The logic of a national democratic ideal and the responsibilities of a national career in the world involve a number of very definite consequences in respect to American foreign policy. They involve, in fact, a conception of the place of a democratic nation in relation to the other civilized nations, different from that which has hitherto prevailed in this country. Because of their geographical situation and their democratic institutions, Americans have claimed and still claim a large degree of national aloofness and independence; but such a claim could have been better defended several generations ago than it can to-day. Unquestionably the geographical situation of the United States must always have a decisive effect upon the nature of its policy in foreign affairs; and undoubtedly no course of action in respect to other nations can be national without serving the interests of democracy. But precisely because an American foreign policy must be candidly and vigorously national, it will gradually bring with it an increasingly complicated group of international ties and duties. The American nation, just in so far as it believes in its nationality and is ready to become more of a nation, must assume a more definite and a more responsible place in the international system. It will have an increasingly important and an increasingly specific part to play in the political affairs of the world; and, in spite of "old-fashioned democratic" scruples and prejudices, the will to play that part for all it is worth will constitute a beneficial and a necessary stimulus to the better realization of the Promise of our domestic life.
A genuinely national policy must, of course, be based upon a correct understanding of the national interest in relation to those of its neighbors and associates. That American policy did obtain such a foundation during the early years of American history is to be traced to the sound political judgment of Washington and Hamilton. Jefferson and the Republicans did their best for a while to persuade the American democracy to follow the dangerous course of the French democracy, and to base its international policy not upon the firm ground of national interest, but on the treacherous sands of international democratic propagandism. After a period of hesitation, the American people, with their usual good sense in the face of a practical emergency, rallied to the principles subsequently contained in Washington's Farewell Address; and the Jeffersonian Republicans, when they came into control of the Federal government, took over this conception of American national policy together with the rest of the Federalist outfit. But like the rest of the Federalist organization and ideas, the national foreign policy was emasculated by the expression it received at the hands of the Republicans. The conduct of American foreign affairs during the first fifteen years of the century are an illustration of the ills which may befall a democracy during a critical international period, when its foreign policy is managed by a party of anti-national patriots.
After 1815 the foreign policy of the United States was determined by a strict adherence to the principles enunciated in Washington's Farewell Address. The adherence was more in the letter than in the spirit, and the ordinary popular interpretation, which prevails until the present day, cannot be granted undivided approval; but so far as its immediate problems were concerned, American foreign policy did not, on the whole, go astray. The United States kept resolutely clear of European entanglements, and did not participate in international councils, except when the rights of neutrals were under discussion; and this persistent neutrality was precisely the course which was needed in order to confirm the international position of the country as well as to leave the road clear for its own national development. But certain consequences were at an early date deduced from a neutral policy which require more careful examination. During the presidency of Monroe the systematic isolation of the United States in respect to Europe was developed, so far as the two Americas were concerned, into a more positive doctrine. It was proclaimed that abstention on the part of the United States from European affairs should be accompanied by a corresponding abstention by the European Powers from aggressive action in the two Americas. What our government proposed to do was to divide sharply the democratic political system of the Americas from the monarchical and aristocratic political system of Europe. The European system, based as it was upon royalist legitimacy and privileges, and denying as it did popular political rights, was declared to be inimical in spirit and in effect to the American democratic state.
The Monroe Doctrine has been accepted in this form ever since as an indisputable corollary of the Farewell Address. The American people and politicians cherish it as a priceless political heirloom. It is considered to be the equivalent of the Declaration of Independence in the field of foreign affairs; and it arouses an analogous volume and fury of conviction. Neither is this conviction merely the property of Fourth-of-July Americans. Our gravest publicists usually contribute to the Doctrine a no less emphatic adherence; and not very many years ago one of the most enlightened of American statesmen asserted that American foreign policy as a whole could be sufficiently summed up in the phrase, "The Monroe Doctrine and the Golden Rule." Does the Monroe Doctrine, as stated above, deserve such uncompromising adherence? Is it an adequate expression of the national interest of the American democracy in the field of foreign affairs?
At the time the Monroe Doctrine was originally proclaimed, it did unquestionably express a valid national interest of the American democracy. It was the American retort to the policy of the Holy Alliance which sought to erect the counter-revolutionary principles into an international system, and which suppressed, so far as possible, all nationalist or democratic agitation. The Spanish-American colonies had been winning their independence from Spain; and there was a fear, not entirely ill-founded, that the Alliance would apply its anti-democratic international policy to the case of Spain's revolted colonies. Obviously the United States, both as a democracy and as a democracy which had won its independence by means of a revolutionary war, could not admit the right of any combination of European states to suppress national and democratic uprisings on the American continents. Our government would have been wholly justified in resisting such interference with all its available military force. But in what sense and upon what grounds was the United States justified in going farther than this, and in asserting that under no circumstances should there be any increase of European political influence upon the American continents? What is the propriety and justice of such a declaration of continental isolation? What are its implications? And what, if any, are its dangers?
In seeking an answer to these questions we must return to the source of American foreign policy in the Farewell Address. That address contains the germ of a prudent and wise American national policy; but Hamilton, in preparing its phrasing, was guided chiefly by a consideration of the immediate needs and dangers of his country. The Jeffersonian Republicans in their enthusiasm for the French Revolution proposed for a while to bring about a permanent alliance between France and the United States, the object whereof should be the propagation of the democratic political faith. Both Washington and Hamilton saw clearly that such behavior would entangle the United States in all the vicissitudes and turmoil which might attend the development of European democracy; and their favorite policy of neutrality and isolation implied both that the national interest of the United States was not concerned in merely European complications, and that the American people, unlike those of France, did not propose to make their political principles an excuse for international aggression. The Monroe Doctrine, as proclaimed in 1825, rounded out this negative policy with a more positive assertion of principles. It declared that the neutrality of the American democracy, so far as Europe was concerned, must be balanced by the non-intervention of European legitimacy and aristocracy in the affairs of the American continents. Now this extension of American foreign policy was, as we have seen, justified, in so far as it was a protest against any possible interference on the part of the Holy Alliance in American politics. It was, moreover, justified in so far as it sought to identify the attainment of a desirable democratic purpose with American international policy. Of course Hamilton, when he tried to found the international policy of his country upon the national interest, wholly failed to identify that interest with any positive democratic purpose; but in this, as in other respects, Hamilton was not a thorough-going democrat. While he was right in seeking to prevent the American people from allying themselves with the aggressive French democracy, he was wrong in failing to foresee that the national interest of the United States was identified with the general security and prosperity of liberal political institutions—that the United States must by every practical means encourage the spread of democratic methods and ideas. As much in foreign as in domestic affairs must the American people seek to unite national efficiency with democratic idealism. The Monroe Doctrine, consequently, is not to be condemned, as it has been condemned, merely because it went far beyond the limited foreign policy of Hamilton. The real question in regard to the Doctrine is whether it seeks in a practicable way—in a way consistent with the national interest and inevitable international responsibilities—the realization of the democratic idea. Do the rigid advocates of that Doctrine fall into an error analogous to the error against which Washington and Hamilton were protesting? Do they not tend, indirectly, and within a limited compass, to convert the American democratic idea into a dangerously aggressive principle?
The foregoing question must, I believe, be answered partly in the affirmative. The Monroe Doctrine, as usually stated, does give a dangerously militant tendency to the foreign policy of the United States; and unless its expression is modified, it may prevent the United States from occupying a position towards the nations of Europe and America in conformity with its national interest and its national principle. It should be added, however, that this unwholesomely aggressive quality is only a tendency, which will not become active except under certain possible conditions, and which can gradually be rendered less dangerous by the systematic development of the Doctrine as a positive principle of political action in the Western hemisphere.
The Monroe Doctrine has, of course, no status in the accepted system of International Law. Its international standing is due almost entirely to its express proclamation as an essential part of the foreign policy of the United States, and it depends for its weight upon the ability of this country to compel its recognition by the use of latent or actual military force. Great Britain has, perhaps, tacitly accepted it, but no other European country has done so, and a number of them have expressly stated that it entails consequences against which they might sometime be obliged strenuously and forcibly to protest. No forcible protest has as yet been made, because no European country has had anything to gain from such a protest, comparable to the inevitable cost of a war with the United States.
The dangerously aggressive tendency of the Monroe Doctrine is not due to the fact that it derives its standing from the effective military power of the United States. The recognition which any proclamation of a specific principle of foreign policy receives will depend, in case it conflicts with the actual or possible interests of other nations, upon the military and naval power with which it can be maintained. The question as to whether a particular doctrine is unwholesomely aggressive depends, consequently, not upon the mere fact that it may provoke a war, but upon the doubt that, if it provokes a war, such a war can be righteously fought. Does the Doctrine as usually stated, possibly or probably commit the United States to an unrighteous war—a war in which the United States would be opposing a legitimate interest on the part of one or a group of European nations? Does an American foreign policy of the "Monroe Doctrine and the Golden Rule" proclaim two parallel springs of national action in foreign affairs which may prove to be incompatible?
There is a danger that such may be the case. The Monroe Doctrine in its most popular form proclaims a rigid policy of continental isolation—of America for the Americans and of Europe for the Europeans. European nations may retain existing possessions in the Americas, but such possessions must not be increased. So far, so good. A European nation, which sought defiantly to increase its American possessions, in spite of the express declaration of the United States that such action would mean war, would deserve the war thereby incurred. But there are many ways of increasing the political influence of European Powers in the Americas without actual territorial appropriation. The emigration from several European states and from Japan to South America is already considerable, and is likely to increase rather than diminish. European commercial interests in South America are greater than ours, and in the future will become greater still. The South Americans have already borrowed large quantities of European capital, and will need more. The industrial and agricultural development of the South American states is constantly tying them more closely to Europe than it is to the United States. It looks, consequently, as if irresistible economic conditions were making in favor of an increase of effective European influence in South America. The growth of that influence is part of the world-movement in the direction of the better utilization of the economic resources of mankind. South America cannot develop without the benefits of European capital, additional European labor, European products, and European experience and training; and in the course of another few generations the result will be a European investment in South America, which may in a number of different ways involve political complications. We have already had a foretaste of those consequences in the steps which the European Powers took a few years ago to collect debts due to Europeans by Venezuela.
The increasing industrial, social, and financial bonds might not have any serious political consequences, provided the several South American states were possessed of stable governments, orderly political traditions, and a political standing under definite treaties similar to that of the smaller European states. But such is not the case. The alien investment in South America may involve all sorts of political complications which would give European or Asiatic Powers a justifiable right under the law of nations to interfere. Up to the present time, as we have seen, such interference has promised to be too costly; but the time may well come when the advantages of interference will more than counterbalance the dangers of a forcible protest. Moreover, in case such a protest were made, it might not come from any single European Power. A general European interest would be involved. The United States might well find her policy of America for the Americans result in an attempt on the part of a European coalition to bring about a really effectual isolation. We might find ourselves involved in a war against a substantially united Europe. Such a danger seems sufficiently remote at present; but in the long run a policy which carries isolation too far is bound to provoke justifiable attempts to break it down. If Europe and the Americas are as much divided in political interest as the Monroe Doctrine seems to assert, the time will inevitably arrive when the two divergent political systems must meet and fight; and plenty of occasions for such a conflict will arise, as soon as the policy of isolation begins to conflict with the establishment of that political relation between Europe and South America demanded by fundamental economic and social interests. Thus under certain remote but entirely possible conditions, the Doctrine as now proclaimed and practiced might justify Europe in seeking to break it down by reasons at least as valid as those of our own country in proclaiming it.
But if the Monroe Doctrine could only be maintained by a war of this kind, or a succession of wars, it would defeat the very purpose which it is supposed to accomplish. It would embroil the United States and the two American continents in continual trouble with Europe; and it would either have to be abandoned or else would carry with it incessant and enormous expenditures for military and naval purposes. The United States would have to become a predominantly military power, armed to the teeth, to resist or forestall European attack; and our country would have to accept these consequences, for the express purpose of keeping the Americas unsullied by the complications of European politics. Obviously there is a contradiction in such a situation. The United States could fight with some show of reason a single European Power, like France in 1865, which undertook a policy of American territorial aggrandizement; but if it were obliged to fight a considerable portion of Europe for the same purpose, it would mean that our country was opposing a general, and presumably a legitimate, European interest. In that event America would become a part of the European political system with a vengeance—a part which in its endeavor to escape from the vicissitudes of European politics had brought upon itself a condition of permanent military preparation and excitement. Consequently, in case the "Monroe Doctrine and the Golden Rule" are to remain the foundation of American foreign policy, mere prudence demands a systematic attempt to prevent the Doctrine from arousing just and effective European opposition.
No one can believe more firmly than myself that the foreign policy of a democratic nation should seek by all practicable and inoffensive means the affirmation of democracy; but the challenge which the Monroe Doctrine in its popular form issues to Europe is neither an inoffensive nor a practicable means of affirmation. It is based usually upon the notion of an essential incompatibility between American and European political institutions; and the assertion of such an incompatibility at the present time can only be the result of a stupid or willful American democratic Bourbonism. Such an incompatibility did exist when the Holy Alliance dominated Europe. It does not exist to-day, except in one particular. The exception is important, as we shall see presently; but it does not concern the domestic institutions of the European and the American states. The emancipated and nationalized European states of to-day, so far from being essentially antagonistic to the American democratic nation, are constantly tending towards a condition which invites closer and more fruitful association with the United States; and any national doctrine which proclaims a rooted antagonism lies almost at right angles athwart the road of American democratic national achievement. Throughout the whole of the nineteenth century the European nations have been working towards democracy by means of a completer national organization; while this country has been working towards national cohesion by the mere logic and force of its democratic ideal. Thus the distance between America and Europe is being diminished; and Americans in their individual behavior bear the most abundant and generous testimony to the benefits which American democracy can derive from association with the European nations. It is only in relation to the Monroe Doctrine that we still make much of the essential incompatibility between European and American institutions, and by so doing we distort and misinterpret the valid meaning of a national democratic foreign policy. The existing domestic institutions of the European nations are for the most part irrelevant to such a policy.
The one way in which the foreign policy of the United States can make for democracy is by strengthening and encouraging those political forces which make for international peace. The one respect in which the political system, represented by the United States, is still antagonistic to the European political system is that the European nation, whatever its ultimate tendency, is actually organized for aggressive war, that the cherished purposes of some of its states cannot be realized without war, and that the forces which hope to benefit by war are stronger than the forces which hope to benefit by peace. That is the indubitable reason why the United States must remain aloof from the European system and must avoid scrupulously any entanglements in the complicated web of European international affairs. The policy of isolation is in this respect as wise to-day as it was in the time of its enunciation by Washington and Hamilton; and nobody seriously proposes to depart from it. On the other hand, the basis for this policy is wholly independent of the domestic institutions of the European nations. It derives from the fact that at any time those nations may go to war about questions in which the United States has no vital interest. The geographical situation of the United States emancipates her from these conflicts, and enables her to stand for the ultimate democratic interest in international peace.
This justifiable policy of isolation has, moreover, certain important consequences in respect to the foreign policy of the United States in the two Americas. In this field, also, the United States must stand in every practicable way for a peaceful international system, and whatever validity the Monroe Doctrine may have in its relation to the European nations is the outcome of that obligation. If South and Central America were thrown open to European colonial ambitions, they would be involved very much more than they are at present in the consequences of European wars. In this sense the increase of European political influence in the two Americas would be an undesirable thing which the United States would have good reason to oppose. In this sense the extension of the European system to the American hemisphere would involve consequences inimical to democracy. In 1801 the North was fighting, not merely to preserve American national integrity, but to prevent the formation of a state on its southern frontier which could persist only by virtue of a European alliance, and which would consequently have entangled the free republic of the Northern states in the network of irrelevant European complications. Such would be the result of any attempt on the part of the European states to seek alliances or to pursue an aggressive policy on this side of the Atlantic.
But it may be asked, how can European aggressions in America be opposed, even on the foregoing ground, without requiring enormous and increasing military preparations? Would not the Monroe Doctrine, even in that modified form, involve the same practical inconsistency which has already been attached to its popular expression? The answer is simple. It will involve a similar inconsistency unless effective means are taken to avoid the inevitable dangers of such a challenge to Europe—unless, that is, means are taken to prevent Europe from having any just cause for intervention in South America for the purpose of protecting its own investment of men and money. The probable necessity of such intervention is due to the treacherous and unstable political conditions prevailing on that continent; and the Monroe Doctrine, consequently, commits the United States at least to the attempt to constitute in the two Americas a stable and peaceful international system. During the next two or three generations the European states will be too much preoccupied elsewhere to undertake or even to threaten any serious or concerted interference in South America. During that interval, while the Monroe Doctrine remains in its present situation of being unrecognized but unchallenged, American statesmen will have their opportunity. If the American system can be made to stand for peace, just as the European system stands at present for war, then the United States will have an unimpeachable reason in forbidding European intervention. European states would no longer have a legitimate ground for interference; it would be impossible for them to take any concerted action. The American nation would testify to its sincere democracy both by its negative attitude towards a militant European system and by its positive promotion of a peaceful international system in the two Americas.
On the other hand, if a stable international system either is not or cannot be constituted in the two Americas, the Monroe Doctrine will probably involve this country in wars which would be not merely exhausting and demoralizing, but fruitless. We should be fighting to maintain a political system which would be in no essential respect superior to the European political system. The South and Central American states have been almost as ready to fight among themselves, and to cherish political plans which can be realized only by war, as the European states. In the course of time, as they grow in population and wealth, they also will entertain more or less desirable projects of expansion; and the resulting conflicts would, the United States permitting, be sure to involve European alliances and complications. Why should the United States prepare for war in order to preserve the integrity of states which, if left to themselves, might well have an interest in compromising their own independence, and which, unless subjected to an edifying pressure, would probably make comparatively poor use of the independence they enjoyed? Surely the only valid reason for fighting in order to prevent the growth of European political influence in the two Americas is the creation of a political system on behalf of which it is worth while to fight.
Possibly some of my readers will have inferred by this time that the establishment of a peaceable international system in the two Americas is only a sanctimonious paraphrase for a policy on the part of this country of political aggrandizement in the Western hemisphere. Such an inference would be wholly unjust. Before such a system can be established, the use of compulsion may on some occasions be necessary; but the United States acting individually, could rarely afford to employ forcible means. An essential condition of the realization of the proposed system would be the ability of American statesmen to convince the Latin-Americans of the disinterestedness of their country's intentions; and to this end the active coöperation of one or more Latin-American countries in the realization of the plan would be indispensable. The statesmen of this country can work without coöperation as long as they are merely seeking to arouse public sentiment in favor of such a plan, or as long as they are clearing away preliminary obstacles; but no decisive step can be taken without assurance of support on the part of a certain proportion of the Latin-American states, and the best way gradually to obtain such support has already been indicated by Mr. Elihu Root during his official term as Secretary of State. He has begun the work of coming to an understanding with the best element in South American opinion by his candid and vigorous expression of the fundamental interest of the United States in its relations with its American neighbors.
