INDIVIDUAL LIBERTY AND THE ECONOMIC SYSTEM

The American doctrine of individual liberty had its origin in economic conditions widely different from those which prevail to-day. The tools of production were simple and inexpensive and their ownership widely diffused. There was no capital-owning class in the modern sense. Business was carried on upon a small scale. The individual was his own employer, or, if working for another, could look forward to the time when, by the exercise of ordinary ability and thrift, he might become an independent producer. The way was open by which every intelligent and industrious wage-earner could become his own master. Industrially society was democratic to a degree which it is difficult for us to realize at the present day. This economic independence which the industrial classes enjoyed ensured a large measure of individual liberty in spite of the fact that political control was in the hands of a class.

The degree of individual freedom and initiative which a community may enjoy is not wholly, or even mainly, a matter of constitutional forms. The actual liberty of the individual may vary greatly without any change in the legal or constitutional organization of society. A political system essentially undemocratic would be much less destructive of individual liberty in a society where the economic life was simple and ownership widely diffused than in a community possessing a wealthy capitalist class on the one hand and an army of wage-earners on the other. The political system reacts, it is true, upon the economic organization, but the influence of the latter upon the individual is more direct and immediate than that of the former. The control exerted over the individual directly by the government may, as a matter of fact, be slight in comparison with that which is exercised through the various agencies which control the economic system. But the close interdependence between the political and the business organization of society can not be overlooked. Each is limited and conditioned by the other, though constitutional forms are always largely the product and expression of economic conditions.

Individual liberty in any real sense implies much more than the restriction of governmental authority. In fact, true liberty consists, as we have seen, not in divesting the government of effective power, but in making it an instrument for the unhampered expression and prompt enforcement of public opinion. The old negative conception of liberty would in practice merely result in limiting the power of the government to control social conditions. This would not necessarily mean, however, the immunity of the individual from external control. To limit the power of the government may permit the extension over the individual of some other form of control even more irresponsible than that of the government itself—the control which inevitably results from the economic supremacy of a class who own the land and the capital.

The introduction of the factory system forced the great majority of small independent producers down into the ranks of mere wage-earners, and subjected them in their daily work to a class rule under which everything was subordinated to the controlling purpose of the employers—the desire for profits.

The significance of this change from the old handicraft system of industry to present-day capitalistic production is fully understood by all students of modern industry. Even Herbert Spencer, the great expounder of individualism, admitted that the so-called liberty of the laborer "amounts in practice to little more than the ability to exchange one slavery for another" and that "the coercion of circumstances often bears more hardly on him than the coercion of a master does on one in bondage."[180] This dependence of the laborer, however, he regarded as unfortunate, and looked forward to the gradual amelioration of present conditions through the growth of co-operation in production.

Individualism as an economic doctrine was advocated in the eighteenth century by those who believed in a larger measure of freedom for the industrial classes. The small business which was then the rule meant the wide diffusion of economic power. A laissez faire policy would have furthered the interests of that large body of small independent producers who had but little representation in and but little influence upon the government. It would have contributed materially to the progress of the democratic movement by enlarging the sphere of industrial freedom for all independent producers. It does not follow, however, that this doctrine which served a useful purpose in connection with the eighteenth-century movement to limit the power of the ruling class is sound in view of the political and economic conditions which exist to-day. The so-called industrial revolution has accomplished sweeping and far-reaching changes in economic organization. It has resulted in a transfer of industrial power from the many to the few, who now exercise in all matters relating to production an authority as absolute and irresponsible as that which the ruling class exercised in the middle of the eighteenth century over the state itself. The simple decentralized and more democratic system of production which formerly prevailed has thus been supplanted by a highly centralized and thoroughly oligarchic form of industrial organization. At the same time political development has been tending strongly in the direction of democracy. The few have been losing their hold upon the state, which has come to rest, in theory at least, upon the wall of the many. A political transformation amounting to a revolution has placed the many in the same position in relation to the government which was formerly held by the favored few.

