is neither a legal nor a natural monopoly, but these industries, concentrated as they are in a small number of hands, are virtual monopolies. Therefore, if the government finds it worth while, they are to be converted into public services. Indeed, state and municipal monopolies, being easy to organize and to operate, are going to deprive the capitalists of magnificent profits, which will be restored to the community.

To economize in the budget is out of the question; by the income tax the incomes already subject to super-taxation will be so reduced that the state revenue will be absolutely insufficient to meet the needs of the social budget of either the Radical and Radical Socialist party or of the Socialist party. The only available remedy, therefore, will be to establish fiscal monopolies.

Socialists also hold that when any commodity is burdened with heavy indirect taxes, that commodity ought to be transformed into a monopoly; and apropos of this they have quoted inaccurately the following passage from Montesquieu: 1

“In order to make the purchaser confound the price of the commodity with the impost, there must be some proportion between the impost and the value of the commodity; for which reason there ought not to be an excessive duty upon merchandise of little value. There are countries in which the duty exceeds seventeen or eighteen times the value of the commodity. In this case the prince removes the disguise—viz.—subjects plainly see they are dealt with in an unreasonable manner, which renders them most exquisitely sensible of their servile condition.

“Besides, the prince, to be able to levy a duty so disproportioned to the value of the commodity must be himself the vendor and the people must not have it in their power to purchase it elsewhere: a practice subject to a thousand inconveniences.”

Montesquieu might have been able to approve without reserve the substitution of a monopoly for heavy taxes; but we no longer live in the times when two lines from Hippocrates or Aristotle decided our problems for us. We see, however, under what conditions and with what reserve Montesquieu explains the motives which cause the government to act in this manner. For their own purposes the Socialists have made capital of his text; but, after verification, it proves refractory.

Still another argument invoked to-day in favor of state monopoly is that it will suppress customs frauds.

Yet in France there are districts in which the tax upon matches yields no receipts, and between the frontier of Belgium and France the principal occupation of the customs officers is preventing the smuggling of tobacco. It is in regard to just such a condition as this that Montesquieu has declared:

“Smuggling being in this case extremely lucrative, the natural and most reasonable penalty—namely, the confiscation of the merchandise—becomes incapable of putting a stop to it; especially as this very merchandise is intrinsically of inconsiderable value. Recourse must therefore be had to extravagant punishments such as those inflicted for capital crimes. All proportion, then, of penalties is at an end.”

But it is said that in France tobacco is a lucrative monopoly (we do not talk so much about matches), and a monopoly of alcohol is being considered. As a result of the Socialist propaganda in 1904, the French Chamber of Deputies adopted the following resolution:

“Beginning with January 1, 1905, the government will introduce a monopoly of the manufacture, adulteration, modification and importation of alcohol.

“No new distillery may be created after the promulgation of this law.”

That resolution remained on the table, but five years later, November 19, 1909, Georges Cochery, then minister of Finance, said:

“The question of an alcohol monopoly agitated some years ago and taken up with enthusiasm was soon afterward dropped. It has again been taken up, however, and an examination of the whole subject will shortly be made. (Loud applause from the extreme left, namely, the Socialists and Radical Socialists.)

“But before it is investigated still another problem may possibly be brought up—the question of an insurance monopoly, or at least a monopoly of certain kinds of insurance.”

When such words as these are spoken by a minister of Finance, they acquire a significance that skeptics, the indifferent and, with much more reason, interested parties (and in this case the interested parties are the whole body of consumers and taxpayers) would make a mistake in passing over. The vote on the resolution of the Chamber of Deputies shows of what aberrations majorities are capable.

In October, 1901, the Budget Committee, after having rejected a tax of 1 franc 50 per cwt. on crude petroleum proposed by M. Caillaux, minister of Finance, passed by seven votes against four and two or three absences a bill introduced by Marcel Sembat and worded as follows:

“Article 1.—The purchase, refining and sale at wholesale of petroleum are exclusive prerogatives of the state throughout its territory.”

On the same day the Committee introduced the articles of the Sembat bill in its finance law.

On February 17, 1894, M. Jaurés introduced a bill signed by Thierry-Cases, Bepmale, Millerand, Viviani, Desfontaines, Sembat and Vaillant, as follows:

“The state has the sole right to import foreign wheat and flour.

“It will sell these commodities at a price fixed annually by law.

“It will sell flour at a price based on the price of wheat and also determined by law.”

In 1903 MM. Paul Constans, Ed. Vaillant, Marcel Sembat and nine other Socialist deputies, “in order to put an end to the food crisis,” introduced a bill, the first clause of which suppressed the customs duties upon wheat and flour, but clause 3 of which “charged the government with the duty of importing wheat and flour and buying it at home as well as abroad in quantities necessary and sufficient for national needs.”

Clause 4 established a commission charged with organizing “within the shortest possible period a national commercial service to supervise the food supply, including especially provision by the government and the state and municipal storehouses of quantities of wheat and flour; the establishment of national and municipal mills and municipal bakeries; and finally co-operative agricultural production.”

3. But side by side with the above audacities went a timidity of execution springing from past experiences.

In 1912, at the Congress of the National Railway Association, Albert Thomas, a Socialist deputy, advised the postponement of the purchase of lines other than the Western, saying:

“The purchase must be carried out in a different manner from that of the Western. It will be necessary to secure the financial autonomy of the system; the participation of the employees in the management; and also public representation therein. In order to conduct a campaign for nationalization, at present neglected, we must have a solemn declaration on the part of an organized proletariat.”

And M. Odinot adds:

“When the end of the franchise granted the companies by the state shall have come, a considerable effort will be necessary in order to bring about a general purchase.”

Thus the leaders were anxious to temporize. They understood that for them promises and programs are worth far more than realization. Such a statement, however, in bald terms would have been a confession of lack of power and of charlatanism. They therefore sought pretexts for postponing action and in so doing furnished an illustration of two phases of Socialism: one underhanded and cowardly; the other—meant for exhibition—full of audacity.

In spite of the cautious advice of their leaders, however, the delegates answered by passing, almost unanimously, an order of the day providing for immediate nationalization.

In any event—if Socialist councils prevail—when the time comes for the roads to be turned over to the state, they will scarcely be worth the trouble of buying. As the contracts which bind them, however, do not expire for more than 40 years, some time must elapse before there is any further extension of the experiment of state operation of railroads.

In the United Kingdom, in the course of the discussion over the answer to the speech from the throne of February 15, 1912, Ramsay Macdonald, President of the Labor party, presented to the House of Commons as a remedy for industrial unrest “the fixing of a minimum salary and the nationalization of the railways, mines and other monopolies.” But he did not develop the last point of his amendment any further. Sir F. Banbury remarked that the Labor party had introduced this last bill only in order to prove to the electors that it was still alive. Mr. Robertson, parliamentary secretary of the Board of Trade, congratulated Ramsay Macdonald on the discretion with which he had supported it.

4. The Social Democratic Federation, the Independent Labor Party and the Fabian Society are all agreed in following up a resolution adopted in 1896 advocating nationalization of the mines, railways, canals, telegraphs and telephones; and the municipalization of water, gas, electricity, omnibuses, pawn shops and steamboats; the manufacture and sale at retail of tobacco, bread, coal, milk and other fundamentally necessary commodities; the construction of workmen's houses; the manufacture and sale of alcoholic drinks.

The International Socialist Congress held in Paris in 1900 passed the following resolution:

“That it is the duty of all Socialists to force a recognition in all projects for municipal reform that they are important only in so far as they foreshadow a collectivist government, and to force upon municipalities public services such as urban transportation, education, bakeries, medical attendance, hospitals, water supply, the distribution of power, public works, the police, etc.”

