The Engineers And The Price System
     
                 By Thorstein Veblen
                            
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    (New York: B. W. Huebsch, 1921)
    Publishers' Note (from 1933, 3rd. printing)
    
    The following series of papers is reprinted from the Dial, where they appeared 
    from time to time during 1919, in the month immediately following the Armistice. 
    Since then American industry has undergone a period of unprecedented prosperity, 
    which has in its turn been followed by a period of depression even more 
    aggravated than the one the author had before his eyes at the time of writing. 
    The effect has therefore been as if no substantial change had taken place in the 
    state of industry, of such a character as to make this discussion less pertinent 
    now than it was at the time it was first printed. Indeed, the contrary is the 
    case, not only because the difficulties inherent in our industrial practice have 
    since come into fuller bearing, but also because recent discussion has turned 
    more and more persistently upon the constructive suggestions embodied 
    particularly in the last essay, entitled "A Memorandum of a Practicable Soviet 
    of Technicians." The fact that these suggestions were put forward as they here 
    appear fourteen years ago removes them from the category of current "depression 
    cures"; they indicated fundamental problems whose present seriousness was 
    predictable to at least one thinker who did not subscribe to the truths of 
    conventional economics.
    January, 1933.
    

                Table of Contents:
      I. On the Nature and Uses of Sabotage
                       
     II. The Industrial System and the Captains of Industry
          
    III. The Captains of Finance and the Engineers
                   
     IV. On the Danger of a Revolutionary Overturn
                   
      V. On the Circumstances Which Make for a Change
               
     VI. A Memorandum on a Practicable Soviet of Technicians

        
            The Engineers and the Price System
    
    I
    On The Nature and Uses Of Sabotage
    
    "Sabotage" is a derivative of "sabot," which is French for a wooden shoe. It 
    means going slow, with a dragging, clumsy movement, such as that manner of 
    footgear may be expected to bring on. So it has come to describe any manoeuvre 
    of slowing­down, inefficiency, bungling, obstruction. In American usage the word 
    is very often taken to mean forcible obstruction, destructive tactics, 
    industrial frightfulness, incendiarism and high explosives, although that is 
    plainly not its first meaning nor its common meaning. Nor is that its ordinary 
    meaning as the word is used among those who have advocated a recourse to 
    sabotage as a means of enforcing an argument about wages or the conditions of 
    work. The ordinary meaning of the word is better defined by an expression which 
    has latterly come into use among the I. W. W., "conscientious withdrawal of 
    efficiency" - although that phrase does not cover all that is rightly to be 
    included under this technical term.
    	
    The sinister meaning which is often attached to the word in American usage, as 
    denoting vio-[2]lence and disorder, appears to be due to the fact that the 
    American usage has been shaped chiefly by persons and newspapers who have aimed 
    to discredit the use of sabotage by organized workmen, and who have therefore 
    laid stress on its less amiable manifestations. This is unfortunate. It lessens 
    the usefulness of the word by making it a means of denunciation rather than of 
    understanding. No doubt, violent obstruction has had its share in the strategy of 
    sabotage as carried on by disaffected workmen, as well as in the similar tactics 
    of rival business concerns. It comes into the case as one method of sabotage, 
    though by no means the most usual or the most effective; but it is so 
    spectacular and shocking a method that it has drawn undue attention to itself. 
    Yet such deliberate violence is, no doubt, a relatively minor fact in the case, 
    as compared with that deliberate malingering, confusion, and misdirection of 
    work that makes up the bulk of what the expert practitioners would recognize as 
    legitimate sabotage.
    	
    The word first came into use among the organized French workmen, the members of 
    certain syndicats, to describe their tactics of passive resistance, and it has 
    continued to be associated with [3] the strategy of these French workmen, who 
    are known as syndicalists, and with their like­minded running­mates in other 
    countries. But the tactics of these syndicalists, and their use of sabotage, do 
    not differ, except in detail, from the tactics of other workmen elsewhere, or 
    from the similar tactics of friction, obstruction, and delay habitually 
    employed, from time to time, by both employées and employers to enforce an 
    argument about wages and prices. Therefore, in the course of a quarter­century 
    past, the word has quite unavoidably taken on a general meaning in common 
    speech, and has been extended to cover all such peaceable or surreptitious 
    manoeuvres of delay, obstruction, friction, and defeat, whether employed by the 
    workmen to enforce their claims, or by the employers to defeat their employées, 
    or by competitive business concerns to get the better of their business rivals 
    or to secure their own advantage.
    	
    Such manoeuvres of restriction, delay, and hindrance have a large share in the 
    ordinary conduct of business; but it is only lately that this ordinary line of 
    business strategy has come to be recognized as being substantially of the same 
    nature as the ordinary tactics of the syndicalists. So that it [4] has not been 
    usual until the last few years to speak of manoeuvres of this kind as sabotage 
    when they are employed by employers and their business concerns. But all this 
    strategy of delay, restriction, hindrance, and defeat is manifestly of the same 
    character, and should conveniently be called by the same name, whether it is 
    carried on by business men or by workmen; so that it is no longer unusual now to 
    find workmen speaking of "capitalistic sabotage" as freely as the employers and 
    the newspapers speak of syndicalist sabotage. As the word is now used, and as it 
    is properly used, it describes a certain system of industrial strategy or 
    management, whether it is employed by one or another. What it describes is a 
    resort to peaceable or surreptitious restriction, delay, withdrawal, or 
    obstruction.
    	
    Sabotage commonly works within the law, although it may often be within the 
    letter rather than the spirit of the law. It is used to secure some special 
    advantage or preference, usually of a businesslike sort. It commonly has to do 
    with something in the nature of a vested right, which one or another of the 
    parties in the case aims to secure or defend, or to defeat or diminish; some 
    preferential right or special advantage in respect of income or privilege, 
    something in the way of a [5] vested interest. Workmen have resorted to such 
    measures to secure improved conditions of work, or increased wages, or shorter 
    hours, or to maintain their habitual standards, to all of which they have 
    claimed to have some sort of a vested right. Any strike is of the nature of 
    sabotage, of course. Indeed, a strike is a typical species of sabotage. That 
    strikes have not been spoken of as sabotage is due to the accidental fact that 
    strikes were in use before this word came into use. So also, of course, a 
    lockout is another typical species of sabotage. That the lockout is employed by 
    the employers against the employées does not change the fact that it is a means 
    of defending a vested right by delay, withdrawal, defeat, and obstruction of the 
    work to be done. Lockouts have not usually been spoken of as sabotage, for the 
    same reason that holds true in the case of strikes. All the while it has been 
    recognized that strikes and lockouts are of identically the same character.
    
    All this does not imply that there is anything discreditable or immoral about 
    this habitual use of strikes and lockouts. They are part of the ordinary conduct 
    of industry under the existing system, and necessarily so. So long as the system 
    remains unchanged these measures are a necessary and legitimate part of it. By 
    virtue of his [6] ownership the owner­employer has a vested right to do as he 
    will with his own property, to deal or not to deal with any person that offers, 
    to withhold or withdraw any part or all of his industrial equipment and natural 
    resources from active use for the time being, to run on half time or to shut 
    down his plant and to lock out all those persons for whom he has no present use 
    on his own premises. There is no question that the lockout is altogether a 
    legitimate manoeuvre. It may even be meritorious, and it is frequently 
    considered to be meritorious when its use helps to maintain sound conditions in 
    business - that is to say profitable conditions - as frequently happens. Such is 
    the view of the substantial citizens. So also is the strike legitimate, so long 
    as it keeps within the law; and it may at times even be meritorious, at least in 
    the eyes of the strikers. It is to be admitted quite broadly that both of these 
    typical species of sabotage are altogether fair and honest in principle, 
    although it does not therefore follow that every strike or every lockout is 
    necessarily fair and honest in its working­out. That is in some degree a 
    question of special circumstances.
    	
    Sabotage, accordingly, is not to be condemned out of hand, simply as such. There 
    are many [7] measures of policy and management both in private business and in 
    public administration which are unmistakably of the nature of sabotage and which 
    are not only considered to be excusable, but are deliberately sanctioned by 
    statute and common law and by the public conscience. Many such measures are 
    quite of the essence of the case under the established system of law and order, 
    price and business, and are faithfully believed to be indispensable to the 
    common good. It should not be difficult to show that the common welfare in any 
    community which is organized on the price system cannot be maintained without a 
    salutary use of sabotage - that it to say, such habitual recourse to delay and 
    obstruction of industry and such restriction of output as will maintain prices 
    at a reasonably profitable level and so guard against business depression. 
    Indeed, it is precisely considerations of this nature that are now engaging the 
    best attention of officials and business men in their endeavors to tide over a 
    threatening depression in American business and a consequent season of hardship 
    for all those persons whose main dependence is free income from investments.
    Without some salutary restraint in the way of sabotage on the productive use of 
    the available [8] industrial plant and workmen, it is altogether unlikely that 
    prices could be maintained at a reasonably profitable figure for any appreciable 
    time. A businesslike control of the rate and volume of output is indispensable 
    for keeping up a profitable market, and a profitable market is the first and 
    unremitting condition of prosperity in any community whose industry is owned and 
    managed by business men. And the ways and means of this necessary control of the 
    output of industry are always and necessarily something in the nature of 
    sabotage - something in the way of retardation, restriction, withdrawal, 
    unemployment of plant and workmen - whereby production is kept short of 
    productive capacity.
    	
    The mechanical industry of the new order is inordinately productive. So the rate 
    and volume of output have to be regulated with a view to what the traffic will 
    bear - that is to say, what will yield the largest net return in terms of price 
    to the business men who manage the country's industrial system. Otherwise there 
    will be "overproduction," business depression, and consequent hard times all 
    around. Overproduction means production in excess of what the market will carry 
    off at a sufficiently profitable price. So it appears that the continued 
    prosperity of the [9] country from day to day hangs on a "conscientious 
    withdrawal of efficiency" by the business men who control the country's 
    industrial output. They control it all for their own use, of course, and their 
    own use means always a profitable price.
    	
    In any community that is organized on the price system, with investment and 
    business enterprise, habitual unemployment of the available industrial plant and 
    workmen, in whole or in part, appears to be the indispensable condition without 
    which tolerable conditions of life cannot be maintained. That is to say, in no 
    such community can the industrial system be allowed to work at full capacity for 
    any appreciable interval of time, on pain of business stagnation and consequent 
    privation for all classes and conditions of men. The requirements of profitable 
    business will not tolerate it. So the rate and volume of output must be adjusted 
    to the needs of the market, not to the working capacity of the available 
    resources, equipment and man power, nor to the community's need of consumable 
    goods. Therefore there must always be a certain variable margin of unemployment 
    of plant and manpower. Rate and volume of output can, of course, not be adjusted 
    by exceeding the productive capacity of the industrial system. So it has to be 
    regulated by keep-[10]ing short of maximum production by more or less as the 
    condition of the market may require. It is always a question of more or less 
    unemployment of plant and man power, and a shrewd moderation in the unemployment 
    of these available resources, a "conscientious withdrawal of efficiency," 
    therefore, is the beginning of wisdom in all sound workday business enterprise 
    that has to do with industry.
    	
    All this is matter of course, and notorious. But it is not a topic on which one 
    prefers to dwell. Writers and speakers who dilate on the meritorious exploits of 
    the nation's business men will not commonly allude to this voluminous running 
    administration of sabotage, this conscientious withdrawal of efficiency, that 
    goes into their ordinary day's work. One prefers to dwell on those exceptional, 
    sporadic, and spectacular episodes in business where business men have now and 
    again successfully gone out of the safe and sane highway of conservative 
    business enterprise that is hedged about with a conscientious withdrawal of 
    efficiency, and have endeavored to regulate the output by increasing the 
    productive capacity of the industrial system at one point or another.
    But after all, such habitual recourse to peaceable or surreptitious measures of 
    restraint, delay, [11] and obstruction in the ordinary businesslike management 
    of industry is too widely known and too well approved to call for much 
    exposition or illustration. Yet, as one capital illustration of the scope and 
    force of such businesslike withdrawal of efficiency, it may be in place to 
    recall that all the civilized nations are just now undergoing an experiment in 
    businesslike sabotage on an unexampled scale and carried out with unexampled 
    effrontery. All these nations that have come through the war, whether as 
    belligerents or as neutrals, have come into a state of more or less pronounced 
    distress, due to a scarcity of the common necessaries of life; and this distress 
    falls, of course, chiefly on the common sort, who have at the same time borne 
    the chief burden of the war which has brought them to this state of distress.
    