As a result of these political and economic changes the policy of government regulation of industry is likely to be regarded by the masses with increasing favor. A society organized as a political democracy can not be expected to tolerate an industrial aristocracy. As soon, then, as the masses come to feel that they really control the political machinery, the irresponsible power which the few now exercise in the management of industry will be limited or destroyed as it has already been largely overthrown in the state itself. In fact the doctrine of laissez faire no longer expresses the generally accepted view of state functions, but merely the selfish view of that relatively small class which, though it controls the industrial system, feels the reins of political control slipping out of its hands. The limitation of governmental functions which was the rallying-cry of the liberals a century ago has thus become the motto of the present-day conservative.

The opponents of government regulation of industry claim that it will retard or arrest progress by restricting the right of individual initiative. They profess to believe that the best results for society as a whole are obtained when every corporation or industrial combination is allowed to manage its business with a free hand. It is assumed by those who advocate this policy that there is no real conflict of interests between the capitalists who control the present-day aggregations of corporate wealth and the general public. No argument is needed, however, to convince any one familiar with the facts of recent industrial development that this assumption is not true.

The change in the attitude of the people toward the let-alone theory of government is, as a matter of fact, the outcome of an intelligently directed effort to enlarge and democratize—not abridge—the right of initiative in its relation to the management of industry. The right of individual initiative in the sense of the right to exercise a real control over production was lost by the masses when the substitution of machinery for tools made them directly dependent upon a class of capital-owning employers. The subsequent growth of large scale production has centralized the actual control of industry in the hands of a small class of large capitalists. The small capitalists as separate and independent producers are being rapidly crushed or absorbed by the great corporation. They may still belong to the capitalist class in that they live upon an income derived from the ownership of stock or bonds. But they have no real control over the business in which their capital is invested. They no longer have the power to organize and direct any part of the industrial process. They enjoy the benefits which accrue from the ownership of wealth, but they can no longer take an active part in the management of industry. For them individual initiative in the sense of an effective control over the industrial process has disappeared almost as completely as it has in the case of the mere wage-earner. Individual initiative even for the capital-owning class has thus largely disappeared. It has been superseded by corporate initiative which means the extinguishment of individual initiative except in those cases where it is secured to the large capitalist through the ownership of a controlling interest in the business.

The abandonment of the laissez faire policy, then, in favor of the principle of government regulation of industry is the outgrowth, not of any hostility to individual initiative, but of the conviction that the monopoly of industrial power by the few is a serious evil. It is manifestly impossible to restore to the masses the right of individual initiative. Industry is too complex and too highly organized to permit a return to the old system of decentralized control. And since the only substitute for the old system of individual control is collective control, it appears to be inevitable that government regulation of business will become a fixed policy in all democratic states.

The laissez faire policy is supposed to favor progress by allowing producers to make such changes in business methods as may be prompted by the desire for larger profits. The doctrine as ordinarily accepted contains at least two erroneous assumptions, viz., (1) that any innovation in production which makes it possible for the capitalist to secure a larger return is necessarily an improvement in the sense of augmenting the average efficiency of labor, and (2) that policies are to be judged solely by their economic effects. Even if non-interference resulted in industrial changes which in all cases increase the efficiency of labor, it would not follow that such changes are, broadly considered, always beneficial. Before drawing any sweeping conclusion we must consider all the consequences direct and indirect, immediate and remote, political and social as well as economic. Hence the ordinary test—the direct and immediate effect upon productive efficiency—is not a satisfactory one. Moreover, many changes in the methods or organization of business are designed primarily to alter distribution in the interest of the capitalist by decreasing wages or by raising prices. In so far as a policy of non-interference permits changes of this sort, it is clearly harmful to the community at large, though advantageous to a small class.

In all democratic countries the conservative classes are beginning to realize that their ascendency in production is imperiled by the ascendency of the masses in the state. It thus happens that in the hope of checking or retarding the movement toward regulation of business in the interest of the people generally, they have taken refuge behind that abandoned tenet of democracy, the doctrine of non-interference.