In 1904 the Radical and Radical Socialist party adopted the same municipal program as that just quoted, but, in refusing to recognize that it had borrowed its program from the Socialists, the party even went so far as to claim the theories thus indorsed as it own exclusive property—under the circumstances a somewhat cool proceeding. February 10, 1904, M. Lafferre, then president of the Executive Committee of the Radical and Radical Socialist party, spoke as follows:

“The key to the municipal financial problem lies in the application to it of an economic program consisting almost wholly of a municipalization of all utilities in common use; gas, electricity, power, general transportation, etc.”

Further on, M. Lafferre speaks with enthusiasm of “municipal fire insurance.” He regrets that the Council of State has not permitted the establishment of “a municipal pharmacy at Douai”; he dilates upon the encouragement which should be given to the construction of cheap houses; he regrets that it is only with great difficulty “that municipalities can obtain authority to subsidize coöperative joint stock construction companies.”

He adds finally: “Certain skeptical minds assert that our program is nothing but a sort of sweetened Socialism. It should be insistently repeated that this program is ours, altogether ours.” After which he adds:

“In carrying out this program, already so vast, we invite the friendly coöperation of the Socialists. We ask them, however, not to forget our prior claim to the idea that all property belongs to the public.” A highly imprudent addition. It would have been impossible for M. Lafferre to prove such a statement, while the Socialists would not have had the smallest difficulty in demonstrating that the Belgians, Colins and César de Paepe, and the French Benoit Malon and Paul Brousse were the true founders of Municipal Socialism and the forerunners of the Fabians.

During the Socialist Congress at St. Quentin in April, 1911, M. Edgard Milhaud gave expression to the theory of the municipalization of service. To forestall any criticism regarding the meagre results achieved in the way of relief of taxation, he said:

“The object of municipalizing the forces of production should not be to reduce taxes, but to reduce the cost of living.”

This statement ought to be kept in mind by those who cherish the delusion that they can solve the question of taxation by establishing state monopolies.

The Congress also passed two resolutions, one in favor of the purchase of the railways, the other in favor of municipal operation.

“Municipal services ought to be established in the first place for the advantage of the laboring people and the poor, for whom they ought to be provided at cost price if remunerative. And, if they yield profits through their use by other classes of the population, these profits ought to be utilized to extend municipal services in the labor interest, and, above all, to create and develop gratuitous education, sanitation, insurance, organized charity, and food.”

Then in order that there should be no doubt as to the character of these claims it was added:

“By their municipal action, by increasing the guaranties of prosperity, liberty and the fighting chances of the proletariat, Socialists can add to the force of their claims as well as of the fight against capitalism and middle class political conservatism.”

If interventionalists of every species “for their own reasons” help along the work of the Socialist, it will not be for lack of warning on the part of the Socialist party itself. But there are men who have a natural aptitude for and take pride in allowing themselves to be made dupes.

5. In August, 1911, the cost of living in France reached a crisis. Trouble broke out in the North, 1 and the Caillaux ministry found nothing better to do than to offer to the women and men who found bread, meat, milk, and vegetables too high this poultice:

“Municipalities may be authorized by a decree of the Council of State either to assist by loans in the creation of coöperative societies for the establishment of bakeries and butcher shops, or to establish themselves, and cause to be publicly operated, bakeries and butcher shops, under the conditions prescribed.” 2

This brilliant plan received such an enthusiastic welcome that the Poincaré ministry speedily withdrew it.

The Council of State has now accepted the principle that economic action on the part of a municipality is illegal when it results in willful and systematic restraint of commerce and industry. It has made some allowances in special cases, but we hope that in the future it will adhere firmly to the principle.

CHAPTER II

BLUFF

Declarations of Edgard Milhaud.—Enumeration.—Government and Municipal Undertakings Are Traditions, Not Innovations.—Far from Being Proofs of Evolution, They Are Proofs of Retrogression.—Example: Germany.—Postoffice.—Forests.—Gobelin Tapestry and Sèvres China.—The Legitimate Share of Government and Municipality in General Economic Activity.

In November, 1911, Edgard Milhaud, editor of the Annales de la Règie Directe, declared in that publication:

“Operation by public groups—that is to say, government ownership—is being substituted more and more for operation by individuals or by private corporations. In the field of municipal operation we might mention water supply, gas, electricity, tramways, highways, sewage disposal, sanitation, undertaking, crematories, markets, department stores, savings banks, pawnshops, weights and measures, employment offices, real estate offices, cheap lodgings, slaughter houses, public baths, grain elevators, fish ponds, etc. To-day municipal operation of water, gas, electricity and tramways forms a total of 338 undertakings in Switzerland, 569 in Italy, and 1805 in the United Kingdom. Water and gas enterprises alone reach a total of 3,210 in Germany.

“In the field of state undertakings we would mention the postal, telegraph and telephone systems, railways, canals, insurance, title guaranty and trust companies, banks of issue, mines, salt works and salt marshes, hydro-electric power, forests, various manufactures (powder, munitions of war, matches, tobacco, tapestries, fine porcelain, etc.), monopolies of several imports and exports (the camphor trade with Japan, Colombian emeralds, etc.). Moreover, one international federation of national undertakings was established 37 years ago, in 1874. This is the Universal Postal Union.”

M. Milhaud is an exponent of that particular rhetorical method which consists in producing effects by piling up words one on top of the other in such a manner as to give an impression of large quantities in face of really small ones. If we are to credit his statement, people far advanced along the path of evolution are finding themselves carried away by an irresistible impulse to substitute public for private undertakings. Then he enumerates these undertakings for us.

Now municipal undertakings are by no means novelties; they are traditions, at least in the case of public roads, sewage disposal, cemeteries, common sewers, markets, public weights and measures, etc. The aqueducts of the Romans prove to us that their water supply was a municipal affair. Therefore, as novelties, we have the distribution of gas, electricity and the tramways.

He quotes Germany as having the greatest number of municipal undertakings. These also are traditions and not innovations. The case is the same in Switzerland, where the paternal policy of the cantons has never established a definite limit between what belongs to the individual and what to the public domain. The number of local governments in the United Kingdom which have taken over such enterprises is astonishing; but experience is decidedly against any further extension of similar activities on the part of municipalities. In France, up to the present, and despite all the allurements of the Socialists, the municipalities have shown themselves distrustful.

As for national undertakings, Edgard Milhaud points to the postal, telegraph and telephone services.

The two last mentioned undertakings, except in the United States, are integral parts of the postal system. The Assyrians also had a government postal system, not for the use of the people, but for the service of the king. A similar institution was established and for the same purpose by the kings of France and other sovereigns. It is a government tradition. The majority of the railway lines still belong to private companies. As for insurance, there is scarcely one system under public management outside of the municipal fire insurance in Germany. Because Prussia is a great mine owner, it does not follow that that country is pointing out the future economic course of other peoples. The public forests are a remnant of the feudal régime.

Tobacco and match monopolies are limited to one or two countries. The Gobélin tapestry and the Sèvres porcelain are monarchical heirlooms.

In Austria, toward the close of 1911, a bill for the nationalization of coal mines was presented. But Superintendent Holmann, representing the government, gave it as his opinion that the nationalization of Austrian coal mines would require an amount of capital so extravagant that it would be impossible to procure it. Moreover, he considered that it would be a mistake to hope for large results from such nationalization, as it would have all the economic defects and inconveniences of similar monopolies everywhere. The project was, therefore, abandoned.

And yet M. Milhaud can say: “The unceasing march toward nationalization and municipalization is supported, stimulated and commanded by economic evolution.”

Neither government nor municipal monopolies are novelties; they are antiques. To represent them in the light of consequences of modern economic changes is to commit a solecism. They are not indicative of evolution, but of retrogression.