Fifteen years ago the attempt to secure effective support from any of the Latin-American states in the foundation of a stable American international system would have looked hopeless. Countries with so appalling a record of domestic violence and instability could apparently be converted to a permanently peaceable behavior in respect to their neighbors only by the use of force. But recently several niches have been built into the American political structure on which a foothold may eventually be obtained. In general the political condition of the more powerful Latin-American states, such as Mexico, Brazil, Argentina, and Chile, has become more stable and more wholesome. If their condition of stability and health persists, their industrial and commercial prosperity will also continue; and little by little their political purposes will become more explicit and more significant. As soon as this stage is reached, it should be possible for American statesmen to estimate accurately the weight of the probable obstacles which any movement towards an international agreement would encounter. A series of particular steps could then be taken, tending to remove such obstacles, and, if wise, the whole question of an international agreement could be raised in some definite way.
Such obstacles may prove to be insurmountable; but provided the Latin-Americans can be convinced of the disinterestedness of this country, they do not look insurmountable. Acquiescence in a permanent American international system would, of course, imply a certain sacrifice of independence on the part of the several contracting states; but in return for this sacrifice their situation in respect to their neighbors would receive a desirable certification. They would renounce the right of going to war in return for a guarantee of their independence in other respects, and for the consequent chance of an indefinite period of orderly economic and social development. Whether they can ever be brought to such a renunciation will depend, of course, on the conception of their national interest which the more important Latin-American states will reach. As long as any one of them cherishes objects which can only be realized by war, the international situation in the Western hemisphere will remain similar to that of Europe. An actual or latent aggressiveness on the part of any one nation inevitably provokes its neighbors into a defiant and suspicious temper. It is too soon to predict whether the economic and political development of the Latin-Americans during the next generation will make for a warlike or a peaceful international organization; but considering the political geography of South America and the manifest economic interests of the several states, it does not look as if any one of them had as much to gain from a militant organization as it had from a condition of comparative international security.
The domestic condition of some of the Latin-American states presents a serious obstacle to the creation of a stable American international system. Such a system presupposes a condition of domestic peace. The several contracting states must possess permanent and genuinely national political organizations; and no such organization is possible as long as the tradition and habit of revolution persists. As we have seen, the political habits of the more important states have in this respect enormously improved of late years, but there remain a number of minor countries wherein the right of revolution is cherished as the essential principle of their democracy. Just what can be done with such states is a knotty problem. In all probability no American international system will ever be established without the forcible pacification of one or more such centers of disorder. Coercion should, of course, be used only in the case of extreme necessity; and it would not be just to deprive the people of such states of the right of revolution, unless effective measures were at the same time taken to do away with the more or less legitimate excuses for revolutionary protest. In short, any international American political system might have to undertake a task in states like Venezuela, similar to that which the United States is now performing in Cuba. That any attempt to secure domestic stability would be disinterested, if not successful, would be guaranteed by the participation or the express acquiescence therein of the several contracting states.
The United States has already made an effective beginning in this great work, both by the pacification of Cuba and by the attempt to introduce a little order into the affairs of the turbulent Central American republics. The construction of the Panama Canal has given this country an exceptional interest in the prevalence of order and good government in the territory between Panama and Mexico; and in the near future our best opportunity for improving international political conditions in the Western hemisphere will be found in this comparatively limited but, from a selfish point of view, peculiarly important field. Within this restricted area the same obstacles will be encountered as in the larger area, and success will depend upon the use of similar means and the exhibition of similar qualities. Very little can be achieved in Central America without the coöperation of Mexico, and without the ability to convince Mexican statesmen of the disinterested intentions of this country. In the same way any recrudescence of revolutionary upheavals in Mexico would enormously increase the difficulties and perils of the attempt. On the other hand, success in bringing about with Mexican coöperation a condition of political security and comparative stability in Central America would augur well for the success of the larger and more difficult attempt to perform a similar work for the whole American hemisphere.
The most difficult task, however, connected with the establishment of a peaceful American international system is presented by Canada. In case such a system were constituted, Canada should most assuredly form a part of it. Yet she could not form a part of it without a radical alteration in her relations with Great Britain. Canada is tied to the British Imperial system, and her policy and destiny depends upon the policy and destiny of the British Empire. She is content with this situation, not merely because she is loyal to the mother country, but because she believes that her association with Great Britain guarantees her independence in respect to the United States. Many Canadians cherish a profound conviction that the United States wishes nothing so much as the annexation of the Dominion; and the one thing in the world which they propose to prevent is a successful attack upon their independence. This is the natural attitude of a numerically weak people, divided by a long and indefensible frontier from a numerous and powerful neighbor; and while the people of this country have done nothing since the War of 1812 positively to provoke such suspicions, they have, on the other hand, done nothing to allay them. We have never attempted to secure the good will of the Canadians in any respect; and we have never done anything to establish better relations. Yet unless such better relations are established, the United States will lose an indispensable ally in the making of a satisfactory political system in the Western hemisphere while at the same time the American people will be in the sorry situation for a sincere democracy of having created only apprehension and enmity on the part of their nearest and most intelligent neighbors.
Under such circumstances the very first object of the foreign policy of the United States should be to place its relations with Canada on a better footing. There was a time when this object could have been accomplished by the negotiation of a liberal treaty of commercial reciprocity. If the commercial policy of the United States had been determined by its manifest national interest instead of by the interests of a group of special industries, such a treaty would have been signed many years ago. A great opportunity was lost when the negotiations failed early in the eighties, because ever since Canada has been tightening her commercial ties with Great Britain; and these ties will be still further tightened as Canada grows into a large grain-exporting country. But while it will be impossible to make an arrangement as advantageous as the one which might have been made twenty-five years ago, the national interest plainly demands the negotiation of the most satisfactory treaty possible at the present time; and if the special interests of a few industries are allowed to stand indefinitely in the way, we shall be plainly exhibiting our incompetence to carry out an enlightened and a truly national foreign policy. We shall be branding ourselves with the mark of a merely trading democracy which is unable to subordinate the selfish interests of a few of its citizens to the realization of a policy combining certain commercial advantages with an essential national object. Just as the maintenance of the present high protective tariff is the clearest possible indication of the domination of special over national interests in domestic politics, so the resolute opposition which these industries show to the use of the tariff as an instrument of a national foreign policy, suggests that the first duty of the United States as a nation is to testify to its emancipation from such bondage by revising the tariff. The matter concerns not merely Canada, but the South American Republics; and it is safe to say that the present policy of blind protection is an absolute bar to the realization of that improved American political system which is the correlative in foreign affairs of domestic individual and social amelioration.
The desirable result of the utmost possible commercial freedom between Canada and the United States would be to prepare the way for closer political association. By closer political association I do not mean the annexation of Canada to the United States. Such annexation might not be desirable even with the consent of Canada. What I do mean is some political recognition of the fact that the real interests of Canada in foreign affairs coincide with the interests of the United States rather than with the interests of Great Britain. Great Britain's interest in the independence of Holland or in the maintenance of the Turkish power in Europe might involve England in a European war, in which Canada would have none but a sentimental stake, but from which she might suffer severe losses. At bottom Canada needs for her political and commercial welfare disentanglement from European complications just as much as does the United States; and the diplomacy, official and unofficial, of the United States, should seek to convince Canada of the truth of this statement. Neither need a policy which looked in that direction necessarily incur the enmity of Great Britain. In view of the increasing cost of her responsibilities in Europe and in Asia, England has a great deal to gain by concentration and by a partial retirement from the American continent, so far as such a retirement could be effected without being recreant to her responsibilities towards Canada. The need of such retirement has already been indicated by the diminution of her fleet in American waters; and if her expenses and difficulties in Europe and Asia increase, she might be glad to reach some arrangement with Canada and the United States which would recognize a dominant Canadian interest in freedom from exclusively European political vicissitudes.
Such an arrangement is very remote; but it looks as if under certain probable future conditions, a treaty along the following lines might be acceptable to Great Britain, Canada, and the United States. The American and the English governments would jointly guarantee the independence of Canada. Canada, on her part, would enter into an alliance with the United States, looking towards the preservation of peace on the American continents and the establishment of an American international political system. Canada and the United States in their turn would agree to lend the support of their naval forces to Great Britain in the event of a general European war, but solely for the purpose of protecting the cargoes of grain and other food which might be needed by Great Britain. Surely the advantages of such an arrangement would be substantial and well-distributed. Canada would feel secure in her independence, and would be emancipated from irrelevant European complications. The United States would gain support, which is absolutely essential for the proper pacification of the American continent, and would pay for that support only by an engagement consonant with her interest as a food-exporting power. Great Britain would exchange a costly responsibility for an assurance of food in the one event, which Britons must fear—viz., a general European war with strong maritime powers on the other side. Such an arrangement would, of course, be out of the question at present; but it suggests the kind of treaty which might lead Great Britain to consent to the national emancipation of Canada, and which could be effected without endangering Canadian independence.
Any systematic development of the foreign policy of the United States, such as proposed herewith, will seem very wild to the majority of Americans. They will not concede its desirability, because the American habit is to proclaim doctrines and policies, without considering either the implications, the machinery necessary to carry them out, or the weight of the resulting responsibilities. But in estimating the practicability of the policy proposed, the essential idea must be disentangled from any possible methods of realizing it—such as the suggested treaty between the United States, Great Britain, and Canada. An agreement along those lines may never be either practicable or prudent, but the validity of the essential idea remains unaffected by the abandonment of a detail. That idea demands that effective and far-sighted arrangements be made in order to forestall the inevitable future objections on the part of European nations to an uncompromising insistence on the Monroe Doctrine; and no such arrangement is possible, except by virtue of Canadian and Mexican coöperation as well as that of some of the South American states. It remains for American statesmanship and diplomacy to discover little by little what means are practicable and how much can be accomplished under any particular set of conditions. A candid man must admit that the obstacles may prove to be insuperable. One of any number of possible contingencies may serve to postpone its realization indefinitely. Possibly neither Canada nor Great Britain will consent to any accommodation with the United States. Possibly one or more South American states will assume an aggressive attitude towards their neighbors. Possibly their passions, prejudices, and suspicions will make them prefer the hazards and the costs of military preparations and absolute technical independence, even though their interests counsel another course. Possibly the consequences of some general war in Europe or Asia will react on the two Americas and embroil the international situation to the point of hopeless misunderstanding and confusion. Indeed, the probabilities are that in America as in Europe the road to any permanent international settlement will be piled mountain high with dead bodies, and will be traveled, if at all, only after a series of abortive and costly experiments. But remote and precarious as is the establishment of any American international system, it is not for American statesmen necessarily either an impracticable, an irrelevant, or an unworthy object. Fail though we may in the will, the intelligence, or the power to carry it out, the systematic effort to establish a peaceable American system is just as plain and just as inevitable a consequence of the democratic national principle, as is the effort to make our domestic institutions contribute to the work of individual and social amelioration.
A genuinely national foreign policy for the American democracy is not exhausted by the Monroe Doctrine. The United States already has certain colonial interests; and these interests may hereafter be extended. I do not propose at the present stage of this discussion to raise the question as to the legitimacy in principle of a colonial policy on the part of a democratic nation. The validity of colonial expansion even for a democracy is a manifest deduction from the foregoing political principles, always assuming that the people whose independence is thereby diminished are incapable of efficient national organization. On the other hand, a democratic nation cannot righteously ignore an unusually high standard of obligation for the welfare of its colonial population. It would be distinctly recreant to its duty, in case it failed to provide for the economic prosperity of such a population, and for their educational discipline and social improvement. It by no means follows, however, that because there is no rigid objection on democratic principles to colonial expansion, there may not be the strongest practical objection on the score of national interest to the acquisition of any particular territory. A remote colony is, under existing international conditions, even more of a responsibility than it is a source of national power and efficiency; and it is always a grave question how far the assumption of any particular responsibility is worth while.
Without entering into any specific discussion, there can, I think, be little doubt that the United States was justified in assuming its existing responsibilities in respect to Cuba and its much more abundant responsibilities in respect to Porto Rico. Neither can it be fairly claimed that hitherto the United States has not dealt disinterestedly and in good faith with the people of these islands. On the other hand, our acquisition of the Philippines raises a series of much more doubtful questions. These islands have been so far merely an expensive obligation, from which little benefit has resulted to this country and a comparatively moderate benefit to the Filipinos. They have already cost an amount of money far beyond any chance of compensation, and an amount of American and Filipino blood, the shedding of which constitutes a grave responsibility. Their future defense against possible attack presents a military and naval problem of the utmost difficulty. In fact, they cannot be defended from Japan except by the maintenance of a fleet in Pacific waters at least as large as the Japanese fleet; and it does not look probable that the United States will be able to afford for another generation any such concentration of naval strength in the Pacific. But even though from the military point of view the Philippines may constitute a source of weakness and danger, their possession will have the political advantage of keeping the American people alive to their interests in the grave problems which will be raised in the Far East by the future development of China and Japan.
The future of China raises questions of American foreign policy second only in importance to the establishment of a stable American international organization; and in relation to these questions, also, the interests of the United States and Canada tend both to coincide and to diverge (possibly) from those of Great Britain. Just what form the Chinese question will assume, after the industrial and the political awakening of China has resulted in a more effective military organization and in greater powers both of production and consumption, cannot be predicted with any certainty; but at present, it looks as if the maintenance of the traditional American policy with respect to China, viz., the territorial integrity and the free commercial development of that country, might require quite as considerable a concentration of naval strength in the Pacific as is required by the defense of the Philippines. It is easy enough to enunciate such a policy, just as it is easy to proclaim a Monroe Doctrine which no European Power has any sufficient immediate interest to dispute; but it is wholly improbable that China can be protected in its territorial integrity and its political independence without a great deal of diplomacy and more or less fighting. During the life of the coming generation there will be brought home clearly to the American people how much it will cost to assert its own essential interests in China; and the peculiar value of the Philippines as an American colony will consist largely in the fact that they will help American public opinion to realize more quickly than it otherwise would the complications and responsibilities created by Chinese political development and by Japanese ambition.
The existence and the resolute and intelligent facing of such responsibilities are an inevitable and a wholesome aspect of national discipline and experience. The American people have too easily evaded them in the past, but in the future they cannot be evaded; and it is better so. The irresponsible attitude of Americans in respect to their national domestic problems may in part be traced to freedom from equally grave international responsibilities. In truth, the work of internal reconstruction and amelioration, so far from being opposed to that of the vigorous assertion of a valid foreign policy, is really correlative and supplementary thereto; and it is entirely possible that hereafter the United States will be forced into the adoption of a really national domestic policy because of the dangers and duties incurred through her relations with foreign countries.
The increasingly strenuous nature of international competition and the constantly higher standards of international economic, technical, and political efficiency prescribe a constantly improving domestic political and economic organization. The geographical isolation which affords the United States its military security against foreign attack should not blind Americans to the merely comparative nature of their isolation. The growth of modern sea power and the vast sweep of modern national political interests have at once diminished their security, and multiplied the possible sources of contact between American and European interests. No matter how peaceably the United States is inclined, and no matter how advantageously it is situated, the American nation is none the less constantly threatened by political warfare, and constantly engaged in industrial warfare. The American people can no more afford than can a European people to neglect any necessary kind or source of efficiency. Sooner than ever before in the history of the world do a nation's sins and deficiencies find it out. Under modern conditions a country which takes its responsibilities lightly, and will not submit to the discipline necessary to political efficiency, does not gradually decline, as Spain did in the seventeenth century. It usually goes down with a crash, as France did in 1870, or as Russia has just done. The effect of diminishing economic efficiency is not as suddenly and dramatically exhibited; but it is no less inevitable and no less severe. And the service which the very intensity of modern international competition renders to a living nation arises precisely from the searching character of the tests to which it subjects the several national organizations. Austria-Hungary has been forced to assume a secondary position in Europe, because the want of national cohesion and vitality deprived her political advance of all momentum. Russia has suddenly discovered that a corrupt bureaucracy is incapable of a national organization as efficient as modern military and political competition requires. It was desirable in the interest of the Austrians, the Hungarians, and the Russians, that these weaknesses should be exposed; and if the Christian states of the West ever become so organized that their weaknesses are concealed until their consequences become irremediable, Western civilization itself will be on the road to decline. The Atlantic Ocean will, in the long run, fail to offer the United States any security from the application of the same searching standards. Its democratic institutions must be justified, not merely by the prosperity which they bestow upon its own citizens, but by its ability to meet the standards of efficiency imposed by other nations. Its standing as a nation is determined precisely by its ability to conquer and to hold a dignified and important place in the society of nations.
The inference inevitably is that the isolation which has meant so much to the United States, and still means so much, cannot persist in its present form. Its geographical position will always have a profound influence on the strategic situation of the United States in respect to the European Powers. It should always emancipate the United States from merely European complications. But, while the American nation should never seek a positive place in an exclusively European system, Europe, the United States, Japan, and China must all eventually take their respective places in a world system. While such a system is still so remote that it merely shows dimly through the obscurity of the future, its manifest desirability brings with it certain definite but contingent obligations in addition to the general obligation of comprehensive and thorough-going national efficiency. It brings with it the obligation of interfering under certain possible circumstances in what may at first appear to be a purely European complication; and this specific obligation would be the result of the general obligation of a democratic nation to make its foreign policy serve the cause of international peace. Hitherto, the American preference and desire for peace has constituted the chief justification for its isolation. At some future time the same purpose, just in so far as it is sincere and rational, may demand intervention. The American responsibility in this respect is similar to that of any peace-preferring European Power. If it wants peace, it must be spiritually and physically prepared to fight for it. Peace will prevail in international relations, just as order prevails within a nation, because of the righteous use of superior force—because the power which makes for pacific organization is stronger than the power which makes for a warlike organization. It looks as if at some future time the power of the United States might well be sufficient, when thrown into the balance, to tip the scales in favor of a comparatively pacific settlement of international complications. Under such conditions a policy of neutrality would be a policy of irresponsibility and unwisdom.
The notion of American intervention in a European conflict, carrying with it either the chance or the necessity of war, would at present be received with pious horror by the great majority of Americans. Non-interference in European affairs is conceived, not as a policy dependent upon certain conditions, but as absolute law—derived from the sacred writings. If the issue should be raised in the near future, the American people would be certain to shirk it; and they would, perhaps, have some reason for a failure to understand their obligation, because the course of European political development has not as yet been such as to raise the question in a decisive form. All one can say as to the existing situation is that there are certain Powers which have very much more to lose than they have to gain by war. These Powers are no longer small states like Belgium, Switzerland, and Holland, but populous and powerful states like Great Britain, Italy, and France. It may be one or it may be many generations before the issue of a peaceful or a warlike organization is decisively raised. When, if ever, it is decisively raised, the system of public law, under which any organization would have to take place, may not be one which the United States could accept. But the point is that, whenever and however it is raised, the American national leaders should confront it with a sound, well-informed, and positive conception of the American national interest rather than a negative and ignorant conception. And there is at least a fair chance that such will be the case. The experience of the American people in foreign affairs is only beginning, and during the next few generations the growth of their traffic with Asia and Europe will afford them every reason and every opportunity to ponder seriously the great international problem of peace in its relation to the American national democratic interest.