At the same time they strongly favor any deviation from this policy which will benefit themselves. This is exemplified in their attitude in this country toward our protective tariff system, which, as originally adopted, was designed to encourage the development of our national resources by offering the prospect of larger profit to those who would invest their capital in the protected industries. Under a capitalistic system development naturally follows the line of greatest profit, and for this reason any protective tariff legislation which did not augment the profits of the capitalist would fail to accomplish its purpose. This was recognized and frankly admitted when the policy was first adopted. Later, however, when the suffrage was extended and the laboring class became an important factor in national elections the champions of protection saw that the system would have to be given a more democratic interpretation. Thus the Whig platform of 1844 favored a tariff "discriminating with special reference to the protection of the domestic labor of the country." This was, however, the only political platform in which the labor argument was used until 1872, when the Republican party demanded that "duties upon importations ... should be so adjusted as to aid in securing remunerative wages to labor, and promote the industries, prosperity, and growth of the whole country." Protection, since that time, has been defended, not as a means of augmenting profits, but as a means of ensuring high wages to American workers. The interests of the wage-receiving class, however, were far from being the chief concern of those who were seeking to maintain and develop the policy of protection. It was to the capitalist rather than the wage-earner that the system of protection as originally established made a direct appeal, and it was primarily in the interest of this class that it was maintained even after the labor argument came to be generally used in its defense. The capitalist naturally favored a policy that would discourage the importation of foreign goods and at the same time encourage the importation of foreign labor. It was to his advantage to keep the labor market open to all who might wish to compete for employment, since this would tend to force wages down and thus give him the benefit of high prices.

Any system of protection established in the interest of labor would have excluded all immigrants accustomed to a low standard of living. But as a matter of fact the immigration of cheap foreign labor was actively encouraged by the employers in whose interest the high tariff on foreign goods was maintained. The efforts of the wage-earning class to secure for themselves some of the benefits of protection by organizing to obtain an advance or prevent a reduction in wages was largely defeated through the wholesale importation of cheap foreign labor by the large manufacturing, mining and transportation companies. The agitation against this evil carried on by the labor unions finally resulted in the enactment by Congress of legislation forbidding the importation of labor under contract of employment. This, however, did not, and even if it had been efficiently enforced, would not have given the American workingman any real protection against cheap foreign labor. The incoming tide of foreign immigration has been rising and the civic quality of the immigrant has visibly declined. The free lands which formerly attracted the best class of European immigrants are now practically a thing of the past, and with the disappearance of this opportunity for remunerative self-employment the last support of high wages has been removed. With unrestricted immigration the American laboring man must soon be deprived of any economic advantage which he has heretofore enjoyed over the laboring classes of other countries.

There has been one notable exception to this immigration policy. The invasion of cheap Asiatic labor upon the Pacific coast aroused a storm of protest from the laboring population, which compelled Congress to pass the Chinese Exclusion Act. But this legislation, while shutting out Chinese laborers, has not checked the immigration from other countries where a low standard of living prevails. In fact the most noticeable feature of the labor conditions in this country has been the continual displacement of the earlier and better class of immigrants and native workers by recent immigrants who have a lower standard of living and are willing to work for lower wages. This has occurred, too, in some of the industries in which the employer has been most effectually protected against the competition of foreign goods.[181]

The time has certainly arrived when the policy of protection ought to be more broadly considered and dealt with in a public-spirited and statesman-like manner. If it is to be continued as a national policy, the interests of employees as well as employers must be taken into account. The chief evils of the protective system have been due to the fact that it has been too largely a class policy, and while maintained in the interest of a class, it has been adroitly defended as a means of benefiting the classes who derived little or no benefit—who were, indeed, often injured by our tariff legislation.

The large capitalist may grow eloquent in defense of that broad humanitarian policy under which the weak, the oppressed, and the ignorant of all nations are invited to come among us and share in the economic and political opportunities and privileges of American citizens. Such high-sounding and professedly disinterested cosmopolitanism appeals to a certain class of sentimental believers in democracy. It does not appeal, however, to any one who fully understands present-day industrial and political conditions. This capitalistic sympathy for the weak and the oppressed of other nations may be regarded by some as the expression of a broader patriotism, but its tap-root is class selfishness—the desire to secure high profits through maintaining active competition among laborers. As a matter of fact, all legislation does, and always must, appeal to the interest of those without whose influence and support it could not be enacted, and nothing is ever gained for true progress by making the pretence of disinterested love for humanity the cloak for class greed.