    The common man has won the war and lost his livelihood. This need not be said by 
    way of praise or blame. As it stands it is, broadly, an objective statement of 
    fact, which may need some slight qualification, such as broad statements of fact 
    will commonly need. All these nations that have come through the war, and more 
    particularly the common run of their populations, are very much in need of all 
    sorts of supplies for daily use, both for immediate consumption and for produc-
    [12]tive use. So much so that the prevailing state of distress rises in many 
    places to an altogether unwholesome pitch of privation, for want of the 
    necessary food, clothing, shelter, and fuel. Yet in all these countries the 
    staple industries are slowing down. There is an ever increasing withdrawal of 
    efficiency. The industrial plant is increasingly running idle or half idle, 
    running increasingly short of its productive capacity. Workmen are being laid 
    off and an increasing number of those workmen who have been serving in the 
    armies are going idle for want of work, at the same time that the troops which 
    are no longer needed in the service are being demobilized as slowly as popular 
    sentiment will tolerate, apparently for fear that the number of unemployed 
    workmen in the country may presently increase to such proportions as to bring on 
    a catastrophe. And all the while all these peoples are in great need of all 
    sorts of goods and services which these idle plants and idle workmen are fit to 
    produce. But for reasons of business expediency it is impossible to let these 
    idle plants and idle workmen go to work - that is to say for reasons of 
    insufficient profit to the business men interested, or in other words, for the 
    reasons of insufficient income to the vested interests which control the [13] 
    staple industries and so regulate the output of product. The traffic will not 
    bear so large a production of goods as the community needs for current 
    consumption, because it is considered doubtful whether so large a supply could 
    be sold at prices that would yield a reasonable profit on the investment - or 
    rather on the capitalization; that is to say, it is considered doubtful whether 
    an increased production, such as to employ more workmen and supply the goods 
    needed by the community, would result in an increased net aggregate income for 
    the vested interests which control these industries. A reasonable profit always 
    means, in effect, the largest obtainable profit.
    	
    All this is simple and obvious, and it should scarcely need explicit statement. 
    It is for these business men to manage the country's industry, of course, and 
    therefore to regulate the rate and volume of output; and also of course any 
    regulation of the output by them will be made with a view to the needs of 
    business; that is to say, with a view to the largest obtainable net profit, not 
    with a view to the physical needs of these peoples who have come through the war 
    and have made the world safe for the business of the vested interests. Should 
    the business men in charge, by [14] any chance aberration, stray from this 
    straight and narrow path of business integrity, and allow the community's needs 
    unduly to influence their management of the community's industry, they would 
    presently find themselves discredited and would probably face insolvency. Their 
    only salvation is a conscientious withdrawal of efficiency. All this lies in the 
    nature of the case. It is the working of the price system, whose creatures and 
    agents these business men are. Their case is rather pathetic, as indeed they 
    admit quite volubly. They are not in a position to manage with a free hand, the 
    reason being that they have in the past, under the routine requirements of the 
    price system as it takes effect in corporation finance, taken on so large an 
    overhead burden of fixed charges that any appreciable decrease in the net 
    earnings of the business will bring any well­managed concern of this class face 
    to face with bankruptcy.
    	
    At the present conjuncture, brought on by the war and its termination, the case 
    stands somewhat in this typical shape. In the recent past earnings have been 
    large; these large earnings (free income) have been capitalized; their 
    capitalized value has been added to the corporate capital and covered with 
    securities bearing a fixed income­[15]charge; this income­charge, representing 
    free income, has thereby become a liability on the earnings of the corporation; 
    this liability cannot be met in case the concern's net aggregate earnings fall 
    off in any degree; therefore prices must be kept up to such a figure as will 
    bring the largest net aggregate return, and the only means of keeping up prices 
    is a conscientious withdrawal of efficiency in these staple industries on which 
    the community depends for a supply of the necessaries of life.
    	
    The business community has hopes of tiding things over by this means, but it is 
    still a point in doubt whether the present unexampled large use of sabotage in 
    the businesslike management of the staple industries will now suffice to bring 
    the business community through this grave crisis without a disastrous shrinkage 
    of its capitalization, and a consequent liquidation; but the point is not in 
    doubt that the physical salvation of these peoples who have come through the war 
    must in any case wait on the pecuniary salvation of these owners of corporate 
    securities which represent free income. It is a sufficiently difficult passage. 
    It appears that production must be curtailed in the staple industries, on pain 
    of unprofitable prices. The case is not so desperate in those industries [16] 
    which have immediately to do with the production of superfluities; but even 
    these, which depend chiefly on the custom of those kept classes to whom the free 
    income goes, are not feeling altogether secure. For the good of business it is 
    necessary to curtail production of the means of life, on pain of unprofitable 
    prices, at the same time that the increasing need of all sorts of the 
    necessaries of life must be met in some passable fashion, on pain of such 
    popular disturbances as will always come of popular distress when it passes the 
    limit of tolerance.
    	
    Those wise business men who are charged with administering the salutary modicum 
    of sabotage at this grave juncture may conceivably be faced with a dubious 
    choice between a distasteful curtailment of the free income that goes to the 
    vested interests, on the one hand, and an unmanageable onset of popular 
    discontent on the other hand. And in either alternative lies disaster. Present 
    indications would seem to say that their choice will fall out according to 
    ancient habit, that they will be likely to hold fast by an undiminished free 
    income for the vested interests at the possible cost of any popular discontent 
    that may be in prospect - and then, with the help of the courts and the military 
    arm, presently make reasonable [17] terms with any popular discontent that may 
    arise. In which event it should all occasion no surprise or resentment, inasmuch 
    as it would be nothing unusual or irregular and would presumably be the most 
    expeditious way of reaching a modus vivendi. During the past few weeks, too, 
    quite an unusually large number of machine guns have been sold to industrial 
    business concerns of the larger sort, here and there, at least so they say. 
    Business enterprise being the palladium of the Republic, it is right to take any 
    necessary measures for its safeguarding. Price is of the essence of the case, 
    whereas livelihood is not.
    	
    The grave emergency that has arisen out of the war and its provisional 
    conclusion is, after all, nothing exceptional except in magnitude and severity. 
    In substance it is the same sort of thing that goes on continually but 
    unobtrusively and as a matter of course in ordinary times of business as usual. 
    It is only that the extremity of the case is calling attention to itself. At the 
    same time it serves impressively to enforce the broad proposition that a 
    conscientious withdrawal of efficiency is the beginning of wisdom in all 
    established business enterprise that has to do with industrial production. But 
    it has been found that this grave interest which the vested interests always 
    have in [18] a salutary retardation of industry at one point or another cannot 
    well be left altogether to the haphazard and ill­coordinated efforts of 
    individual business concerns, each taking care of its own particular line of 
    sabotage within its own premises. The needed sabotage can best be administered 
    on a comprehensive plan and by a central authority, since the country's industry 
    is of the nature of a comprehensive interlocking system, whereas the business 
    concerns which are called on to control the motions of this industrial system 
    will necessarily work piecemeal, in severalty and at cross­purposes. In effect, 
    their working at cross­purposes results in a sufficiently large aggregate 
    retardation of industry, of course, but the resulting retardation is necessarily 
    somewhat blindly apportioned and does not converge to a neat and perspicuous 
    outcome. Even a reasonable amount of collusion among the interested business 
    concerns will not by itself suffice to carry on that comprehensive moving 
    equilibrium of sabotage that is required to preserve the business community from 
    recurrent collapse or stagnation, or to bring the nation's traffic into line 
    with the general needs of the vested interests.
    	
    Where the national government is charged with the general care of the country's 
    business in-[19]terests, as is invariably the case among the civilized nations, 
    it follows from the nature of the case that the nation's lawgivers and 
    administration will have some share in administering that necessary modicum of 
    sabotage that must always go into the day's work of carrying on industry by 
    business methods and for business purposes. The government is in a position to 
    penalize excessive or unwholesome traffic. So, it is always considered 
    necessary, or at least expedient, by all sound mercantilists, as by a tariff or 
    by subsidies, to impose and maintain a certain balance or proportion among the 
    several branches of industry and trade that go to make up the nation's 
    industrial system. The purpose commonly urged for measures of this class is the 
    fuller utilization of the nation's industrial resources in material, equipment, 
    and man power; the invariable effect is a lowered efficiency and a wasteful use 
    of these resources, together with an increase of international jealousy. But 
    measures of that kind are thought to be expedient by the mercantilists for these 
    purposes - that is to say, by the statesmen of these civilized nations, for the 
    purposes of the vested interests. The chief and nearly the sole means of 
    maintaining such a fabricated balance and proportion among the nation's 
    industries is to [20] obstruct the traffic at some critical point by prohibiting 
    or penalizing any exuberant undesirables among these branches of industry. 
    Disallowance, in whole or in part, is the usual and standard method.
    
    The great standing illustration of sabotage administered by the government is 
    the protective tariff, of course. It protects certain special interests by 
    obstructing competition from beyond the frontier. This is the main use of a 
    national boundary. The effect of the tariff is to keep the supply of goods down 
    and thereby keep the price up, and so to bring reasonably satisfactory dividends 
    to those special interests which deal in the protected articles of trade, at the 
    cost of the underlying community. A protective tariff is a typical conspiracy 
    in restraint of trade. It brings a relatively small, though absolutely large, 
    run or free income to the special interests which benefit by it, at a 
    relatively, and absolutely, large cost to the underlying community, and so it 
    gives rise to a body of vested rights and intangible assets belonging to these 
    special interests.
    	
    Of a similar character, in so far that in effect they are in the nature of 
    sabotage - conscientious withdrawal of efficiency - are all manner of excise and 
    revenue­stamp regulations; although [21] they are not always designed for that 
    purpose. Such would be, for instance, the partial or complete prohibition of 
    alcoholic beverages, the regulation of the trade in tobacco, opium, and other 
    deleterious narcotics, drugs, poisons, and high explosives. Of the same nature, 
    in effect if not in intention, are such regulations as the oleomargarine law; as 
    also the unnecessarily costly and vexatious routine of inspection imposed on the 
    production of industrial (denatured) alcohol, which has inured to the benefit of 
    certain business concerns that are interested in other fuels for use in 
    internal­combustion engines; so also the singularly vexatious and elaborately 
    imbecile specifications that limit and discourage the use of the parcel post, 
    for the benefit of the express companies and other carriers which have a vested 
    interest in traffic of that kind.
    	
    It is worth noting in the same connection, although it comes in from the other 
    side of the case, that ever since the express companies have been taken over by 
    the federal administration there has visibly gone into effect a comprehensive 
    system of vexation and delay in the detail conduct of their traffic, so 
    contrived as to discredit federal control of this traffic and thereby provoke a 
    popular sentiment in favor of its early return to pri-[22]vate control. Much the 
    same state of things has been in evidence in the railway traffic under similar 
    conditions. Sabotage is serviceable as a deterrent, whether in furtherance of 
    the administration's work or in contravention of it.
    
    In what has just been said there is, of course, no intention to find fault with 
    any of these uses of sabotage. It is not a question of morals and good 
    intentions. It is always to be presumed as a matter of course that the guiding 
    spirit in all such governmental moves to regularize the nation's affairs, 
    whether by restraint or by incitement, is a wise solicitude for the nation's 
    enduring gain and security. All that can be said here is that many of these wise 
    measures of restraint and incitement are in the nature of sabotage, and that in 
    effect they habitually, though not invariably, inure to the benefit of certain 
    vested interests - ordinarily vested interests which bulk large in the ownership 
    and control of the nation's resources. That these measures are quite legitimate 
    and presumably salutary, therefore, goes without saying. In effect they are 
    measures for hindering traffic and industry at one point or another, which may 
    often be a wise business precaution.
    	