The idea which is most likely to lead them astray is the idea which vitiates the Monroe Doctrine in its popular form,—the idea of some essential incompatibility between Europeanism and Americanism. That idea has given a sort of religious sanctity to the national tradition of isolation; and it will survive its own utility because it flatters American democratic vanity. But if such an idea should prevent the American nation from contributing its influence to the establishment of a peaceful system in Europe, America, and Asia, such a refusal would be a decisive stop toward American democratic degeneracy. It would either mean that the American nation preferred its apparently safe and easy isolation to the dangers and complications which would inevitably attend the final establishment of a just system of public law; or else it would mean that the American people believed more in Americanism than they did in democracy. A decent guarantee of international peace would be precisely the political condition which would enable the European nations to release the springs of democracy; and the Americanism which was indifferent or suspicious of the spread of democracy in Europe would incur and deserve the enmity of the European peoples. Such an attitude would constitute a species of continental provincialism and chauvinism. Hence there is no shibboleth that patriotic Americans should fight more tenaciously and more fiercely than of America for the Americans, and Europe for the Europeans. To make Pan-Americanism merely a matter of geography is to deprive it of all serious meaning. Pan-Slavism or Pan-Germanism, based upon a racial bond, would be a far more significant political idea. The only possible foundation of Pan-Americanism is an ideal democratic purpose—which, when translated into terms of international relations, demands, in the first place, the establishment of a pacific system of public law in the two Americas, and in the second place, an alliance with the pacific European Powers, just in so far as a similar system has become in that continent one of the possibilities of practical politics.
In the foregoing chapter I have traced the larger aspects of a constructive relation between the national and democratic principles in the field of foreign politics. The task remains of depicting somewhat in detail the aspect which our more important domestic problems assume from the point of view of the same relationship. The general outlines of this picture have already been roughly sketched; but the mere sketch of a fruitful general policy is not enough. A national policy must be justified by the flexibility with which, without any loss of its integrity, it can be applied to specific problems, differing radically one from another in character and significance. That the idea of a constructive relationship between nationality and democracy is flexible without being invertebrate is one of its greatest merits. It is not a rigid abstract and partial ideal, as is that of an exclusively socialist or an exclusively individualist democracy. Neither is it merely a compromise, suited to certain practical exigencies, between individualism and socialism. Its central formative idea can lend itself to many different and novel applications, while still remaining true to its own fundamental interest.
Flexible though the national ideal may be, its demands are in one respect inflexible. It is the strenuous and irrevocable enemy of the policy of drift. It can counsel patience; but it cannot abide collective indifference or irresponsibility. A constructive national ideal must at least seek humbly to be constructive. The only question is, as to how this responsibility for the collective welfare can at any one time be most usefully redeemed. In the case of our own country at the present time an intelligent conception of the national interest will counsel patient agitation rather than any hazardous attempts at radical reconstruction. No such reform can be permanent, or even healthy, until American public opinion has been converted to a completer realization of the nature and extent of its national responsibilities. The ship of reform will gather most headway from the association of certain very moderate practical proposals with the issue of a deliberate, persistent, and far more radical challenge to popular political prejudices and errors. It will be sufficient, in case our practical proposals seek to accomplish some small measure both of political and economic reconstruction, and in case they occupy some sort of a family relation to plans of the same kind with which American public opinion is already more or less familiar.
In considering this matter of institutional reform, I shall be guided chiefly by the extent to which certain specific reforms have already become living questions. From this point of view it would be a sheer waste of time just at present to discuss seriously any radical modification, say, of the Federal Constitution. Certain transformations of the Constitution either by insidious effect of practice, by deliberate judicial construction, or by amendment are, of course, an inevitable aspect of the contemporary American political problem; but all such possible and proposed changes must be confined to specific details. They should not raise any question as to the fundamental desirability of a system of checks and balances or of the other principles upon which the Federal political organization is based. Much, consequently, as a political theorist may be interested in some ideal plan of American national organization, it will be of little benefit under existing conditions to enter into such a discussion. Let it wait until Americans have come to think seriously and consistently about fundamental political problems. The Federal Constitution is not all it should be, but it is better than any substitute upon which American public opinion could now agree. Modifications may and should somehow be made in details, but for the present not in fundamentals. On the other hand, no similar sanctity attaches to municipal charters and state constitutions. The ordinary state constitution is a sufficiently ephemeral piece of legislation. State and municipal political forms are being constantly changed, and they are being changed because they have been so extremely unsatisfactory in their actual operation. The local political machinery becomes, consequently, the natural and useful subject of reconstructive experiments. A policy of institutional reform must prove its value and gain its experience chiefly in this field; and in formulating such a policy reformers will be placing their hands upon the most palpable and best-recognized weakness in the American political system.
A popular but ill-founded American political illusion concerns the success of their state governments. Americans tend to believe that these governments have on the whole served them well, whereas in truth they have on the whole been ill served by their machinery of local administration and government. The failure has not, perhaps, been as egregious or as scandalous as has been that of their municipal institutions; but it has been sufficiently serious to provoke continual but abortive attempts to improve them; and it has had so many dangerous consequences that the cause and cure of their inefficiency constitute one of the most fundamental of American political problems. The consequences of the failure have been mitigated because the weakness of the state governments has been partly concealed and redeemed by the comparative strength and efficiency of the central government. But the failures have none the less been sufficiently distressing; and if they are permitted to continue, they will compromise the success of the American democratic experiment. The Federal government has done much to ameliorate the condition of the American people, whereas the state governments have done little or nothing. Instead of representing, as a government should, the better contemporary ideals and methods, they have reflected at best the average standard of popular behavior and at worst a standard decidedly below the average. The lawlessness which so many Americans bemoan in American life must be traced to the inefficiency of the state governments. If the central government had shared this weakness, the American political organism would have already dissolved in violence and bloodshed.
The local authorities retain under the American Federal organization many of the primary functions of government. They preserve order, administer civil and criminal justice, collect taxes for general and local purposes, and are directly or indirectly responsible for the system of public education. If it can be proved that the state governments have exercised any of these functions in an efficient manner, that proof certainly does not lie upon the surface of the facts. The provisions they have made for keeping order have been utterly inadequate, and have usually broken down when any serious reason for disorder has existed. A certain part of this violence is, moreover, the immediate result of the failure of American criminal justice. The criminal laws have been so carefully framed and so admirably expounded for the benefit of the lawyers and their clients, the malefactors, that a very large proportion of American murderers escape the proper penalty of their acts; and these dilatory and dubious judicial methods are undoubtedly one effective cause of the prevalence of lynching in the South. There is more to be said in favor of our civil than of our criminal courts. In spite of a good deal of corruption and of subserviency to special interests, the judges are usually honest men and good average lawyers; but the fact that they are elected for comparatively short terms has made them the creatures of the political machine, and has demoralized their political standards. They use court patronage largely for the benefit of the machine; and whatever influence they have in politics is usually exercised in favor of the professional politician. If they do not constitute a positive weakness in the system of local government, they are certainly far from constituting a source of strength; and considering the extent to which our government is a government of judges, they should exercise a far more beneficent influence than they do.
Neither are the administrative and legislative responsibilities of the states redeemed with any more success. The tax systems of the several states are in a chaotic condition. Their basis consists of the old property tax, which under its application to modern conditions has become both unjust and unproductive, but which the state legislatures seem to be wholly incapable of either abandoning or properly transforming. In the matter of education the states have been, except in the South, liberal; but they have not been as intelligent and well-informed as they have been well-intentioned. The educational system of the country is not only chaotic, but it is very imperfectly adapted to the needs of an industrial and agricultural democracy. Finally, if the legislatures of the several states have ever done anything to increase respect for the wisdom and conservatism of American representative government, it is certainly hard to discover indications thereof. The financial and economic legislation of the states has usually shown incompetence and frequently dishonesty. They have sometimes been ready to repudiate their debts. In their relations to the corporations they have occupied the positions alternately of blackmailers and creatures. They have been as ready to confiscate private property as they have to confer on it excessive privileges. If the word "law" means something less majestic and authoritative to Americans than it should, the mass of trivial, contradictory, unwise, ephemeral, and corrupt legislation passed by the state legislatures is largely responsible.
No doubt a certain part of this failure of the state governments is irremediable as long as existing standards of public and private morality prevail; but most assuredly a certain part is the direct result of unwise organization. American state governments have been corrupt and inefficient largely because they have been organized for the benefit of corrupt and inefficient men; and as long as they continue to be organized on such a basis, no permanent or substantial improvement can be expected. Moreover, any reorganization in order to be effective must not deal merely with details and expedients. It must be as radical as are the existing disorganization and abuses. It must be founded on a different relation between the executive and legislative branches and a wholly different conception of the function of a state legislative body.
The demand for some such reorganization has already become popular, particularly in the West. A generation or more ago the makers of new state constitutions, being confronted by palpable proofs of the inefficiency and corruption of the state governments, sought to provide a remedy chiefly by limiting the power of the legislature. All sorts of important details, which would have formerly been left to legislative action, were incorporated in the fundamental law; and in the same spirit severe restrictions were imposed on legislative procedure, designed to prevent the most flagrant existing abuses. These prudential measures have not served to improve the legislative output, and the reformers are now crying for more drastic remedies. In the West the tendency is to transfer legislative authority from a representative body directly to the people. A movement in favor of the initiative and the referendum is gaining so much headway, that in all probability it will spread throughout the country much as the Australian ballot did over a decade ago. But the adoption of the initiative and the referendum substitutes a new principle for the one which has hitherto underlain American local institutions. Representative government is either abandoned thereby or very much restricted; and direct government, so far as possible, is substituted for it. Such a fundamental principle and tradition as that of representation should not be thrown away, unless the change can be justified by a specific, comprehensive, and conclusive analysis of the causes of the failure of the state governments.
The analysis upon which the advocates of the initiative and the referendum base their reform has the merit of being obvious. American legislatures have betrayed the interests of their constituents, and have been systematically passing laws for the benefit of corrupt and special interests. The people must consequently take back the trust, which has been delegated to representative bodies. They must resume at least the power to initiate the legislation they want; and no law dealing with a really important subject should be passed without their direct consent.
Such an analysis of the causes of legislative corruption and incompetence is not as correct as it is obvious. It is based upon the old and baleful democratic tendency of always seeking the reason for the failure of a democratic enterprise in some personal betrayal of trust. It is never the people who are at fault. Neither is the betrayal attributed to some defect of organization, which neglects to give the representative individual a sufficient chance. The responsibility for the failure is fastened on the selected individual himself, and the conclusion is drawn that the people cannot trust representatives to serve them honestly and efficiently. The course of reasoning is precisely the same as that which prompted the Athenian democracy to order the execution of an unsuccessful general. In the case of our state legislatures, a most flagrant betrayal of trust has assuredly occurred, but before inferring from this betrayal that selected individuals cannot be trusted to legislate properly on behalf of their constituents, it would be just as well to inquire whether individual incompetence and turpitude are any sufficient reason for this particular failure of representative institutions.
As a matter of fact they are no sufficient reason. When a large number of individuals to whom authority is delegated exercise that authority improperly, one may safely infer that the system is at fault as much as the individual. Local American legislative organization has courted failure. Both the system of representation and functions of the representative body have been admirably calculated to debase the quality of the representatives and to nullify the value of their work. American state legislatures have really never had a fair opportunity. They have almost from the beginning been deprived of any effective responsibility. The state constitutions have gradually hedged them in with so many restrictions, have gone so much into detail in respect to state organization and policy that the legislatures really had comparatively little to do, except to deal with matters of current business. They offered no opportunity for a man of ability and public spirit. When such men drifted into a local legislature, they naturally escaped as soon as they could to some larger and less obstructed field of action. If the American people want better legislatures, they must adopt one of two courses. Either they must give their legislative bodies something more and better to do, or else they must arrange so that these bodies will have a chance to perform an inferior but definite service more capably.
The legislatures have been corrupt and incapable, chiefly because they have not been permitted any sufficient responsibility, but this irresponsibility itself has had more than one cause. It cannot be traced exclusively to the diminished confidence and power reposed in representative bodies by the state constitutions. Early in the nineteenth century, the legislatures were granted almost full legislative powers; and if they did not use those powers well, they used them much better than at a later period. Their corruption began with the domination of the political machine; and it is during the last two generations that their powers and responsibilities have been more and more restricted. They have undoubtedly been more corrupt and incompetent in proportion as they have been increasingly deprived of power; but the restrictions imposed upon them have been as much an effect as a cause of their corruption. There is a deeper reason for their deficiencies; and this reason is connected with mal-adaptation of the whole system of American state government to its place in a Federal system. The Federal organization took away from the states a number of the most important governmental functions, and in certain respects absolutely subordinated the state to the nation. In this way the actual responsibilities and the powers of the state governments were very much diminished, while at the same time no sufficient allowance for such a diminution was made in framing their organization. Their governments were organized along the same lines as that of an independent state—in spite of the fact that they had abandoned so many of the responsibilities and prerogatives of independence.
The effect of this mal-adaptation of the state political institutions to their place in a Federal system has been much more important than is usually supposed. The former were planned to fulfill a much completer responsibility than the one which they actually possessed. The public business of a wholly or technically independent state naturally arouses in its citizens a much graver sense of responsibility than does the public business of a state in the American Union. The latter retained many important duties; but it surrendered, if not the most essential of its functions, at least the most critical and momentous, while in the exercise of the remainder it was to a certain extent protected against the worst consequences of mistakes or perversities. It surrendered the power of making peace or declaring war. Its relation to the other states in the Union was strictly defined, so that it had no foreign policy and responsibilities corresponding to its purely domestic ones. Its citizens were aware that the protection of such fundamental institutions as that of private property was lodged in the Federal government, and that in the end that government had the power to guarantee them even against the worst consequences of domestic disorder. Thus the state governments were placed in the easy situation of rich annuitants, who had surrendered the control of some political capital in order to enjoy with less care the opportunities of a plethoric income.
The foregoing comment is not intended as any disparagement of a Federal as contrasted with a centralized political system. Its purpose is to justify the statement that, in a Federal system, local political institutions should be adapted to their necessarily restricted functions. The state governments were organized as smaller copies of the central government, and the only alterations in the type permitted by the Democrats looked in the direction of a further distribution of responsibility. But a system which was adapted to the comprehensive task of securing the welfare of a whole people might well fail as an engine of merely local government,—even though the local government retained certain major political functions. As a matter of fact, such has been the case. The system of a triple division of specific powers, each one of which was vigorous in its own sphere while at the same time checked and balanced by the other branches of the government, has certain advantages and certain disadvantages. Its great advantage is its comparative safety, because under it no one function of government can attain to any dangerous excess of power. Its great disadvantage consists in the division of responsibility among three independent departments, and the possibility that the public interest would suffer either from lack of coöperation or from actual conflicts. In the case of the general government, the comparative safety of the system of checks and balances was of paramount importance, because the despotic exercise of its vast powers would have wrecked the whole American political system. On the other hand, the disadvantages of such a system—its division of responsibility and the possible lack of coöperation among the several departments—were mitigated to a considerable, if not to a sufficient, extent. National parties came into existence with the function of assuming a responsibility which no single group of Federal officials possessed; and in their management of national affairs, the partisan leaders were prompted by a certain amount of patriotism and interest in the public welfare. Even at Washington the system works badly enough in certain respects; but in general the dominant party can be held to a measure of responsibility; and effective coöperation is frequently obtained in matters of foreign policy and the like through the action of patriotic and disinterested motives.
In the state governments the advantages of a system of checks and balances were of small importance, while its disadvantages were magnified. The state governments had no reason to sacrifice concentrated efficiency to safety, because in a Federal organization the temporary exercise of arbitrary executive or legislative power in one locality would not have entailed any irretrievable consequences, and could not impair the fundamental integrity of the American system. But if a state had less to lose from a betrayal by a legislature or an executive of a substantially complete responsibility for the public welfare, it was not protected to the same extent as the central government against the abuses of a diffused responsibility. In the state capitals, as at Washington, the national parties did, indeed, make themselves responsible for the management of public affairs and for the harmonious coöperation of the executive and the legislature; but in their conduct of local business the national parties retained scarcely a vestige of national patriotism. Their behavior was dictated by the most selfish factional and personal motives. They did, indeed, secure the coöperation of the different branches of the government, but largely for corrupt or undesirable purposes; and after the work was done the real authors of it could hide behind the official division of responsibility.
If the foregoing analysis is correct, the partial failure of American state governments is to be imputed chiefly to their lack of a centralized responsible organization. In their case a very simple and very efficient legislative and administrative system is the more necessary, because only through such a machinery can the local public spirit receive any effective expression. It can hardly be expected that American citizens will bring as much public spirit to their local public business as to the more stirring affairs of the whole nation; and what local patriotism there is should be confronted by no unnecessary obstacles. If a mistake or an abuse occurs, the responsibility for it should be unmistakable and absolute, while if a reform candidate or party is victorious, they should control a machinery of government wholly sufficient for their purposes.
As soon as any attempt is made to devise a system which does concentrate responsibility and power, serious difficulties are encountered. Concentration of responsibility can be brought about in one of two ways—either by subordinating the legislature to the executive or the executive to the legislature. There are precedents both here and abroad in favor of each of these methods, and their comparative advantages must be briefly sketched.
The subordination of the executive to the legislature would conform to the early American political tradition. We have usually associated executive authority with arbitrary and despotic political methods, and we have tended to assume that a legislative body was much more representative of popular opinion. During or immediately succeeding the Revolutionary War, the legislatures of the several states were endowed with almost complete control—a control which was subject only to the constitutional bills of rights; and it has been seriously and frequently proposed to revive this complete legislative responsibility. Under such a system, the legislature would elect the chief executive, if not the judicial officials; and it would become like the British Parliament exclusively and comprehensively responsible for the work of government—both in its legislative and administrative branches.
The foregoing type of organization has so many theoretical advantages that one would like to see it tried in some American states. But for the present it is not likely to be tried. The responsibility of the legislature could not be exercised without the creation of some institution corresponding to the British Cabinet: and the whole tendency of American political development has been away from any approach to the English Parliamentary system. Whatever the theoretical advantages of legislative omnipotence, it would constitute in this country a dangerous and dubious method of concentrating local governmental responsibility and power. It might succeed, in case it were accompanied by the adoption of some effective measures for improving the quality of the representation—such, for instance, as the abandonment of all existing traditions necessitating the residence of the representative in the district he represents. This American political practice always has and always will tend to give mediocrity to the American popular representation, but it corresponds to one of the most fundamental of American political prejudices, and for the present its abandonment is out of the question. The work of improving the quality of the average American representative from a small district appears to be hopeless, because as a matter of fact such small districts and the work imposed on their representatives can hardly prove tempting to able men; and unless the American legislator is really capable of becoming exceptionally representative, the fastening of exclusive responsibility upon the state legislatures could hardly result in immediate success. Its intrinsic merits might carry it to ultimate success, but not until it had transformed many American political practices and traditions.