The desire of the employing class for cheap labor has been responsible for the greatest dangers which menace this country to-day. It was the demand for cheap labor which led to the importation of the African slave and perpetuated the institution of slavery until, with the voluntary immigration of foreign labor, it was no longer an economic necessity from the standpoint of the employing class. Indeed the very existence of slavery, by discouraging immigration, tended to limit the supply of labor, and by so doing, to cripple all enterprises in which free labor was employed. In this sense the abolition of slavery was the result of an economic movement. It was to the advantage of the employing class as a whole who found in the free labor hired under competitive conditions a more efficient and cheaper instrument of production than the slave whom they had to buy and for whose support they were responsible.

Had it not been for this eagerness on the part of the employing class to secure cheap labor at first through the importation of the African slave and later through the active encouragement of indiscriminate foreign immigration, we would not now have the serious political, social and economic problems which owe their existence to the presence among us of vast numbers of alien races who have little in common with the better class of American citizens. This element of our population, while benefiting the employing class by keeping wages down, has at the same time made it more difficult to bring about that intelligent political co-operation so much needed to check the greed of organized wealth.

The limitation of governmental powers in the Constitution of the United States was not designed to prevent all interference in business, but only such as was conceived to be harmful to the dominant class. The nature of these limitations as well as the means of enforcing them indicate their purpose. The provision relating to direct taxes is a good example. The framers of the Constitution were desirous of preventing any use of the taxing power by the general government that would be prejudicial to the interests of the well-to-do classes. This is the significance of the provision that no direct taxes shall be laid unless in proportion to population.[182] The only kind of a direct tax which the framers intended that the general government should have power to levy was the poll tax which would demand as much from the poor man as from the rich. This was indeed one of the reasons for opposing the ratification of the Constitution.

"Many specters," said Hamilton, "have been raised out of this power of internal taxation to excite the apprehensions of the people: double sets of revenue officers, a duplication of their burdens by double taxations, and the frightful forms of odious and oppressive poll-taxes, have been played off with all the ingenious dexterity of political legerdemain....

"As little friendly as I am to the species of imposition [poll-taxes], I still feel a thorough conviction that the power of having recourse to it ought to exist in the Federal government. There are certain emergencies of nations, in which expedients, that in the ordinary state of things ought to be forborne, become essential to the public weal. And the government, from the possibility of such emergencies, ought ever to have the option of making use of them."[183]

It is interesting to observe that Hamilton's argument in defense of the power to levy poll-taxes would have been much more effective if it had been urged in support of the power to levy a direct tax laid in proportion to wealth. But this kind of a tax would, in the opinion of the framers, have placed too heavy a burden upon the well-to-do. Hence they were willing to deprive the general government of the power to levy it even at the risk of crippling it in some great emergency when there might be urgent need of a large revenue.

This is not strange, however, when we remember that it was the property-owning class that framed and secured the adoption of the Constitution. That they had their own interests in view when they confined the general government practically to indirect taxes levied upon articles of general consumption, and forbade direct taxes levied in proportion to wealth, seems highly probable. It appears, then, that the recent decision of the United States Supreme Court declaring the Federal Income Tax unconstitutional merely gave effect to the original spirit and purpose of this provision.

The disposition to guard the interests of the property-holding class rather than to prevent legislation for their advantage is also seen in the interpretation which has been given to the provision forbidding the states to pass any laws impairing the obligation of contracts. The framers of the Constitution probably did not have in mind the extended application which the courts have since made of this limitation on the power of the states. Perhaps they intended nothing more than that the states should be prevented from repudiating their just debts. But whatever may have been the intention of the framers themselves, the reactionary movement in which they were the recognized leaders, finally brought about a much broader and, from the point of view of the capitalist class, more desirable interpretation of this provision.

There is evidence of a desire to limit the power of the states in this direction even before the Constitutional Convention of 1787 assembled. The legislature of Pennsylvania in 1785 passed a bill repealing an act of 1782 which granted a charter to the Bank of North America. James Wilson, who is said to have suggested the above-mentioned clause of the Federal Constitution, made an argument against the repeal of the charter, in which he claimed that the power, or at least the right of the legislature, to modify or repeal did not apply to all kinds of legislation. It could safely be exercised, he thought, in the case of "a law respecting the rights and properties of all the citizens of the state."