    During the period of the war administrative [23] measures in the nature of 
    sabotage have been ereatly extended in scope and kind. Peculiar and imperative 
    exigencies have had to be met, and the staple means of meeting many of these new 
    and exceptional exigencies has quite reasonably been something in the way of 
    avoidance, disallowance, penalization, hindrance, a conscientious withdrawal of 
    efficiency from work that does not fall in with the purposes of the 
    Administration. Very much as is true in private business when a situation of 
    doubt and hazard presents itself, so also in the business of government at the 
    present juncture of exacting demands and inconvenient limitations, the 
    Administration has been driven to expedients of disallowance and obstruction 
    with regard to some of the ordinary processes of life, as, for instance, in the 
    non­essential industries. It has also appeared that the ordinary equipment and 
    agencies for gathering and distributing news and other information have in the 
    past developed a capacity far in excess of what can safely be permitted in time 
    of war or of returning peace. The like is true for the ordinary facilities for 
    public discussion of all sorts of public questions. The ordinary facilities, 
    which may have seemed scant enough in time of peace and slack interest, had 
    after all developed a capacity far beyond what the governmental traffic 
    will bear in these uneasy times of war and negotiations, when men are very much 
    on the alert to know what is going on. By a moderate use of the later 
    improvements in the technology of transport and communication, the ordinary 
    means of disseminating information and opinions have grown so efficient that the 
    traffic can no longer be allowed to run at full capacity during a period of 
    stress in the business of government. Even the mail service has proved 
    insufferably efficient, and a selective withdrawal of efficiency has gone into 
    effect. To speak after the analogy of private business, it has been found best 
    to disallow such use of the mail facilities as does not inure to the benefit of 
    the Administration in the way of good will and vested rights of usufruct.
    
    These peremptory measures of disallowance have attracted a wide and dubious 
    attention; but they have doubtless been of a salutary nature and intention, in 
    some way which is not to be understood by outsiders - that is to say, by 
    citizens of the Republic. An unguarded dissemination of information and opinions 
    or an unduly frank canvassing of the relevant facts by these outsiders, will be 
    a handicap on the Administration's work, [25] and may even defeat the 
    Administration's aims. At least so they say.
    	
    Something of much the same color has been observed elsewhere and in other times, 
    so that all this nervously alert resort to sabotage on undesirable information 
    and opinions is nothing novel, nor is it peculiarly democratic. The elder 
    statesmen of the great monarchies, east and west, have long seen and approved 
    the like. But these elder statesmen of the dynastic régime have gone to their 
    work of sabotage on information because of a palpable division of sentiment 
    between their government and the underlying population, such as does not exist 
    in the advanced democratic commonwealths. The case of Imperial Germany during 
    the period of the war is believed to show such a division of sentiment between 
    the government and the underlying population, and also to show how such a 
    divided sentiment on the part of a distrustful and distrusted population had 
    best be dealt with. The method approved by German dynastic experience is 
    sabotage, of a somewhat free swung character, censorship, embargo on 
    communication, and also, it is confidently alleged, elaborate misinformation.
    Such procedure on the part of the dynastic statesmen of the Empire is 
    comprehensible even [26] to a layman. But how it all stands with those advanced 
    democratic nations, like America, where the government is the dispassionately 
    faithful agent and spokesman of the body of citizens, and where there can 
    consequently be no division of aims and sentiment between the body of officials 
    and any underlying population - all that is a more obscure and hazardous subject 
    of speculation. Yet there has been censorship, somewhat rigorous, and there has 
    been selective refusal of mail facilities, somewhat arbitrary, in these 
    democratic commonwealths also, and not least in America, freely acknowledged to 
    be the most naively democratic of them all. And all the while one would like to 
    believe that it all has somehow served some useful end. It is all sufficiently 
    perplexing.
    
    II
    
    The Industrial System and the Captains of Industry
    
    It has been usual, and indeed it still is not unusual, to speak of three 
    coordinate "factors of production": land, labor, and capital. The reason for 
    this threefold scheme of factors in production is that there have been three 
    recognized classes of income: rent, wages, and profits; and it has been assumed 
    that whatever yields an income is a productive factor. This scheme has come down 
    from the eighteenth century. It is presumed to have been true, in a general way, 
    under the conditions which prevailed in the eighteenth century, and it has 
    therefore also been assumed that it should continue to be natural, or normal, 
    true in some eminent sense, under any other conditions that have come on since 
    that time.
    	
    Seen in the light of later events this threefold plan of coordinate factors in 
    production is notable for what it omits. It assigns no productive effect to the 
    industrial arts, for example, for the [28] conclusive reason that the state of 
    the industrial arts yields no stated or ratable income to any one class of 
    persons; it affords no legal claim to a share in the community's yearly 
    production of goods. The state of the industrial art is a joint stock of 
    knowledge derived from past experience, and is held and passed on as an 
    indivisible possession of the community at large. It is the indispensable 
    foundation of all productive industry, of course, but except for certain minute 
    fragments covered by patent rights or trade secrets, this joint stock is no 
    man's individual property. For this reason it has not been counted in as a 
    factor in production. The unexampled advance of technology during the past one 
    hundred and fifty years has now begun to call attention to its omission from the 
    threefold plan of productive factors handed down from that earlier time.
    Another omission from the scheme of factors, as it was originally drawn, was the 
    business man. But in the course of the nineteenth century the business man came 
    more and more obtrusively to the front and came in for a more and more generous 
    portion of the country's yearly income - which was taken to argue that he also 
    contributed increasingly to the yearly production of goods. So a fourth factor 
    of production has provisionally [29] been added to the threefold scheme, in the 
    person of the "entrepreneur," whose wages of management are considered to 
    measure his creative share in the production of goods, although there still is 
    some question as to the precise part of the entrepreneur in productive industry.
    "Entrepreneur" is a technical term to designate the man who takes care of the 
    financial end of things. It covers the same fact as the more familiar "business 
    man," but with a vague suggestion of big business rather than small. The typical 
    entrepreneur is the corporation financier. And since the corporation financier 
    has habitually come in for a very substantial share of the community's yearly 
    income he has also been conceived to render a very substantial service to the 
    community as a creative force in that productive industry out of which the 
    yearly income arises. Indeed, it is nearly true that in current usage "producer" 
    has come to mean "financial manager," both in the standard economic theory and 
    in everyday speech.
    	
    There need of course be no quarrel with all this. It is a matter of usage. 
    During the era of the machine industry - which is also the era of the commercial 
    democracy - business men have controlled production and have managed the [30] 
    industry of the commonwealth for their own ends, so that the material fortunes 
    of all the civilized peoples have continued to turn on the financial management 
    of their businessmen. And during the same period not only have the conditions of 
    life among these civilized peoples continued to be fairly tolerable on the 
    whole, but it is also true that the industrial system which these business men 
    have been managing for their own private gain all this time has continually been 
    growing more efficient on the whole. Its productive capacity per unit of 
    equipment and man power has continually grown larger. For this very creditable 
    outcome due credit should be, as indeed it has been, given to the business 
    community which has had the oversight of things. The efficient enlargement of 
    industrial capacity has, of course, been due to a continued advance in 
    technology, to a continued increase of the available natural resources, and to a 
    continued increase of population. But the business community have also had a 
    part in bringing all this to pass; they have always been in a position to hinder 
    this growth, and it is only by their consent and advice that things have been 
    enabled to go forward so far as they have gone.
    	
    This sustained advance in productive capacity, [31] due to the continued advance 
    in technology and in population, has also had another notable consequence. 
    According to the Liberal principles of the eighteenth century any legally 
    defensible receipt of income is a sure sign of productive work done. Seen in the 
    light of this assumption, the visibly increasing productive capacity of the 
    industrial system has enabled all men of a liberal and commercial mind not only 
    to credit the businesslike captains of industry with having created this 
    productive capacity, but also to overlook all that the same captains of industry 
    have been doing in the ordinary course of business to hold productive industry 
    in check. And it happens that all this time things have been moving in such a 
    direction and have now gone so far that it is today quite an open question 
    whether the businesslike management of the captains is not more occupied with 
    checking industry than with increasing its productive capacity.
    	
    This captain of industry, typified by the corporation financier, and latterly by 
    the investment banker, is one of the institutions that go to make up the new 
    order of things, which has been coming on among all the civilized peoples ever 
    since the Industrial Revolution set in. As such, as an [32] institutional 
    growth, his life history hitherto should be worth looking into for any one who 
    proposes to understand the recent growth and present drift of this new economic 
    order. The beginnings of the captain of industry are to be seen at their best 
    among those enterprising Englishmen who made it their work to carry the 
    industrial promise of the Revolution out into tangible performance, during the 
    closing decades of the eighteenth and the early decades of the nineteenth 
    century. These captains of the early time are likely to be rated as inventors, 
    at least in a loose sense of the word. But it is more to the point that they 
    were designers and builders of factory, mill, and mine equipment, of engines, 
    processes, machines, and machine tools, as well as shop managers, at the same 
    time that they took care, more or less effectually, of the financial end. 
    Nowhere do these beginnings of the captain of industry stand out so convincingly 
    as among the English tool­builders of that early time, who designed, tried out, 
    built, and marketed that series of indispensable machine tools that has made the 
    practical foundation of the mechanical industry. Something to much the same 
    effect is due to be said for the pioneering work of the Americans [33] along the 
    same general lines of mechanical design and performance at a slightly later 
    period. To men of this class the new industrial order owes much of its early 
    success as well as of its later growth.
    
    These men were captains of industry, entrepreneurs, in some such simple and 
    comprehensive sense of the word as that which the economists appear to have had 
    in mind for a hundred years after, when they have spoken of the wages of 
    management that are due the entrepreneur for productive work done. They were a 
    cross between a business man and an industrial expert, and the industrial expert 
    appears to have been the more valuable half in their composition. But factory, 
    mine, and ship owners, as well as merchants and bankers, also made up a vital 
    part of that business community out of whose later growth and specialization the 
    corporation financier of the nineteenth and twentieth centuries has arisen. His 
    origins are both technological and commercial, and in that early phase of his 
    life history which has been taken over into the traditions of economic theory 
    and of common sense he carried on both of these lines of interest and of work in 
    combination. That was before the large scale, [34] the wide sweep, and the 
    profound specialization of the advanced mechanical industry had gathered 
    headway.
    
    But progressively the cares of business management grew larger and more 
    exacting, as the scale of things in business grew larger, and so the directive 
    head of any such business concern came progressively to give his attention more 
    and more exclusively to the "financial end." At the same time and driven by the 
    same considerations the businesslike management of industry has progressively 
    been shifting to the footing of corporation finance. This has brought on a 
    further division, dividing the ownership of the industrial equipment and 
    resources from their management. But also at the same time the industrial 
    system, on its technological side, has been progressively growing greater and 
    going farther in scope diversity, specialization, and complexity, as well as in 
    productive capacity per unit of equipment and man power.
    
    The last named item of change, the progressive increase of productive capacity, 
    is peculiarly significant in this connection. Through the earlier and pioneering 
    decades of the machine era it appears to have been passably true that the 
    ordinary routine of management in industrial busi-[35]ness was taken up with 
    reaching out for new ways and means and speeding up production to maximum 
    capacity. That was before standardization of processes and of unit products and 
    fabrication of parts had been carried far, and therefore before quantity 
    production had taken on anything like its later range and reach. And, partly 
    because of that fact - because quantity production was then still a slight 
    matter and greatly circumscribed, as contrasted with its later growth - the 
    ordinary volume of output in the mechanical industries was still relatively 
    slight and manageable. Therefore those concerns that were engaged in these 
    industries still had a fairly open market for whatever they might turn out, a 
    market capable of taking up any reasonable increase of output. Exceptions to 
    this general rule occurred; as, e.g., in textiles. But the general rule stands 
    out obtrusively through the early decades of the nineteenth century so far as 
    regards English industry, and even more obviously in the case of America. Such 
    an open market meant a fair chance for competitive production, without too much 
    risk of overstocking. And running to the same effect, there was the continued 
    increase of population and the continually increasing reach and volume of the 
    means of transport, serving to [36] maintain a free market for any prospective 
    increase of output, at prices which offered a fair prospect of continued profit. 
    In the degree in which this condition of things prevailed a reasonably free 
    competitive production would be practicable.
    
    The industrial situation so outlined began visibly to give way toward the middle 
    of the nineteenth century in England, and at a correspondingly later period in 
    America. The productive capacity of the mechanical industry was visibly 
    overtaking the capacity of the market, so that free competition without 
    afterthought was no longer a sound footing on which to manage production. 
    Loosely, this critical or transitional period falls in and about the second 
    quarter of the nineteenth century in England; elsewhere at a correspondingly 
    later date. Of course the critical point, when business exigencies began to 
    dictate a policy of combination and restriction, did not come at the same date 
    in all or in most of the mechanical industries; but it seems possible to say 
    that, by and large, the period of transition to a general rule of restriction in 
    industry conies on at the time and for the reason so indicated. There were also 
    other factors engaged in that industrial situation, besides those spoken of 
    above, [37] less notable and less sharply defined, but enforcing limitations of 
    the same character. Such were, e.g., a rapidly gaining obsolescence of 
    industrial plant, due to improvements and extensions, as also the partial 
    exhaustion of the labor supply by persistent overwork, underfeeding, and 
    unsanitary conditions - but this applies to the English case rather than 
    elsewhere.
    