As a matter of fact, if throughout the world we compare the economic activity of private undertakings with those of governments, either local or state, the latter appear almost insignificant. The 338 Swiss municipalities may be each in itself most interesting in its public economic activities. But Switzerland has only 3,763,000 inhabitants, and the importance of their activities is therefore limited.

CHAPTER III

RESULTS OF EXPERIENCE

The Meagreness of the Socialist Program.—Those Who Have Office and Those Who Want It.—The Programs of Government and Municipal Operation Condemned by Experience, and from the Double Point of View of Quality and Cost of Service.—State and Municipal Ownership Show Incontestable Inferiority.—The Utility and Danger of Such Experiments.

Socialist programs are pitifully meagre. They would not amount to anything but for the weakness and hunger for popularity of candidates for office and the desire of deputies, municipal councillors and mayors to eliminate their competitors. Political ambitions form the cornerstones of such programs, and, if officials did not find in them promises of an increase in power for themselves and of employment for their sons, sons-in-law and nephews they would vanish in air.

Against a wider extension of public economic responsibilities nothing but experience stands in the way. But it condemns unreservedly any such extension. From the point of view, both of the quality and of the cost of service, state and municipal ownership show incontestable inferiority to private enterprise.

The experiments with State and Municipal Socialism have resulted so disastrously that their opponents might even see an advantage in hastening and multiplying them. Unfortunately human experiments are not like those of a laboratory. When they occur they invariably displace and break something. They provoke passions; they create conflicting interests. They exert material influences which may be ruinous, and moral influences which can be even more destructive. After men have become addicted to habits of mendacity and spoliation, it is difficult to teach them not to look upon the services that they render as pure and simple sources of remuneration.

CHAPTER IV

THE STATE A DISHONEST MAN

1. In Foreign Affairs Machiavelli Is Still Our Moral Guide.—In Domestic Affairs the End Justifies the Means for Socialists and Interventionalists.—The Sovereignty of the “End in View.”
2. Bismarck, Ramsay Macdonald and the Railways.—MM. Pelletan and Waddington.
3. Our Professors of Law, the Heirs of the Lawyers of Philippe Le Bel.—Partial Confiscation of the Railways.—Approval of the Principle by Paul Pic.
4. The Agreements of 1883.—The Guaranty of Interest of the Orléans and Midi Railway Lines and M. Barthou.—Decree of the Council of State.—The Millerand Interpellation, 1895.—The Political Crisis.—Governmental Disregard of Judicial Decisions.—Last Resource of the Orléans Company.—The Confirmatory Decree of the Council of State of July 26, 1912.—Anarchistic Lack of Conscience.
5. Giolitti and the Insurance Companies.—National and International Confiscation.—A Legal Excuse.—M. Jèze.—“An Administrative and Not a Fiscal Monopoly.”—A Legal Error.—Precedents for Confiscation. —Progress Condemns Precedents of Rapine and Violence.—Return to Confiscation a Proof of Retrogression.—Individual Ownership One of the Conditions of National and International Law.—An Error of Fact.—Profits of the Italian Monopoly.
6. The Italian Law of 1903.—Repeal of Municipal Concessions.—The Congress of Municipal Undertakings.
7. The Rambla Case.
8. Equal Tolls on the Panama Canal.—Article 8 of the Clayton-Bulwer Treaty.—The Hay-Pauncefote Treaty.—Exemption of American Ships Engaged in Coast Trade.—The Lodge Bill.—Bad Faith.—A Lobbyist.—British Protests.—Mr. Taft.—Supreme Court of the United States.—Under the Circumstances There Can Be No Third Disinterested Party.
9. The Discomfiture of the New York Street Railways.—Restrictive Legislation in New Jersey.—Police Power, Private Property, and Constitutional Guaranties.
10. Examples of a Model Employer.

1. It is still generally understood that in matters of foreign policy the statesman should have no moral guide other than Machiavelli. In regard to domestic affairs the unanimity of opinion is scarcely so perfect. Nevertheless, statesmen who believe that every government ought to be “an honest man” are still the exception; and not alone Socialists, but also Interventionalists are characterized by utter unscrupulousness when the question arises of substituting collective for individual action. The end justifies the means. To objections made in the name of property rights and of respect for contracts, the end in view is declared sovereign. Let me cite a few characteristic facts in proof of such a statement.

2. Bismarck organized a campaign against the private railway companies, diverted traffic from them, bought their stock secretly, and molded public opinion into favoring the purchase he had planned.

The parliamentary chairman of the Labor party in Great Britain, J. Ramsay Macdonald, in a debate with Hilaire Belloc in Memorial Hall, said: “M. Belloc proposes to take £19,000,000 ($92,530,000) from the excise duties in order to purchase railways. Railway stock will immediately rise to a ruinous figure. It would be better to bring down the value of the stock by an attack upon their income.” 1

Bismarck and Ramsay Macdonald have the same moral code when it comes to government action.

In France Camille Pelletan has declared that “contracts must be turned topsy turvy”; and even moderates like Richard Waddington share his opinion. 2

3. Advocates can be found for any cause. It is therefore not strange that legal experts, descendants of the lawyers of Philippe Le Bel, maintain that the government can do anything since it creates the law. Legalists like R. Jay have even maintained the right of the state to expropriate private enterprises without indemnity.

As long as ministers respected the phrase, “an honest government,” and were resolved to hold to the contracts by which they were bound to private companies, they took little interest in the labor question. The control, organization and remuneration of employees was regarded as the affair of the companies concerned, and not of the minister.

But in 1897 the Chamber of Deputies passed the Berteaux-Rabier-Joures bill, modifying the labor conditions of employees and giving to them a legal right to the customary pension after 20 years of service. From that moment the government found itself defenseless. Since then railway employees have learned to go to their deputies with their demands. The deputy in his turn will bring all possible influence to bear upon the government, which, under this pressure, will tamper with the existing contracts. Yet, despite the cracks in them, the contracts still hold. Up to the present the government has not been able to impose upon private companies the reinstatements of discharged employees to which the state system has been obliged to submit. This has been the government's punishment for its lack of respect for a contract.

The rights of the existing private railways in France have been directly threatened by a bill introduced by M. Augagneur at the beginning of November, 1912, and thus worded:

“Article 1.—Nomination of each of the following railway officials shall be submitted for ratification to the minister of Public Works by the chairman of the board of directors:

“a. Directors, assistant directors.
“b. Chiefs of the administrative, transportation and supply departments of the road.

“The same rule shall apply to employees carrying on for the time being the duties of the above-named officials for a period of not less than three months.

“Nominations shall be made for a period of six years and shall be renewable.

“Article 2.—All modifications of the administrative organization of the roads and all changes in the duties of the employees mentioned in Article I shall be subject to the ratification of the minister of Public Works.

“Article 3.—If, after a delay of three months from the date of the promulgation of the present law, or from the date of a vacancy in one of the positions mentioned in Article 1, the minister has not been able to ratify the names proposed by the companies, he shall proceed with the duty of nomination himself.

“The same rule shall hold if the ratification of the names proposed by the companies has not been made within three months preceding the normal end of the term of office of the employees mentioned in Article 1.

“Article 4.—After a delay of six months from the date of the promulgation of the present law, the companies shall present for the approval of the minister of Public Works:

“1. The regulations governing the administrative organization of each line;
“2. The regulations governing the methods of recruiting and promotion, as well as the salary list, of employees;
“3. The regulations governing organization and methods of procedure of the councils of discipline and the commissions on reforms.

“All modifications of the regulations so approved must likewise be ratified.

“In any case where the ratification above provided for is accorded only after reservations involving modifications or additions not accepted by the company, the question shall be decided by a decree of the Council of State.