"Very different," he says, "is the case with regard to a law, by which the state grants privileges to a congregation or other society.... Still more different is the case with regard to a law by which an estate is vested or confirmed in an individual: if, in this case, the legislature may, at discretion, and without any reason assigned, divest or destroy his estate, then a person seized of an estate in fee-simple, under legislative sanction, is, in truth, nothing more than a solemn tenant at will....

"To receive the legislative stamp of stability and permanency, acts of incorporation are applied for from the legislature. If these acts may be repealed without notice, without accusation, without hearing, without proof, without forfeiture, where is the stamp of their stability?... If the act for incorporating the subscribers to the Bank of North America shall be repealed in this manner, a precedent will be established for repealing, in the same manner, every other legislative charter in Pennsylvania.... Those acts of the state, which have hitherto been considered as the sure anchors of privilege and of property, will become the sport of every varying gust of politics, and will float wildly backwards and forwards on the irregular and impetuous tides of party and faction."[184]

In 1810 the case of Fletcher v. Peck[185] was decided in the Supreme Court of the United States. Chief Justice Marshall, in delivering the opinion of the court, said:

"The principle asserted is that one legislature is competent to repeal any act which a former legislature was competent to pass; and that one legislature can not abridge the powers of a succeeding legislature. The correctness of this principle, so far as respects general legislation, can never be controverted. But if an act be done under a law, a succeeding legislature can not undo it....

"When then a law is in the nature of a contract, when absolute rights have vested under that contract, a repeal of the law can not devest those rights; ...

"It may well be doubted whether the nature of society and of government does not prescribe some limits to the legislative power;...

"It is, then, the unanimous opinion of the court, that, in this case, the estate having passed into the hands of a purchaser for a valuable consideration, without notice, the state of Georgia was restrained, either by general principles, which are common to our free institutions, or by the particular provisions of the Constitution of the United States, from passing a law whereby the estate of the plaintiff in the premises so purchased could be constitutionally and legally impaired and rendered null and void."

It is evident from this opinion that the court would have been disposed at that time to declare state laws impairing property rights null and void, even if there had been nothing in the Constitution of the United States to justify the exercise of such a power. Justice Johnson, in a separate opinion, said:

"I do not hesitate to declare that a state does not possess the power of revoking its own grants. But I do it on a general principle, on the reason and nature of things: a principle which will impose laws even on the Deity....

"I have thrown out these ideas that I may have it distinctly understood that my opinion on this point is not founded on the provision in the Constitution of the United States, relative to laws impairing the obligation of contracts."

It was contended in this case that the state of Georgia had the right to revoke the grant on the ground that it was secured by corrupt means. This argument evidently failed to appeal to the court. It was referred to by Justice Johnson who said "as to the idea that the grants of a legislature may be void because the legislature are corrupt, it appears to me to be subject to insuperable difficulties.... The acts of the supreme power of a country must be considered pure...."

It is interesting to observe that the Federalist judges in the early years of our history under the Constitution did not deem it necessary to find a constitutional ground for decisions of this sort. But with the overthrow of the Federalist party and the progress of belief in popular government, there is an evident disposition on the part of the court to extend the protection of the Federal Constitution to all the powers which it claimed the right to exercise. Thus in the Dartmouth College case, decided in 1819, the United States Supreme Court appears to have abandoned its earlier position and to have recognized the Constitution as the source of its power to annul state laws.

"It is under the protection of the decision in the Dartmouth College case," says Judge Cooley, "that the most enormous and threatening powers in our country have been created; some of the great and wealthy corporations actually having greater influence in the country at large, and upon the legislation of the country than the states to which they owe their corporate existence. Every privilege granted or right conferred—no matter by what means or on what pretence—being made inviolable by the Constitution, the government is frequently found stripped of its authority in very important particulars, by unwise, careless, or corrupt legislation; and a clause of the Federal Constitution, whose purpose was to preclude the repudiation of debts and just contracts, protects and perpetuates the evil."[186]