    In point of time this critical period in the affairs of industrial business 
    coincides roughly with the coming in of corporation finance as the ordinary and 
    typical method of controlling the industrial output. Of course the corporation, 
    or company, has other uses besides the restrictive control of the output with a 
    view to a profitable market, but it should be sufficiently obvious that the 
    combination of ownership and centralization of control which the corporation 
    brings about is also exceedingly convenient for that purpose. And when it 
    appears that the general resort to corporate organization of the larger sort 
    sets in about the time when business exigencies begin to dictate an imperative 
    restriction of output, it is not easy to avoid the conclusion that this was one 
    of the ends to be served by this reorganization of business enterprise. Business 
    enterprise may fairly be said to have shifted from the footing of [38] 
    free­swung competitive production to that of a "conscientious withholding of 
    efficiency," so soon and so far as corporation finance on a sufficiently large 
    scale had come to be the controlling factor in industry. At the same time and in 
    the same degree the discretionary control of industry, and of other business 
    enterprise in great part, has passed into the hands of the corporation 
    financier.
    
    Corporate organization has continually gone forward to a larger scale and a more 
    comprehensive coalition of forces, and at the same time, and more and more 
    visibly, it has become the ordinary duty of the corporate management to adjust 
    production to the requirements of the market by restricting the output to what 
    the traffic will bear; that is to say, what will yield the largest net earnings. 
    Under corporate management it rarely happens that production is pushed to the 
    limit of capacity. It happens, and can happen, only rarely and intermittently. 
    This has been true, increasingly, ever since the ordinary productive capacity of 
    the mechanical industries seriously began to overtake and promised to exceed 
    what the market would carry off at a reasonably profitable price. And ever since 
    that critical turn in the affairs of industrial business - somewhere in the 
    middle half of the nineteenth century - it [39] has become increasingly 
    imperative to use a wise moderation and stop down the output to such a rate and 
    volume as the traffic will bear. The cares of business have required an 
    increasingly undivided attention on the part of the business men, and in an ever 
    increasing measure their day's work has come to center about a running 
    adjustment of sabotage on production. And for this purpose, evidently, the 
    corporate organization of this business, on an increasingly large scale, is very 
    serviceable, since the requisite sabotage on productive industry can be 
    effectually administered only on a large plan and with a firm hand.
    
    "The leaders in business are men who have studied and thought all their lives. 
    They have thus learned to decide big problems at once, basing their decisions 
    upon their knowledge of fundamental principles." - Jeremiah W. Jenks. That is to 
    say, the surveillance of this financial end of industrial business, and the 
    control of the requisite running balance of sabotage, have been reduced to a 
    routine governed by settled principles of procedure and administered by suitably 
    trained experts in corporation finance. But under the limitations to which all 
    human capacity is subject it follows from this increasingly exacting dis-
    [40]cipline of business administration that the business men are increasingly 
    out of touch with that manner of thinking and those elements of knowledge that 
    go to make up the logic and the relevant facts of the mechanical technology. 
    Addiction to a strict and unremitting valuation of all things in terms of price 
    and profit leaves them, by settled habit, unfit to appreciate those 
    technological facts and values that can be formulated only in terms of tangible 
    mechanical performance; increasingly so with every further move into a stricter 
    addiction to businesslike management and with every further advance of the 
    industrial system into a still wider scope and a still more diversified and more 
    delicately balanced give and take among its interlocking members.
    
    They are experts in prices and profits and financial manoeuvres; and yet the 
    final discretion in all questions of industrial policy continues to rest in 
    their hands. They are by training and interest captains of finance; and yet, 
    with no competent grasp of the industrial arts, they continue to exercise a 
    plenary discretion as captains of industry. They are unremittingly engaged in a 
    routine of acquisition, in which they habitually reach their ends by a shrewd 
    restriction of output; and yet they continue to be entrusted with the com-
    munity's industrial welfare, which calls for maximum production.
    Such has been the situation in all the civilized countries since corporation 
    finance has ruled industry, and until a recent date. Quite recently this settled 
    scheme of business management has shown signs of giving way, and a new move in 
    the organization of business enterprise has come in sight, whereby the 
    discretionary control of industrial production is shifting still farther over to 
    the side of finance and still farther out of touch with the requirements of 
    maximum production. The new move is of a twofold character: (a) the financial 
    captains of industry have been proving their industrial incompetence in a 
    progressively convincing fashion, and (b) their own proper work of financial 
    management has progressively taken on a character of standardized routine such 
    as no longer calls for or admits any large measure of discretion or initiative. 
    They have been losing touch with the management of industrial processes, at the 
    same time that the management of corporate business has, in effect, been 
    shifting into the hands of a bureaucratic clerical staff. The corporation 
    financier of popular tradition is taking on the character of a chief of bureau.
    
    The changes which have brought the corporation financier to this somewhat 
    inglorious position of a routine administrator set in along with the early 
    growth of corporation finance, somewhere around the middle of the nineteenth 
    century, and they have come to a head somewhere about the passage to the 
    twentieth century, although it is only since the latter date that the outcome is 
    becoming at all clearly defined. When corporate organization and the consequent 
    control of output came into bearing there were two lines of policy open to the 
    management: (a) to maintain profitable prices by limiting the output, and (b) to 
    maintain profits by lowering the production cost of an increased output. To some 
    extent both of these lines were followed, but on the whole the former proved the 
    more attractive; it involved less risk, and it required less acquaintance with 
    the working processes of industry. At least it appears that in effect the 
    preference was increasingly given to the former method during this half­century 
    of financial management. For this there were good reasons. The processes of 
    production were continually growing more extensive, diversified, complicated, 
    and more difficult for any layman in technology to comprehend - and the 
    corporation financier was such a layman, [43] necessarily and increasingly so, 
    for reasons indicated above. At the same time, owing to a continued increase of 
    population and a continued extension of the industrial system, the net product 
    of industry and its net earnings continued to increase independently of any 
    creative effort on the part of the financial management. So the corporation 
    financier, as a class, came in for an "unearned increment" of income, on the 
    simple plan of "sitting tight." That plan is intelligible to any layman. All 
    industrial innovation and all aggressive economy in the conduct of industry not 
    only presumes an insight into the technological details of the industrial 
    process, but to any other than the technological experts, who know the facts 
    intimately, any move of that kind will appear hazardous. So the business men who 
    have controlled industry, being laymen in all that concerns its management, have 
    increasingly been content to let well enough alone and to get along with an ever 
    increasing overhead charge of inefficiency, so long as they have lost nothing by 
    it. The result has been an ever increasing volume of waste and misdirection in 
    the use of equipment, resources, and man power throughout the industrial system.
    In time, that is to say within the last few years, [44] the resulting lag, leak, 
    and friction in the ordinary working of this mechanical industry under business 
    management have reached such proportions that no ordinarily intelligent outsider 
    can help seeing them wherever he may look into the facts of the case. But it is 
    the industrial experts, not the business men, who have finally begun to 
    criticize this businesslike mismanagement and neglect of the ways and means of 
    industry. And hitherto their efforts and advice have met with no cordial 
    response from the business men in charge, who have, on the whole, continued to 
    let well enough alone - that is to say, what is well enough for a short­sighted 
    business policy looking to private gain, however poorly it may serve the 
    material needs of the community. But in the meantime two things have been 
    happening which have deranged the régime of the corporation financier: 
    industrial experts, engineers, chemists, mineralogists, technicians of all 
    kinds, have been drifting into more responsible positions in the industrial 
    system and have been growing up and multiplying within the system, because the 
    system will no longer work at all without them; and on the other hand, the large 
    financial interests on whose support the corporation financiers have been 
    leaning have gradually come to realize that [45] corporation finance can best be 
    managed as a comprehensive bureaucratic routine, and that the two pillars of the 
    house of corporate business enterprise of the larger sort are the industrial 
    experts and the large financial concerns that control the necessary funds; 
    whereas the corporation financier is little more than a dubious intermediate 
    term between these two.
    
    One of the greater personages in American business finance took note of this 
    situation in the late nineties and set about turning it to account for the 
    benefit of himself and his business associates, and from that period dates a new 
    era in American corporation finance. It was for a time spoken of loosely as the 
    Era of Trust­Making, but that phrase does not describe it at all adequately. It 
    should rather be called the Era of the Investment Banker, and it has come to its 
    present stage of maturity and stability only in the course of the past 
    quarter­century.
    
    The characteristic features and the guiding purpose of this improved method in 
    corporation finance are best shown by a showing of the methods and achievements 
    of that great pioneer by whom it was inaugurated. As an illustrative case, then, 
    the American steel business in the nine-[46]ties was suffering from the 
    continued use of out­of­date processes, equipment, and locations, from wasteful 
    management under the control of stubbornly ignorant corporation officials, and 
    particularly from intermittent haphazard competition and mutual sabotage between 
    the numerous concerns which were then doing business in steel. It appears to 
    have been the last­named difficulty that particularly claimed the attention and 
    supplied the opportunity of the great pioneer. He can by no stretch of charity 
    be assumed to have had even a slight acquaintance with the technological needs 
    and shortcomings of the steel industry. But to a man of commercial vision and 
    financial sobriety it was plain that a more comprehensive, and therefore more 
    authoritative, organization and control of the steel business would readily 
    obviate much of the competition which was deranging prices. The apparent purpose 
    and the evident effect of the new and larger coalition of business interests in 
    steel was to maintain profitable prices by a reasonable curtailment of 
    production. A secondary and less evident effect was a more economical management 
    of the industry, which involved some displacement of quondam corporation 
    financiers and some introduction of industrial experts. A further, but unavowed, 
    [47] end to be served by the same move in each of the many enterprises in 
    coalition undertaken by the great pioneer and by his competitors was a bonus 
    that came to these enterprising men in the shape of an increased capitalization 
    of the business. But the notable feature of it all as seen from the point of 
    view of the public at large was always the stabilization of prices at a 
    reasonably high level, such as would always assure reasonably large earnings on 
    the increased capitalization.
    
    Since then this manner of corporation finance has been further perfected and 
    standardized, until it will now hold true that no large move in the field of 
    corporation finance can be made without the advice and consent of those large 
    funded interests that are in a position to act as investment bankers; nor does 
    any large enterprise in corporation business ever escape from the continued 
    control of the investment bankers in any of its larger transactions; nor can any 
    corporate enterprise of the larger sort now continue to do business except on 
    terms which will yield something appreciable in the way of income to the 
    investment bankers, whose continued support is necessary to its success.
    The financial interest here spoken of as the investment banker is commonly 
    something in the [48] way of a more or less articulate syndicate of financial 
    houses, and it is to be added that the same financial concerns are also 
    commonly, if not invariably, engaged or interested in commercial banking of the 
    usual kind. So that the same well­established, half­syndicated ramification of 
    banking houses that have been taking care of the country's commercial banking, 
    with its center of credit and of control at the country's financial metropolis, 
    is ready from beforehand to take over and administer the country's corporation 
    finance on a unified plan and with a view to an equitable distribution of the 
    country's net earnings among themselves and their clients. The more inclusive 
    this financial organization is, of course, the more able it will be to manage 
    the country's industrial system as an inclusive whole and prevent any hazardous 
    innovation or experiment, as well as to limit production of the necessaries to 
    such a volume of output as will yield the largest net return to itself and its 
    clients.
    
    Evidently the improved plan which has thrown the discretion and responsibility 
    into the hands of the investment banker should make for a safe and sound conduct 
    of business, such as will avoid fluctuations of price, and more particularly 
    avoid any unprofitable speeding­up of productive indus-[49]try. Evidently, too, 
    the initiative has hereby passed out of the hands of the corporation financier, 
    who has fallen into the position of a financial middleman or agent, with limited 
    discretion and with a precariously doubtful future. But all human institutions 
    are susceptible of improvement, and the course of improvement may now and again, 
    as in his case, result in supersession and displacement. And doubtless it is all 
    for the best, that is to say, for the good of business, more particularly for 
    the profit of big business.
    