The truth is, that certain very deep and permanent causes underlie American legislative degeneracy. When the American legislative system was framed, a representative assembly possessed a much better chance than it does now of becoming a really representative body. It constituted at the time an effective vehicle for the formation and expression of public opinion. Public questions had not received the complete ventilation on the platform and in the press that they obtain at the present time; and in the debate of a representative assembly the chance existed of a really illuminating and formative conflict of opinion. Representatives were often selected, who were capable of adding something to the candid and serious consideration of a question of public policy. The need helped to develop men capable of meeting it. Now, however, American legislatures, with the partial exception of the Federal Senate, have ceased to be deliberative bodies. Public questions receive their effective discussion in the press and on the platform. Public opinion is definitely formed before the meeting of the legislature; and the latter has become simply a vehicle for realizing or betraying the mandates of popular opinion. Its function is or should be to devise or to help in the devising of means, necessary to accomplish a predetermined policy. Its members have little or no initiative and little or no independence. Legislative projects are imposed upon them either by party leaders, by special interests, or at times by the executive and public opinion. Their work is at best that of committee-men and at worst that of mercenaries, paid to betray their original employers. A successful attempt to bestow upon legislative bodies, composed of such doubtful material and subject to such equivocal traditions anything resembling complete governmental responsibility, would be a dangerous business. Legislatures have degenerated into the condition of being merely agents, rather than principals in the work of government; and the strength and the propriety of the contemporary movement in favor of the initiative and the referendum is to be attributed to this condition.
The increasing introduction of the referendum into the local political organization is partly a recognition of the fact that the legislatures have ceased to play an independent part in the work of government. There is every reason to believe that hereafter the voters will obtain and keep a much more complete and direct control over the making of their laws than that which they have exerted hitherto; and the possible desirability of the direct exercise of this function cannot be disputed by any loyal democrat. The principle upon which the referendum is based is unimpeachable; but a question remains as to the manner in which the principle of direct legislation can be best embodied in a piece of practical political machinery; and the attempt to solve this question involves a consideration of the general changes in our system of local government, which may be required, as a result of the application of the new principle.
The necessary limits of this discussion forbid any exhaustive consideration of the foregoing questions; and I must content myself with a brief summary of the method in which the principle of direct legislation can be made the part of an efficient local political system. The difficulty is to find some means of distinguishing that part of the legislative responsibility which should be retained by the people and that part which, in order to be effectively redeemed, must be delegated. Obviously the part to be retained is the function of accepting or rejecting certain general proposals respecting state organization or policy. An American electorate is or should be entirely competent to decide whether in general it wishes gambling or the sale of intoxicating liquors to be suppressed, whether it is willing or unwilling to delegate large judicial and legislative authority to commissions, or whether it wishes to exempt buildings from local taxation. In retaining the power of deciding for itself these broad questions of public legislative policy, it is exercising a function, adapted to the popular intelligence and both disciplinary and formative in its effect on those who take the responsibility seriously. Under any system of popular government—even under a parliamentary system—such general questions are eventually submitted to popular decision; and the more decisively they can be submitted, the better. On the other hand, there is a large part of the work of government, which must be delegated by the people to select individuals, because it can be efficiently exercised only by peculiarly experienced or competent men. The people are capable of passing upon the general principle embodied in a proposed law; but they cannot be expected to decide with any certainty of judgment about amendments or details, which involve for their intelligent consideration technical and special knowledge. Efficient law-making is as much a matter of well-prepared and well-tempered detail as it is of an excellent general principle, and this branch of legislation must necessarily be left to experts selected in one way or another to represent the popular interest. How can they best be selected and what should be their functions?
An answer to these questions involves a consideration of the changes which the referendum should bring with it in the whole system of local government—an aspect of the matter which according to the usual American habit has hitherto been neglected. In states like Oregon the power of initiating and consummating legislation is bestowed on the electorate without being taken away from the legislature; and a certain share of necessary political business is left to a body which has been expressly declared unworthy to exercise a more important share of the same task. A legislative body, whose responsibilities and power are still further reduced, will probably exercise their remaining functions with even greater incompetence, and will, if possible, be composed of a still more inferior class of legislative agents. If the legislature is to perform the inferior but still necessary functions that will necessarily remain in its hands, an attempt should certainly be made to obtain a better quality of representation. No direct system of state government can constitute any really substantial improvement on the existing system, unless either the legislature is deprived of all really essential functions, or the quality of its membership improved.
The legislature, or some representative body corresponding to it, cannot, however, be deprived of certain really essential functions. The task of preparing legislation for reference to the people, so that a question of public policy will be submitted in a decisive and acceptable form, belongs naturally to a representative body; and the same statement is true respecting the legislative work essential to the administration of a state's business affairs. The supply bills demand an amount of inspection in detail, which can obtain only by expert supervision; and so it is in respect to various minor legislative matters which do not raise question of general policy but which amount to little more than problems of local administrative detail. A representative body must be provided which shall perform work of this kind; and again, it must be said that existing legislatures would perform these more restricted functions even worse than they have performed a completer legislative duty. Their members are experts in nothing but petty local politics. They are usually wholly incapable of drawing a bill, or of passing intelligently on matters either of technical or financial detail. If they represent anything, it is the interest of their district rather than that of the state. The principle of direct legislation, in order to become really constructive, must bring with it a more effective auxiliary machinery than any which existing legislatures can supply.
The kind of machinery needed can be deduced from the character of the work. The function of the representative body, needed under a system of direct legislation, is substantially that of a legislative and administrative council or commission. It should be an experienced body of legal, administrative, and financial experts, comparatively limited in numbers, and selected in a manner to make them solicitous of the interests of the whole state. They should be elected, consequently, from comparatively large districts, or, if possible, by the electorate of the whole state under some system of cumulative voting. The work of such a council would not be in any real sense legislative; and its creation would simply constitute a candid recognition of the plain fact that our existing legislatures, either with or without the referendum, no longer perform a responsible legislative function. It would be tantamount to a scientific organization of the legislative committees, which at the present time exercise an efficient control over the so-called legislative output. This council would mediate between the governor, who administered the laws, and the people, who enacted them. It would constitute a check upon the governor, and would in turn be checked by him; while it would act in relation to the people as a sort of technical advisory commission, with the duty of preparing legislation for popular enactment or rejection.
But how would such specific legislative proposals originate? Before answering this question let us consider how important bills actually originate under the existing system. They are in almost every case imposed upon the legislature by some outside influence. Sometimes they are prepared by corporation lawyers and are introduced by the special corporation representatives. Sometimes they originate with the party "bosses," and are intended to promote some more or less important partisan purpose. Sometimes they are drawn by associations of reformers, and go to the legislature with whatever support from public opinion the association can collect. Finally, they are frequently introduced at the suggestion of the governor; and of late years during the growth of the reform movement, the executive has in point of fact become more and more responsible for imposing on the legislature laws desired or supposed to be desired by the electorate. Of these different sources of existing legislation, the last suggests a manner of initiating legislation, which is most likely to make for the efficient concentration of governmental responsibility. The governor should be empowered not merely to suggest legislation to the council, but to introduce it into the council. His right to introduce legislation need not be exclusive, but bills introduced by him should have a certain precedence and their consideration should claim a definite amount of the council's time. The council would possess, of course, full right of rejection or amendment. In the case of rejection or an amendment not acceptable to the governor the question at issue would be submitted to popular vote.
The method of originating legislation suggested above is, of course, entirely different from that ordinarily associated with the referendum. According to the usual methods of direct legislation, any body of electors of a certain size can effect the introduction of a bill and its submission to popular vote; but a method of this kind is really no method at all. It allows the electorate to be bombarded with a succession of legislative proposals, turning perhaps on radical questions of public policy like the single tax, which may be well or ill drawn, which may or may not be living questions of the day, which may or may not have received sufficient preparatory discussion, and which would keep public opinion in a wholly unnecessary condition of ferment. Some organized control over the legislative proposals submitted to popular approval is absolutely necessary; and the sort of control suggested above merely conforms to the existing unofficial practice of those states wherein public opinion has been aroused. The best reform legislation now enacted usually originates in executive mansions. Why should not the practice be made official? If it were so, every candidate for governor would have to announce either a definite legislative policy or the lack of one; and the various items composing this policy would be fully discussed during the campaign. In proposing such a policy the governor would be held to a high sense of responsibility. He could not escape from the penalties of an unwise, an ill-drawn, or a foolhardy legislative proposal. At the same time he would be obliged constantly to meet severe criticism both as to the principle and details of his measures on the part of the legislative council. Such criticism would fasten upon any weakness and would sufficiently protect the public against the submission of unnecessary, foolish, or dangerous legislative proposals.
I am aware, of course, that the plan of legislative organization, vaguely sketched above, will seem to be most dubious to the great majority of Americans, intelligently interested in political matters; but before absolutely condemning these suggestions as wild or dangerous, the reader should consider the spirit in which and the purpose for which they are made. My intention has not been to prepare a detailed plan of local governmental organization and to stamp it as the only one, which is correct in principle and coherent in detail. In a sense I care nothing about the precise suggestions submitted in the preceding paragraphs. They are offered, not as a definite plan of local political organization, but as the illustration of a principle. The principle is that both power and responsibility in affairs of local government should be peculiarly concentrated. It cannot be concentrated without some simplification of machinery and without giving either the legislature or the executive a dominant authority. In the foregoing plan the executive has been made dominant, because as a matter of fact recent political experience has conclusively proved that the executives, elected by the whole constituency, are much more representative of public opinion than are the delegates of petty districts. One hundred district agents represent only one hundred districts and not the whole state, or the state in so far as it is whole. In the light of current American political realities the executive deserves the greater share of responsibility and power; and that is why the proposal is made to bestow it on him. The other details of the foregoing plan have been proposed in a similar spirit. They are innovations; but they are innovations which may naturally (and perhaps should) result from certain living practices and movements in American local politics. They merely constitute an attempt to give those ideas and practices candid recognition. No such reorganization may ever be reached in American local government; and I may have made essential mistakes in estimating the real force of certain current practices and the real value of certain remedial expedients. But on two points the argument admits of no concession. Any practical scheme of local institutional reform must be based on the principle of more concentrated responsibility and power, and it must be reached by successive experimental attempts to give a more consistent and efficient form to actual American political practices.
The bestowal upon an executive of increased official responsibility and power will be stigmatized by "old-fashioned Democrats" as dangerously despotic; and it may be admitted that in the case of the central government, any official increase of executive power might bring with it the risk of usurpation. The Constitution of the United States has made the President a much more responsible and vigorous executive in his own sphere of action than are the governors of the several states in theirs; and he can with his present power exercise a tolerably effective control over legislation. But the states, for reasons already given, are protected against the worst possible consequences of illegal usurpation; and in any event the people, in case their interests were threatened, could make use of a simple and absolutely effective remedy. The action of the governor or of any member of the legislative council could be challenged by the application of the recall. He could be made to prove his loyalty to the Constitution and to the public interest by the holding of a special election at the instance of a sufficient number of voters; and if he could not justify any possibly dubious practices, he could be displaced and replaced. The recall is for this purpose a useful and legitimate political device. It has the appearance at the first glance of depriving an elected official of the sense of independence and security which he may derive from his term of office; and unquestionably if applied to officials who served for very short terms and exercised no effective responsibility during service it would deprive them of what little power of public service they possessed. On the other hand, it is right that really responsible and vigorous officials serving for comparatively long terms should be subjected to the check of a possible recall of the popular trust.
No plan of political organization can in the nature of things offer an absolute guarantee that a government will not misuse its powers; but a government of the kind suggested, should it prove to be either corrupt or incompetent, could remain in control only by the express acquiescence of the electorate. Its corruption and incompetence could not be concealed, and would inevitably entail serious consequences. On the other hand, the results of any peculiar efficiency and political wisdom would be equally conspicuous. Men of integrity, force, and ability would be tempted to run for office by the stimulating opportunity offered for effective achievement. Such a government would, consequently press into its service whatever public-spirited and energetic men the community possessed; and it would represent not an inferior or even an average standard public opinion and ideas, but the highest standard which the people could be made to accept. Provided only the voters themselves were on the whole patriotic, well-intentioned, and loyal, it would be bound to make not for a stagnant routine, but for a gradually higher level of local political action.
The foregoing discussion of the means which may be taken to make American local governments more alive to their responsibilities has been confined to the department of legislation. The department of administration is, however, almost equally important; and some attempt must be made to associate with a reform of the local legislature a reform of the local administration. The questions of administrative efficiency and the best method of obtaining it demand special and detailed consideration. In this case the conclusions reached will apply as much to the central and municipal as they do to the state administrations; but the whole matter of administrative efficiency can be most conveniently discussed in relation to the proper organization of a state government. The false ideas and practices which have caused so much American administrative inefficiency originated in the states and thence infected the central government. On the other hand, the reform of these practices made its first conquests at Washington and thereafter was languidly and indifferently taken over by many of the states. The state politicians have never adopted it in good faith, because real administrative efficiency would, by virtue of the means necessarily taken to accomplish it, undermine the stability of the political machine. The power of the machine can never be broken without a complete reform of our local administrative systems; and the discussion of that reform is more helpful in relation to the state than in relation to the central government.
Civil service reform was the very first movement of the kind to make any headway in American politics. Within a few years after the close of the War it had waxed into an issue which the politicians could not ignore; and while its first substantial triumph was postponed until late in the seventies, it has, on the whole, been more completely accepted than any important reforming idea. It has secured the energetic support of every President during the last twenty-five years; it has received at all events the verbal homage of the two national parties; and it can point to affirmative legislation in the great majority of the states. It meets at the present time with practically no open and influential opposition. Nevertheless, the "merit system" has not met the expectations of its most enthusiastic supporters. Abuses have been abolished wherever the reform has been introduced, but the abolition of abuses has not made for any marked increase of efficiency. The civil service is still very far from being in a satisfactory condition either in the central, state, or municipal offices. Moreover, the passage of reform laws has not had any appreciable effect upon the vitality or the power of the professional politician. The machine has, on the whole, increased rather than diminished in power, during the past twenty-five years. Civil service reform is no longer as vigorously opposed as it used to be, because it is no longer feared. The politicians have found that in its ordinary shape it really does not do them any essential harm. The consequence is that the agitation has drifted to the rear of the American political battle, and fails to excite either the enthusiasm, the enmity, or the interest that it did fifteen years ago.
Its partial failure has been due to the fact that the reformers merely attacked one of the symptoms of a disease which was more deeply rooted and more virulent than they supposed. They were outraged by the appointment of administrative officials solely as a reward for partisan service and without reference to their qualifications for their official duties; and two means were devised to strike at this abuse. Lower administrative officials were protected in their positions by depriving their superiors of the power of removing them except for cause; and it was provided that new appointments should be made from lists of candidates whose eligibility was guaranteed by their ability to pass examinations in subjects connected with the work of the office. These were undoubtedly steps in a better direction; but they have failed to be effective, because the attempt to secure a more meritorious selection of public servants was not applied to higher grades of the service. At the head of every public office was a man who had been appointed or elected chiefly for partisan reasons; who served only for a short time; who could become familiar with the work of his office, if at all, only slowly; and who, because of his desire to be surrounded by his own henchmen, was the possible enemy of the permanent staff. The civil service laws have been designed, consequently, to a very considerable extent for the purpose of protecting the subordinates against their chiefs; and that is scarcely to be conceived as a method of organizing administrative employees helpful to administrative efficiency. The chiefs were allowed comparatively little effective authority over their subordinates, and subordinates could not be held to any effective responsibility. A premium was placed upon ordinary routine work which observed carefully all the official forms, but which was calculated with equal care not to task its perpetrators.
The American civil service will never be really reformed by the sort of civil service laws which have hitherto been passed—no matter how faithfully those laws may be executed. The only way in which administrative efficiency can be secured is by means of an organization which makes a departmental chief absolutely responsible for energetic work and economical administration in his office; and no such responsibility can exist as long as his subordinates are independent of him. He need not necessarily have the power to discharge his subordinates, except with the consent of a Board of Inspectors; but he should have the power to promote them to positions of greater responsibility and income, or to degrade them to comparatively insignificant positions. Efficiency cannot be secured in any other way, because no executive official can be held accountable for good work unless his control over his subordinates is effective. So far as the existing civil service laws in city, state, and the United States fail to bestow full responsibility, coupled with sufficient authority, upon departmental chiefs, they should be altered; and their alteration should be made part of any plan of constructive reform in the civil service.
The responsibility of departmental chiefs and their effective authority over their subordinates necessarily imply changes in the current methods of selecting these officials. The prevailing methods are unwise and chaotic. In some cases they are appointed by the chief executive. In other cases they are elected. But whether appointed or elected, they are selected chiefly for partisan service. They hold office only for a few years. They rarely have any particular qualification for their work. They cannot be expected either to take very much interest in their official duties or use their powers in an efficient manner. To give such temporary officeholders a large measure of authority over their subordinates would mean in the long run that such authority would be used chiefly for political purposes. Administrative efficiency, consequently, can only be secured by the adoption of a method of selecting departmental chiefs which will tend to make them expert public servants rather than politicians. They must be divorced from political associations. They must be emancipated from political vicissitudes. The success of their career must depend exclusively upon the excellence of their departmental work.
As long as these public servants are elected, no such result can be expected. The practice of electing the incumbents of subordinate executive positions inevitably invites the evasion of responsibility and the selection of the candidate chiefly for partisan service. When such a man stands for renomination or reëlection, his administrative efficiency or inefficiency (unless the latter should chance to be particularly flagrant) does not affect his chances. He is renominated in case he has served his party well, or in case no one else who wants the job has in the meantime served it better. He is reëlected in case his party happens to have kept public confidence. Departmental chiefs can be made responsible for their work only by being subordinated to a chief executive whose duty it is to keep his eye on his subordinates and who is accountable to the people for the efficient conduct of all the administrative offices. The former, consequently, must be selected by appointment, they must be installed in office for an indefinite period, and they must be subject to removal by the chief executive. Those are terms upon which all private employees serve; and on no other terms will equally efficient results be obtained from public officials.
