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AMERICA'S INTERESTS AS
AFFECTED BY THE
, EUROPEAN WAR
tETfje Annate
Volume LX - C^X
July, 1915
Editob: CLYDE LYNDON KING
Assistant Editor: T. W. VAN METRE
Editor Book Dept.: ROSWELL C. McCREA
Editorial Council: J. C BALLAGH, THOMAS CONWAY, Jr.. S. S. HUEBNER, CARL
KELSEY, CLYDE LYNDON KING. J. P. LICHTENBERGER, ROSWELL C.
McCREA. SCOTT NEARING, E. M. PATTERSON. L. 8. ROWE,
ELLERY C. STOWELL, T. W. VAN METRE,
F. D. WATSON
Amsrican Academy of Political and Social Scobncb
36th and Woodland Avknus
Philadelphia
1915
i
Copyright, 1915, by
American Academy of Political and Social Science
All rights reserved
EUROPEAN AGENTS
England: P. S. King & Son, Ltd., 2 Great Smith St., Westminster, London,
S.W.
France: L. Larose, Rue Soufflot, 22, Paris.
Germany: Mayer & Mliller, 2 Prinz Louis Ferdinandstrasse, Berlin, N. W.
Italy: Giomale Degh Economisti, via Monte Savello, Palazzo Orsini, Rome.
Spain: E. Dosaat, 9 Plaza de Santa Ana, Madrid.
CONTENTS
PART I— AMERICA'S INTERNATIONAL TRADE AS AFFECTED BY
THE EUROPEAN WAR
AMERICA'S INTERNATIONAL TRADE AS AFFECTED BY THE ***
EUROPEAN WAR 1
William C. Redfield, Secretary of Commerce, Washington, D. C.
THE FUTURE OF AMERICA'S FOREIGN TRADE 17
Theodore H. Price, New York.
THE EFFECT OF THE EUROPEAN WAR ON AMERICA'S TRADE
WITH INDIA 22
Daniel Folkmar, Editor of Handbook of India, Department of Com-
merce.
TRADE POSSIBILITIES IN GERMANY AND AUSTRIA 36
Isaac Wolf, Jr., President of the American Association of Commerce
and Trade, Berlin.
COOPERATION IN EXPORT TRADE 39
WiUiam S. Kies, of the National City Bank of New York.
THE IMPORTANCE OF AN AMERICAN MERCHANT MARINE. . 52
Bernard N. Baker, Baltimore, Md.
PART II— RELATIONS OF THE UNITED STATES WITH CENTRAL
AND SOUTH AMERICA AS AFFECTED BY THE EUROPEAN WAR
THE FUNCTION OF GOVERNMENT IN ITS RELATION TO IN-
DUSTRY 58
Joseph E. Davies, Chairman, Federal Trade Commission, Washington,
D. C.
CENTRAL AND SOUTH AMERICAN TRADE AS AFFECTED BY
THE EUROPEAN WAR 60
James A. Farrell, President of the United States Steel Corporation and
Chairman of the National Foreign Trade Council.
TRADE RELATIONS WITH CENTRAL AND SOUTH AMERICA AS
. AFFECTED BY THE WAR 69
John Hays Hammond, New York City.
TRADE RELATIONS IN LATIN AMERICA AS AFFECTED BY THE
EUROPEAN WAR 72
Edward Ewing Pratt, Chief, Bureau of Foreign and I>ome8tic Com-
merce, Washington, D. C.
iii
IV Contents
EXISTING OBSTACLES TO THE EXTENSION OF OUR TRADE
WITH CENTRAL AND SOUTH AMERICA
Maurice Coster, Export Manager, Westinghouse Electric and Manufac-
turing Company, New York City.
PART III— AMERICA'S FINANCIAL POSITION AS AFFECTED
BY THE EUROPEAN WAR
THE PRESENT FINANCIAL SITUATION 104
Frank A. Vanderlip, President, National City Bank, New York.
THE EFFECT OF THE EUROPEAN WAR ON AMERICA'S FINAN-
CIAL POSITION 106
Thomas W. Lamont, Member, firm of J. P. Morgan & Company, New
York.
THE RESULTS OF THE EUROPEAN WAR ON AMERICA'S FINAN-
CIAL POSITION 113
W. P. G. Harding, Federal Reserve Board, Washington, D. C.
AMERICA'S FINANCIAL POSITION AS AFFECTED BY THE
WAR 119
Alexander J. Hemphill, Chairman, Guaranty Trust Company, New
York City.