    But now as always corporation finance is a traffic in credit; indeed, now more 
    than ever before. Therefore to stabilize corporate business sufficiently in the 
    hands of this inclusive quasi­syndicate of banking interests it is necessary 
    that the credit system of the country should as a whole be administered on a 
    unified plan and inclusively. All of which is taken care of by the same 
    conjunction of circumstances; the same quasi­syndicate of banking interests that 
    makes use of the country's credit in the way of corporation finance is also the 
    guardian of the country's credit at large. From which it results that, as 
    regards those large­scale credit extensions which are of substantial 
    consequence, the credits and debits are, in effect, pooled within the syndicate, 
    so that no substantial de-[50]rangement of the credit situation can take effect 
    except by the free choice of this quasi­syndicate of investment banking houses; 
    that is to say, not except they see an advantage to themselves in allowing the 
    credit situation to be deranged, and not beyond the point which will best serve 
    their collective purpose as against the rest of the community. With such a 
    closed system no extension of credit obligations or multiplication of corporate 
    securities, with the resulting inflation of values, need bring any risk of a 
    liquidation, since credits and debits are in effect pooled within the system. By 
    way of parenthesis it may also be remarked that under these circumstances 
    "credit" has no particular meaning except as a method of accounting. Credit is 
    also one of the timeworn institutions that are due to suffer obsolescence by 
    improvement.
    
    This process of pooling and syndication that is remaking the world of credit and 
    corporation finance has been greatly helped on in America by the establishment 
    of the Federal Reserve system, while somewhat similar results have been achieved 
    elsewhere by somewhat similar devices. That system has greatly helped to extend, 
    facilitate, simplify, and consolidate the unified control of the country's 
    credit arrangements, and it has very [51] conveniently left the substantial 
    control in the hands of those larger financial interests into whose hands the 
    lines of control in credit and industrial business were already being gathered 
    by force of circumstances and by sagacious management of the interested parties. 
    By this means the substantial core of the country's credit system is gathered 
    into a self­balanced whole, closed and unbreakable, self­insured against all 
    risk and derangement. All of which converges to the definitive stabilization of 
    the country's business; but since it reduces financial traffic to a riskless 
    routine it also converges to the conceivable obsolescence of corporation finance 
    and eventually, perhaps, of the investment banker.
    
    III
    The Captains of Finance and the Engineers.
    
    In more than one respect the industrial system of today is notably different 
    from anything that has gone before. It is eminently a system, self­balanced and 
    comprehensive; and it is a system of interlocking mechanical processes, rather 
    than of skilful manipulation. It is mechanical rather than manual. It is an 
    organization of mechanical powers and material resources, rather than of skilled 
    craftsmen and tools; although the skilled workmen and tools are also an 
    indispensable part of its comprehensive mechanism. It is of an impersonal 
    nature, after the fashion of the material sciences, on which it constantly 
    draws. It runs to "quantity production" of specialized and standardized goods 
    and services. For all these reasons it lends itself to systematic control under 
    the direction of industrial experts, skilled technologists, who may be called 
    "production engineers," for want of a better term.
    
    This industrial system runs on as an inclusive organization of many and diverse 
    interlocking me-[53]chanical processes, interdependent and balanced among 
    themselves in such a way that the due working of any part of it is conditioned 
    on the due working of all the rest. Therefore it will work at its best only on 
    condition that these industrial experts, production engineers, will work 
    together on a common understanding; and more particularly on condition that they 
    must not work at cross purposes. These technological specialists whose constant 
    supervision is indispensable to the due working of the industrial system 
    constitute the general staff of industry, whose work it is to control the 
    strategy of production at large and to keep an oversight of the tactics of 
    production in detail.
    
    Such is the nature of this industrial system on whose due working depends the 
    material welfare of all the civilized peoples. It is an inclusive system drawn 
    on a plan of strict and comprehensive interdependence, such that, in point of 
    material welfare, no nation and no community has anything to gain at the cost of 
    any other nation or community. In point of material welfare, all the civilized 
    peoples have been drawn together by the state of the industrial arts into a 
    single going concern. And for the due working of this inclusive going concern it 
    is essential that that corps of [54] technological specialists who by training, 
    insight, and interest make up the general staff of industry must have a free 
    hand in the disposal of its available resources, in materials, equipment, and 
    man power, regardless of any national pretensions or any vested interests. Any 
    degree of obstruction, diversion, or withholding of any of the available 
    industrial forces, with a view to the special gain of any nation or any 
    investor, unavoidably brings on a dislocation of the system; which involves a 
    disproportionate lowering of its working efficiency and therefore a 
    disproportionate loss to the whole, and therefore a net loss to all its parts.
    And all the while the statesmen are at work to divert and obstruct the working 
    forces of this industrial system, here and there, for the special advantage of 
    one nation and another at the cost of the rest; and the captains of finance are 
    working, at cross purposes and in collusion, to divert whatever they can to the 
    special gain of one vested interest and another, at any cost to the rest. So it 
    happens that the industrial system is deliberately handicapped with dissension, 
    misdirection, and unemployment of material resources, equipment, and man power, 
    at every turn where the statesmen or the captains of finance can touch its [55] 
    mechanism; and all the civilized peoples are suffering privation together 
    because their general staff of industrial experts are in this way required to 
    take orders and submit to sabotage at the hands of the statesmen and the vested 
    interests. Politics and investment are still allowed to decide matters of 
    industrial policy which should plainly be left to the discretion of the general 
    staff of production engineers driven by no commercial bias.
    
    No doubt this characterization of the industrial system and its besetting 
    tribulations will seem overdrawn. However, it is not intended to apply to any 
    date earlier than the twentieth century, or to any backward community that still 
    lies outside the sweep of the mechanical industry. Only gradually during the 
    past century, while the mechanical industry has progressively been taking over 
    the production of goods and services, and going over to quantity production, has 
    the industrial system taken on this character of an inclusive organization of 
    interlocking processes and interchange of materials; and it is only in the 
    twentieth century that this cumulative progression has come to a head with such 
    effect that this characterization is now visibly becoming true. And even now 
    [56] it will hold true, visibly and securely, only as applies to the leading 
    mechanical industries, those main lines of industry that shape the main 
    conditions of life, and in which quantity production has become the common and 
    indispensable rule. Such are, e.g., transport and communication; the production 
    and industrial use of coal, oil, electricity and water power; the production of 
    steel and other metals; of wood, pulp, lumber, cement and other building 
    materials; of textiles and rubber; as also grain­milling and much of the 
    grain­growing, together with meat­packing and a good share of the stock­raising 
    industry.
    
    There is, of course, a large volume of industry in many lines which has not, or 
    only in part and doubtfully, been drawn into this network of mechanical 
    processes and quantity production, in any direct and conclusive fashion. But 
    these other lines of industry that still stand over on another and older plan of 
    operation are, after all, outliers and subsidiaries of the mechanically 
    organized industrial system, dependent on or subservient to those greater 
    underlying industries which make up the working body of the system, and which 
    therefore set the pace for the rest. And in the main, therefore, and as regards 
    these greater mechanical industries on whose due work-[57]ing the material 
    welfare of the community depends from day to day, this characterization will 
    apply without material abatement.
    
    But it should be added that even as regards these greater, primary and 
    underlying, lines of production the system has not yet reached a fatal degree of 
    close­knit interdependence, balance, and complication; it will still run along 
    at a very tolerable efficiency in the face of a very appreciable amount of 
    persistent derangement. That is to say, the industrial system at large has not 
    yet become so delicately balanced a mechanical structure and process that the 
    ordinary amount of derangement and sabotage necessary to the ordinary control of 
    production by business methods will paralyze the whole outright. The industrial 
    system is not yet sufficiently close­knit for that. And yet, that extent and 
    degree of paralysis from which the civilized world's industry is suffering just 
    now, due to legitimate businesslike sabotage, goes to argue that the date may 
    not be far distant when the interlocking processes of the industrial system 
    shall have become so closely interdependent and so delicately balanced that even 
    the ordinary modicum of sabotage involved in the conduct of business as usual 
    will bring the whole to a fatal collapse. The derangement and priva-[58]tion 
    brought on by any well organized strike of the larger sort argues to the same 
    effect.
    
    In effect, the progressive advance of this industrial system towards an all-
    inclusive mechanical balance of interlocking processes appears to be approaching 
    a critical pass, beyond which it will no longer be practicable to leave its 
    control in the hands of business men working at cross purposes for private gain, 
    or to entrust its continued administration to others than suitably trained 
    technological experts, production engineers without a commercial interest. What 
    these men may then do with it all is not so plain; the best they can do may not 
    be good enough; but the negative proposition is becoming sufficiently plain, 
    that this mechanical state of the industrial arts will not long tolerate the 
    continued control of production by the vested interests under the current 
    businesslike rule of incapacity by advisement.
    
    In the beginning, that is to say during the early growth of the machine 
    industry, and particularly in that new growth of mechanical industries which 
    arose directly out of the Industrial Revolution, there was no marked division 
    between the industrial experts and the business managers. That was before the 
    new industrial system had gone [59] far on the road of progressive 
    specialization and complexity, and before business had reached an exactingly 
    large scale; so that even the business men of that time, who were without 
    special training in technological matters, would still be able to exercise 
    something of an intelligent oversight of the whole, and to understand something 
    of what was required in the mechanical conduct of the work which they financed 
    and from which they drew their income. Not unusually the designers of industrial 
    processes and equipment would then still take care of the financial end, at the 
    same time that they managed the shop. But from an early point in the development 
    there set in a progressive differentiation, such as to divide those who designed 
    and administered the industrial processes from those others who designed and 
    managed the commercial transactions and took care of the financial end. So there 
    also set in a corresponding division of powers between the business management 
    and the technological experts. It became the work of the technologist to 
    determine, on technological grounds, what could be done in the way of productive 
    industry, and to contrive ways and means of doing it; but the business 
    management always continued to decide, on commercial grounds, how much work 
    should [60] be done and what kind and quality of goods and services should be 
    produced; and the decision of the business management has always continued to be 
    final, and has always set the limit beyond which production must not go.
    With the continued growth of specialization the experts have necessarily had 
    more and more to say in the affairs of industry; but always their findings as to 
    what work is to be done and what ways and means are to be employed in production 
    have had to wait on the findings of the business managers as to what will be 
    expedient for the purpose of commercial gain. This division between business 
    management and industrial management has continued to go forward, at a 
    continually accelerated rate, because the special training and experience 
    required for any passably efficient organization and direction of these 
    industrial processes has continually grown more exacting, calling for special 
    knowledge and abilities on the part of those who have this work to do and 
    requiring their undivided interest and their undivided attention to the work in 
    hand. But these specialists in technological knowledge, abilities, interest, and 
    experience, who have increasingly come into the case in this way - inventors, 
    designers, chemists, mineralogists, soil experts, crop specialists, [61] 
    production managers and engineers of many kinds and denominations - have 
    continued to be employées of the captains of industry, that is to say, of the 
    captains of finance, whose work it has been to commercialize the knowledge and 
    abilities of the industrial experts and turn them to account for their own gain.
    
    It is perhaps unnecessary to add the axiomatic corollary that the captains have 
    always turned the technologists and their knowledge to account in this way only 
    so far as would serve their own commercial profit, not to the extent of their 
    ability; or to the limit set by the material circumstances; or by the needs of 
    the community. The result has been, uniformly and as a matter of course, that 
    the production of goods and services has advisedly been stopped short of 
    productive capacity, by curtailment of output and by derangement of the 
    productive system. There are two main reasons for this, and both have operated 
    together throughout the machine era to stop industrial production increasingly 
    short of productive capacity, (a) The commercial need of maintaining a 
    profitable price has led to an increasingly imperative curtailment of the 
    output, as fast as the advance of the industrial arts has enhanced the 
    productive capacity. And (b) The continued advance of the [62] mechanical 
    technology has called for an ever­increasing volume and diversity of special 
    knowledge, and so has left the businesslike captains of finance continually 
    farther in arrears, so that they have been less and less capable of 
    comprehending what is required in the ordinary way of industrial equipment and 
    personnel. They have therefore, in effect, maintained prices at a profitable 
    level by curtailment of output rather than by lowering production­cost per unit 
    of output, because they have not had such a working acquaintance with the 
    technological facts in the case as would enable them to form a passably sound 
    judgment of suitable ways and means for lowering production­cost; and at the 
    same time, being shrewd business men, they have been unable to rely on the 
    hired­man's­loyalty of technologists whom they do not understand. The result has 
    been a somewhat distrustful blindfold choice of processes and personnel and a 
    consequent enforced incompetence in the management of industry, a curtailment of 
    output below the needs of the community, below the productive capacity of the 
    industrial system, and below what an intelligent control of production would 
    have made commercially profitable.
    