Under a democratic political system there is, of course, no way of absolutely guaranteeing that any method of administrative organization, however excellent in itself, will accomplish the desired and the desirable result. Administrative authority must at some point always originate in an election. The election can delegate power only for a limited period. At the end of the limited period another executive will be chosen—possibly a man representing a wholly different political policy. Such a man will want his immediate advisers to share his political point of view; and it is always possible that in electing him the voters will make a mistake and choose an incompetent and irresponsible person. An incompetent or disloyal executive could undoubtedly under such a system do much to disorganize the public service; but what will you have? There can be no efficiency without responsibility. There can be no responsibility without authority. The authority and responsibility residing ultimately in the people must be delegated; and it must not be emasculated in the process of delegation. If it is abused, the people should at all events be able to fix the offense and to punish the offender. At present our administration is organized chiefly upon the principle that the executive shall not be permitted to do much good for fear that he will do harm. It ought to be organized on the principle that he shall have full power to do either well or ill, but that if he does do ill, he will have no defense against punishment. The principle is the same as it is in the case of legislative responsibility. If under those conditions the voters should persist in electing incompetent or corrupt executives, they would deserve the sort of government they would get and would probably in the end be deprived of their vote.
A system of local government, designed for concentrating power and responsibility, might, consequently, be shaped along the following general lines. Its core would be a chief executive, elected for a comparatively long term, and subject to recall under certain defined conditions. He would be surrounded by an executive council, similar to the President's Cabinet, appointed by himself and consisting of a Controller, Attorney General, Secretary of State, Commissioner of Public Works, and the like. So far his position would not differ radically from that of the President of the United States, except that he would be subject to recall. But he would have the additional power of introducing legislation into a legislative council and, in case his proposed legislation were rejected or amended in an inacceptable manner, of appealing to the electorate. The legislative council would be elected from large districts and, if possible, by some cumulative system of voting. They, also, might be subject to recall. They would have the power, dependent on the governor's veto, of authorizing the appropriation of public money and, also, of passing on certain minor classes of legislation—closely associated with administrative functions. But in relation to all legislation of substantial importance express popular approval would be necessary. The chief executive should possess the power of removing any administrative official in the employ of the state and of appointing a successor. He would be expected to choose an executive council who agreed with him in all essential matters of public policy, just as the President is expected to appoint his Cabinet. His several councilors would be executive officials, responsible for particular departments of the public service; but they would exercise their authority through permanent departmental chiefs—just as the Secretary of War delegates much of his authority to a chief of staff, or an English minister to a permanent under-secretary. The system could offer no guarantee that the subordinate departmental chiefs would be absolutely permanent; but at all events they would not be changed at fixed periods or for irrelevant reasons. They would be just as permanent or as transient as the good of the service demanded. In so far, that is, as the system was carried out in good faith they would be experts, absolutely the masters of the technical business of the offices and of the abilities and services of their subordinates. The weak point in such administrative organization is undoubtedly the relation between the members of the governor's council and their chiefs of staff; but there must be a weak link in any organization which seeks to convert the changing views of public policy, dependent upon an election, into responsible, efficient, and detailed administrative acts. If the system were not accepted in good faith, if in the long run it were not carried out by officials, who were disinterestedly and intelligently working in the public interest, it would be bound to fail; but so would any method of political organization. This particular plan simply embodies the principle that the way to get good public service out of men is to give them a sufficient chance.
Under the proposed system the only powers possessed by the state executive, not now bestowed upon the President of the United States, would consist in an express and an effective control over legislation. It would be his duty to introduce legislation whenever it was in his opinion desirable; and in case his bills were amended to death or rejected, it would be his right to appeal to the people. He would, in addition, appoint all state officials except the legislative council, and perhaps the judges of the highest court. On the other hand, he would be limited by the recall and he could not get any important legislative measure on the statute books except after severe technical criticism, and express popular consent. He could accomplish nothing without the support of public opinion; yet he could be held absolutely responsible for the good government of the state. A demagogue elected to a position of such power and responsibility might do a great deal of harm; but if a democratic political body cannot distinguish between the leadership of able and disinterested men and self-seeking charlatans, the loss and perhaps the suffering, resulting from their indiscriminate blindness, would constitute a desirable means of political education,—particularly when the demagogue, as in the case under consideration, could not really damage the foundations of the state. And the charlatan or the incompetent could be sent into retreat just as soon as exposed. The danger not only has a salutary aspect, but it seems a small price to pay for the chance, thereby afforded, for really efficient and responsible government. The chief executive, when supported by public opinion, would become a veritable "Boss"; and he would inevitably be the sworn enemy of unofficial "Bosses" who now dominate local politics. He would have the power to purify American local politics, and this power he would be obliged to use. The logic of his whole position would convert him into an enemy of the machine, in so far as the machine was using any governmental function for private, special, or partisan purposes. The real "Boss" would destroy the sham "Bosses"; and no other means, as yet suggested, will, I believe, be sufficient to accomplish such a result.
After the creation of such a system of local government the power of the professional politician would not last a year longer than the people wanted it to last. The governor would control the distribution of all those fruits of the administrative and legislative system upon which the machine has lived. There could be no trafficking in offices, in public contracts, or in legislation; and the man who wished to serve the state unofficially would have to do so from disinterested motives. Moreover, the professional politician could not only be destroyed, but he would not be needed. At present he is needed, because of the prodigious amount of business entailed by the multiplicity of elective officials. Somebody must take charge of this political detail; and it has, as we have already remarked, drifted into the hands of specialists. These specialists cannot be expected to serve for nothing. Their effort to convert their work into a means of support is the source of the greater part of the petty American political corruption; and such corruption will persist as long as any real need exists for the men who live upon it. The simplest way to dispense with the professional politician is to dispense with the service he performs. Reduce the number of elective officials. Under the proposed method of organization the number of elections and the number of men to be elected would be comparatively few. The voter would cast his ballot only for his local selectmen or commissioners, a governor, one or more legislative councilmen, the justices of the state court of appeals, and his Federal congressman and executive. The professional politician would be left without a profession. He would have to pass on his power to men who would be officially designated to rule the people for a limited period, and who could not escape full responsibility for their public performances.
I have said that no less drastic plan of institutional reorganization will be sufficient to accomplish the proposed result; and a brief justification must be afforded for this statement. It was expected, for instance, that the secret Australian ballot would do much to undermine the power of the professional politician. He would be prevented thereby from controlling his followers and, in case of electoral trades, from, "delivering the goods." Well! the Australian ballot has been adopted more or less completely in the majority of the states; and it has undoubtedly made open electoral corruption more difficult and less common than it once was. But it has not diminished the personal and partisan allegiance on which the power of the local "Boss" is based; and it has done the professional politician as little serious harm as have the civil service laws. Neither can it be considered an ideal method of balloting for the citizens of a free democracy. Independent voting and the splitting of tickets is essential to a wholesome expression of public opinion; but in so far as such independence has to be purchased by secrecy its ultimate value may be doubted. American politics will never be "purified" or its general standards improved by an independence which is afraid to come out into the open; and it is curious that with all the current talk about the wholesome effects of "publicity" the reformed ballot sends a voter sneaking into a closet in order to perform his primary political duty. If American voters are more independent than they used to be, it is not because they have been protected by the state against the penalties of independence, but because they have been aroused to more independent thought and action by the intrusion and the discussion of momentous issues. In the long run that vote which is really useful and significant is the vote cast in the open with a full sense of conviction and responsibility.
Another popular reforming device which belongs to the same class and which will fail to accomplish the expected result is the system of direct primaries. It may well be that this device will in the long run merely emphasize the evil which it is intended to abate. It will tend to perpetuate the power of the professional politician by making his services still more necessary. Under it the number of elections will be very much increased, and the amount of political business to be transacted will grow in the same proportion. In one way or another the professional politician will transact this business; and in one way or another he will make it pay. Under a system of direct primaries the machine could not prevent the nomination of the popular candidate whenever public opinion was aroused; so it is with the existing system. But whenever public interest flags,—and it is bound to flag under such an absurd multiplication of elections and under such a complication of electoral machinery,—the politicians can easily nominate their own candidates. Up to date no method has been devised which would prevent them from using their personal followers in the primary elections of both parties; and no such method can be devised without enforcing some comparatively fixed distinction between a Republican and a Democrat, and thus increasing the difficulties of independent voting. In case the number of elective officials were decreased, as has been proposed above, there would be fewer objections to the direct primary. Under the suggested method of organization each election would become of such importance that public opinion would be awakened and would be likely to obtain effective expression; and the balloting for the party candidates would arouse as much interest, particularly in the case of the dominant party, as the final election itself. In fact, the danger would be under such circumstances that the primaries would arouse too much interest, and that the parties would become divided into embittered and unscrupulous factions. Genuinely patriotic and national parties may exist; but a genuinely patriotic faction within a party would be a plant of much rarer growth. From every point of view, consequently, the direct primary has its doubtful aspects. The device is becoming so popular that it will probably prevail; and as it prevails, it may have the indirect beneficial result of diminishing the number of regular elections; but at bottom it is a clumsy and mechanical device for the selection of party candidates. It is merely one of the many means generated by American political practice for cheapening the ballot. The way to make votes important and effective is not to increase but to diminish their number.
A democracy has no interest in making good government complicated, difficult, and costly. It has, on the contrary, every interest in so simplifying its machinery that only decisive decisions and choices are submitted to the voter. Every attempt should be made to arouse his interest and to turn his public spirit to account; and for that reason it should not be fatigued by excessive demands and confused by complicated decisions. The cost of government in time, ability, training, and energy should fall not upon the followers but upon the leaders; and the latter should have every opportunity to make the expenditure pay. Such is the object of the foregoing suggestions towards reconstruction which, radical as they may seem, have been suggested chiefly by an examination of the practical conditions of contemporary reform. Only by the adoption of some such plan can the reformers become something better than perpetual moral protestants who are fighting a battle in which a victory may be less fruitful than defeat. As it is, they are usually flourishing in the eyes of the American people a flask of virtue which, when it is uncorked, proves to be filled with oaths of office. The reformers must put strong wine into their bottle. They must make office-holding worth while by giving to the officeholders the power of effecting substantial public benefits.
The questions relating to the kind of reforms which these reorganized state governments might and should attempt to bring about need not be considered in any detail. In the case of the states institutional reconstruction is necessarily prior to social reconstruction; and the objects for which their improved powers can be best used need at present only be indicated. These objects include, in fact, practically all the primary benefits which a state ought to confer upon its citizens; and it is because the states have so largely failed to confer these primary benefits that the reconstruction necessarily assumes a radical complexion. It is absurd to discuss American local governments as agents of individual and social amelioration until they begin to meet their most essential and ordinary responsibilities in a more satisfactory manner.
Take, for instance, the most essential function of all—that of maintaining order. A state government which could not escape and had the courage to meet its responsibilities would necessarily demand from the people a police force which was really capable of keeping the peace. It could not afford to rely upon local "posses" and the militia. It would need a state constabulary, subject to its control and numerous enough for all ordinary emergencies. Such bodies of state police, efficiently used, could not only prevent the lawlessness which frequently accompanies strikes, but it could gradually stamp out lynch law. Lynching, which is the product of excited local feeling, will never be stopped by the sheriffs, because they are afraid of local public opinion. It will never be stopped by the militia, because the militia is slow to arrive and is frequently undisciplined. But it can be stopped by a well-trained and well-disciplined state constabulary, which can be quickly concentrated, and which would be independent of merely local public opinion. When other states besides Pennsylvania establish constabularies, it will be an indication that they really want to keep order; and when the Southern states in particular organize forces of this kind, there will be reason to believe that they really desire to do justice to the negro criminal and remove one of the ugliest aspects of the race question.
A well-informed state government would also necessarily recognize the intimate connection between the prevention of lynching and the speedy and certain administration of criminal justice. It would seek not merely to stamp out disorder, but to anticipate it by doing away with the substantial injustice wrought by the procedure of the great majority of American criminal courts. It is unnecessary to dwell at any length upon the work of reorganization which would confront a responsible state government in relation to the punishment and the prevention of crime, because public opinion is becoming aroused to the dangers which threaten American society from the escape of criminals and the lax and sluggish administration of the criminal laws. But the remark must be made that our existing methods of framing, executing, and expounding criminal laws are merely an illustration of the extent to which the state governments, under the influence of traditional legal and political preconceptions, have subordinated the collective social interest to that of the possible individual criminal; and no thorough-going reform will be possible until these traditional preconceptions have themselves been abandoned, and a system substituted which makes the state the efficient friend of the collective public interest and the selected individual.
Assuming, then, that they use their increased powers more effectually for the primary duty of keeping order, and administering civil and criminal justice, reforming state governments could proceed to many additional tasks. They could redeem very much better than they do their responsibility to their wards—the insane and the convicted criminals. At the present time some states have fairly satisfactory penitentiaries, reformatories, and insane asylums, while other states have utterly unsatisfactory ones; but in all the states both the machinery and the management are capable of considerable improvement. The steady increase both of crime and insanity is demanding the most serious consideration of the whole problem presented by social dereliction—particularly for the purpose of separating out those criminals and feeble-minded people who are capable of being restored to the class of useful citizens. In fact a really regenerated state government might even consider the possible means of preventing crime and insanity. It might have the hardihood to inquire whether the institution of marriage, which would remain under exclusive state protection, does not in its existing form have something to do with the prevalence and increase of insanity and crime; and it might conceivably reach the conclusion that the enforced celibacy of hereditary criminals and incipient lunatics would make for individual and social improvement even more than would a maximum passenger fare on the railroads of two cents a mile. Moreover, while their eyes were turned to our American success in increasing the social as well as the economic output, they might pause a moment to consider the marvelous increase of divorces. They might reflect whether this increase, like that of the criminals and the insane, did not afford a possible subject of legislation, but I doubt whether even a regenerate state government would reach any very quick or satisfactory conclusions in respect to this matter. Public opinion does not appear to have decided whether the social fact of divorce abounding is to be considered as an abuse or as a fulfillment of the existing institution of marriage.
Neither need the pernicious activity of such a government cease, after it has succeeded in radically improving its treatment of the criminal and its lunatics, and in possibly doing something to make the American home less precarious, if less cheerful. It might then turn its attention to the organization of labor, in relation to which, as we shall see presently, the states may have the opportunity for effective work. Or an inquiry might be made as to whether the educational system of the country, which should remain under exclusive state jurisdiction, is well adapted to the extremely complicated purpose of endowing its various pupils with the general and special training most helpful to the creation of genuine individuals, useful public servants, and loyal and contented citizens of their own states. In this matter of education the state governments, particularly in the North, have shown abundant and encouraging good will; but it is characteristic of their general inefficiency that a good will has found its expression in a comparatively bad way.
It would serve no good purpose to push any farther the list of excellent objects to which the state governments might devote their liberated and liberalized energies. We need only add that they would then be capable, not merely of more efficient separate action, but also of far more profitable coöperation. In case the states were emancipated from their existing powerless subjection to individual, special, and parochial interests, the advantages of a system of federated states would be immediately raised to the limit. The various questions of social and educational reform can only be advanced towards a better understanding and perhaps a partial solution by a continual process of experimentation—undertaken with the full appreciation that they were tentative and would be pushed further or withdrawn according to the nature of their results. Obviously a state government is a much better political agency for the making of such experiments than is a government whose errors would affect the population of the whole country. No better machinery for the accomplishment of a progressive programme of social reform could be advised than a collection of governments endowed with the powers of an American state, and really desirous of advancing particular social questions towards their solution. Such a system would be flexible; it would provoke emulation; it would encourage initiative; and it would take advantage of local ebullitions of courage and insight and any peculiarly happy local collection of circumstances. Finally, if in addition to the merits of a system of generous competition, it could add those of occasional consultation and coöperation, such as is implied by the proposed "House of Governors," the organization for social reform would leave little to be desired. The governors who would meet in consultation would be the real political leaders of their several states; and they should meet, not so much for the purpose of agreeing upon any single group of reforming measures, as for the purpose of comparing notes obtained under widely different conditions and as the result of different legislative experiments. Just in so far as this mixture of generous competition and candid coöperation was seeking to accomplish constructive social purposes, for which the powers of the states, each within its geographical limits, were fully adequate, just to that extent it could hardly fail to make headway in the direction of social reform.
If the state governments are to reach their maximum usefulness in the American political system, they must not only be self-denying in respect to the central government, but generous in respect to their creatures—the municipal corporations. There are certain business and social questions of exclusively or chiefly local importance which should be left to the municipal governments; and it is as characteristic of the unregenerate state governments of the past and the present that they have interfered where they ought not to interfere as that they have not interfered where they had an excellent opportunity for effective action. A politically regenerated state would guarantee in its constitution a much larger measure of home rule to the cities than they now enjoy, while at the same time the reformed legislative authority would endeavor to secure the edifying exercise of these larger powers, not by an embarrassing system of supervision, but by the concentration of the administrative power and responsibility of the municipal authorities. I shall not attempt to define in detail how far the measure of home rule should go; but it may be said in general that the functions delegated or preserved should so far as possible be completely delegated or preserved. This rule cannot be rigidly applied to such essential functions of the state governments as the preservation of order and the system of education. The delegation of certain police powers and a certain control over local schools is considered at present both convenient and necessary, although in the course of time such may no longer be the case; but if these essential functions are delegated, the state should retain a certain supervision over the manner of their exercise. On the other hand, the municipality as an economic and business organism should be left pretty much to its own devices; and it is not too much to say that the state should not interfere in these matters at all, except under the rarest and most exceptional conditions.
The reasons for municipal home rule in all economic and business questions are sufficiently obvious. A state is a political and legal body; and as a political and legal body it cannot escape its appropriate political and social responsibilities. But a state has in the great majority of cases no meaning at all as a center of economic organization and direction. The business carried on within state limits is either essentially related by competition to the national economic system,—or else it is essentially municipal in its scope and meaning. Of course, such a statement is not strictly true. The states have certain essential economic duties in respect to the conservation and development of agricultural resources and methods and to the construction and maintenance of a comprehensive system of highways. But these legitimate economic responsibilities are not very numerous or very onerous compared to those which should be left to the central government on the one hand or to the municipal governments on the other. A municipality is a living center of economic activity—a genuine case of essentially local economic interests. To be sure, the greater part of the manufacturing or commercial business transacted in a city belongs undubitably to the national economic system; but there is a minor part which is exclusively local. Public service corporations which control franchises in cities do not enter into inter-state commerce at all—except in those unusual cases (as in New York) where certain parts of the economic municipal body are situated in another state. They should be subject, consequently, to municipal jurisdiction and only that. The city alone has anything really important to gain or to lose from their proper or improper treatment; and its legal responsibility should be as complete as its economic localization is real.
There is no need of discussing in any detail the way in which a municipal government which does enjoy the advantage of home rule and an efficient organization can contribute to the work of national economic and social reconstruction. Public opinion is tending to accept much more advanced ideas in this field of municipal reform than it is in any other part of the political battle-field. Experiments are already being tried, looking in the direction of an increasingly responsible municipal organization, and an increasing assumption by the city of economic and social functions. Numerous books are being written on various aspects of the movement, which is showing the utmost vitality and is constantly making progress in the right direction. In all probability, the American city will become in the near future the most fruitful field for economically and socially constructive experimentation; and the effect of the example set therein will have a beneficially reactive effect upon both state and Federal politics. The benefits which the city governments can slowly accomplish within their own jurisdiction are considerable. They do not, indeed, constitute the exclusive "Hope of Democracy," because the ultimate democratic hope depends on the fulfillment of national responsibilities; and they cannot deal effectively with certain of the fundamental social questions. But by taking advantage of its economic opportunities, the American city can gradually diminish the economic stress within its own jurisdiction. It has unique chance of appropriating for the local community those sources of economic value which are created by the community, and it has an equally unique opportunity of spending the money so obtained for the amelioration of the sanitary, if not of the fundamental economic and social, condition of the poorer people.