THE FINANCIAL MENACE TO AMERICA OF THE EUROPEAN
WAR 123
Simon N. Patten, Ph. D., Wharton School of Finance and Commerce,
University of Pennsylvania.
THE PROBABLE CONDITION OF THE AMERICAN MONEY
MARKET AFTER THE WAR IS OVER 130
Joseph French Johnson, D. C. S., School of Commerce, Accounts and
Finance, New York University.
THE SITUATION OF THE UNITED STATES AT THE CLOSE OF
THE WAR AS A QUESTION OF NATIONAL DEFENSE 138
Edward S. Mead, Ph. D., Wharton School of Finance and Commerce,
University of Pennsylvania.
THE EFFECT OF THE EUROPEAN WAR ON AMERICAN BUSI-
NESS 143
A. B. Leach, President, Investment Bankers Association, New York City.
PART IV— AMERICAN NEUTRALITY AND THE EUROPEAN WAR
THE MEANING OF NEUTRALITY 145
John Bassett Moore, Professor of International Law, Columbia
University.
Contents v
THE NEUTRALITY RULES ADOPTED BY BRAZIL 147
His Excellency, the Brazilian Ambassador, Senhor Dom Domicio Da
Gama.
NEUTRAL RIGHTS AND OBLIGATIONS OF AMERICAN RE-
PUBLICS 155
Paul Fuller, New York City.
THE RIGHT OF CITIZENS OF NEUTRAL COUNTRIES TO SELL
AND EXPORT ARMS AND MUNITIONS OF WAR TO BELLIG-
ERENTS 168
William CuUen Dennis, Lawyer, Washington, D. C.
THE SALE OF MUNITIONS OF WAR BY NEUTRALS TO BELLIG-
ERENTS 183
Charles Noble Gregory, LL. D., Washington, D. C.
AN ARGUMENT AGAINST THE EXPORTATION OF ARMS 192
Edmund von Mach, Cambridge, Mass.
GERMANY AND AMERICAN POLICIES 195
Bemhard Demburg, Formerly Minister of Colonial Affairs of Germany.
FORCE AND PEACE 197
H. C. Lodge, United States Senator.
UNARMED NEUTRALITY 213
Albert Bushnell Hart, Harvard University.
SIX ESSENTIALS TO PERMANENT PEACE 222
August Schvan, Stockholm, Sweden.
AMERICA'S POSSIBLE CONTRIBUTION TO A WORLD PEACE. . 230
Oscar S. Straus, Former Ambassador and member of the Permanent
Court of Arbitration at the Hague.
BOOK DEPARTMENT 235
INDEX 272
CUMULATIVE INDEX 281
BOOK DEPARTMENT
NOTES
Bland, Brown and Dawney — English Economic History (p. 236); BosAM-
QWr—The Family (p. 2;i5) ; Bnows— International Trade and Exchange (p. 235);
BuROESS — Greeks in America (p. 236); Cabot, Andrews, Coe, Hill and McSkqi-
m6n — A Courae in Citizenship (p. 23G) ; ChovoB— Social ChriatianUy in ths Oritnl
(p. 236) ; FoucBt— The Diary of Adam Tas (1705-1706) (p. 236) ; FnAMmtt—Ptyeht^s
Task and the Scope of Social Anthropology (p. 237); Gerstenbero — MaiMriaU Cjf
Corporation Finance (p. 237); Gow— iSca Insurance According to Brititk SiahiU
(p. 2:J8); Hepuvrn— Artificial Waterways of the World (p. 238); Hooper— iloflroorf
Accounts and Acc/mnting (p. 238); Kahn and Klein— Pnnapiet and M§thod$ tn
Commercial Education (p. 239); Van OnNVU—The Regulation of Ri9er§ (p. 239).