    Through the earlier decades of the machine era these limitations imposed on the 
    work of the ex-[63]perts by the demands of profitable business and by the 
    technical ignorance of the business men, appears not to have been a heavy 
    handicap, whether as a hindrance to the continued development of technological 
    knowledge or as an obstacle to its ordinary use in industry. That was before the 
    mechanical industry had gone far in scope, complexity, and specialization; and 
    it was also before the continued work of the technologists had pushed the 
    industrial system to so high a productive capacity that it is forever in danger 
    of turning out a larger product than is required for a profitable business. But 
    gradually, with the passage of time and the advance of the industrial arts to a 
    wider scope and a larger scale, and to an increasing specialization and 
    standardization of processes, the technological knowledge that makes up the 
    state of the industrial arts has called for a higher degree of that training 
    that makes industrial specialists; and at the same time any passably efficient 
    management of industry has of necessity drawn on them and their special 
    abilities to an ever­increasing extent. At the same time and by the same shift 
    of circumstances, the captains of finance, driven by an increasingly close 
    application to the affairs of business, have been going farther out of touch 
    with the ordinary real-[64]ities of productive industry; and, it is to be 
    admitted, they have also continued increasingly to distrust the technological 
    specialists, whom they do not understand, but whom they can also not get along 
    without. The captains have per force continued to employ the technologists, to 
    make money for them, but they have done so only reluctantly, tardily, sparingly, 
    and with a shrewd circumspection; only because and so far as they have been 
    persuaded that the use of these technologists was indispensable to the making of 
    money.
    
    One outcome of this persistent and pervasive tardiness and circumspection on the 
    part of the captains has been an incredibly and increasingly uneconomical use of 
    material resources, and an incredibly wasteful organization of equipment and 
    manpower in those great industries where the technological advance has been most 
    marked. In good part it was this discreditable pass, to which the leading 
    industries had been brought by these one­eyed captains of industry, that brought 
    the régime of the captains to an inglorious close, by shifting the initiative 
    and discretion in this domain out of their hands into those of the investment 
    bankers. By custom the investment bankers had occupied a position between or 
    overlapping the [65] duties of a broker in corporate securities and those of an 
    underwriter of corporate flotations - such a position, in effect, as is still 
    assigned them in the standard writings on corporation finance. The increasingly 
    large scale of corporate enterprise, as well as the growth of a mutual 
    understanding among these business concerns, also had its share in this new 
    move. But about this time, too, the "consulting engineers" were coming notably 
    into evidence in many of those lines of industry in which corporation finance 
    has habitually been concerned.
    
    So far as concerns the present argument the ordinary duties of these consulting 
    engineers have been to advise the investment bankers as to the industrial and 
    commercial soundness, past and prospective, of any enterprise that is to be 
    underwritten. These duties have comprised a painstaking and impartial 
    examination of the physical properties involved in any given case, as well as an 
    equally impartial auditing of the accounts and appraisal of the commercial 
    promise of such enterprises, for the guidance of the bankers or syndicate of 
    bankers interested in the case as underwriters. On this ground working 
    arrangements and a mutual understanding presently arose be-[66]tween the 
    consulting engineers and those banking houses that habitually were concerned in 
    the underwriting of corporate enterprises.
    
    The effect of this move has been twofold: experience has brought out the fact 
    that corporation finance, at its best and soundest, has now become a matter of 
    comprehensive and standardized bureaucratic routine, necessarily comprising the 
    mutual relations between various corporate concerns, and best to be taken care 
    of by a clerical staff of trained accountants; and the same experience has put 
    the financial houses in direct touch with the technological general staff of the 
    industrial system, whose surveillance has become increasingly imperative to the 
    conduct of any profitable enterprise in industry. But also, by the same token, 
    it has appeared that the corporation financier of nineteenth­century tradition 
    is no longer of the essence of the case in corporation finance of the larger and 
    more responsible sort. He has, in effect, come to be no better than an idle 
    wheel in the economic mechanism, serving only to take up some of the lubricant.
    Since and so far as this shift out of the nineteenth century into the twentieth 
    has been completed, the corporation financier has ceased to be a captain of 
    industry and has become a lieutenant [67] of finance; the captaincy having been 
    taken over by the syndicated investment bankers and administered as a 
    standardized routine of accountancy, having to do with the flotation of 
    corporation securities and with their fluctuating values, and having also 
    something to do with regulating the rate and volume of output in those 
    industrial enterprises which so have passed under the hand of the investment 
    bankers.
    
    By and large, such is the situation of the industrial system today, and of that 
    financial business that controls the industrial system. But this state of things 
    is not so much an accomplished fact handed on out of the recent past; it is only 
    that such is the culmination in which it all heads up in the immediate present, 
    and that such is the visible drift of things into the calculable future. Only 
    during the last few years has the state of affairs in industry been obviously 
    falling into the shape so outlined, and it is even yet only in those larger and 
    pace­making lines of industry which are altogether of the new technological 
    order that the state of things has reached this finished shape. But in these 
    larger and underlying divisions of the industrial system the present posture and 
    drift of things is unmistakable. Meantime very much [68] still stands over out 
    of that régime of rule­of­thumb, competitive sabotage, and commercial 
    logrolling, in which the businesslike captains of the old order are so 
    altogether well at home, and which has been the best that the captains have 
    known how to contrive for the management of that industrial system whose 
    captains they have been. So that wherever the production experts are now taking 
    over the management, out of the dead hand of the self­made captains, and 
    wherever they have occasions to inquire into the established conditions of 
    production, they find the ground cumbered with all sorts of incredible 
    makeshifts of waste and inefficiency - such makeshifts as would perhaps pass 
    muster with any moderately stupid elderly layman, but which look like blindfold 
    guesswork to these men who know something of the advanced technology and its 
    working­out.
    
    Hitherto, then, the growth and conduct of this industrial system presents this 
    singular outcome. The technology - the state of the industrial arts - which 
    takes effect in this mechanical industry is in an eminent sense a joint stock of 
    knowledge and experience held in common by the civilized peoples. It requires 
    the use of trained and in-[69]structed workmen - born, bred, trained, and 
    instructed at the cost of the people at large. So also it requires, with a 
    continually more exacting insistence, a corps of highly trained and specially 
    gifted experts, of divers and various kinds. These, too, are born, bred, and 
    trained at the cost of the community at large, and they draw their requisite 
    special knowledge from the community's joint stock of accumulated experience. 
    These expert men, technologists, engineers, or whatever name may best suit them, 
    makeup the indispensable General Staff of the industrial system; and without 
    their immediate and unremitting guidance and correction the industrial system 
    will not work. It is a mechanically organized structure of technical processes 
    designed, installed, and conducted by these production engineers. Without them 
    and their constant attention the industrial equipment, the mechanical appliances 
    of industry, will foot up to just so much junk. The material welfare of the 
    community is unreservedly bound up with the due working of this industrial 
    system, and therefore with its unreserved control by the engineers, who alone 
    are competent to manage it. To do their work as it should be done these men of 
    the industrial general staff must have a free hand, unhampered by com-
    [70]mercial considerations and reservations; for the production of the goods and 
    services needed by the community they neither need nor are they in any degree 
    benefited by any supervision or interference from the side of the owners. Yet 
    the absentee owners, now represented, in effect, by the syndicated investment 
    bankers, continue to control the industrial experts and limit their discretion, 
    arbitrarily, for their own commercial gain, regardless of the needs of the 
    community.
    
    Hitherto these men who so make up the general staff of the industrial system 
    have not drawn together into anything like a self­directing working force; nor 
    have they been vested with anything more than an occasional, haphazard, and 
    tentative control of some disjointed sector of the industrial equipment, with no 
    direct or decisive relation to that personnel of productive industry that may be 
    called the officers of the line and the rank and file. It is still the unbroken 
    privilege of the financial management and its financial agents to "hire and 
    fire." The final disposition of all the industrial forces still remains in the 
    hands of the business men, who still continue to dispose of these forces for 
    other than industrial ends. And all the while it is an open secret that with a 
    reasonably free hand the production ex-[71]perts would today readily increase 
    the ordinary output of industry by several fold, - variously estimated at some 
    300 per cent, to 1200 per cent, of the current output. And what stands in the 
    way of so increasing the ordinary output of goods and services is business as 
    usual.
    
    Right lately these technologists have begun to become uneasily "class­conscious" 
    and to reflect that they together constitute the indispensable General Staff of 
    the industrial system. Their class consciousness has taken the immediate form of 
    a growing sense of waste and confusion in the management of industry by the 
    financial agents of the absentee owners. They are beginning to take stock of 
    that all­pervading mismanagement of industry that is inseparable from its 
    control for commercial ends. All of which brings home a realization of their own 
    shame and of damage to the common good. So the engineers are beginning to draw 
    together and ask themselves, "What about it?"
    
    This uneasy movement among the technologists set in, in an undefined and 
    fortuitous way, in the closing years of the nineteenth century; when the 
    consulting engineers, and then presently the "efficiency engineers," began to 
    make scat-[72]tered corrections in detail, which showed up the industrial 
    incompetence of those elderly laymen who were doing a conservative business at 
    the cost of industry. The consulting engineers of the standard type, both then 
    and since then, are commercialized technologists, whose work it is to appraise 
    the industrial value of any given enterprise with a view to its commercial 
    exploitation. They are a cross between a technological specialist and a 
    commercial agent, beset with the limitations of both and commonly not fully 
    competent in either line. Their normal position is that of an employée of the 
    investment bankers, on a stipend or a retainer, and it has ordinarily been their 
    fortune to shift over in time from a technological footing to a frankly 
    commercial one. The case of the efficiency engineers, or scientific­management 
    experts, is somewhat similar. They too have set out to appraise, exhibit, and 
    correct the commercial short­comings of the ordinary management of those 
    industrial establishments which they investigate, to persuade the business men 
    in charge how they may reasonably come in for larger net earnings by a more 
    closely shorn exploitation of the industrial forces at their disposal. During 
    the opening years of the new century a lively interest centered on the views and 
    [73] expositions of these two groups of industrial experts; and not least was 
    the interest aroused by their exhibits of current facts indicating an 
    all­pervading lag, leak, and friction in the industrial system, due to its 
    disjointed and one­eyed management by commercial adventurers bent on private 
    gain.
    
    During these few years of the opening century the members of this informal guild 
    of engineers at large have been taking an interest in this question of habitual 
    mismanagement by ignorance and commercial sabotage, even apart from the 
    commercial imbecility of it all. But it is the young rather than the old among 
    them who see industry in any other light than its commercial value. 
    Circumstances have decided that the older generation of the craft have become 
    pretty well commercialized. Their habitual outlook has been shaped by a long and 
    unbroken apprenticeship to the corporation financiers and the investment 
    bankers; so that they still habitually see the industrial system as a 
    contrivance for the roundabout process of making money. Accordingly, the 
    established official Associations and Institutes of Engineers, which are 
    officered and engineered by the elder engineers, old and young, also continue to 
    show the commercial bias of their cre-[74]ators, in what they criticize and in 
    what they propose. But the new generation which has been coming on during the 
    present century are not similarly true to that tradition of commercial 
    engineering that makes the technological man an awestruck lieutenant of the 
    captain of finance.
    
    By training, and perhaps also by native bent, the technologists find it easy and 
    convincing to size up men and things in terms of tangible performance, without 
    commercial afterthought, except so far as their apprenticeship to the captains 
    of finance may have made commercial afterthought a second nature to them. Many 
    of the younger generation are beginning to understand that engineering begins 
    and ends in the domain of tangible performance, and that commercial expediency 
    is another matter. Indeed, they are beginning to understand that commercial 
    expediency has nothing better to contribute to the engineer's work than so much 
    lag, leak, and friction. The four years' experience of the war has also been 
    highly instructive on that head. So they are beginning to draw together on a 
    common ground of understanding, as men who are concerned with the ways and means 
    of tangible performance in the way of productive industry, according to the 
    state of the industrial arts as they [75] know them at their best; and there is 
    a growing conviction among them that they together constitute the sufficient and 
    indispensable general staff of the mechanical industries, on whose unhindered 
    team­work depends the due working of the industrial system and therefore also 
    the material welfare of the civilized peoples. So also, to these men who are 
    trained in the stubborn logic of technology, nothing is quite real that cannot 
    be stated in terms of tangible performance; and they are accordingly coming to 
    understand that the whole fabric of credit and corporation finance is a tissue 
    of make­believe.
    