“Infractions of the present law shall be prosecuted and punished in conformity with the provisions of Section III of the Ordinance of November 15, 1846.”

The above plan of partial confiscation is a bold violation of the contracts between the government and the companies. Nevertheless, Paul Pic, professor of industrial law at Lyon, does not hesitate to declare that “this measure is in itself perfectly justifiable.” As, however, “it would run the risk of leading us into a precipitate purchase of all the lines, as well as on account of the strenuous resistance of the companies,” he advises a delay. 1

4. Few ministers have any desire to adhere loyally to the contracts of 1883 with the railway companies. In 1894 M. Barthou, then minister of Public Works, on the occasion of a bond issue by the Orléans line, ordered the company to add to the notices relative to the guaranty of interest an announcement that this guaranty would expire in 1914. The company referred the question to the Council of State, holding that the government had granted this guaranty not only up to 1914, but to the expiration of its franchise, in 1956. By a decree of January 11, 1895, based on opinions rendered by M. Mayliel and M. Jagerschmidt, the council of state handed down a decision in favor of the company.

We give the final summing up and the provisions of this decree of 1895:

“Under the circumstances, it must be acknowledged that the guaranty of the railway company from Paris to Orléans has a period to run equal to that of its franchise, and that, by requesting the company to specify upon its bonds that this guaranty will end on December 31, 1914, the minister of Public Works has misinterpreted the rights of the company arising from the contract of June 28, 1883. It is decided, therefore, that the order of the minister directing the company to add to its notices relative to the guaranty of bonds an announcement that this guaranty will expire December 31, 1914, be annulled.”

Instead of submitting gracefully to this decree, M. Barthou handed in his resignation as minister of Public Works. On January 14, M. Millerand called Minister Dupuy to account as having failed in his duty in not enforcing the ministerial order, and ultimately the Dupuy ministry fell because it refused to disobey the decree of the Council of State even at the urgent demand of its party. Thus the Council of State overthrew a minister and afterward a ministry, while the affair led further to the resignation of Casimir Perier, President of the Republic.

The Chamber of Deputies, in order to appear to be doing something, appointed a commission charged with discovering whether there was any cause for the prosecution of M. Raynal, who, as minister of Public Works in 1883, had signed the original railway contracts, for high crimes and misdemeanors committed during his term of public office. In conformity with the unanimous opinion of the members of the commission, M. Raynal was not prosecuted.

Despite the definite character of the decree of 1895, the ministry of Public Works, in an official publication of the Statistique des Chemins de Fer Français, subdivision 9, bearing the title, Conditions Principales des Concessions, has continued to declare that the guaranty period of the Orléans and the Midi companies would expire December 31, 1914.

On March 16, in the Chamber, Maurice Sibille having referred to the claim of the government that the guaranty would expire December 31, 1914, the minister of Finance exclaimed: “There is no question about it.” Thus we see the ministry testifying to its exalted respect for the decision of the Council of State.

In the belief, however, that the question had been settled by the decree of 1895, but wishing to avoid any misunderstanding as to its credit, the Orléans company demanded from the minister authority to publish upon its bonds a notice indicating that the guaranty would expire only with the franchise in 1956. Upon the refusal of the minister, the case went back again to the Council of State, which, by a decree rendered July 26, 1912, decided, as in its previous decree of 1895, in favor of the company.

The position finally taken by the ministry was that litigation could not be considered as existing in fact until 1914, the year which, according to the government, would see the end of the guaranty.

5. In Italy, as we have already seen, 1 M. Giolitti was anxious to follow the example of Germany, France and Great Britain in establishing old-age pensions. But where should he find the resources? Nothing simpler. The insurance companies were earning dividends. The state must force them out and substitute itself for them.

While shrewd Socialists were disputing whether the various phases of expropriation should be brought about with or without indemnity, M. Giolitti decided the question: No indemnity for existing insurance companies. The Italian companies were forced to bow before the “mightier than thou” of the government.

But it was quite another matter in the case of the foreign insurance companies. The Italian government, however, remained deaf to the protests of the English, French and German governments.

This abuse of power, as a preliminary to the insurance law, inspires no great confidence in the government's respect for acquired rights. Moreover, why should this respect be any greater with regard to those who insure themselves with the state? The seizure by the French government of the funds of the “Invalides” 1 is notorious. Undoubtedly the major part of the returns from the monopoly will go into the coffers of the Italian government.

The Italian government refused all compensation to foreign companies, judging—and rightly—that their several governments would not go to war over so small a question and that, consequently, it need take no account of protests nor admit of any international jurisdiction. Thus its Socialist character is given the final touch and proof is given thereby that expropriation without indemnity may be not only national but international.

According to M. Jèze, professor of financial law in the University of Paris, if the affair had been brought before the tribunal at The Hague, Italy “could claim that the monopoly so constituted is an administrative, and not a fiscal monopoly, as an excuse for not having paid an indemnity.”

I respect M. Jèze's opinion. But from the point of view of the wrong done me by the state, what difference does it make what excuse the state offers me? According to the premise of M. Jèze, the state would have the right to confiscate anything from which it could draw a profit. The state could seize my meadow to set up target practice without paying me anything. Article 545 of the Civil Code says:“No one can be compelled to give up his property except in behalf of the public interest after a just compensation has been paid.” Business, the foundation of commerce, constitutes property as certainly as real estate. The state has no more right to confiscate the one than the other under any system which rests on respect for private property.

M. Jèze relies for a precedent on the prohibition of the use of white lead, which resulted from a serious agitation on the part of a number of competitors conducted by a member of the Labor Confederation. The whole matter proved nothing but the shameful cowardice of the French Parliament. 1 The prohibition of the use of white phosphorus in the manufacture of matches is based on a foolish prejudice contradicted by the facts. As for the prohibition of the sale of absinthe, it must be acknowledged that that one act on the part of the state does constitute a precedent in favor of the arguments of M. Jèze; but human progress in all the epochs of history condemns precedents of rapine and violence committed by governments against individuals. A return to the mediæval customs of confiscation can indicate nothing but retrogression.

M. Jèze is right in thinking that the limitation of hours and working days, as well as the minimum wage, are partial confiscation. But he is also presenting a formidable argument against all legislation called social, which is, in fact, only a step toward the suppression of individual property and the introduction of Socialism. Our codes are still founded on respect for personal property, however, and he acknowledges that such respect is one of the indispensable conditions of international law.

Therefore the Italian government has been guilty of an abuse of power in confiscating the business of life insurance companies; and, in the case of the foreign companies, at least, it owes them some reparation.

The argument that the Italian government did not expect to draw any profit from the insurance monopoly is inaccurate. If there had been no hope of reaping any profit the monopoly would never have been created.

Article 14 of the law provides that there shall be taken out of the net annual profits: (a) A sum of at least 1 per cent., which shall be devoted to the ordinary reserve; (b) a sum to be applied, in conformity with the statutes, to the guaranty reserve and any other contingent reserve; (c) a sum to be assigned to the administrative, technical, and soliciting staff of the Fund. This sum shall be less than 5 per cent. The remainder of the profits will be paid into the National Insurance reserve for invalid and aged workingmen. The profits of the National Fund are to be exempt from the income tax.

Thus the law indicates in every line that the monopoly is expected to be profitable. Not only does it dispose of these profits but it exempts them from taxation.

In the Bulletin de l'Institute International d'Agriculture, edited in part under the direction of the ministry of Agriculture, I find an article which proclaims the new law to the world in the following phrases:

“The ultimate purpose of the new law is to create another source of revenue for the government by the monopoly on life insurance.” (May, 1912, page 51.)

In the light of these excerpts, what becomes of the argument of M. Jèze, based on the disinterested aims of the life insurance monopoly?