Contents
REVIEWS
CABR—CapUaliatic Morality (p. 239) J. G. Stevens
CoiT— The Soul of America (p. 240) F. Tyson
CoRWiN — The Doctrine of Judicial Review (p. 241) C. H. Maxson
Cramb — Germany and Enghnd (p. 243) J. C. Ballagh
Croly — Progressive Democracy (p. 244) C. L. Jones
Do WD — The Negro Races: A Sociological Study (p. 245) G. E. Haynes
Emery — Concerning Justice (p. 246) C. L. King
Faouet — The Dread of Responsibility (p. 247) J. G. Stevens
Flexner and Baldwin — Juvenile Courts and Probation (p. 248) J. P. Lichtenberger
Freeman — Boy Life and Labour (p. 248) F. D. Watson
Geijsbeek — Ancient Double-Entry Bookkeeping (p. 250) E. P. Moxey, Jr.
GufiRARD — French Civilization in the Nineteenth Century (p. 250) P. L. White
Harris — A Century's Change in Religion (p. 251) J. P. Lichtenberger
Shotwell — The Religious Revolution of Today (p. 251). . . . J. P. Lichtenberger
Hayes — Public Utilities: Their Cost New and Depreciation (p. 252) .E. R. Johnson
HoLDSWORTH — Money and Banking (p. 253) E. H. Raudnitz
Jones — The Anthracite Coal Combinaiion in the United States (p. 254) C. E. Reitzel
Kennedy — The Pan-Angles; A Consideration of the Federation
of the Seven English-Speaking Nations (p. 255) Gw E. Haynes
Lowell — Public Opinion and Popular Government (p. 256) C. L. King
Mabie — Japan Today and Tomorrow (p. 257) W. A. Houghton
Matthews — Municipal Charters (p. 258) C. L. King
Mitchell — Business Cycles (p. 259) B. D. Mudgett
MijNSTERBERG — Psychology and Social Sanity (p. 260) F. Tyson
Phillips — The Confederation of Europe (p. 261) P. L. White
Stockton — Outlines of International Law (p. 262) J. H. Latan6
ToxjT— The Place of the Reign of Edward II in English History (p. 263) W. E. Lunt
Vedder — The Gospel of Jesus and the Problems of Democracy (p. 266) F. D, Watson
Wallas — The Great Society (p. 266) J. P. Lichtenberger
Walle — Bolivia: Its People and Its Resources; Its Railways,
Mines, and Rubber-Forests (p. 267) G. B. Roorbach
Whitten — Valuation of Public Service Corporations (p. 268) E. R. Johnson
Williams — Rutherford Birchard Hayes (p. 269) H. V. Ames
AMERICA'S INTERNATIONAL TRADE AS AFFECTED BY
THE EUROPEAN WAR
By William C. Redfield,
Secretary of Commerce, Washington, D. C.
It is substantially accurate to say that prior to the outbreak
of the European war there were three great competitors for the
international trade of the world whose position in that trade, meas-
ured by the respective shares of business done, were Great Britain,
Germany and the United States. We do not ignore the fact that
other nations held an important place in the same markets. France,
Belgium, Holland, Italy, the Scandinavian countries, all had their
share. The business of Belgium was large in proportion to her
size. The share of France was one peculiarly individual. No one,
however, will deny that the three great nations first named were
preeminent among the rest. Each of these three showed certain
marked and different characteristics in the competition which they
carried on. America was potentially a large exporter of food.
During recent times, indeed, when her own crops were short, she
imported food largely, but this has been reversed as current records
show. Germany was regularly an importer of foodstuffs. Eng-
land imported a very large portion of her food supply.
The competition on the part of Germany was distinguished by
the application of science to business to an unparalleled degree.
Her commercial power was based upon research and upon the
application of the facts found by research to an extent unknown
elsewhere. To this scientific spirit she added thoroughness in
organization and preparation. Her men were not only organized
but were trained for the contests of commerce as they were for those
of war. She presented a spectacle of organized competence, util-
izing her resources in men and material more effectively than anyone
else. She was steadily building up a great merchant marine as the
servant of her commerce and was reaching her financial fingers
out into every portion of the world. The commerce of Great
Britain lacked the application of science to work. It was not
1
2 The Annals of the American Academy
highly organized in the German sense. It was, however, backed
by the largest masses of free capital that the world has ever seen,
and her trade flowed normally from English owners in foreign
lands to English producers in the home land. Abroad it was financed
by British banks controlled by British owners; at sea it was trans-
ported by British ships; in London the British foreign banks kept
their reserves, and in Great Britain the goods were made by British
capital and British labor. It was a British net that was spread
out all over the world to get within its folds all that was best com-
mercially. It was backed by commercial courage of the highest
order and by tenacity of purpose that was admirable. To both
Great Britain and Germany foreign trade was the very essence of
prosperity. The organization of the German Empire was operated
in its favor. Each nation regarded it as the goal to which its best
efforts should be directed. Control of the world's markets was to
each of them a supremely important thing.