There is, finally, one fundamental national problem with which the state governments, no matter to what extent they may be liberated and invigorated, are wholly incompetent to deal. The regulation of commerce, the control of corporations, and the still more radical questions connected with the distribution of wealth and the prevention of poverty—questions of this kind should be left exclusively to the central government; or in case they are to any extent allowed to remain under the jurisdiction of the states, they should exercise such jurisdiction as the agents of the central government. The state governments lack and must always lack the power and the independence necessary to deal with this whole group of problems; and as long as they remain preoccupied therewith, their effective energy and good intentions will be diverted from the consideration of those aspects of political and social reform with which they are peculiarly competent to deal. The whole future prosperity and persistence of the American Federal system is bound up in the progressive solution of this group of problems; and if it is left to the conflicting jurisdictions of the central and local governments, the American democracy will have to abandon in this respect the idea of seeking the realization of a really national policy. Justification for these statements will be offered in the following chapter.
Any proposal to alter the responsibilities and powers now enjoyed by the central and the state governments in respect to the control of corporations and the distribution of wealth involves, of course, the Federal rather than the state constitutions; and the amendment of the former is both a more difficult and a more dangerous task than is the amendment of the latter. A nation cannot afford to experiment with its fundamental law as it may and must experiment with its local institutions. As a matter of fact the Federal Constitution is very much less in need of amendment than are those of the several states. It is on the whole an admirable system of law and an efficient organ of government; and in most respects it should be left to the ordinary process of gradual amendment by legal construction until the American people have advanced much farther towards the realization of a national democratic policy. Eventually certain radical amendments will be indispensable to the fulfillment of the American national purpose; but except in one respect nothing of any essential importance is to be gained at present by a modification of the Federal Constitution. This exception is, however, of the utmost importance. For another generation or two any solution of the problem of corporation control, and of all the other critical problems connected therewith, will be complicated, confused, and delayed by the inter-state commerce clause, and by the impossibility, under that clause, of the exercise of any really effective responsibility and power by the central government. The distinction between domestic and inter-state commerce which is implied by the Constitutional distribution of powers is a distinction of insignificant economic or industrial importance; and its necessary legal enforcement makes the carrying out of an efficient national industrial policy almost impossible.
Under the inter-state commerce clause, a corporation conducting, as all large companies do, both a state and an inter-state business, is subject to several supplementary jurisdictions. It is subject, of course, primarily to the laws of the state under which it is organized, and to the laws of the same state regulating its own particular form of industrial operation. It is subject, also, to any conditions which the legislatures of other states may wish to impose upon its business,—in so far as that business is transacted within their jurisdictions. Finally, it is subject to any regulation which the central government may impose upon its inter-state transactions. From the standpoint of legal supervision, consequently, the affairs of such a corporation are divided into a series of compartments, each compartment being determined by certain arbitrary geographical lines—lines which do not, like the boundaries of a municipality, correspond to any significant economic division. As long as such a method of supervision endures, no effective regulation of commerce or industry is possible. A corporation is not a commercial Pooh-Bah, divided into unrelated sections. It is an industrial and commercial individual. The business which it transacts in one state is vitally related to the business which it transacts in other states; and even in those rare cases of the restriction of a business to the limits of a single state, the purchasing and selling made in its interest necessarily compete with inter-state transactions in the same products. Thus the Constitutional distinction between state and inter-state commerce is irrelevant to the real facts of American industry and trade.
In the past the large corporations have, on the whole, rather preferred state to centralized regulation, because of the necessary inefficiency of the former. Inter-state railroad companies usually exercised a dominant influence in those states under the laws of which they had incorporated; and this influence was so beneficial to them that they were quite willing for the sake of preserving it to subsidize the political machine and pay a certain amount of blackmail. In this way the Pennsylvania Railroad Company exercised a dominant influence in the politics of Pennsylvania and New Jersey; the New York Central was not afraid of anything that could happen at Albany; the Boston and Maine pretty well controlled the legislation of the state of New Hampshire; and the Southern Pacific had its own will in California. Probably in these and other instances the railroads acquired their political influence primarily for purposes of protection. It was the cheapest form of blackmail they could pay to the professional politicians; and in this respect they differed from the public service corporations, which have frequently been active agents of corruption in order to obtain public franchises for less than their value. But once the railroads had acquired their political influence, they naturally used it for their own purposes. They arranged that the state railroad commissioners should be their clerks, and that taxation should not press too heavily upon them. They were big enough to control the public officials whose duty it was to supervise them; and they were content with a situation which left them free from embarrassing interference without being over-expensive.
The situation thereby created, however, was not only extremely undesirable in the public interest, but it was at bottom extremely dangerous to the railroads. These companies were constantly extending their mileage, increasing their equipment, improving their terminals, and enlarging their capital stock. Their operations covered many different states, and their total investments ran far into the hundreds of millions of dollars. In the meantime they remained subject to one or several different political authorities whose jurisdiction extended over only a portion of their line and a fraction of their business, but who could none the less by unwise interference throw the whole system out of gear, and compromise the earning power of many millions of dollars invested in other states. Moreover, they could, if they chose, make all this trouble with a comparative lack of responsibility, because only a fraction of the ill effects of this foolish regulation would be felt within the guilty state. As a matter of fact many railroads had experiences of this kind with the Western states, and were obliged to defend themselves against legislative and administrative dictation, which if it did not amount to confiscation, always applied narrow and rigid restrictive methods to a delicate and complicated economic situation. Most of the large Eastern and some of the large Western companies purchased immunity from such "supervision," and were well content; but it was mere blindness on their part not to understand that such a condition, with the ugly corruption it involved, could not continue. The time was bound to come when an aroused public opinion would undermine their "influence," and would retaliate by imposing upon them restrictions of a most embarrassing and expensive character. In so doing the leaders of a reformed and aroused public opinion might be honestly seeking only legitimate regulation; but the more the state authorities sought conscientiously to regulate the railroads the worse the confusion they would create. The railroad could not escape some restrictive supervision; neither were they obliged wholly to submit to it on the part of any one state. The situation of a railroad running through half a dozen states, and subject to the contradictory and irresponsible orders of half a dozen legislatures or commissions might well become intolerable.
Just this sort of thing has been recently happening. The state authorities began to realize that their lax methods of railway supervision were being used as an argument for increased Federal interference. So the state governments arose in their might and began furiously to "regulate" the railroads. Commissions were constituted or re-constituted, and extremely drastic powers were granted to these officials in respect to the operation of the railroads, the rates and the fares charged, and their financial policies. Bills were passed severely restricting the rights which companies had enjoyed of owning the stock of connecting railroads. Many of the states sought to forbid the companies from charging more than two cents a mile for passenger fares. The issuing of passes except under severe restrictions was made illegal. The railroad companies were suddenly confronted by a mass of hostile and conflicting legislation which represented for the most part an honest attempt to fulfill a neglected responsibility, but whose effort on the whole merely embarrassed the operations of the roads, and which in many instances failed to protect the real public interests involved. Even when this legislation was not ignorantly and unwisely conceived, and even when it was prepared by well-informed and well-intentioned men, it was informed by contradictory ideas and a false conception of the genuine abuses and their necessary remedies. Consequently, a certain fraction of intelligent and disinterested public opinion began soon to realize that the results of a vigorous attempt on the part of the state governments to use their powers and to fulfill their responsibilities in respect to the railroads were actually worse and more dangerous to the public interest than was the previous neglect. The neglect of the responsibility implied corruption, because it provoked blackmail. The vigorous fulfillment of the responsibility implied confusion, cross-purposes, and excessive severity, because the powers of a single state were too great within its specific jurisdiction and absolutely negligible beyond.
The railroad companies suffer more from this piecemeal and conflicting regulation than do corporations engaged in manufacturing operations, not only because they discharge a peculiarly public function, but because their business, particularly in its rate-making aspect, suffers severely from any division by arbitrary geographical lines. But all large inter-state corporations are more or less in the same situation. Corporations such as the Standard Oil Company and some of the large New York life insurance companies are confronted by the alternative either of going out of business in certain states, or of submitting to restrictions which would compromise the efficiency of their whole business policy. Doubtless they have not exhausted the evasive and dilatory methods which have served them so well in the past; but little by little the managers of these corporations are coming to realize that they are losing more than they gain from subjection to so many conflicting and supplementary jurisdictions. Little by little they are coming to realize that the only way in which their businesses can obtain a firm legal standing is by means of Federal recognition and exclusive Federal regulation. They would like doubtless to continue to escape any effective regulation at all; but without it they cannot obtain effective recognition, and in the existing ferment of public opinion recognition has become more important to them than regulation is dangerous.
Many important financiers and corporation lawyers are still bitterly opposed to any effective centralized regulation, even if accompanied by recognition; but such opposition is not merely inaccessible to the lessons of experience, but is blinded by theoretical prejudice. Doubtless the position of being, on the one hand, inefficiently regulated by the state governments, and, on the other hand, of being efficiently protected in all their essential rights by the Federal courts—doubtless such a situation seems very attractive to men who need a very free hand for the accomplishment of their business purposes; but they should be able to understand that it would necessarily produce endless friction. The states may well submit to the constant extension of a protecting arm to corporations by the Federal courts, provided the central government is accomplishing more efficiently than can any combination of state governments the amount of supervision demanded by the public interest. But if the Federal courts are to be constantly invoked, in order to thwart the will of state legislatures and commissions, and if at the same time the authority which protects either neglects or is unable effectively to supervise, there is bound to be a revival of anti-Federal feeling in its most dangerous form. Whatever the corporations may suffer from the efficient exercise of Federal regulative powers, they have far more to fear from the action of the state governments—provided such action proceeds from an irresponsible local radicalism embittered by being thwarted. The public opinion on which the corporations must depend for fair treatment is national rather than local; and just in as far as they can be made subject to exclusive centralized jurisdiction, just to that extent is there a good chance of their gradual incorporation into a nationalized economic and legal system.
The control of the central government over commerce and the corporations should consequently be substituted for the control of the states rather than added thereto; and this action should be taken not in order to enfeeble American local governments, but to invigorate them. The enjoyment by any public authority of a function which it cannot efficiently perform is always a source of weakness rather than of strength; and in this particular case it is a necessary source, not merely of weakness, but of corruption. The less the state governments have to do with private corporations whose income is greater than their own, the better it will be for their morals, and the more effectively are they likely to perform their own proper and legitimate functions. Several generations may well elapse before the American public opinion will learn this lesson; and even after it is well learned there will be enormous and peculiar obstacles to be removed before they can turn their instruction to good account. But in the end the American Federal Constitution, like all the Federal Constitutions framed during the past century, will have to dispense with the distinction between state and inter-state commerce; and the national authority will prevail, not because there is any peculiar virtue in the action of the central government, but because there is a peculiar vice in asking the state governments to regulate matters beyond their effective jurisdiction.
The central government in its policy toward the large corporations must adopt one of two courses. Either it must discriminate in their favor or it must discriminate against them. The third alternative—that of being what is called "impartial"—has no real existence; and it is essential that the illusory nature of a policy of impartiality should in the beginning be clearly understood.
A policy of impartiality is supposed to consist in recognizing the existence of the huge industrial and railroad organizations, while at the same time forbidding them the enjoyment of any of those little devices whereby they have obtained an unfair advantage over competitors. It would consist, that is, of a policy of recognition tempered by regulation; and a policy of this kind is the one favored by the majority of conservative and fair-minded reformers. Such a policy has unquestionably a great deal to recommend it as a transitional means of dealing with the problem of corporate aggrandizement, but let there be no mistake: it is not really a policy of strict neutrality between the small and the large industrial agent. Any recognition of the large corporations, any successful attempt to give them a legal standing as authentic as their economic efficiency, amounts substantially to a discrimination in their favor.
The whole official programme of regulation does not in any effective way protect their competitors. Unquestionably these large corporations have in the past thrived partly on illegal favors, such as rebates, which would be prevented by the official programme of regulation; but at the present time the advantage which they enjoy over their competitors is independent of such practices. It depends upon their capture and occupation of certain essential strategic positions in the economic battle-field. It depends upon abundant capital, which enables it to take advantage of every opportunity, and to buy and sell to the best advantage. It depends upon the permanent appropriation of essential supplies of raw materials, such as iron ore and coal, or of terminals in large cities, which cannot now be duplicated. It depends upon possibilities of economic industrial management and of the systematic development of individual industrial ability and experience which exist to a peculiar degree in large industrial enterprises. None of these sources of economic efficiency will be in any way diminished by the official programme of regulation. The corporations will still possess substantially all of their existing advantages over their competitors, while to these will be added the additional one of an unimpeachable legal standing. Like the life insurance companies after the process of purgation, they will be able largely to reduce expenses by abolishing their departments of doubtful law.
Thus the recognition of the large corporation is equivalent to the perpetuation of its existing advantages. It is not an explicit discrimination against their smaller competitors, but it amounts to such discrimination. If the small competitor is to be allowed a chance of regaining his former economic importance, he must receive the active assistance of the government. Its policy must become, not one of recognition, but one of recognition under conditions which would impair the efficiency of the large industrial organizations. Mr. William J. Bryan's policy of a Federal license granted only under certain rigid conditions as to size, is aimed precisely at the impairment of the efficiency of the "trusts," and the consequent active discrimination in favor of the small competitor; but the Roosevelt-Taft programme allows the small competitor only such advantages as he is capable of earning for himself; and it must be admitted that these advantages are, particularly in certain dominant industries, not of a very encouraging nature.
Nevertheless, at the last general election the American people cast a decisively preponderant vote in favor of the Roosevelt-Taft programme; and in so doing they showed their customary common sense. The huge corporations have contributed to American economic efficiency. They constitute an important step in the direction of the better organization of industry and commerce. They have not, except in certain exceptional cases, suppressed competition; but they have regulated it; and it should be the effort of all civilized societies to substitute coöperative for competitive methods, wherever coöperation can prove its efficiency. Deliberately to undo this work of industrial and commercial organization would constitute a logical application of the principle of equal rights, but it would also constitute a step backward in the process of economic and social advance. The process of industrial organization should be allowed to work itself out. Whenever the smaller competitor of the large corporation is unable to keep his head above water with his own exertions, he should be allowed to drown. That the smaller business man will entirely be displaced by the large corporation is wholly improbable. There are certain industries and lines of trade in which he will be able to hold his own; but where he is not able to hold his own, there is no public interest promoted by any expensive attempt to save his life.
The Sherman Anti-Trust Law constitutes precisely such an attempt to save the life of the small competitor; and in case the Roosevelt-Taft policy of recognition tempered by regulation is to prevail, the first step to be taken is the repeal or the revision of that law. As long as it remains on the statute books in its existing form, it constitutes an announcement that the national interest of the American people demands active discrimination in favor of the small industrial and commercial agent. It denies the desirability of recognizing what has already been accomplished in the way of industrial and commercial organization; and according to prevalent interpretations, it makes the legal standing of all large industrial combinations insecure—no matter how conducive to economic efficiency their business policy may be.
Assuming, however, that the Sherman Anti-Trust Law can be repealed, and that the Roosevelt-Taft policy of recognition tempered by regulation be adopted, the question remains as to the manner in which such a policy can best be carried out. Certain essential aspects of this question will not be discussed in the present connection. The thorough carrying out of a policy of recognition would demand a Federal incorporation act, under which all corporations engaged in anything but an exclusively local business would be obliged to organize; but, as we have already seen, such an act would be unconstitutional as applied to many technically domestic corporations, and it would probably be altogether unconstitutional, except, perhaps, under limitations which would make it valueless. It may be that some means will be found to evade these Constitutional difficulties, or it may not be. These are matters on which none but the best of Constitutional lawyers have any right to an opinion. But in any event, I shall assume that the Federal government can eventually find the legal means to make its policy of recognition effective and to give the "trust" a definite legal standing. What sort of regulation should supplement such emphatic recognition?
The purpose of such supervision is, of course, to prevent those abuses which have in the past given the larger corporation an illegal or an "unfair" advantage over its competitors; and the engine which American legislatures, both Federal and state, are using for the purpose is the commission. The attempt to define in a comprehensive statute just what corporations may do, or must in the public interest be forbidden from doing, is not being tried, because of the apparent impossibility of providing in advance against every possible perversion of the public interest in the interest of the private corporation. The responsibility of the legislature for the protection of the public interest is consequently delegated to a commission whose duties are partly administrative and partly either legislative or judicial. The most complete existing type of such a delegated power is not the Federal Inter-state Commerce Commission, but the Public Service Commissions of New York State; and in considering the meaning and probable effects of this kind of supervision I shall consider only the completed type. A Federal Inter-state Commerce Commission which was fully competent to supervise all inter-state commerce and all commerce competing therewith would necessarily possess powers analogous to those bestowed upon the New York Public Service Commissions.
The powers bestowed upon those commissions are based upon the assumption that the corporations under their jurisdiction cannot be trusted to take any important decision in respect to their business without official approval. All such acts must be known to the commission, and be either expressly or tacitly approved, and the official body has the power of ordering their wards to make any changes in their service or rates which in the opinion of the commission are desirable in the public interest. Thus the commission is required not only to approve all agreements among corporations, all mergers, all issues of securities, but they are in general responsible for the manner in which the corporations are operated. The grant of such huge powers can be explained only on the ground that the private interest of these corporations is radically opposed to the interest of their patrons. Public opinion must have decided that if left to themselves, the corporations will behave, on the whole, in a manner inimical to the public welfare; and their business must consequently be actually or tacitly "regulated" in every important detail.
One may well hesitate wholly to condemn this government by commission, because it is the first emphatic recognition in American political and economic organization of a manifest public responsibility. In the past the public interests involved in the growth of an extensive and highly organized industrial system have been neither recognized nor promoted. They have not been promoted by the states, partly because the states neither wanted to do so, nor when they had the will, did they have the power. They have not been promoted by the central government because irresponsibility in relation to national economic interest was, the tariff apart, supposed to be an attribute of the central authority. Any legislation which seeks to promote this neglected public interest is consequently to be welcomed; but the welcome accorded to these commissions should not be very enthusiastic. It should not be any more enthusiastic than the welcome accorded by the citizens of a kingdom to the birth of a first child to the reigning monarchs,—a child who turns out to be a girl, incapable under the law of inheriting the crown. A female heir is under such circumstances merely the promise of better things; and so these commissions are merely an evidence of good will and the promise of something better. As initial experiments in the attempt to redeem a neglected responsibility, they may be tolerated; but if they are tolerated for too long, they may well work more harm than good.