The same article also contains the statement that the law is designed “especially to devote the profits arising from this monopoly” to the insurance fund for pensions.

M. Jèze has set down an error of fact in order to justify a legal theory based on nothing but a casuist's distinction.

6. The law of March 29, 1903, gives to the Italian local governments authority to buy up franchises whatever may be the time they have still to run. M. Giolitti, the author of the law, said: “This is not a question of expropriation, nor of lease, but a question of the repeal of a franchise in the public interest: and this difference permits us to be more liberal toward the municipality which makes use of its full right of appeal.”

What is this right of appeal, except the breaking of a contract by one of the parties to it? And because it suits the convenience of this party to break the contract, it is necessary “to be very liberal with it.” What are the guaranties of the other party?

Article 21 declares that the right of repeal exists after a third of the period of the full duration of the franchise may have elapsed; in any case, after 20 years, but never before. The article adds that municipalities must pay an equitable indemnity in which the following items shall be taken into account:

First: The value of the installation and its equipment. Second: Advances and subsidies paid on premiums by the municipality. Third: Loss of profits reduced to the present value (at the legal rate of interest) of annual sums equal to the average of the profits for the five years last past for as many years as the concession has still to run, the number of years, nevertheless, not to be more than twenty—the amount of these annual sums to be based on the average of the net revenues reported in the personal property tax declarations, omitting the years of maximum and minimum profits and deducting interest on capital.

At the first congress of Italian municipal undertakings a lawyer, David Ferrari, protested in a long report against the third paragraph of the article above quoted, which he declared opposed to the spirit of the law. The profit arises from the concession. When the concession ceases so does the profit. Therefore, the “basis of the accumulation of surplus profits by reason of the duration of the concession” ought to be struck out. Another lawyer, Mario Cattaneo, was astonished “that on the sole ground that one of the parties was a public body such an attack could be made on the doctrine of the inviolability of private property.” He demanded, therefore, that “respect be shown in the case of existing contracts to all the rules of private law,” and that the bill be applied to future contracts only. The congress adopted unanimously the conclusion of the Ferrari report, demanding that “the basis of the accumulation of surplus profit by reason of the duration of the franchise” be omitted.

During the second congress, held in Rome in June, 1911, Giovanni Montemartini, attached to the mayoralty of Rome, insisted upon the necessity of still further modifying the law of 1903.

7. Here we have a new example of government morale:

The president of Uruguay, M. Battle y Ordonez, a partisan of the extension of state activities, desired to establish a national bank. Then, in order to give his bank the credit indispensable to institutions of similar character, he proceeded to teach everybody what fools they would be to trust to contracts entered into with Uruguay by giving them an object lesson in the so-called “Rambla affair.”

Now a tyrant can do many things—anything he may choose, if you will. But a state, however tyrannical it may be in spirit, may come in contact with one insurmountable obstacle. Confidence cannot be forced.

The trouble which has arisen between the Rambla Company and the government of Uruguay has served to prove that the latter has either never heard of or never pondered the precept of M. Thiers: “The state must act like an honest man.”

In June, 1913, the Matin published an account of the Rambla affair, which I summarize:

In 1910 an Anglo-French association, known as the Rambla Company, had renewed a franchise and a contract dating from 1899. Its object was the acquisition of 145 hectares (358 acres) close to the sea for the construction of a public promenade (Rambla).

Of the 42,500,000 francs which the work was to require, 35,000,000 francs was guaranteed, capital and interest, by the state of Uruguay.

There appeared to be entire harmony among the parties to the affair; yet, at the last moment, the Uruguayan government refused to sign the contract unless an article (No. 3), containing an acknowledgment on the part of the company of the right of the state to introduce such modifications into the plans as it should deem fitting were inserted.

That the company was imprudent enough to consent to this clause has never been denied; but it had this excuse at least. It trusted the state to act like an honest man.

The utter lack of any basis for such confidence was almost immediately proved when the state issued a decree adding to the specifications the taking over by the company of 137 hectares (338 acres) facing the sea, 80 hectares (198 acres) of which it put up for sale. The minister of Public Works called this a slight modification.

The company has determined to resist the demands of the government of Uruguay, and has claimed the intervention of the English and French governments. These governments can, of course, enter remonstrances, but it would be a mistake to hope for much effect from them.

The party most interested in not violating its contract would seem to be Uruguay, for the principal guaranty that foreign creditors or parties to contracts with the state have is the self-interest of every government in not ruining its own credit.

8. The United States has always considered that a canal between the Atlantic and Pacific oceans was among the probabilities of the future. In 1835 the Senate ordered the President to open negotiations with the governments of other nations, and more especially with those of Central America and New Granada, with the object of giving efficient protection to the promoters of such a canal.

A similar resolution was adopted by the House of Representatives, in 1839, following a petition from the merchants of New York and Philadelphia. In 1849 ratifications of a treaty between the United States and the Republic of New Granada, subsequently and successively known as the United States of Colombia and the Republic of Colombia, were exchanged, of which the principal provision was the guaranty of the neutrality of the Panama Canal.

April 19, 1850, John M. Clayton, secretary of state, and Sir Henry Bulwer-Lytton, British minister to Washington, signed the treaty relative to the canal that an American company had undertaken to construct by making use of the St. John River of Nicaragua. This treaty specified that the United States should act as a trustee for the other nations, but that all the nations should have the same privileges in the use of the canal. In transmitting this treaty to the Senate President Polk emphasized the provision for equal rights, assured by Article 8 of the treaty.

This Article 8 was again expressly endorsed in the declaration preceding the Hay-Pauncefote treaty, concluded on November 18, 1901, when the American government took over the completion of the Panama Canal. Moreover, it had been previously confirmed by the declaration of President Cleveland, in his message of 1885:

“Any passage of communication between the two oceans ought to redound to the advantage of the entire world for the benefit of humanity. It ought to be removed from all risks of domination by a single power. It ought never to become an occasion for hostility or the prize of warring ambitions.”

Nowhere, in the various diplomatic acts of the United States can there be found any reserve in favor of special advantages for certain ships of certain nations. Nevertheless, in the House of Representatives and in the Senate of the United States, in the summer of 1912, various proposals were discussed looking to the exemption of American ships from the tolls which must be paid by the ships of other nations.

Finally the House of Representatives adopted a resolution declaring that no toll should be levied upon American ships engaged in the coasting trade. Later another clause was introduced into the bill providing “that no toll shall be levied upon American ships, which, while engaged in the transport of merchandise, can be requisitioned by the President, with the consent of the owners, in case of war or public need.” Senator Lodge, in the month of December, 1911, had suggested even more skilful tactics: American ships passing through the canal should indeed pay duties; thus the Hay-Pauncefote treaty would be respected to the letter. But the United States should reimburse these ships at the public expense. For a long time the protectionists had been demanding subsidies for the United States merchant marine. The occasion was, therefore, too good to be lost. The other nations could scarcely protest against a granting of subsidies to her merchant marine by the United States.

“All these schemes to escape the obligations of the treaty,” says the New York Journal of Commerce, “will be considered as acts of bad faith. The campaign for the violation of the Hay-Pauncefote treaty has been engineered by a lobbyist, who receives a salary of $25,000 a year, and unlimited credit with the members of Congress.”

In order to justify them appeal has been made to the Monroe Doctrine, but Monroe never dreamed that the doctrine bearing his name would ever be given such a broad construction.

The bill, as finally passed by the House of Representatives, extended that provision of the Interstate Commerce Act which forbids any railway company to have an interest in “any method of water transportation” which “is or can be a competitor.” However, the Senate justly decided that there was no analogy, and therefore substituted for that particular clause the following provision: “No ship possessed or controlled by a railway, or in which a railway may have any interest, will be admitted into the canal, if it is engaged in the United States coast trade.”

