The Online Library of Liberty

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• Preface
• Translator's Note
• Where and Why Public Ownership Has Failed
• Book I: Public and Private Trading Operations
• Chapter I: Two Precepts
• Chapter II: The Three Mainsprings of Human Action
• Chapter III: Determining Motives of Private As Against Public Enterprises
• Chapter IV: Government and Municipal Trading Operations
• Book II: Financial Results of Government and Municipal Ownership
• Chapter I: Bookkeeping In State and Municipal Trading Enterprises
• Chapter II: The Belgian State Railroads
• Chapter III: Prussian Railroads
• Chapter IV: State Railways of Austria and Hungary
• Chapter V: Italian Railways
• Chapter VII: Railways of New Zealand
• Chapter VIII: Government Railroads In France
• Chapter IX: Public Vs. Private Operation
• Chapter X: The Holy Cities of Municipal Operation
• Chapter XI: Operation of Gas and Electricity In the United Kingdom
• Chapter XII: Tramways In Great Britain
• Chapter XIII: Housing of the Working Classes and Public Ownership In Great Britain
• Chapter XIV: Housing of the Working Classes On the Continent
• Chapter XV: Government Control of Food Supplies
• Chapter XVI: Victims of Government Ownership
• Chapter XVII: Charges, Debts and Credit
• Chapter XVIII: Fictitious Profits
• Chapter XIX: Fiscal Monopolies
• Chapter XX: The Alcohol Monopoly In Switzerland and Russia
• Chapter XXI: Financial Disorder
• Chapter XXII: The Purchase Price
• Chapter XXIII: Delusions of Profit and the Life Insurance Monopoly In Italy
• Chapter XXIV: The Fiscal Mines of the Saar District
• Chapter XXV: Public Versus Private Enterprise
• Book III: Administrative Results
• Chapter I: Administrative Results
• Chapter II: The Safety of Travelers Upon State and Private Railway Lines
• Chapter III: Disorders, Delays and Errors
• Chapter IV: Official Conservatism
• Chapter V: Labor
• Chapter VI: The Consumer
• Chapter VII: Programs of Organization and Regulation
• Book IV: Political and Social Consequences of Public Operation
• Chapter I: Socialist Programs and the Facts
• Chapter II: Bluff
• Chapter III: Results of Experience
• Chapter IV: The State a Dishonest Man
• Chapter V: Corruption
• Chapter VI: Nationalization of Public Utilities and the Foundation of Great Fortunes
• Chapter VII: Disintegrating Character of Public Operation
• Appendix %u201ca%u201d: Alcoholism In Russia
• Appendix %u201cb%u201d: the Financial Year In Australia
• Appendix %u201cc%u201d: the Shortcomings of the Telephone In England

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.

[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.