I will leave it to you if it does not seem, in some of its aspects, a great deal more like a system for preventing production. Some time when we have plenty of leisure I am going to ask you to sit down with me and try to make me comprehend, as I never yet could, though I have studied the matter a great deal how such shrewd fellows as your contemporaries appear to have been in many respects ever came to entrust the business of providing for the community to a class whose interest it was to starve it. I assure you that the wonder with us is, not that the world did not get rich under such a system, but that it did not perish outright from want. This wonder increases as we go on to consider some of the other prodigious wastes that characterized it.
“Apart from the waste of labor and capital by misdirected industry, and that from the constant bloodletting of your industrial warfare, your system was liable to periodical convulsions, overwhelming alike the wise and unwise, the successful cut-throat as well as his victim. I refer to the business crises at intervals of five to ten years, which wrecked the industries of the nation, prostrating all weak enterprises and crippling the strongest, and were followed by long periods, often of many years, of so-called dull times, during which the capitalists slowly regathered their dissipated strength while the laboring classes starved and rioted. Then would ensue another brief season of prosperity, followed in turn by another crisis and the ensuing years of exhaustion. As commerce developed, making the nations mutually dependent, these crises became world-wide, while the obstinacy of the ensuing state of collapse increased with the area affected by the convulsions, and the consequent lack of rallying centres. In proportion as the industries of the world multiplied and became complex, and the volume of capital involved was increased, these business cataclysms became more frequent, till, in the latter part of the nineteenth century, there were two years of bad times to one of good, and the system of industry, never before so extended or so imposing, seemed in danger of collapsing by its own weight. After endless discussions, your economists appear by that time to have settled down to the despairing conclusion that there was no more possibility of preventing or controlling these crises than if they had been drouths or hurricanes. It only remained to endure them as necessary evils, and when they had passed over to build up again the shattered structure of industry, as dwellers in an earthquake country keep on rebuilding their cities on the same site.
“So far as considering the causes of the trouble inherent in their industrial system, your contemporaries were certainly correct. They were in its very basis, and must needs become more and more maleficent as the business fabric grew in size and complexity. One of these causes was the lack of any common control of the different industries, and the consequent impossibility of their orderly and coordinate development. It inevitably resulted from this lack that they were continually getting out of step with one another and out of relation with the demand.
“Of the latter there was no criterion such as organized distribution gives us, and the first notice that it had been exceeded in any group of industries was a crash of prices, bankruptcy of producers, stoppage of production, reduction of wages, or discharge of workmen. This process was constantly going on in many industries, even in what were called good times, but a crisis took place only when the industries affected were extensive. The markets then were glutted with goods, of which nobody wanted beyond a sufficiency at any price. The wages and profits of those making the glutted classes of goods being reduced or wholly stopped, their purchasing power as consumers of other classes of goods, of which there were no natural glut, was taken away, and, as a consequence, goods of which there was no natural glut became artificially glutted, till their prices also were broken down, and their makers thrown out of work and deprived of income. The crisis was by this time fairly under way, and nothing could check it till a nation’s ransom had been wasted.
“A cause, also inherent in your system, which often produced and always terribly aggravated crises, was the machinery of money and credit. Money was essential when production was in many private hands, and buying and selling was necessary to secure what one wanted. It was, however, open to the obvious objection of substituting for food, clothing, and other things a merely conventional representative of them. The confusion of mind which this favored, between goods and their representative, led the way to the credit system and its prodigious illusions. Already accustomed to accept money for commodities, the people next accepted promises for money, and ceased to look at all behind the representative for the thing represented. Money was a sign of real commodities, but credit was but the sign of a sign. There was a natural limit to gold and silver, that is, money proper, but none to credit, and the result was that the volume of credit, that is, the promises of money, ceased to bear any ascertainable proportion to the money, still less to the commodities, actually in existence. Under such a system, frequent and periodical crises were necessitated by a law as absolute as that which brings to the ground a structure overhanging its centre of gravity. It was one of your fictions that the government and the banks authorized by it alone issued money; but everybody who gave a dollar’s credit issued money to that extent, which was as good as any to swell the circulation till the next crises. The great extension of the credit system was a characteristic of the latter part of the nineteenth century, and accounts largely for the almost incessant business crises which marked that period. Perilous as credit was, you could not dispense with its use, for, lacking any national or other public organization of the capital of the country, it was the only means you had for concentrating and directing it upon industrial enterprises. It was in this way a most potent means for exaggerating the chief peril of the private enterprise system of industry by enabling particular industries to absorb disproportionate amounts of the disposable capital of the country, and thus prepare disaster. Business enterprises were always vastly in debt for advances of credit, both to one another and to the banks and capitalists, and the prompt withdrawal of this credit at the first sign of a crisis was generally the precipitating cause of it.
“It was the misfortune of your contemporaries that they had to cement their business fabric with a material which an accident might at any moment turn into an explosive. They were in the plight of a man building a house with dynamite for mortar, for credit can be compared with nothing else.
“If you would see how needless were these convulsions of business which I have been speaking of, and how entirely they resulted from leaving industry to private and unorganized management, just consider the working of our system. Overproduction in special lines, which was the great hobgoblin of your day, is impossible now, for by the connection between distribution and production supply is geared to demand like an engine to the governor which regulates its speed. Even suppose by an error of judgment an excessive production of some commodity. The consequent slackening or cessation of production in that line throws nobody out of employment. The suspended workers are at once found occupation in some other department of the vast workshop and lose only the time spent in changing, while, as for the glut, the business of the nation is large enough to carry any amount of product manufactured in excess of demand till the latter overtakes it. In such a case of over-production, as I have supposed, there is not with us, as with you, any complex machinery to get out of order and magnify a thousand times the original mistake. Of course, having not even money, we still less have credit. All estimates deal directly with the real things, the flour, iron, wood, wool, and labor, of which money and credit were for you the very misleading representatives. In our calculation of cost there can be no mistakes. Out of the annual product the amount necessary for the support of the people is taken, and the requisite labor to produce the next year’s consumption provided for. The residue of the material and labor represents what can be safely expended in improvements. If the crops are bad, the surplus for that year is less than usual, that is all. Except for slight occasional effects of such natural causes, there are no fluctuations of business; the material prosperity of the nation flows on uninterruptedly from generation to generation, like an ever broadening and deepening river.
“Your business crises, Mr. West,” continued the doctor, “like either of the great wastes I mentioned before, were enough, alone, to have kept your noses to the grindstone forever; but I have still to speak of one other great cause of your poverty, and that was the idleness of a great part of your capital and labor. With us it is the business of the administration to keep in constant employment every ounce of available capital and labor in the country. In your day there was no general control of either capital or labor, and a large part of both failed to find employment. ‘Capital,’ you used to say, ‘is naturally timid,’ and