On the strength of the Hay-Pauncefote treaty Great Britain addressed a protest to the United States government. The Secretary of State, Mr. Knox, transmitted it to the senate:

“According to the document in question, the government of his Britannic Majesty is of opinion that the act exempting the American merchant marine from the payment of duty would constitute an infraction of the Treaty, and that, if the duties were only collected in order to be immediately refunded, the principle would be the same as though these duties were altogether abolished.

“The opinion is also expressed in this document that to collect duties in order to refund them immediately, although not contrary to the letter of the Treaty, would be in opposition to its spirit. It is admitted that there is nothing in the Hay-Pauncefote Treaty which prevents the United States from subsidizing its merchant marine, but it is claimed that a great difference exists between a general subsidy of the entire merchant marine and that of a part only, engaged in a special branch of the service, and a proportional subsidy reckoned according to the frequency of the passages through the canal of the ships so subsidized.

“Such a subsidy could not, in the opinion of the government of his Britannic Majesty, be in conformity with the obligations of the Treaty.

“In so far as the bill exempting the ships engaged in the coasting trade is concerned, the document declares that no objection would be made if navigation were organized in such fashion that only those ships actually devoted to the coasting trade reserved for American ships would benefit by this exemption. It appears, nevertheless, that the government of his Majesty considers as impossible the establishment of regulations tending to discriminate between coastwise and other American ships; consequently this exemption would be an infraction of the Treaty.”

The United States Senate voted, by a large majority, August 8, 1912, in favor of the clause exempting the ships of the United States engaged in the coasting trade from all tolls.

Moreover, the majority which voted for the violation of the Hay-Pauncefote Treaty declared that it would refuse to submit the question of treaty violation to arbitration. Its members declared that “this question is not a diplomatic one,” under the pretext that the exemption concerned only American ships engaged in the coasting trade; and that it was, therefore, a question of a domestic nature, of no interest to any foreign power, and, consequently, does not come under the jurisdiction of The Hague tribunal. It is easy to understand why the majority of the senators waived arbitration in this connection. The United States would have found itself alone on the one side and all the rest of the world on the other.

The whole situation has been summed up in the clearest possible manner by Senators Root of New York, Burton of Ohio, and McCumber of North Dakota, all of whom made the antithesis perfectly clear: After having accepted every advantage of the Hay-Pauncefote treaty, the United States refuses to accept any of its responsibilities.

But Senators Cummins, Works, and Chamberlain answered without the smallest attempt at a hypocritical softening of their argument:—“The Hay-Pauncefote treaty has done nothing for us, and, as it is in our way, there is nothing to do but to break it.”

The Evening Post, of New York, was entirely right in saying: “The vote of the Senate does a greater injury to the United States than that which would have resulted from a naval defeat in the waters of Colombia.” It is true that it is only a moral defeat; and unscrupulous Machiavellis will never be able to understand the harm that a defeat of this nature can bring to their country because, as a general rule, the consequences are not felt until a long time afterward.

This was the time for Mr. Taft to show himself a great statesman. But the dispatches immediately announced that, if the Senate and the House of Representatives were in accord, he would sign the bill while recognizing the right of foreign states to appeal to the Supreme Court of the United States.

It is now announced that Mr. Wilson will not follow the example of his predecessor. We must give him credit for that.

I have the utmost respect for the Supreme Court, 1 but this Supreme Court is composed of nine American judges, sitting in America, and, in this particular case, its judgment must necessarily be tinged, and very strongly, with an excusable bias. It forms a part of one of the parties to the issue, and it cannot be considered as a disinterested third party.

It is true, and this is the weakness of The Hague tribunal in regard to this question, that there is no disinterested third party, because all the nations have an interest opposed to that of the United States. And we must admit also that, from the point of view of domestic policy, the political bodies of the various states have not always shown themselves more scrupulous.

9. In a protest, addressed to a committee of the State Senate, Frank Bergen, general counsel for the Public Service Corporation of New Jersey, accuses the partisans of the municipalization of the street railways of New York “of being delighted with their (viz., the Public Service Corporation's) discomfiture” brought about by laws passed to obtain just such a result. Private enterprises having developed to an enormous proportion the state property of New Jersey, from 1870 to 1906, members of the State Senate felt that the moment had come to confiscate them. Toward this end Senator Hunderton proposed Amendment 64 to the Crimes Act, drawn up in such a manner “that innocence no longer constitutes a defense against a criminal accusation.” 1

Justice Brewer, of the Supreme Court of the United States, has declared:

“The police power has become the refuge of every serious attack against private property. Every unjustifiable charge from the point of view of eminent domain, or from the fiscal point of view, shelters itself behind the excuse of police power; but the police power cannot escape from the constitutional guaranties of private property.”

Hygiene, sanitation, “the conservation of the race,” etc., are only new forms of the cry of salus populi which has served to justify all the tyrannies of the ages.

10. The “model employer” furnishes some very bad examples. Those who speak in its name can preach economy to individuals; but they cannot hold it up as a model, because it is wasteful and runs into debt. Its partisans can preach economic morality to individuals; but they cannot illustrate their texts by appealing to state morality, because the state too often “acts like a dishonest man,” not only in foreign affairs, but even in domestic affairs.

CHAPTER V

CORRUPTION

Multiplication of Opportunities for Corruption.—The German Railways.—Mr. Seddon on New Zealand.—Taussig.—Dangers of Public Enterprises in a Democracy.—Ring Leaders.—Importance of Their Rôle.—The Way to Succeed.

The more governments and municipalities increase their functions and interfere with the economic life of the group the more the opportunities for corruption will multiply.

M. de Miquel, Prussian minister of Finance, who was compelled to hand in his resignation after the failure of the Imperial Canal projects, declared some time afterward:

“If the separate government railways become the property of the Empire, the Reichstag will claim the right of establishing and revising railway rates. The day on which it obtains this right will see the beginning of corruption on a grand scale in the German elections. Already the temper of a large number of the electors is such that they are sending to the Reichstag many representatives who never ask how any given measure will serve the interest of the nation at large, but simply how it is going to be regarded by their local constituents. The concession to the Reichstag of the right to fix the railway rates would be as disastrous for our whole political life as for the economic development of Germany.” 1

In their book on New Zealand Le Rossignol and Stewart say:

“He (the Right Hon. R. J. Seddon) taught the people in every part of the colony to 'stand in'with the government if they wished to be remembered in the distribution of the loaves and fishes.”

Thanks to this practice, Mr. Seddon himself managed to remain at the head of affairs for a very long time.

Concerning the administration by the state or municipalities of “public service industries,” F. W. Taussig 2 observes that the title is applied to certain enterprises only, as railways, telephones and telegraph, water, gas and electricity. In the very beginning, in the United States, competing private enterprises had invariably provided these services. Little by little, by virtue of the law of increase of returns, these enterprises united.

Here we meet again the third incentive of all human action. “For all except the very few of extraordinary gifts, the spur of gain is not only powerful, it is indispensable.” Progress in industry is largely due to inventors and administrators, but the venturesome capitalist, ready and eager to risk his wealth in new ways, is equally necessary. We owe little thanks to any state that the world has been transformed through the railways, steam navigation, the industrial use of steam, etc. This transformation has been brought about by individuals. “Electric traction was easily started in England as a public business, after private enterprise in the United States had shown how the thing could be done.”

The transmission and distribution of hydraulic and electric power call for an amount of enterprise and vigor which public officials are not at all likely to supply. However, Mr. Taussig would suggest that such resources should never be given in perpetuity by the public. There should be no unlimited franchises.