The third competitor, ourselves, looked on the matter in a very
different way. We had neither the capital of Great Britain nor
any comparable ownership of enterprises abroad from which we
might draw commerce. We had no banks in foreign fields ; and few
lines of vessels under our own control. We did not use the scien-
tific methods of Germany, and our commerce as a whole lacked
organization. It is still the custom of some in our land to speak with
a smile of the scientific man as if between him and the practical
worker were a great gulf fixed. The union between science and
industry is far from complete. One has but to look over the mail
of the Bureau of Standards to see how far removed many if not most
of our industries are from any touch with scientific research. In this
respect there could be no sharper contrast drawn than that between
Germany and ourselves, just as in the respect of financial power in
the world's markets a similar sharp contrast might have been
drawn between Great Britain and ourselves. It would almost
seem upon the surface of things as if lacking the scientific applica-
tion, lacking the organization and the men prepared by training
for the work, wanting the investments abroad and the financial
institutions in the foreign field which have been the strength of
English commerce, trained in large part to believe among ourselves
that we could not compete in the foreign markets for various domes-
tic reasons, it would, I say, seem almost impossible for us to ente^
America's International Trade 3
the market of open competition with the giants of commerce and
win for ourselves a place therein. This, however, would leave out
certain elements in the American character quite as effective in
their way as the methods and the means used by our competitors.
The American mind is singularly quick and alert. If we lack
a highly organized commerce, we in a measure replace it with a
highly individualized commerce. We are not bound by precedent
or by tradition. For the way things have been done in the past we
have as little respect as we have patience for the slow plodding
research into final causes. We have a singular mechanical aptitude
with great inventive capacity. To see a thing done awakens the
desire in us to do it better. This inventive skill and mental alert-
ness, combined with high individual initiative, have carried us far.
If to them we shall ever add the scientific outlook and the financial
power which our two great competitors have had, we shall go far
indeed. It is because in both these respects we seem to be advanc-
ing that I feel more hopeful than ever for the building of a great
structure of American commerce abroad on a substantial and per-
manent foundation. Such, briefly and inadequately described,
were the three great competitors.
Let us now for the moment consider on what economic basis
foreign trade rests. It goes without saying that international
trade is of a highly competitive character. The best brains of the
most highly developed peoples are active in it. It is an arena for
commercial athletes. It calls for the best of brain and body.
Therefore, before going either into review or forecast let us
consider some facts about the basis of competition. There are
many men who think, or of whom it would perhaps be just to say
that they talk as if they thought, that competition is solely a matter
of price. The cheapest goods, say they, get the market. Unless,
as they believe, one can sell as cheaply as or more cheaply than
others, one cannot compete with them. When one hears this view
which appears in many forms in press and in talk, one is reminded
of the proverb: "All generalizations are false, including this one."
There is so much of truth in the suggestion that price is the
essence of competition, and so much of current custom in it, so
much of trade actually centers around it that it is easy to overlook
the grave errors which so sweeping a generalization involves. There
is no one of you who does not frequently buy an article at a higher
4 The Annals of the American Academy
price than that at which it is possible to obtain a substitute which
might be made to serve. There is no one of you who does not at
times prefer cake to crackers. This is because you like the taste
of cake. Now the relation of the cake to the crackers is one which
illustrates an economic truth. The crackers may do, but you prefer
the cake. Stated differently, the element of taste has come in to
affect the matter. Undoubtedly it was possible for every one of
you to have purchased clothing at less cost than that in which you
now make so good an appearance. With the choice before you,
however, you have decided to buy that which you now wear. The
element of design in fabric and in cut and style of garment, the
element of color, the whole wide-reaching element of quality has
come in to cause you to pay more than you need have paid for that
which would actually serve the physical purpose of clothing. Al-
ready in so simple a matter as eating one's supper or attending this
meeting there have been developed certain factors in competition
other than price, and these factors daily affect your purchases and
those of everyone else. You do not always buy the cheapest thing
that will serve the purpose. Hence there are different grades of
goods, and in saying grades one means not only grades of quality
but grades of design and suitability in various ways. If of two
articles which are submitted to you for purchase one pleases you
and the other does not, you and all your fellows here and abroad
will pay more, or at least more willingly, for that which pleases you
than you will for that which pleases you not. It follows, therefore,
that if I am manufacturing goods for the foreign market there are
many things for me to consider beside the sole question — can I
undersell my foreign or domestic competitor? As a matter of
fact, since you and I choose the thing which pleases us, it is probably
true that if one is wise he tries to make that which will please the
foreign customer, knowing that by so doing an enhanced price
may be had. If one is sure he can please the foreign buyer he may
be able by that very fact of pleasing him to ignore at least par-
tially the question of price competition.