The constructive idea behind a policy of the recognition of semi-monopolistic corporations, is, of course, the idea that they can be converted into economic agents which will make unequivocally for the national economic interest; and it is natural that in the beginning legislators should propose to accomplish this result by rigid and comprehensive official supervision. But such supervision, while it would eradicate many actual and possible abuses, would be just as likely to damage the efficiency which has been no less characteristic of these corporate operations. The only reason for recognizing the large corporations as desirable economic institutions is just their supposed economic efficiency; and if the means taken to regulate them impair that efficiency, the government is merely adopting in a roundabout way a policy of destruction. Now, hitherto, their efficiency has been partly the product of the unusual freedom they have enjoyed. Unquestionably they cannot continue to enjoy any similar freedom hereafter; but in restricting it care should be taken not to destroy with the freedom the essential condition of the efficiency. The essential condition of efficiency is always concentration of responsibility; and the decisive objection to government by commission as any sufficient solution of the corporation problem is the implied substitution of a system of divided for a system of concentrated responsibility.
This objection will seem fanciful and far-fetched to the enthusiastic advocates of reform by commission. They like to believe that under a system of administrative regulation abuses can be extirpated without any diminution of the advantages hitherto enjoyed under private management; but if such proves to be the case, American regulative commissions will establish a wholly new record of official good management. Such commissions, responsible as they are to an insistent and uninformed public opinion, and possessed as they inevitably become of the peculiar official point of view, inevitably drift or are driven to incessant, vexatious, and finally harmful interference. The efficient conduct of any complicated business, be it manufacturing, transportation, or political, always involves the constant sacrifice of an occasional or a local interest for the benefit of the economic operation of the whole organization. But it is just such sacrifices of local and occasional to a comprehensive interest which official commissions are not allowed by public opinion to approve. Under their control rates will be made chiefly for the benefit of clamorous local interests; and little by little the economic organization of the country, so far as affected by the action of commission government, would become the increasing rigid victim of routine management. The flexibility and enterprise, characteristic of our existing national economic organization, would slowly disappear; and American industrial leaders would lose the initiative and energy which has contributed so much to the efficiency of the national economic system. Such a result would, of course, only take place gradually; but it would none the less be the eventual result of any complete adoption of such a method of supervision. The friends of commission government who expect to discipline the big corporations severely without injuring their efficiency are merely the victims of an error as old as the human will. They "want it both ways." They want to eat their cake and to have it. They want to obtain from a system of minute official regulation and divided responsibility the same economic results as have been obtained from a system of almost complete freedom and absolutely concentrated responsibility.
The reader must not, however, misinterpret the real meaning of the objection just made to corporation reform by means of commissions. I can see no ground for necessarily opposing the granting of increased power and responsibility to an official or a commission of officials, merely because such officials are paid by the government rather than by a private employer. But when such a grant is considered necessary, the attempt should be to make the opportunity for good work comprehensive and commensurate with the responsibility. The sort of officialism of which the excavations at Panama or the reclamation service is a sample has as much chance of being efficient under suitable conditions as has the work of a private corporation. The government assumes complete charge of a job, and pushes it to a successful or unsuccessful conclusion, according to the extent with which its tradition or organization enables it to perform efficient work. Moreover, there is a certain kind of official supervision of a private business which does not bring with it any divided responsibility. Perhaps the best illustration thereof is the regulation to which the national banks are obliged to submit. In this case the bank examiners and the Controller do not interfere in the management of the bank, except when the management is violating certain conditions of safe banking—which have been carefully defined in the statute. So long as the banks obey the law, they need have no fear of the Treasury Department. But in commission government the official authority, in a sense, both makes and administers the law. The commission is empowered to use its own discretion about many matters, such as rates, service, equipment, and the like, in relation to which the law places the corporation absolutely in its hands. Such official interference is of a kind which can hardly fail in the long run to go wrong. It is based on a false principle, and interferes with individual liberty, not necessarily in an unjustifiable way, but in a way that can hardly be liberating in spirit or constructive in result.
The need for regulation should not be made the excuse for bestowing upon officials a responsibility which they cannot in the long run properly redeem. In so far as the functions of such commissions are really regulative, like the functions of the bank examiners, they may for the present perform a useful public service. These commissions should be constituted partly as bureaus of information and publicity, and partly as an administrative agency to secure the effective enforcement of the law. In case the Sherman Anti-Trust Law were repealed, the law substituted therefor should define the kind of combination among corporations and the kind of agreements among railroads which were permissible, and the commission should be empowered to apply the law to any particular consolidation or contract. Similar provision should be made in respect to railroad mergers, and the purchases by one railroad of the stock of another. The purposes for which new securities might be legitimately issued should also be defined in the statute, and the commission allowed merely to enforce the definitions. Common carriers should be obliged, as at present, to place on record their schedules of rates, and when a special or a new rate was made, notification should be required to the commission, together with a statement of reasons. Finally the commission should have the completest possible power of investigating any aspect of railway and corporation management or finance the knowledge of which might be useful to Congress. The unflinching use of powers, vaguely sketched above, would be sufficient to prevent mere abuses, and they could be granted without making any body of officials personally responsible for any of the essential details of corporation management.
If the commission is granted the power to promulgate rates, to control the service granted to the public, or to order the purchase of new equipment, it has become more than a regulative official body. It has become responsible for the business management of the corporation committed to its charge; and again it must be asserted that mixed control of this kind is bound to take the energy and initiative out of such business organizations. Neither has any necessity for reducing public service corporations to the level of industrial minors been sufficiently demonstrated. In the matter of service and rates the interest of a common carrier is not at bottom and in the long run antagonistic to the interest of its patrons. The fundamental interest of a common carrier is to develop traffic, and this interest coincides with the interest in general of the communities it serves. This interest can best be satisfied by allowing the carrier freedom in the making of its schedules—subject only to review in particular cases. Special instances may always exist of unnecessarily high or excessively discriminatory rates; and provisions should be made for the consideration of such cases, perhaps, by some court specially organized for the purpose; but the assumption should be, on the whole, that the matter of rates and service can be left to the interest of the corporation itself. In no other way can the American economic system retain that flexibility with which its past efficiency has been associated. In no other way can the policy of these corporations continue to be, as it has so often been in the past, in an economic sense genuinely constructive. This flexibility frequently requires readjustments in the conditions of local industry which cause grave losses to individuals or even communities; but it is just such readjustments which are necessary to continued economic efficiency; and it is just such readjustments which would tend to be prevented by an official rate-making authority. An official rate-making power would necessarily prefer certain rigid rules, favorable to the existing distribution of population and business. Every tendency to a new and more efficient distribution of trade would be checked, because of its unfairness to those who suffer from it. Thus the American industrial system would gradually become petrified, and the national organization of American industry would be sacrificed for the benefit of an indiscriminate collection of local interests.
If the interest of a corporation is so essentially hostile to the public interest as to require the sort of official supervision provided by the New York Public Service Commission Law, the logical inference therefrom is not a system of semi-official and semi-private management, but a system of exclusively public management. The logical inference therefrom is public ownership, if not actual public operation. Public ownership is not open to the same theoretical objections as is government by commission. It is not a system of divided responsibility. Political conditions and the organization of the American civil service being what they are, the attempt of the authorities to assume such a responsibility might not be very successful; but the fault would in that case reside in the general political and administrative organization. The community could not redeem the particular responsibility of owning and operating a railroad, because it was not organized for the really efficient conduct of any practical business. The rejection of a system of divided personal responsibility between public and private officials does not consequently bring with it necessarily the rejection of a system of public ownership, if not public operation; and if it can be demonstrated in the case of any particular class of corporations that its interest has become in any essential respect hostile to the public interest, a constructive industrial policy demands, not a partial, but a much more complete, shifting of the responsibility.
That cases exist in which public ownership can be justified on the foregoing grounds, I do not doubt; but before coming to the consideration of such cases it must be remarked that this new phase of the discussion postulates the existence of hitherto neglected conditions and objects of a constructive industrial policy. Such a policy started with the decision, which may be called the official decision, of the American electorate, to recognize the existing corporate economic organization; and we have been inquiring into the implications of this decision. Those implications include, according to the results of the foregoing discussion, not only a repeal of the Sherman Anti-Trust Law, but the tempering of the recognition with certain statutory regulations. It by no means follows that such regulation satisfies all the objects of a constructive national economic policy. In fact it does not satisfy the needs of a national economic policy at all, just in so far as such a policy is concerned not merely with the organization of industry, but with the distribution of wealth. But inasmuch as the decision has already been reached in preceding chapters that the national interest of a democratic state is essentially concerned with the distribution of wealth, the corporation problem must be considered quite as much in its relation to the social problem as to the problem of economic efficiency.
The American corporation problem will never be understood in its proper relations and full consequences until it is conceived as a sort of an advanced attack on the breastworks of our national economic system by this essential problem of the distribution of wealth. The current experiments in the direction of corporate "regulation" are prompted by a curious mixture of divergent motives. They endeavor to evade a fundamental responsibility by meeting a superficial one. They endeavor to solve the corporation problem merely by eradicating abuses, the implication being that as soon as the abuses are supervised out of existence, the old harmony between public and private interest in the American economic system will be restored, and no more "socialistic" legislation will be required. But the extent to which this very regulation is being carried betrays the futility of the expectation. And as we have seen, the intention of the industrial reformers is to introduce public management into the heart of the American industrial system; that is, into the operation of railroads and public service corporations, and in this way to bring about by incessant official interference that harmony between public and private interest which must be the object of a national economic system. But this proposed remedy is simply one more way of shirking the ultimate problem; and it is the logical consequence of the persistent misinterpretation of our unwholesome economic inequalities as the result merely of the abuse, instead of the legal use, of the opportunities provided by the existing economic system.
An economic organization framed in the national interest would conform to the same principles as a political organization framed in the national interest. It would stimulate the peculiarly efficient individual by offering him opportunities for work commensurate with his abilities and training. It would grant him these opportunities under conditions which would tend to bring about their responsible use. And it would seek to make the results promote the general economic welfare. The peculiar advantage of the organization of American industry which has gradually been wrought during the past fifty years is precisely the opportunity which it has offered to men of exceptional ability to perform really constructive economic work. The public interest has nothing to gain from the mutilation or the destruction of these nationalized economic institutions. It should seek, on the contrary, to preserve them, just in so far as they continue to remain efficient; but it should at the same time seek the better distribution of the fruits of this efficiency. The great objection to the type of regulation constituted by the New York Public Service Commission Law is that it tends to deprive the peculiarly capable industrial manager of any sufficient opportunity to turn his abilities and experience to good account. It places him under the tutelage of public officials, responsible to a public opinion which has not yet been sufficiently nationalized in spirit or in purpose, and in case this tutelage fails of its object (as it assuredly will) the responsibility for the failure will be divided. The corporation manager will blame the commissions for vexatious, blundering, and disheartening interference. The commissions will blame the corporation manager for lack of cordial coöperation. The result will be either the abandonment of the experiment or the substitution of some degree of public ownership. But in either event the constructive economic work of the past two generations will be in some measure undone; and the American economic advance will be to that extent retarded. Such obnoxious regulation has been not unjustly compared to the attempt to discipline a somewhat too vivacious bull by the simple process of castration. For it must be substituted an economic policy which will secure to the nation, and the individual the opportunities and the benefits of the existing organization, while at the same time seeking the diffusion of those benefits over a larger social area.
The only sound point of departure for a national economic policy is, as we have seen, the acceptance by the state of certain of the results of corporate industrial organization. Such state recognition is equivalent to discrimination in their favor, because it leaves them in possession of those fundamental economic advantages, dependent on terminals, large capital, and natural resources, which place them beyond effective competition; and the state has good reason to suffer this discrimination, because a wise government can always make more social capital out of a coöperative industrial organization than it can out of an extremely competitive one.
It is extremely improbable that, even when officially recognized in this way, the process of corporate combination would go beyond a certain point. It might result in a condition similar to that which now prevails in the steel industry or that of sugar refining; but it should be added that in industries organized to that extent there is not very much competition in prices. Prices are usually regulated by agreement among the leading producers; and competition among the several producers turns upon quickness of delivery and the quality of the service or product. Whether or not this restriction of competition works badly depends usually upon the enlightened shrewdness with which the schedule of rates and prices is fixed. A corporation management which was thoroughly alive to its own interest would endeavor to arrange a scale of prices, which, while affording a sufficient profit, would encourage the increased use of the product, and that is precisely the policy which has been adopted by the best managed American railroad and industrial corporations. But it must always be kept in mind that, in the absence of a certain amount of competition, such a policy cannot be taken wholly for granted. A short-sighted management may prefer to reap large profits for a short time and at the expense of the increased use of its product or service. Moreover, the margin between the cost of production and the particular price at which the product or service can be sold consistent with its largely increasing use may enable the producer to gather enormous profits; and such profits may not stimulate competition to any effective extent, precisely because they depend upon advantages in production which cannot be duplicated. No state desirous of promoting the economic welfare of its citizens can remain indifferent to the chance thus afforded of earnings disproportionately large to the economic service actually rendered.
In dealing with this question of possibly excessive profits under such a method of economic organization, the state has many resources at its disposal besides the most obvious one of incessant official interference with the essentials of corporation management. Of these the most useful consists unquestionably in its power of taxation. It can constitute a system of taxation, in respect to the semi-monopolistic corporations, which would deprive them of the fruits of an excessively large margin between the cost of production and the price at which the product or service could be increasingly sold. Net profits could be taxed at a rate which was graduated to the percentage paid; and beyond a certain point the tax should amount to much the larger fraction of the profits. In this way a semi-monopolistic corporation would not have any interest in seeking profits beyond a certain percentage. A condition would be established which, while it would not deprive the managers of a corporation of full responsibility for the conduct of its business, would give them an additional inducement always to work for the permanent improvement of the economic relation of the corporation to the community. They would have no interest in preferring large but insecure net earnings to smaller ones, founded on a thoroughly satisfactory service, a low schedule of prices, and the constantly increasing efficiency of the plant and organization of the company.
The objection will, no doubt, be immediately urged that a system of this kind would prevent any improvement of service from going beyond a certain point, just because it would cease to be profitable beyond a certain point. But such an objection would not be valid, provided the scale of taxation were properly graduated. I shall not attempt to define any precise scale which would serve the purpose because the possible adoption of such a plan is still too remote; but the state should, in return for the protection it extends to these semi-monopolistic corporations, take a certain percentage of all profits, and, while this percentage should increase until it might at a certain level reach as much as one half or three quarters, it should not become larger than three quarters—except in the case of a corporation earning, say, more than 20 per cent on its capital. To be sure the establishment even of such a level would conceivably destroy the interested motive for increased efficiency at a certain point, but such a point could hardly be reached except in the case of companies whose monopoly was almost complete.
The foregoing plan, however, is not suggested as a final and entirely satisfactory method of incorporating semi-monopolistic business organizations into the economic system of a nationalizing democracy. I do not believe that any formula can be framed which will by the magic of some chemical process convert a purely selfish economic motive into an unqualified public economic benefit. But some such plan as that proposed above may enable an industrial democracy to get over the period of transition between the partial and the complete adaptation of these companies to their place in a system of national economy. They can never be completely incorporated so long as the interest of their owners is different from that of the community as a whole, but in the meantime they can be encouraged to grow and perhaps to become more efficient, while at the same time they can be prevented from becoming a source of undesirable or dangerous individual economic inequalities; and I do not believe that such a transitional system of automatically regulated recognition would be open to the same objections as would a system of incessant official interference. In so far, indeed, as the constructive industrial leader is actuated merely by the motive of amassing more millions than can be of any possible use to himself or his children—in so far as such is the case, the inducement to American industrial organization on a national scale would be impaired. But if an economic democracy can purchase efficient industrial organization on a huge scale only at the price of this class of fortunes, then it must be content with a lower order of efficiency, and American economic statesmanship has every reason to reject such an alternative until there is no help for it. The best type of American millionaire seems always to have had as much interest in the work and in the game as in its prodigious rewards; and much of his work has always been done for him by employees who, while they were paid liberally, did not need the inducement of more money than they could wholesomely spend in return, for service of the highest efficiency.
In any event the plan of an automatically regulated recognition of semi-monopolistic corporations would be intended only as a transitional measure. Its object would be to give these somewhat novel industrial agents a more prolonged and thorough test than any they have yet received. If they survived for some generations and increased in efficiency and strength, it could only be because the advantages they enjoyed in the way of natural resources, abundant capital, organization, terminals, and responsible management were decisive and permanent; and in that case the responsibility of the state could not be limited to their automatic regulation and partial assimilation. A policy must be adopted of converting them into express economic agents of the whole community, and of gradually appropriating for the benefit of the community the substantial economic advantages which these corporations had succeeded in acquiring. Just in so far, that is, as a monopoly or a semi-monopoly succeeded in surviving and growing, it would partake of the character of a natural monopoly, and would be in a position to profit beyond its deserts from the growth of the community. In that event a community which had any idea of making economic responsibility commensurate with power would be obliged to adopt a policy of gradual appropriation.
The public service corporations in the large cities have already reached the stage of being recognized natural monopolies. In the case of these corporations public opinion is pretty well agreed that a monopoly controlling the whole service is more likely to be an efficient servant of the city than a number of separate corporations, among whom competition in order to be effective must be destructive and wasteful. American municipal policy is consequently being adapted to the idea of monopolized control of these public services. The best manner of dealing with these monopolies, after they have been created and recognized, is not settled by any means to the same extent; but the principle of restricting the franchises under which they operate to a limited term of years is well established, and the tendency is towards a constant reduction of the length of such leases and towards the retention of a right of purchase, exercisable at all or at certain stated times. The American city has come to realize that such privileges possess a value which increases automatically with the growth of the city and with the guarantee against competition; and this source of value should never be alienated except for a short period and on the most stringent terms. Wherever, consequently, a city has retained any control over such franchises, it is converting the public service corporations merely into temporary tenants of what are essentially exclusive economic privileges. During the period of its tenancy the management of a corporation has full opportunity to display any ability and energy whereof it may be possessed; and such peculiarly efficient management should be capable of earning sufficient if not excessive rewards. In the meantime, any increase in value which would result inevitably from the possession of a monopoly in a growing community would accrue, as it should, to the community itself.
The only alternative to such a general scheme of municipal policy in relation to public service corporations would be one of municipal operation as well as municipal ownership; and municipal operation unquestionably has certain theoretical advantages. When a corporation enjoys a tenancy for a stated term only, there is always a danger that it will seek temporarily larger profits by economizing on the quality of its service. It has not the same interest in building up a permanently profitable business that it would in case it were owner as well as operator. This divergence of interest may lead to a good deal of friction; but for the present at least the mixed system of public ownership and private operation offers the better chance of satisfactory results. As long as the municipal civil service remains in its existing disorganized and inefficient condition, the public administration should not be granted any direct responsibility which can be withheld without endangering an essential public interest. A system of public operation would be preferable to one of divided personal responsibility between public and private officials; but when a mixed system can be created which sharply distinguishes the two responsibilities one from another without in any way confusing them, it combines for the time being a maximum of merit with a minimum of friction.