    Credit obligations and financial transactions rest on certain principles of 
    legal formality which have been handed down from the eighteenth century, and 
    which therefore antedate the mechanical industry and carry no secure conviction 
    to men trained in the logic of that industry. Within this technological system 
    of tangible performance corporation finance and all its works and gestures are 
    completely idle; it all comes into the working scheme of the engineers only as a 
    gratuitous intrusion which could be barred out without deranging the work at any 
    point, provided only that men made up their mind to that effect - that is to 
    say, provided the make­believe of absentee owner-[76]ship were discontinued. Its 
    only obvious effect on the work which the engineers have to take care of is 
    waste of materials and retardation of the work. So the next question which the 
    engineers are due to ask regarding this timeworn fabric of ownership, finance, 
    sabotage, credit, and unearned income is likely to be: Why cumbers it the 
    ground? And they are likely to find the scriptural answer ready to their hand.
    It would be hazardous to surmise how, how soon, on what provocation, and with 
    what effect the guild of engineers are due to realize that they constitute a 
    guild, and that the material fortunes of the civilized peoples already lie loose 
    in their hands. But it is already sufficiently plain that the industrial 
    conditions and the drift of conviction among the engineers are drawing together 
    to some such end.
    
    Hitherto it has been usual to count on the interested negotiations continually 
    carried on and never concluded between capital and labor, between the agents of 
    the investors and the body of workmen, to bring about whatever readjustments are 
    to be looked for in the control of productive industry and in the distribution 
    and use of its product. These negotiations have necessarily been, [77] and 
    continue to be, in the nature of business transactions, bargaining for a price, 
    since both parties to the negotiation continue to stand on the consecrated 
    ground of ownership, free bargain, and self­help; such as the commercial wisdom 
    of the eighteenth century saw, approved and certified it all, in the time before 
    the coming of this perplexing industrial system. In the course of these endless 
    negotiations between the owners and their workmen there has been some loose and 
    provisional syndication of claims and forces on both sides; so that each of 
    these two recognized parties to the industrial controversy has come to make up a 
    loose­knit vested interest, and each speaks for its own special claims as a 
    party in interest. Each is contending for some special gain for itself and 
    trying to drive a profitable bargain for itself, and hitherto no disinterested 
    spokesman for the community at large or for the industrial system as a going 
    concern has seriously cut into this controversy between these contending vested 
    interests. The outcome has been businesslike concession and compromise, in the 
    nature of bargain and sale. It is true, during the war, and for the conduct of 
    the war, there were some half­concerted measures taken by the Administration in 
    the interest of the nation at large, as a belligerent; but [78] it has always 
    been tacitly agreed that these were extraordinary war measures, not to be 
    countenanced in time of peace. In time of peace the accepted rule is still 
    business as usual; that is to say, investors and workmen wrangling together on a 
    footing of business as usual.
    
    These negotiations have necessarily been inconclusive. So long as ownership of 
    resources and industrial plant is allowed, or so long as it is allowed any 
    degree of control or consideration in the conduct of industry, nothing more 
    substantial can come of any readjustment than a concessive mitigation of the 
    owners' interference with production. There is accordingly nothing subversive in 
    these bouts of bargaining between the federated workmen and the syndicated 
    owners. It is a game of chance and skill played between two contending vested 
    interests for private gain, in which the industrial system as a going concern 
    enters only as a victim of interested interference. Yet the material welfare of 
    the community, and not least of the workmen, turns on the due working of this 
    industrial system, without interference. Concessive mitigation of the right to 
    interfere with production, on the part of either one of these vested interests, 
    can evidently come to nothing more substantial than a concessive mitigation.
    [79] But owing to the peculiar technological character of this industrial 
    system, with its specialized, standardized, mechanical, and highly technical 
    interlocking processes of production, there has gradually come into being this 
    corps of technological production specialists, into whose keeping the due 
    functioning of the industrial system has now drifted by force of circumstance. 
    They are, by force of circumstance, the keepers of the community's material 
    welfare; although they have hitherto been acting, in effect, as keepers and 
    providers of free income for the kept classes. They are thrown into the position 
    of responsible directors of the industrial system, and by the same move they are 
    in a position to become arbiters of the community's material welfare. They are 
    becoming class­conscious, and they are no longer driven by a commercial 
    interest, in any such degree as will make them a vested interest in that 
    commercial sense in which the syndicated owners and the federated workmen are 
    vested interests. They are, at the same time, numerically and by habitual 
    outlook, no such heterogeneous and unwieldy body as the federated workmen, whose 
    numbers and scattering interest has left all their endeavors substantially 
    nugatory. In short, the engineers are in a position to make the next move.
    [80] By comparison with the population at large, including the financial powers 
    and the kept classes, the technological specialists which come in question here 
    are a very inconsiderable number; yet this small number is indispensable to the 
    continued working of the productive industries. So slight are their numbers, and 
    so sharply defined and homogeneous is their class, that a sufficiently compact 
    and inclusive organization of their forces should arrange itself almost as a 
    matter of course, so soon as any appreciable proportion of them shall be moved 
    by any common purpose. And the common purpose is not far to seek, in the 
    all­pervading industrial confusion, obstruction, waste, and retardation which 
    business as usual continually throws in their face. At the same time they are 
    the leaders of the industrial personnel, the workmen, of the officers of the 
    line and the rank and file; and these are coming into a frame of mind to follow 
    their leaders in any adventure that holds a promise of advancing the common 
    good.
    
    To these men, soberly trained in a spirit of tangible performance and endowed 
    with something more than an even share of the sense of workmanship, and endowed 
    also with the common heritage of partiality for the rule of Live and Let Live, 
    the disallowance of an outworn and ob-[81]structive right of absentee ownership 
    is not likely to seem a shocking infraction of the sacred realties. That 
    customary right of ownership by virtue of which the vested interests continue to 
    control the industrial system for the benefit of the kept classes, belongs to an 
    older order of things than the mechanical industry. It has come out of a past 
    that was made up of small things and traditional make­believe. For all the 
    purposes of that scheme of tangible performance that goes to makeup the 
    technologist's world, it is without form and void. So that, given time for due 
    irritation, it should by no means come as a surprise if the guild of engineers 
    are provoked to put their heads together and, quite out of hand, disallow that 
    large absentee ownership that goes to make the vested interests and to unmake 
    the industrial system. And there stand behind them the massed and rough­handed 
    legions of the industrial rank and file, ill at ease and looking for new things. 
    The older commercialized generation among them would, of course, ask themselves: 
    Why should we worry? What do we stand to gain? But the younger generation, not 
    so hard­bitten by commercial experience, will be quite as likely to ask 
    themselves: What do we stand to lose? And there is the patent fact that such a 
    thing as a [82] general strike of the technological specialists in industry need 
    involve no more than a minute fraction of one per cent, of the population; yet 
    it would swiftly bring a collapse of the old order and sweep the timeworn fabric 
    of finance and absentee sabotage into the discard for good and all, Such a 
    catastrophe would doubtless be deplorable. It would look something like the end 
    of the world to all those persons who take their stand with the kept classes, 
    but it may come to seem no more than an incident of the day's work to the 
    engineers and to the rough­handed legions of the rank and file. It is a 
    situation which may well be deplored. But there is no gain in losing patience 
    with a conjunction of circumstances. And it can do no harm to take stock of the 
    situation and recognize that, by force of circumstance, it is now open to the 
    Council of Technological Workers' and Soldiers' Deputies to make the next move, 
    in their own way and in their own good time. When and what this move will be, if 
    any, or even what it will be like, is not something on which a layman can hold a 
    confident opinion. But so much seems clear, that the industrial dictatorship of 
    the captain of finance is now held on sufferance of the engineers and is liable 
    at any time to be discontinued at their discretion, as a matter of convenience.
    
    IV
    On the Danger of a Revolutionary Overturn
    
    Bolshevism is a menace to the vested rights of property and privilege. Therefore 
    the guardians of the Vested Interests have been thrown into a state of Red 
    trepidation by the continued functioning of Soviet Russia and the continual 
    outbreaks of the same Red distemper elsewhere on the continent of Europe. It is 
    feared, with a nerve­shattering fear, that the same Red distemper of Bolshevism 
    must presently infect the underlying population in America and bring on an 
    overturn of the established order, so soon as the underlying population are in a 
    position to take stock of the situation and make up their mind to a course of 
    action. The situation is an uneasy one, and it contains the elements of much 
    trouble; at least such appears to be the conviction of the Guardians of the 
    established order. Something of the kind is felt to be due, on the grounds of 
    the accomplished facts. So it is feared, with a nerve­shattering fear, that 
    anything like uncolored in-[84]formation as to the facts in the case and 
    anything like a free popular discussion of these facts must logically result in 
    disaster. Hence all this unseemly trepidation.
    
    The Guardians of the Vested Interests, official and quasi­official, have allowed 
    their own knowledge of this sinister state of things to unseat their common 
    sense. The run of the facts has jostled them out of the ruts, and they have gone 
    in for a headlong policy of clamor and repression, to cover and suppress matters 
    of fact and to shut off discussion and deliberation. And all the while the 
    Guardians are also feverishly at work on a mobilization of such forces as may 
    hopefully be counted on to "keep the situation in hand" in case the expected 
    should happen. The one manifestly conclusive resolution to which the Guardians 
    of the Vested Interests have come is that the underlying population is to be 
    "kept in hand," in the face of any contingency. Their one settled principle of 
    conduct appears to be, to stick at nothing; in all of which, doubtless, the 
    Guardians mean well.
    
    Now, the Guardians of the Vested Interests are presumably wise in 
    discountenancing any open discussion or any free communication of ideas and 
    opinions. It could lead to nothing more [85] comfortable than popular irritation 
    and distrust. The Vested Interests are known to have been actively concerned in 
    the prosecution of the War, and there is no lack of evidence that their 
    spokesmen have been heard in the subsequent counsels of the Peace. And, no 
    doubt, the less that is known and said about the doings of the Vested Interests 
    during the War and after, the better both for the public tranquility and for the 
    continued growth and profit of the Vested Interests. Yet it is not to be 
    overlooked that facts of such magnitude and of such urgent public concern as the 
    manoeuvres of the Vested Interests during the War and after can not be 
    altogether happily covered over with a conspiracy of silence. Something like a 
    middle course of temperate publicity should have seemed more to the point. It 
    may be unfortunate, but it is none the less unavoidable, that something 
    appreciable is bound to come to light; that is to say, something sinister.
    It should be plain to all good citizens who have the cause of law and order at 
    heart that in such a case a more genial policy of conciliatory promises and 
    procrastination will be more to the purpose than any noisy recourse to the 
    strong arm and the Star Chamber. A touch of history, and more particularly of 
    contemporary history, would [86] have given the Guardians a touch of sanity. 
    Grown wise in all the ways and means of blamelessly defeating the unblest 
    majority, the gentlemanly government of the British manage affairs of this kind 
    much better. They have learned that bellicose gestures provoke ill will, and 
    that desperate remedies should be held in reserve until needed. Whereas the 
    Guardians of the Vested Interests in America are plainly putting things in train 
    for a capital operation, for which there is no apparent necessity. It should be 
    evident on slight reflection that things have not reached that fateful stage 
    where nothing short of a capital operation can be counted on to save the life of 
    the Vested Interests in America; not yet. And indeed, things need assuredly not 
    reach such a stage if reasonable measures are taken to avoid undue alarm and 
    irritation. All that is needed to keep the underlying population of America in a 
    sweet temper is a degree of patient ambiguity and delay, something after the 
    British pattern; and all will yet be well with the vested rights of property and 
    privilege, for some time to come.
    