We may state the matter differently by saying that in some
markets certain designs or colors or widths or textures or weights
would not sell at any price at all. The best of men's heavy worsteds
or overcoatings would not find a market in Java at five cents a yard.
It is appreciated that these statements are elementary, but they are
Americans International Trade 5
stated here because it seems as if a number of those who discuss
these matters require certain elementary truths. It is not, there-
fore, the fact that in a factory here or elsewhere it needs to be true
in order to develop a foreign trade that one shall make his goods
cheaper than goods of a similar class are made by the person or in
the country with which one wishes to compete. If it is true, as you
all know it to be true, that you will pay for an article which suits
you more than you will for one which does not suit you, then it
becomes wise for the factory that wishes to compete to find what its
customer wants and furnish him that. In so doing it will modify,
if not remove, the priority of price as a competing factor.
There are industries in America which do a good foreign
business chiefly on the basis of other elements in competition than
the price at which the goods are sold. I have always thought it to
be a weakness of the protection theory that it necessarily ran on
the line of price and could not profess or attempt to be protective
of competition as regards quality, design, and many other similar
elements which enter constantly and at times controUingly into the
processes of trade. One need not be hopeless, therefore, about a
future for American international trade even if it were true, which
it is not, that American cost of production per unit was equal to
or greater than that of every country to which we desire to sell.
It forms no part of my theme today to discuss the broad subject
of the relative cost of production in this country and in others. Let
us be content with pointing out what nobody ventures to deny, that
in many lines of activity we produce the desired result at a lower cost
than elsewhere in the world. A striking example is the railway. It
will not be denied that railroad wages in America are higher than
those in any of the great industrial countries of Europe with which
we compete, and that in some respects our equipment is more
costly. Neither will anyone deny that American railway freight
rates are lower than in any of those countries. There is much loose
talk about the cost of operating vessels, but I believe it is correct to
say that in three important spheres American vessels are now oper-
ating at the lowest cost per ton of freight carried that is known. I
think there is no such low cost of carrying bulk freight for similar
distances by water by steam as that upon the Great Lakes in the
specialized steamers, with the specialized loading and unloading
apparatus provided for them, by which our ore and coal and grain
6 The Annals of the American Academy
on the Great Lakes are now carried. A possible exception to this
may be the second instance, also an American one, namely the
carrying of coal on our southern rivers and Gulf from Alabama to
New Orieans in specialized power barges. A third instance is the
large coasting schooner of the Atlantic which for distances of 250
miles or over is probably the cheapest known form of transportation
of large quantities of merchandise. I have often thought that a
fleet of steel schooners with auxiliary power constructed for transat-
lantic voyages would permit of our competing on equal terms as
regards cost of transportation with anyone for the class of freight
to which such vessels would be suited.
So well known, however, are the facts respecting American
costs of production in the places where brains are thoroughly mixed
with business and prejudice does not exist in favor of industrial
"standing pat,*' that I need hardly weary you by dwelling on the
subject.
American mining machinery is used by foreign-owned mines in
the Transvaal. American locomotives pull trains on the railways
of many foreign lands. Not long since I was in a factory making
articles of women's clothing which sold its goods in fifty countries
and which paid, by the way, nearly double the wages paid in certain
mills whose owners allege they cannot compete with Europe. It is
useless to tell our people that we cannot do that which is daily being
done. One cannot see the cargoes outward bound in normal times
in our great seaports and look with much patience upon the tales
of our inability. I know of no nation of whose industries it can be
said that all its factories always produce at lower cost than any
factory anywhere else in the world. Neither do I know of any
nation where in any industry there are not great inequalities in the
cost of production between the most effective and the least effective
establishment. There is no such thing as a German basis of cost
or an English basis of cost. The costs of production in the indus-
tries of those countries are not alike and are changing, some going
up, some going down. On the whole, it is true that the application
of science to industry in Germany has favored low cost of produc-
tion. It is because of this that Germany has prospered. She is
not a land which, compared with ourselves or the British Empire
at large, is one of great natural resources. She must needs
draw raw materials for many of her industries from other lands.