Any government framed and set up to guard and promote the interests of the people generally ought to have full power to modify or revoke all rights or privileges granted in disregard of the public welfare. But the Supreme Court, while permitting the creation or extension of property rights, has prevented the subsequent abridgment of such rights, even when the interests of the general public demanded it. The effect of this has been to make the corporations take an active part in corrupting state politics. Special legislation was not prohibited. In fact, it was a common way of creating property rights. If a bank, an insurance company, or a railway corporation was organized, it was necessary to obtain a charter from the legislature which defined its powers and privileges. The corporation came into existence by virtue of a special act of the legislature and could exercise only such powers and enjoy only such rights and privileges as that body saw fit to confer upon it. The legislature might refuse to grant a charter, but having granted it, it became a vested right which could not be revoked. The charter thus granted by the legislature was a special privilege. In many instances it was secured as a reward for political services by favorites of the party machine, or through the corrupt expenditure of money or the equally corrupt distribution of stock in the proposed corporation among those who controlled legislation. Not only did this system invite corruption in the granting of such charters, but it also created a motive for the further use of corrupt means to keep possible competitors from securing like privileges. It was worth the while to spend money to secure a valuable privilege if when once obtained the legislature could not revoke it. And it was also worth the while to spend more money to keep dangerous competitors out of the field if by so doing it could enjoy some of the benefits of monopoly. By thus holding that a privilege granted to an individual or a private corporation by special act of the legislature was a contract which could not be revoked by that body, the courts in their effort to protect property rights opened the door which allowed corporation funds to be brought into our state legislatures early in our history for purposes of corruption.

But little attention has been given as yet to this early species of corruption which in some of the states at least assumed the proportions of a serious political evil.

"During the first half century banking in New York," says Horace White, "was an integral part of the spoils of politics. Federalists would grant no charters to Republicans, and Republicans none to Federalists. After a few banks had been established they united, regardless of politics, to create a monopoly by preventing other persons from getting charters. When charters were applied for and refused, the applicants began business on the common-law plan. Then, at the instigation of the favored ones, the politicians passed a law to suppress all unchartered banks. The latter went to Albany and bribed the legislature. In short, politics, monopoly, and bribery constitute the key to banking in the early history of the state."[187]

The intervention of the courts which made the conditions above described possible, while ostensibly limiting the power of the state legislature, in reality enlarged and extended it in the interest of the capital-owning class. It gave to the state legislature a power which up to that time it had not possessed—the power to grant rights and privileges of which the grantees could not be deprived by subsequent legislation. Before the adoption of the Federal Constitution no act of the legislature could permanently override the will of the qualified voters. It was subject to modification or repeal at the hands of any succeeding legislature. The voters of the state thus had what was in effect an indirect veto on all legislative acts—a power which they might exercise through a subsequent legislature or constitutional convention. But with the adoption of the Constitution of the United States the Federal courts were able to deprive them of this power where it was most needed. This removed the only effective check on corruption and class legislation, thus placing the people at the mercy of their state legislatures and any private interests that might temporarily control them.

The power which the legislatures thus acquired to grant charters which could not be amended or repealed made it necessary for the people to devise some new method of protecting themselves against this abuse of legislative authority. The outcome of this movement to re-establish some effective popular check on the legislature has taken the form in a majority of the states of a constitutional amendment by which the right is reserved to amend or repeal all laws conferring corporate powers. Such constitutional changes provide no remedy, however, for the evils resulting from legislative grants made previous to their adoption. The granting of special charters is now also prohibited in many states, the constitution requiring that all corporations shall be formed under general laws. These constitutional changes may be regarded as in the interest of the capitalist class as a whole, whose demand was for a broader and more liberal policy—one which would extend the advantages of the corporate form of organization to all capitalists in every line of business. But even our general corporation laws have been enacted too largely in the interest of those who control our business undertakings and without due regard to the rights of the general public.

A study of our political history shows that the attitude of the courts has been responsible for much of our political immorality. By protecting the capitalist in the possession and enjoyment of privileges unwisely and even corruptly granted, they have greatly strengthened the motive for employing bribery and other corrupt means in securing the grant of special privileges. If the courts had all along held that any proof of fraud or corruption in obtaining a franchise or other legislative grant was sufficient to justify its revocation, the lobbyist, the bribe-giver, and the "innocent purchaser" of rights and privileges stolen from the people, would have found the traffic in legislative favors a precarious and much less profitable mode of acquiring wealth.