CHAPTER XXVI

INDUSTRIAL WRONGS

1

WE have been discussing the treatment of recognized crime. But beyond the boundaries of conduct universally labeled as criminal, there is a whole realm of anti-social action to which the public conscience is only beginning to be sensitive, although it is often far more harmful to the general welfare than that for which men are imprisoned. Especially is this true of the wrongs connected with modern industry. As Professor Ross puts it, "the master iniquities of our time are connected with money-making"; and so our "moral pace-setters," who are, for the most part, confining their attacks to the time-worn and familiar sins, "do not get into the big fight at all." The root of the trouble is that great power over the lives and happiness of others has been acquired by a small class of irresponsible men, many of whom fail to recognize their privileged position as a public trust and care only for enriching themselves.

As we noted in chapter III, the complexification of our industrial life is making possible a whole new range of what must be branded as crimes; endless opportunities have been opened up of money-making at the cost of others' suffering. Often that suffering, or loss, is so remote from the path of the greedy business man that he does not see himself, and others fail to see him, as the predatory money-grabber that he is. The many who have been ruined by unscrupulous competitors are often embittered, the repressed classes

1 Sin and Society, p. 97.

develop a fierce hatred of capitalsm; but the public as a whole has not been aroused to rebuke this "newer unrighteousness." We must proceed to note its commonest contemporary forms.

In our present organization of industry, what are the duties of business men:

I. To the public? (1) The first duty of business men is to supply honest goods, in honest measure. Underweight, undermeasure, double-bottomed berry-boxes, bottles so shaped as to appear to contain more than their actual contents, are obviously cheating. Misbranding of goods is now regulated, so far as interstate trade goes, by the Federal Pure Food and Drugs Act; and most States have similar legislation. Misrepresentation in advertisement should be severely punished; the selling of cold storage for fresh products, of part-cotton for all-wool clothing, of less for more expensive woods, and the thousand other ways of palming inferior goods upon an inexpert public for highgrade articles. At present there is little recourse but to carry distrust into all purchasing, learn to be canny, and to recognize differences in quality in all articles needed. But the average man cannot become an expert purchaser; he buys furniture which breaks down prematurely; he pays a high price for clothing which proves to have no wearing quality; he buys patent medicines which promise to cure his physical ills, and is lucky if they do not leave him worse in health than before. Jerry-building, and the doing of fake jobs by contractors, especially for municipalities, is one of the scandals of our times.1

1 See Encyclopædia Britannica, article, "Adulteration." E. Kelly Twentieth Century Socialism, bk. II, chap. I. For a notorious case of tampering with weights, see Outlook, vol. 92, p. 25; vol. 93, p. 811. For cases of adulteration, Good Housekeeping Magazine, vol. 54, p. 593. F. W. Taussig, Principles of Economics, chap. 45.

(2) Another duty, less generally recognized by even the more honorable business men, is to sell their goods at fair prices. The strangulation of competition by mutual agreements or the formation of trusts, aided often by an iniquitously high tariff, has put many a business for a time on a par with those natural monopolies which, if unregulated, can always exact exorbitant prices for what the public needs. Rich profits have been made by the tucking of a few cents on to the price of gas, or coal, or steel, or oil, or telephone service. Enormous fortunes have been made, at the public expense, by the practical cornering of staple commodities. These hold-up prices should be clearly recognized for what they are a form of modern piracy. No business man or corporation is entitled in justice to more than a moderate reward for the mental and physical labor expended; the excessive incomes of monopoly are largely at the expense of the public, who, by one means or other, are being compelled to pay more than a fair price for the article.1

(3) Finally, all business must be looked upon as a form of public service, and the convenience of customers scrupulously consulted. Where there is competition this tends to regulate itself; but our public-service monopolies have too often followed the "public-be-damned" policy. The longsuffering community puts up with inadequate and crowded street-cars, inconvenient train service, a bungled and highhanded telephone system. Railway managements have sometimes been criminally indifferent to public safety, finding it less expensive to lose occasional damage suits than to install safety appliances. Efficiency in serving the public has likewise been sacrificed to dividends; and courtesy, where it is not recognized to have a cash value, tends to disappear. Such indictments point to the widespread existence

1 For cases, see C. R. Van Hise, Concentration and Control, pp. 109, 145, 149. The War has, of course, vastly stimulated this profiteering.

of the idea that men and corporations are in business for themselves only, and not as fulfilling a public need.1

II. To investors? It has not been generally enough recognized that business men owe it to investors to do their best to see to it that they get fair returns on their money invested

and only fair returns. There are a number of ways in which, on the one hand, the investing public is "skinned," and, on the other hand, stock in a business, largely owned by the management itself, has been rewarded with undeserved dividends at the expense of the public.

(1) There are, in the first place, the get-rich-quick swindles, the out-and-out impostures, which have deceived the credulous into investments that never could pay. Bonanza mines, impractical inventions, town lots laid out on the prairie, orange groves that existed only on paper- such bogus hopes have enticed many an honest man and woman, who could ill afford to lose, into turning over their small earnings to the brazen exploiters.2

(2) But such arrant deception is not the commonest form of wrong. A more usual practice, and more dangerous — because it deceives even the intelligent is to overcapitalize an honest business, to issue "watered" stock - that is, stock in excess of the actual value of plant, patents, and other assets. These stocks are issued merely to sell. If the business is very successful, its profits may pay a fair return on all this capital; if not, low dividends or none can be paid until the business slowly catches up with its overcapitalization. In all investment — as our industrial organization at present goes there is risk; but to create a needless risk and deceive the public into taking it is plain dishonesty. The extra money thus sucked from the public goes sometimes to pay

1 For concrete illustrations, see Outlook, vol. 91, p. 861; vol. 95, p. 515. World's Work, vol. 23, p. 579.

2 For cases, see World's Work, vol. 21, p. 14112.

excessive salaries to the officials of the company, sometimes to pay excessive prices for patents or plants purchased; there are many subtle ways, known to "high finance," of misappropriating stockholders' money and diverting it to the pockets of the promoters. Many great fortunes have been. made in this way; such exploitation is so new to society that it has not yet awakened to its essentially criminal nature.

Even if the business is able to pay good dividends on watered stock, the crime of overcapitalization is not lessened, though the harm done is now not to the investor but to the public. Stocks should represent only the actual value of the property, so that dividends may be only a fair return for capital really invested in the business. Where there is sharp competition, the possibility of overcharging the public to make returns on watered stock is cut out, and the loss falls upon the investor. But in the case of monopolies, such as railways, or of combinations which practically stifle competition, the public may be charged enough to "pay a fair dividend to investors," although the capital upon which dividends are being paid is, to considerable extent, not actual money invested, but mere paper stock.1

(3) A third method of "fleecing" investors lies in skillful manipulation of the stock market. In ways which are known to the initiated, it is often possible artificially to raise or lower the market value of stocks. Unwary investors are lured in; timid investors are frightened out; through all ticker fluctuations the brokers win their commissions; the skilled financiers and organizers of combinations rake in unearned sums that are sometimes immense, while the losses fall mostly to the lot of the innocent and unsophisticated

1 On stock-watering, see Dewey and Tufts, Ethics, pp. 561-64. Outlook, vol. 85, p. 562. Political Science Quarterly, vol. 26, p. 88. International Journal of Ethics, vol. 18, p. 151. C. R. Van Hise, Concentration and Control, pp. 115, 142, etc.