Mr. Taussig speaks as follows of the qualities demanded of administrators of undertakings in a democracy, and he is full of misgivings as to the corrupting power of such undertakings:

“It is often said that corruption in our municipal and state affairs is caused by private ownership of the great monopoly enterprises, and that public ownership is the cure. To reason so is to mistake the occasion for the cause. The occasion is the great fund of gain which the monopoly enterprises can yield; the cause is political demoralization. It matters little whether the initiative in corrupt ways is taken by the heads of the monopoly corporations or by the public officials—whether the first step be bribery or blackmail. In either case it is the existence of venal legislators and administrators that brings coarse and characterless persons into the management of the ‘public service’industries. Honorable men withdraw from the unsavory affairs and are replaced by those less squeamish. The root of the difficulty is that a bad political situation invites corruption, not that corruption makes the political situation bad.”

The true way to abolish corruption is to suppress the opportunity for corruption. But the more government and municipal undertakings increase in number and in importance, the more these opportunities will multiply.

Government undertakings are a terrible source of temptation to the ring-leaders among their employees. They know that fear has a value, and they become exploiters of the fears of their superiors, the deputies and the ministers. And, although all their plans may not succeed, it is more than enough that any of these demagogues have obtained avowed advantages. Others have obtained secret advantages.

The employees of the navy yards and of the city halls gaze with admiration at a man like M. Goude, and more than one young clerk of the navy department is saying to himself:

“That is the way to succeed. Let us imitate him.”

CHAPTER VI

NATIONALIZATION OF PUBLIC UTILITIES AND THE FOUNDATION OF GREAT FORTUNES

New Zealand.—Australia.—Great Fortunes

In a lecture, delivered on December 15, 1910, before the Fabian Society, G. Bernard Shaw gives the following definition of Socialism:

“A state of society in which the income of the country shall be divided equally among the inhabitants without regard to their character, their industry or any other consideration except the fact that they are human beings.”

The partisans of public ownership hold that the realization of such a conception would be a step toward the millennium.

They cheerfully declare that New Zealand contains neither paupers nor millionaires. Now, among the New Zealanders who have recently died, Jacob Joseph left a fortune of £300,000 ($1,461,000); that of Archdeacon Williams amounted to £420,000 ($2,045,400); that of the Hon. W. W. Johnston to about £500,000 ($2,435,000). According to an estimate, based on a comparison of inheritances, Le Rossignol and Stewart calculate that one-half of one per cent. of all the families, each family being reckoned as having five members, possesses 33 per cent. of the total wealth of New Zealand. And, despite the growing tax upon land, and the division of great estates, this inequality is increasing. 1

In Australia the wealth is very unequally distributed. In New South Wales 1,000 individuals, representing 0.40 per cent. of the population, possess £130,000,000 ($633,000,000), or, in other words, an average to each individual of £130,000 ($633,000), while the sum of their total fortunes amounts to 35 per cent. of the whole private wealth of the state. In 1904–1905 the half of all the private property of the state belonged to 3,000 people at most. 2

Able men make great fortunes in these countries as other able men have made them in Turkey and in Russia.

CHAPTER VII

DISINTEGRATING CHARACTER OF PUBLIC OPERATION

1. Individuals Are Industrious and Economical; Administrative and Political Groups Are Wasteful and Extravagant.—Public Ownership Means a Topsy-Turvy World.—Changing Human Nature.
2. Contradictions Inherent in Public Operation.—Tax-Payers and Consumers.—Customs Duties in Switzerland.—Payment in Kind and the Raising of Salaries.—Depressing Effect of Public Operation.—Public Operation One Factor in the Problem of Unemployment.
3. Claude Mullins and Municipal Operation.—The Electors of To-day Are the Candidates of To-morrow.—Public Administrators the Slaves of the Employees Whom They Ought to Control.—Emphasis Not on Service, but on Political Effect.
4. Monarchical Conceptions of the Socialists.—Transformation of a Republican State into a Beneficent King.—Delusion of M. Fournière.—The Necessity of the Subordination of the Individual According to Philip Snowdon.
5. The Budget a Socialist Curb.—But the Socialists Consider Taxation an Instrument of Confiscation.—Sidney Webb on the Housing of Workmen and Ownership of the Soil.
6. Crisis of Parliamentarianism.—Necessity of Concentrating the Action of the State upon Fundamentals.—Security at Home and Abroad.—The Interference of Government in the Economic Activity of the Nation Means Disintegration of the State.
7. Resistance.—Declarations of the Swiss Federal Council. —M. Brouilhet and Public Opinion in France.
8. Conclusions.

1. Individuals are industrious, productive and economical; administrative and political groups, both national and municipal, are wasteful and run the tax-payers into debt.

The ingenious casuist turns this statement about and says: “In the future, municipalities and states will produce and economize while individuals who have worked will rest. He who has produced shall consume; he who has economized will no longer need to take that trouble.” A truly topsy-turvy world that would be!

However, to the objections to which such a conception gives rise the reply is invariably: “A Socialist society will change human nature.”

If past experiments are mentioned, your Socialist replies: “Those experiments have been tried in a capitalist society and consequently do not count.”

In general those who are advocating most vehemently the nationalization and municipalization of all public utilities treat the officials who direct and govern them, whoever they may be, with the utmost scorn. If the Socialist could only put himself and his fellows in the high places of the government there would be nothing left to wish for.

2. Yet certain difficulties are insurmountable, even to a Socialist. When a political group exploits a utility, if there is any profit arising from the enterprise, it is made at the expense of the consumer; or, if there is any advantage in it for the consumer, the taxpayers pay the piper.

In either case the minority is favored at the expense of the majority. In fact, every government operation ends in contradictions, similar to the one pointed out by M. Favarger 1apropos of the Swiss railways:

“Through its customs duties the Federal Council raises the cost of living; then, in order to make it possible for government officials to support the heavier burden, it raises their salaries.”

I have pointed out the depressing effect produced on industry at large by any threat of government or municipal operation. Private effort finds the struggle difficult, if not impossible, against competitors who may not only bring politics to bear, but who may even make use of the courts upon occasion. For no one is naturally predisposed to invest capital in an undertaking from which he may be driven out at any moment by government or municipal competition.

Consequently every threat of socialization or municipalization is followed by loss of energy in establishing or carrying on business, as well as by tightness in the money market. Then these, in their turn, become important factors in the problem of unemployment.

3. Claude W. Mullins, in his article upon “The Municipal Activity of London,” 2 sheds great light on the disturbing character of municipal trading operations.

“All questions become electoral questions, and this very real danger assumes a more threatening aspect when we consider the large number of employees connected with undertakings like the tramway service or water works. Municipal councillors are employers and candidates in one and the same person, a state of affairs carrying with it a serious menace to the future stability of any state.

“A president or member of a municipal committee is interested in the success of an enterprise both as a simple citizen and as a representative of his constituents.”

Officials are not judged according to services rendered, but according to the effect produced by a “dilettante administration.” The elector of one day may well be the candidate of the next; and, if his election depends upon employees in the government or municipal service, he will be at their beck and call, nor will he hesitate before any sacrifice of principle.

4. The Socialists look upon themselves as republicans in France, as in New Zealand. In reality they are monarchists, who, being at the family stage of civilization, 1 consider themselves as helpless dependents, and therefore long to transform a republican state into a beneficent ruler, whose business it is to make them happy, furnish them with bread, and otherwise provide them with all the things of which they stand in need—their needs being only limited by their desires.

Social theorists, like Eugene Fournière 2 have held, despite all the evidence to the contrary, that they are defending the rights of the individual. 1

Philip Snowden, M. P., representing the Labor Party in Great Britain, is at any rate logical when he says: 2

“The object of Socialism is not to render the individual capable of living on his personal resources. That is the theory of radical individualism. Its object is to create in him a greater and greater sense of his dependence upon the state, and, at the same time, to inculcate in him the conviction that he is a part of it and that he has a duty and responsibility toward the state; and that only in so far as he fulfills this duty can he benefit by the advantages of a complete personal and social life.”