Such a system carries with it, however, two results, not always appreciated. A municipality which embarks upon a policy of guaranteeing monopolies and leasing the enjoyment thereof should make all permanent improvements to the system at its own expense, and its financial organization and methods must be adapted to the necessity of raising a liberal supply of funds for such essential purposes. Its borrowing capacity must not be arbitrarily restricted as in the case of so many American cities at the present time; and, of course, any particular lease must be arranged so as to provide not only the interest on the money raised for all work of construction, but for the extinction of the debt thereby incurred. Furthermore a city adopting such a policy should push it to the limit. Wherever, as is so often the case, private companies now enjoy a complete or a substantial monopoly of any service, and do so by virtue of permanent franchises, every legal means should be taken to nullify such an intolerable appropriation of the resources of the community. Persistent and ruthless war should be declared upon these unnatural monopolies, because as long as they exist they are an absolute bar to any thoroughly democratic and constructive system of municipal economy. Measures should be taken which under other circumstances would be both unfair and unwise for the deliberate purpose of bringing them to terms, and getting them to exchange their permanent possession of these franchises for a limited tenancy. Permanent commissions should be placed over them with the right and duty of interfering officiously in their business. Taxation should be made to bear heavily upon them. Competitive services should be established wherever this could be done without any excessive loss. They should be annoyed and worried in every legal way; and all those burdens should be imposed upon them with the explicit understanding that they were measures of war. In adopting such a policy a community would be fighting for an essential condition of future economic integrity and well-being, and it need not be any more scrupulous about the means employed (always "under the law") than would an animal in his endeavor to kill some blood-sucking parasite. The corporation should plainly be told that the fight would be abandoned wherever it was ready to surrender its unlimited franchises for a limited but exclusive monopoly, which in these cases should in all fairness run for a longer term than would be ordinarily permissible.
I have lingered over the case of corporations enjoying municipal franchises, because they offer the only existing illustration of a specific economic situation—a situation in which a monopolized service is based upon exclusive and permanent economic advantages. Precisely the same situation does not exist in any other part of the economic area; but the idea is that under a policy of properly regulated recognition such a situation may come to exist in respect to those corporations which should be subject to the jurisdiction of the central government; and just in so far as it does come to exist, the policy of the central government should resemble the one suggested for the municipal governments and already occasionally adopted by them. That any corporations properly subject to the jurisdiction of the Federal government will attain to the condition of being a "natural" monopoly may be disputed; but according to the present outlook, if such is not the case, the only reason will be that the government by means of official and officious interference "regulates" them into inefficiency, and consequent inability to hold their own against smaller and less "regulated" competitors. If these corporations are left in the enjoyment of the natural advantages which wisely or unwisely they have been allowed to appropriate, some of them at any rate will gradually attain to the economic standing of "natural" monopolies.
The railroad system of the country is gradually approximating to such a condition. The process of combination which has been characteristic of American railroad development from the start has been checked recently both by government action and by anti-railroad agitation; but if the railroads were exempted from the provisions of the Anti-Trust Law and were permitted, subject to official approval, either to make agreements or to merge, according as they were competing or non-competing lines, there can be no doubt that the whole country would be gradually divided up among certain large and essentially non-competitive systems. A measure of competition would always remain, even if one corporation controlled the entire railway system, because the varying and conflicting demands of different localities and businesses for changes in rates would act as a competitive force; and in the probable system of a division of territory, this competitive force would have still more influence. But at the same time by far the larger part of the freight and passenger traffic of the country would under such a system be shared by arrangement among the several corporations. The ultimate share of each of the big corporations would not be determined until the period of building new through routes had passed. But this period is not likely to endure for more than another generation. Thereafter additional railroad construction will be almost exclusively a matter of branch extensions and connections, or of duplicating tracks already in existence; and when such a situation is reached, the gross traffic will be just as much divided among the coöperative companies as if it were distributed among different lines by a central management. Certain lines would be managed more efficiently than others and might make more money, just as certain departments of a big business might, because of peculiarly able management, earn an unusually large contribution to the total profits; but such variations could not be of any essential importance. From the point of view of the community as a whole the railroad system of the country would be a monopoly.
The monopoly, like that of a municipal street railroad, would depend upon the possession of exclusive advantages. It would depend upon the ownership of terminals in large and small cities which could no longer be duplicated save at an excessive expense. It would depend upon the possession of a right of way in relation to which the business arrangements of a particular territory had been adjusted. It would have become essentially a special franchise, even if it had not been granted as a special franchise by any competent legal authority; and, like every similar franchise, it would increase automatically in value with the growth of the community in population and business. This automatic increase in value, like that of a municipal franchise, should be secured to the community which creates it; and it can be secured only by some such means as those suggested in the case of municipal franchises. The Federal government must, that is, take possession of that share of railroad property represented by the terminals, the permanent right of way, the tracks, and the stations. It is property of this kind which enables the railroads to become a monopoly, and which, if left in private hands, would absolutely prevent the gradual construction of a national economic system.
In the existing condition of economic development and of public opinion, the man who believes in the ultimate necessity of government ownership of railroad road-beds and terminals must be content to wait and to watch. The most that he can do for the present is to use any opening, which the course of railroad development affords, for the assertion of his ideas; and if he is right, he will gradually be able to work out, in relation to the economic situation of the railroads, some practical method of realizing the ultimate purpose. Even if public opinion eventually decided that the appropriation of the railroads was necessary in the national economic interest, the end could in all probability be very slowly realized. In return, for instance, for the benefit of government credit, granted under properly regulated conditions, the railroads might submit to the operation of some gradual system of appropriation, which would operate only in the course of several generations, and the money for which would be obtained by the taxation of railroad earnings. It might, however, be possible to arrange a scheme of immediate purchase and the conversion of all railway securities, except those representing equipment and working capital, into one special class of government security. In that case the whole railroad system of the country could be organized into a certain limited number of special systems, which could be leased for a definite term of years to private corporations. These independent systems would in their mutual relations stimulate that economic rivalry among localities which is the wholesome aspect of railroad competition. Each of these companies should, of course, be free to fix such rates as were considered necessary for the proper development and distribution of traffic within its own district.
Any such specific suggestions cannot at the present time be other than fanciful; and they are offered, not because of their immediate or proximate practical value, but because of the indication they afford of the purposes which must be kept in mind in drawing up a radical plan of railroad reorganization in the ultimate national interest. All such plans of reorganization should carefully respect existing railroad property values, unless the management of those railroads obstinately and uncompromisingly opposed all concessions necessary to the realization of the national interest. In that event the nation would be as much justified in fighting for its essential interests as would under analogous circumstances a municipality. Furthermore, any such reorganization should aim at keeping the benefits of the then existing private organization—whatever they might be. It should remain true to the principle that, so far as economic authority and power is delegated in the form of terminable leases to private corporations, such power should be complete within certain defined limits. If agents of the national economic interest cannot be trusted to fulfill their responsibilities without some system of detailed censure and supervision they should be entirely dispensed with. It may be added that if the proposed or any kindred method of reorganization becomes politically and economically possible, the circumstances which account for its possibility will in all probability carry with them some practicable method of realizing the proposed object.
Wherever the conditions, obtaining in the case of railroad and public service corporations, are duplicated in that of an industrial corporation, a genuinely national economic system would demand the adoption of similar measures. How far or how often these measures would be necessarily applied to industrial corporations could be learned only after a long period of experimentation, and during this period the policy of recognition, tempered by regulation under definite conditions and graduated taxation of net profits would have to be applied. But when such a policy had been applied for a period sufficiently prolonged to test their value as national economic agents, further action might become desirable in their case as in that of the railroads. The industrial, unlike the service corporations, cannot, however, be considered as belonging to a class which must be all treated in the same way. Conditions would vary radically in different industries; and the case of each industry should be considered in relation to its special conditions. Wherever the tendency in any particular industry continued to run in the direction of combination, and wherever the increasingly centralized control of that industry was associated with a practical monopoly of some mineral, land, or water rights, the government might be confronted by another instance of a natural monopoly, which it would be impolitic and dangerous to leave in private hands. In all such cases some system of public ownership and private operation should, if possible, be introduced. On the other hand, in case the tendency to combination was strengthened in an industry, such, for instance, as that of the manufacture of tobacco, which does not depend upon the actual ownership of any American natural resources, the manner of dealing with it would be a matter of expediency, which would vary in different cases. In the case of a luxury like tobacco, either a government monopoly might be created, as has been already done so frequently abroad, or the state might be satisfied with a sufficient share of the resulting profits. No general rule can be laid down for such cases; and they will not come up for serious consideration until the more fundamental question of the railroads has been agitated to the point of compelling some kind of a definite settlement.
This sketch of a constructive national policy in relation to corporations need not be carried any further. Its purpose has been to convert to the service of a national democratic economic system the industrial organization which has gradually been built up in this country; and to make this conversion, if possible, without impairing the efficiency of the system, and without injuring individuals in any unnecessary way. The attempt will be criticised, of course, as absolutely destructive of American economic efficiency and as wickedly unjust to individuals; and there will be, from the point of view of the critics, some truth in the criticism. No such reorganization of our industrial methods could be effected without a prolonged period of agitation, which would undoubtedly injure the prosperity and unsettle the standing of the victims of the agitation; and no matter what the results of the agitation, there must be individual loss and suffering. But there is a distinction to be made between industrial efficiency and business prosperity. Americans have hitherto identified prosperity with a furious economic activity, and an ever-increasing economic product—regardless of genuine economy of production and any proper distribution of the fruits. Unquestionably, the proposed reorganization of American industrial methods would for a while make many individual Americans less prosperous. But it does not follow that the efficiency of the national economic organization need be compromised, because its fruits are differently distributed and are temporarily less abundant. It is impossible to judge at present how far that efficiency depends upon the chance, which Americans have enjoyed, of appropriating far more money than they have earned, and far more than they can spend except either by squandering it or giving it away. But in any event the dangerous lack of national economic balance involved by the existing distribution of wealth must be redressed. This object is so essential that its attainment is worth the inevitable attendant risks. In seeking to bring it about, no clear-sighted democratic economist would expect to "have it both ways." Even a very gradual displacement of the existing method of distributing economic fruits will bring with it regrettable wounds and losses. But provided they are incurred for the benefit of the American people as an economic whole, they are worth the penalty. The national economic interest demands, on the one hand, the combination of abundant individual opportunity with efficient organization, and on the other, a wholesome distribution, of the fruits; and these joint essentials will be more certainly attained under some such system as the one suggested than they are under the present system.
The genuine economic interest of the individual, like the genuine political interest, demands a distribution of economic power and responsibility, which will enable men of exceptional ability an exceptional opportunity of exercising it. Industrial leaders, like political leaders, should be content with the opportunity of doing efficient work, and with a scale of reward which permits them to live a complete human life. At present the opportunity of doing efficient industrial work is in the case of the millionaires (not in that of their equally or more efficient employees) accompanied by an excessive measure of reward, which is, in the moral interest of the individual, either meaningless or corrupting. The point at which these rewards cease to be earned is a difficult one to define; but there certainly can be no injustice in appropriating for the community those increases in value which are due merely to a general increase in population and business; and this increase in value should be taken over by the community, no matter whether it is divided among one hundred or one hundred thousand stockholders in a corporation. The essential purpose is to secure for the whole community those elements in value which are made by the community. The semi-monopolistic organization of certain American industries is little by little enabling the government to separate from the total economic product a part at least of that fraction which is created by social rather than individual activity; and a democracy which failed to take advantage of the opportunity would be blind to its fundamental interest. To be sure, the opportunity cannot be turned to the utmost public benefit until industrial leaders, like political leaders, are willing to do efficient work partly from disinterested motives; but that statement is merely a translation into economic terms of the fundamental truth that democracy, as a political and social ideal, is founded essentially upon disinterested human action. A democracy can disregard or defy that truth at its peril.
Before dismissing this subject of a national industrial organization and a better distribution of the fruits thereof brief references must be made to certain other aspects of the matter. The measures which the central and local governments could take for the purpose of adapting our economic and social institutions to the national economic and social interest would not be exhausted by the adoption of the proposed policy of reconstruction; and several of these supplementary means, which have been proposed to accomplish the same object, deserve consideration. Some of these proposals look towards a further use of the power of taxation, possessed by both the state and the Federal governments; but it must not be supposed that in their entirety they constitute a complete system of taxation. They are merely examples, like the protective tariff, of the use of the power of taxation to combine a desirable national object with the raising of money for the expenses of government.
It may be assumed that the adoption of the policy outlined in the last section would gradually do away with certain undesirable inequalities in the distribution of wealth: but this process, it is scarcely necessary to add, would do nothing to mitigate existing inequalities. Existing inequalities ought to be mitigated; and they can be mitigated without doing the slightest injustice to their owners. The means to such mitigation are, of course, to be found in a graduated inheritance tax—a tax which has already been accepted in principle by several American states and by the English government, which certainly cannot be considered indifferent to the rights of individual property owners.
At the present stage of the argument, no very elaborate justification can be necessary, either for the object proposed by a graduated inheritance tax, or for the use of precisely these means to attain it. The preservation intact of a fortune over a certain amount is not desirable either in the public or individual interest. No doubt there are certain people who have the gift of spending money well, and whose personal value as well as the general social interest is heightened by the opportunity of being liberal. But to whatever extent such considerations afford a moral justification for private property, they have no relevancy to the case of existing American fortunes. The multi-millionaire cannot possibly spend his income save by a recourse to wild and demoralizing extravagance, and in some instances not even extravagance is sufficient for the purpose. Fortunes of a certain size either remorselessly accumulate or else are given away. There is a general disposition to justify the possession of many millions by the frequent instances among their owners of intelligent public benefaction, but such an argument is a confession that a justification is needed without constituting in itself a sufficient excuse. If wealth, particularly when accumulated in large amounts, has a public function, and if its possession imposes a public duty, a society is foolish to leave such a duty to the accidental good intentions of individuals. It should be assumed and should be efficiently performed by the state; and the necessity of that assumption is all the plainer when it is remembered that the greatest public gifts usually come from the first generation of millionaires. Men who inherit great wealth and are brought up in extravagant habits nearly always spend their money on themselves. That is one reason why the rich Englishman is so much less generous in his public gifts than the rich American. In the long run men inevitably become the victims of their wealth. They adapt their lives and habits to their money, not their money to their lives. It pre-occupies their thoughts, creates artificial needs, and draws a curtain between them and the world. If the American people believe that large wealth really requires to be justified by proportionately large public benefactions, they should assuredly adopt measures which will guarantee public service for a larger proportion of such wealth.
Whether or not the state shall permit the inheritance of large fortunes is a question which stands on a totally different footing from the question of their permissible accumulation. Many millions may, at least in part, be earned by the men who accumulate them; but they cannot in the least be earned by the people who inherit them. They could not be inherited at all save by the intervention of the state; and the state has every right to impose conditions in its own interest upon the whole business of inheritance. The public interests involved go very much beyond the matter of mitigating flagrant inequalities of wealth. They concern at bottom the effect of the present system of inheritance upon the inheritors and upon society; and in so far as the system brings with it the creation of a class of economic parasites, it can scarcely be defended. But such is precisely its general tendency. The improbability that the children will inherit with the wealth of the parent his possibly able and responsible use of it is usually apparent to the father himself; and not infrequently he ties up his millions in trust, so that they are sure to have the worst possible moral effect upon his heirs. Children so circumstanced are deprived of any economic responsibility save that of spending an excessive income; and, of course, they are bound to become more or less respectable parasites. The manifest dissociation thereby implied between the enjoyment of wealth and the personal responsibility attending its ownership, has resulted in the proposal that fathers should be forbidden by the state to arrange so carefully for the demoralization of their children and grandchildren. Even if we are not prepared to acquiesce in so radical an impairment of the rights of testators, there can be no doubt that, under a properly framed system of inheritance taxation, all property placed in trust for the benefit of male heirs above a certain amount should be subject to an exceptionally severe deduction. Whatever justification such methods of guaranteeing personal financial irresponsibility may have in aristocratic countries, in which an upper class may need a peculiar economic freedom, they are hostile both to the individual and public interest of a democratic community.
Public opinion is not, however, even remotely prepared for any radical treatment of the whole matter of inheritance; and it will not be prepared, until it has learned from experience that the existing freedom enjoyed by rich testators means the sacrifice of the quick to the dead—the mutilation of living individuals in the name of individual freedom and in order that a dead will may have its way. Until this lesson is learned the most that can be done is to work for some kind of a graduated inheritance tax, the severity of which should be dictated chiefly by conditions of practical efficiency. Considerations of practical efficiency make it necessary that the tax should be imposed exclusively by the Federal government. State inheritance taxes, sufficiently large to accomplish the desirable result, will be evaded by change of residence to another state. A Federal tax could be raised to a much higher level without prompting the two possible methods of evasion—one of which would be the legal transfer of the property during lifetime, and the other a complete change of residence to some foreign country. This second method of evasion would not constitute a serious danger, because of the equally severe inheritance laws of foreign countries. The tax at its highest level could be placed without danger of evasion at as much as twenty per cent. The United Kingdom now raises almost $100,000,000 of revenue from the source; and a slightly increased scale of taxation might yield double that amount to the American Treasury, a part of which could be turned into the state Treasuries.
There has been associated with the graduated inheritance tax the plan of a graduated income tax; but the graduated income tax would serve the proposed object both less efficiently and less equitably. It taxes the man who earns the money as well as him who inherits it. It taxes earned income as well as income derived from investments; and in taxing the income derived from investments, it cannot make any edifying discrimination as to its source. Finally, it would interfere with a much more serviceable plan of taxing the net profits of corporations subject to the jurisdiction of the Federal government—a plan which is an indispensable part of any constructive treatment of the corporation problem in the near future.
The suggestion that the inheritance tax should constitute a pillar of central rather than local taxation implicitly raises a whole series of difficult Constitutional and fiscal questions concerning the relation between central and local taxation. The discussion of these questions would carry me very much further than my present limits permit; and there is room in this connection for only one additional remark. The real estate tax and saloon licenses should, I believe, constitute the foundation of the state revenues; but inasmuch as certain states have derived a considerable part of their income from corporation and inheritance taxes, allowance would have to be made for this fact in revising the methods of Federal taxation. It is essential to any effective control over corporations and over the "money power" that corporation and inheritance taxes should be uniform throughout the country, and should be laid by the central government; but no equally good reason can be urged on behalf of the exclusive appropriation by the Federal Treasury of the proceeds of these taxes. If the states need revenues derived from these sources, a certain proportion of the net receipts could be distributed among the states. The proportion should be the same in the case of all the states; but it should be estimated in the case of any particular state upon the net yield which the Federal Treasury had derived from its residents.