    History teaches that no effectual popular uprising can be set afoot against an 
    outworn institutional iniquity unless the movement effectually [87] meets the 
    special material requirements of the situation which provokes it; nor on the 
    other hand can an impending popular overturn be staved off without making up 
    one's account with those material conditions which converge to bring it on. The 
    long history of British gentlemanly compromise, collusion, conciliation, and 
    popular defeat, is highly instructive on that head. And it should be evident to 
    any disinterested person, on any slight survey of the pertinent facts, that the 
    situation in America does not now offer such a combination of circumstances as 
    would be required for any effectual overturn of the established order or any 
    forcible dispossession of these Vested Interests that now control the material 
    fortunes of the American people. In short, by force of circumstances, Bolshevism 
    is not a present menace to the Vested Interests in America; provided always that 
    the Guardians of these Vested Interests do not go out of their way to 
    precipitate trouble by such measures as will make Bolshevism of any complexion 
    seem the lesser evil, - which is perhaps not a safe proviso, in view of the 
    hysterically Red state of mind of the Guardians.
    
    No movement for the dispossession of the Vested Interests in America can hope 
    for even [88] a temporary success unless it is undertaken by an organization 
    which is competent to take over the country's productive industry as a whole, 
    and to administer it from the start on a more efficient plan than that now 
    pursued by the Vested Interests; and there is no such organization in sight or 
    in immediate prospect. The nearest approach to a practicable organization of 
    industrial forces in America, just yet, is the A. F. of L.; which need only be 
    named in order to dispel the illusion that there is anything to hope or fear in 
    the way of a radical move at its hands. The A. F. of L. is itself one of the 
    Vested Interests, as ready as any other to do battle for its own margin of 
    privilege and profit. At the same time it would be a wholly chimerical fancy to 
    believe that such an organization of workmen as the A. F. of L. could take over 
    and manage any appreciable section of the industrial system, even if their 
    single­minded interest in special privileges for themselves did not preclude 
    their making a move in that direction. The Federation is not organized for 
    production but for bargaining. It is not organized on lines that would be 
    workable for the management of any industrial system as a whole, or of any 
    special line of production within such a system. It is, in effect, an 
    organization for the [89] strategic defeat of employers and rival organizations, 
    by recourse to enforced unemployment and obstruction; not for the production of 
    goods and services. And it is officered by tacticians, skilled in the ways and 
    means of bargaining with politicians and intimidating employers and employées; 
    not by men who have any special insight into or interest in the ways and means 
    of quantity production and traffic management. They are not, and for their 
    purpose they need not be, technicians in any conclusive sense, - and the fact 
    should not be lost sight of that any effectual overturn, of the kind hazily 
    contemplated by the hysterical officials, will always have to be primarily a 
    technical affair.
    
    In effect, the Federation is officered by safe and sane politicians, and its 
    rank and file are votaries of "the full dinner­pail." No Guardian need worry 
    about the Federation, and there is no other organization in sight which differs 
    materially from the Federation in those respects which would count toward a 
    practical move in the direction of a popular overturn, - unless a doubtful 
    exception should be claimed for the Railroad Brotherhoods. The A. F. of L. is a 
    business organization with a vested interest of its own; for Keeping up prices 
    and keeping down the supply, [90] quite after the usual fashion of management by 
    the other Vested Interests; not for managing productive industry or even for 
    increasing the output of goods produced under any management. At the best, its 
    purpose and ordinary business is to gain a little something for its own members 
    at a more than proportionate cost to the rest of the community; which does not 
    afford either the spiritual or the material ground for a popular overturn.
    Nor is it the A. F. of L. or the other organizations for "collective bargaining" 
    that come in for the comfortless attentions of the officials and of the many 
    semi­official conspiracies in restraint of sobriety. Their nerve­shattering 
    fears center rather on those irresponsible wayfaring men of industry who make up 
    the I. W. W., and on the helpless and hapless alien unbelievers whose 
    contribution to the sum total is loose talk in some foreign tongue. But if there 
    is any assertion to be made without fear of stumbling it will be, that this 
    flotsam of industry is not organized to take over the highly technical duties 
    involved in the administration of the industrial system. But it is these and 
    their like that engage the best attention of the many commissions, committees, 
    clubs, leagues, federations, syndicates, and corporations [91] for the chasing 
    of wild geese under the Red flag.
    
    Wherever the mechanical industry has taken decisive effect, as in America and in 
    the two or three industrialized regions of Europe, the community lives from hand 
    to mouth in such a way that its livelihood depends on the effectual working of 
    its industrial system from day to day. In such a case a serious disturbance and 
    derangement of the balanced process of production is always easily brought on, 
    and it always brings immediate hardship on large sections of the community. 
    Indeed, it is this state of things - the ease with which industry can be 
    deranged and hardship can be brought to bear on the people at large - that 
    constitutes the chief asset of such partisan organizations as the A. F. of L. It 
    is a state of things which makes sabotage easy and effectual and gives it 
    breadth and scope. But sabotage is not revolution. If it were, then the A. F. of 
    L., the I. W. W., the Chicago Packers, and the U.S. Senate would be counted 
    among the revolutionists.
    
    Far­reaching sabotage, that is to say derangement of the industrial system, such 
    as to entail hardship on the community at large or on some particular section of 
    it, is easily brought to bear in any country that is dominated by the mechan-
    [92]ical industry. It is commonly resorted to by both parties in any controversy 
    between the businesslike employers and the employées. It is, in fact, an 
    everyday expedient of business, and no serious blame attaches to its ordinary 
    use. Under given circumstances, as, e.g., under the circumstances just now 
    created by the return of peace, such derangement of industry and hindrance of 
    production is an unavoidable expedient of "business as usual." And derangement 
    of the same nature is also commonly resorted to as a means of coercion in any 
    attempted movement of overturn. It is the simple and obvious means of initiating 
    any revolutionary disturbance in any industrial or commercialized country. But 
    under the existing industrial conditions, if it is to achieve even a transient 
    success, any such revolutionary movement of reconstruction must also be in a 
    position from the outset to overcome any degree of initial derangement in 
    industry, whether of its own making or not, and to do constructive work of that 
    particular kind which is called for by the present disposition of industrial 
    forces and by the present close dependence of the community's livelihood on the 
    due systematic working of these industrial forces. To take effect and to hold 
    its own even for the time being, any movement of overturn [93] must from 
    beforehand provide for a sufficiently productive conduct of the industrial 
    system on which the community's material welfare depends, and for a competent 
    distribution of goods and services throughout the community. Otherwise, under 
    existing industrial conditions, nothing more can be accomplished than an 
    ephemeral disturbance and a transient season of accentuated hardship. Even a 
    transient failure to make good in the management of the industrial system must 
    immediately defeat any movement of overturn in any of the advanced industrial 
    countries. At this point the lessons of history fail, because the present 
    industrial system and the manner of close­knit community life enforced by this 
    industrial system have no example in history.
    
    This state of things, which so conditions the possibility of any revolutionary 
    overturn, is peculiar to the advanced industrial countries; and the limitations 
    which this state of things imposes are binding within these countries in the 
    same measure in which these peoples are dominated by the system of mechanical 
    industry. In contrast with this state of things, the case of Soviet Russia may 
    be cited to show the difference. As compared with America and much of western 
    Europe, Russia is not an industrialized region, in any de-[94]cisive sense; 
    although Russia, too, leans on the mechanical industry in a greater degree than 
    is commonly recognized. Indeed, so considerable is the dependence of the 
    Russians on the mechanical industry that it may yet prove to be the decisive 
    factor in the struggle which is now going on between Soviet Russia and the 
    Allied Powers.
    
    Now, it is doubtless this continued success of the Soviet administration in 
    Russia that has thrown this ecstatic scare into the Guardians of the Vested 
    Interests in America and in the civilized countries of Europe. There is nothing 
    to be gained by denying that the Russian Soviet has achieved a measure of 
    success; indeed, an astonishing measure of success, considering the extremely 
    adverse circumstances under which the Soviet has been at work. The fact may be 
    deplored, but there it is. The Soviet has plainly been successful, in the 
    material respect, far beyond the reports which have been allowed to pass the 
    scrutiny of the Seven Censors and the Associated Prevarication Bureaux of the 
    Allied Powers. And this continued success of Bolshevism in Russia - or such 
    measure of success as it has achieved - is doubtless good ground for a 
    reasonable degree of apprehension among good citizens elsewhere; but it does not 
    by any means [95] argue that anything like the same measure of success could be 
    achieved by a revolutionary movement on the same lines in America, even in the 
    absence of intervention from outside.
    
    Soviet Russia has made good to the extent of maintaining itself against very 
    great odds for some two years; and it is even yet a point in doubt whether the 
    Allied Powers will be able to put down the Soviet by use of all the forces at 
    their disposal and with the help of all the reactionary elements in Russia and 
    in the neighboring countries. But the Soviet owes this measure of success to the 
    fact that the Russian people have not yet been industrialized in anything like 
    the same degree as their western neighbors. They have in great measure been able 
    to fall back on an earlier, simpler, less close­knit plan of productive 
    industry; such that any detailed part of this close­knit Russian community is 
    able, at a pinch, to draw its own livelihood from its own soil by its own work, 
    without that instant and unremitting dependence on materials and wrought goods 
    drawn from foreign ports and distant regions, that is characteristic of the 
    advanced industrial peoples. This old­fashioned plan of home production does not 
    involve an "industrial system" in the same exacting sense as the mechanical in-
    [96]dustry. The Russian industrial system, it is true, also runs on something of 
    a balanced plan of give and take; it leans on the mechanical industry in some 
    considerable degree and draws on foreign trade for many of its necessary 
    articles of use; but for the transient time being, and for an appreciable 
    interval of time, such a home­bred industrious population, living close to the 
    soil and supplying its ordinary needs by home­bred handicraft methods, will be 
    able to maintain itself in a fair state of efficiency if not in comfort, even in 
    virtual isolation from the more advanced industrial centers and from the remoter 
    sources of raw materials. To the ignorant, - that is to say, to the wiseacres of 
    commerce, - this ability of the Russian people to continue alive and active under 
    the conditions of an exemplary blockade has been a source of incredulous 
    astonishment.
    
    It is only as a fighting power, and then only for the purposes of an aggressive 
    war, that such a community can count for virtually nothing in a contest with the 
    advanced industrial nations. Such a people makes an unwieldy country to conquer 
    from the outside. Soviet Russia is self­supporting, in a loose and comfortless 
    way, and in this sense it is a very defensible country and may yet prove 
    extremely difficult for the Allied Pow-[97]ers to subdue; but in the nature of 
    the case there need be not the slightest shadow of apprehension that Soviet 
    Russia can successfully take the offensive against any outside people, great or 
    small, which has the use of the advanced mechanical industry.
    
    The statesmen of the Allied Powers, who are now carrying on a covert war against 
    Soviet Russia, are in a position to know this state of the case; and not least 
    those American statesmen, who have by popular sentiment been constrained 
    reluctantly to limit and mask their cooperation with the reactionary forces in 
    Finland, Poland, the Ukraine, Siberia, and elsewhere. They have all been at 
    pains diligently to inquire into the state of things in Soviet Russia; although, 
    it is true, they have also been at pains to give out surprisingly little 
    information, - that being much of the reason for the Seven Censors. The 
    well­published official and semi­official apprehension of a Bolshevist offensive 
    to be carried on beyond the Soviet frontiers may quite safely be set down as an 
    article of statesmanlike subterfuge. The statesmen know better. What is feared 
    in fact is infection of the Bolshevist spirit beyond the Soviet frontiers, to 
    the detriment of those Vested Interests whose guardians these statesmen are. 
    [98] And on this head the apprehensions of these Elder Statesmen are not 
    altogether groundless; for the Elder Statesmen are also in a position to know, 
    without much inquiry, that there is no single spot or corner in civilized Europe 
    or America where the underlying population would have anything to lose by such 
    an overturn of the established order as would cancel the vested rights of 
    privilege and property, whose guardians they are.
    
    But commercialized America is not the same thing as Soviet Russia. By and large, 
    America is an advanced industrial country, bound in the web of a fairly 
    close­knit and inclusive industrial system. The industrial situation, and 
    therefore the conditions of success, are radically different in the two 
    countries in those respects that would make the outcome in any effectual revolt. 
    So that, for better or worse, the main lines that would necessarily have to be 
    followed in working out any practicable revolutionary movement in this country 
    are already laid down by the material conditions of its productive industry. On 
    provocation there might come a flare of riotous disorder; but it would come to 
    nothing, however substantial the provocation might be, so long as the movement 
    does not fall in with those main lines of management which the state of the 
    industrial sys-[99]tem requires in order to insure any sustained success. These 
    main lin