5. The budget puts a curb on Socialism, at least in so far that it makes taxes necessary; those who would otherwise rush into reckless expenses feel the burden of these same taxes sufficiently themselves to bring home a vague realization of the following truth: Nothing is free; everything must be paid for. If the whole burden could only fall on others they would rejoice in running into debt. Far from preaching economy in the way of expenses, Socialists encourage prodigality, and they consider that fiscal confiscation is an instrument of social revolution.

Sidney Webb says: “The housing of the poor will absorb, through taxation, a continually increasing share of the income of the nation; and this increase of local taxes is an unheeded sign of the gradual nationalization of the soil.” 1

We shall be almost at the “great day” of “the social cataclysm,” when, after refusing to pay the debts due the government and municipal creditors, the Socialists are able to exclaim: “At last we have gone bankrupt.”

6. We hear frequent remarks concerning the crisis of parliamentarianism, of the inefficiency and lack of power of our representatives. As a matter of fact, our representatives are guilty of wishing to do that which they know perfectly well no one of them can do, whatever be his efficiency or his capacity for work.

Now, parliamentary government is possible only on condition that it be divorced from all secondary questions, and all questions which do not concern domestic or foreign security are subsidiary and more or less negligible, in so far, at least, as direct government interest is concerned. Parliamentary government will be strong in proportion as its activities are confined to the fundamental duties of a state.

Statesmen who pursue an opposite policy are paving the way for anarchy. They are surrendering the institutions and the general policy of the country to the will of those who see only their own interest. They become the protegés of the employees whom they ought to control. They defer all questions to the convenience of the ringleaders of associations of their employees.

In the measure that they are willing to burden themselves with functions properly belonging to individuals they are sacrificing the general interest and endangering the security of the state, and chiefly for the sake of employees who consider themselves as the real proprietors of services which they are paid to perform.

The interference of the state in the economic activity of the nation means the ultimate disintegration of the state.

7. The message of the Swiss Federal Council 1 to the Chambers, proposing the creation of an administrative tribunal, contains the following passage:

“In the degree that a modern state extends the circle of its functions and that its component parts penetrate within the domain reserved down to the present to private enterprise, the number of its employees increases to vast proportions and the citizen, threatened in his individual rights by an official autocracy, scents the danger of encroachment on the part of the all-powerful state and feels an instinctive need of efficient protection against this inimical force.”

M. Brouilhet, French socialist reformer and partisan of government intervention, says:

“We can remember when public opinion was most lenient to the government; but since the government, desiring to conciliate the people, has become an active participant in trading enterprises, a reaction has set in, and truly public opinion is now lacking in indulgence.”

As for France, M. Brouilhet concludes:

“Before the government absorbs another tenth of the general activity of the country a long time will certainly elapse.”

In a remarkable article, appearing in the Gazette de Lauzanne, Edouard Secretan, member of the National Council, declares:

“About 30 years ago the Federal power was first and foremost political. Its principal business was the national defense, and the relations between Switzerland and foreign countries.

“In domestic affairs its action in regard to the cantons was advisory and disinterested in character, its intervention as limited as possible. It governed from above and devoted itself mainly to establishing national unity. Under this régime we became a nation under a Federal government chiefly interested in seeing the right prevail.

“But things have changed. The Federal government has chosen to become banker, common carrier, insurance broker, and it is only a question of time before it will become a merchant. It is only half a banker, but it has become a real common carrier and this operation has made it a debtor for 1,500,000 francs, owed almost exclusively to foreign creditors.

“To the enormous enterprise of transportation has now been added insurance. Here, again, we must count by millions.

“To-day our whole political life is dominated by financial preoccupations, and technical experts have taken the place of statesmen.

“They impose themselves on the Federal Council on the basis of responsibilities they have themselves incurred, and the Federal Council transmits to the Chamber the will of this or that general manager of some public undertaking. In fact managerial authority has a tendency to become dictatorial authority.

“The German part of Switzerland, Bern, Zurich, Aaron, etc., is the storm center of all this propaganda. Romance Switzerland still resists. It has twice rejected the state bank, twice the insurance monopoly, and once, at least, the purchase of railroads.”

8. The experiences arising from state and municipal trading operations lead inevitably to the following conclusions:

1. Public monopolies kill the spirit of initiative by destroying competition. The ultimate result is fatal industrial lethargy.
2. Public operation emphasizes the special demands of the community, rather than fundamental necessities, and provides opportunities for nepotism, graft, and corruption.
3. Operation by states and local governments is more difficult than private management. This is a rule which holds good, despite a few apparent exceptions.
4. Government employees, paid for their loyalty to the public interest, come to consider their positions as their own private property, and, the more numerous they are, the more they incline toward exchanging their rôle of subordinates for that of masters; from being directed they become the directors.
5. Intervention of the public power has an adverse influence upon the distribution of wealth; sometimes it is the whole body of taxpayers who must suffer for the sake of some privileged class, sometimes the consumer is defrauded to benefit the taxpayer.
6. In every public enterprise the risks of loss are borne by the taxpayers, and, in order to realize their immediate ideals, and, while waiting for the hoped-for increase of personal influence, statesmen or municipal officials tie up the finances for a more or less long period, meanwhile burdening the taxpayers of the future with expenses for which they will have to provide without having consented to them.
7. All such trading operations oppose political to economic competition.

The propaganda of public ownership has established more firmly than before the truth of the following industrial laws:

First: Neither states nor municipalities should attempt tasks especially adapted to individual effort.

Second: In the case of those utilities in which the public interest is general, as railways, water, gas, electricity, tramways, etc., there must be a physically and morally responsible body, accountable to the public on the one hand and the service on the other, and protected by contracts against vacillations of public opinion and the extortionate demands of interested groups, whether employees, consumers, or politicians.

Third: For individuals the watchword should be action; for local and state governments, control.

[1]Longmans, Green & Co., New York, 1910.

[1]Esprit des Lois, book 13, chapter 8.

[1]See E. Watelet, Les Recents Troubles du Nord de la France, 1912.

[2]Discussion de la Société d'Economie Politique, Journal des Economistes, December, 1911.

[1]Labour Leader, May 12, 1911.

[2]See Yves Guyot, Les Chemins de Fer et la Grève.

[1]Les Grandes Régies d'État, by Paul Pic, Revue d'Économie Politique, July-August, 1912.

[1]See above, Book I, Chapter 23.

[1]A navy relief fund.

[1]Yves Guyot, La Céruse et la Méthode Expérimentale. Brochure, Paris, F. Alcan.

[1]See Les Principes de ’89 et le Socialisme. La Democratie Individualiste.

[1]Annals of the American Academy of Political and Social Science, May, 1908. Legislative Restriction in New York, page 134.

[1]See the discussion relating to the Prussian railways in the series of volumes, Le Marche Financier, by Arthur Raffalovich.

[2]Principles of Economics.

[1]State Socialism in New Zealand, page 299.

[2]The Official Year Book of New South Wales, 1904–1905, page 543.

[1]Journal des Économistes, December, 1910.

[2]Revue Économique Internationale, see above.

[1]See Yves Guyot, Les Principes de ’89 et le Socialisme. La Democratie Individualiste.

[2]Ibid.

[1]L'Individu l'Association et L'État, Paris, F. Alcan.

[2]Upon the Insurance Bill, Labour Leader, July 14, 1911.

[1]Socialism in England, page 109.

[1]Gasette de Lausanne, February 1, 1912.

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