America's International Trade 7
It is her commercial triumph that by the application of science to
the smallest processes of manufacturing she had won a great place
in the world, despite numerous handicaps, by the pure power of
brains applied to work. Much discussion proceeds on the basis
that cost of production is a fixed thing. It is nowhere fixed. It
varies in time and in place everywhere and always. It cannot be
predicated that because it is one thing in one mill it is the same in a
similar mill near by. This is as true of Germany, of Great Britain,
and of France as of the United States.
The various factors described have so operated that both
Germany and the United States in the last few decades entered
largely into the foreign field and challenged the supremacy of Great
Britain therein. It remains to be said that in our own case the
change in character as well as in volume of our international trade
was striking. We long ago ceased to be chiefly exporters of food
and became exporters of manufactures. The group of manufactures
in our foreign trade before the war broke out was the largest of all,
and in this group the item of fully finished manufactures was the
largest and the growing factor. We were, as a matter of fact, in
many lands the wide world over competing successfully with Ger-
many and Great Britain in the very field in which they were
thought preeminent, namely, the field of manufactures.
Thus stood conditions when the war broke out. It came upon
us with a shock and it wrought upon us revolution. The shock is
long ago absorbed. The revolution is still going on, bearing us with
it. Cautionary signals were not wanting before the stroke of war
fell. For about two years before the war the currents of finance,
which ordinarily flow out from the treasure centers of Europe into
the arteries of commerce throughout the world, were chilled in their
courses. The instinct of capital which makes it quick to take alarm
felt vaguely that something might be afoot* Hence the arrest of
the outward flow and the beginning of an inward one. The tenta-
cles reaching out into all lands grasped such cash as was liquid in
them and drew it home and the great reserves of the European
continent began to expand and a corresponding depression began
to be widely felt. People were not as well able to buy as they had
been and therefore less could be sold; enterprise slackened its
footsteps and business checked its career. Meanwhile the reserves of
Europe grew as if expecting the thing which happened when August
8 Thb Annals of the American Academy
of last year came. At this time we, unlike our competitors, were a
debtor nation. They were creditors. It was not in our power to
draw from the currents of trade the life blood of gold. We, on the
other hand, were owing largely both in funded and in floated debt.
When the blow smote us it found us unready.
It is not necessary to review the history of the critical months
of August and September last. I can never think of this period
without thankfulness to the men in private business and finance who
with great courage and wise resource pulled us through those trying
weeks. I hope they will acknowledge as freely that the government
did what it was able then to do to the same end. We are concerned,
however, chiefly to consider what the extraordinary change is which
has come over the face of our foreign trade since these things were
done. A floating debt of perhaps four hundred million dollars has
been paid in goods and not in gold. Some of the gold we had ex-
ported to pay what we owed before the war has come back to us in
payment of debts due to us. We have built up a huge balance of
credit. It amounts since the first of December to over six hundred
million dollars. We are not struggling now to pay what we owe.
We not only owe less than we did but we are spending much less
than we were. We are saving money as a nation at an astonishing
rate. The nations of the world turn to us for cash. It is probably
not too much to say that in direct loans and credits since the war
broke out we have, in addition to paying our own floating debt,
given financial assistance to others to an extent in excess of two hun-
dred million dollars. The nations turn to us, both belligerent and
neutral, not only to furnish them goods but to loan them the money
with which to pay for the goods they buy from us. For the first
time in your lives you have seen the advertisements of great foreign
loans in our daily papers and have known that the money from
those loans was to be expended among us for the purchase of the
products of our factories. Only the superficial think that the mass
of these loans and the bulk of these sales concern munitions of war,
as they are called.
We are selling to the neutral peoples great volumes of goods to
make good the shortage in the supply they have heretofore taken
from other sources now cut off by the war and vast quantities of
food both to warring and neutral peoples. Whatever the details,
one fact remains clear. We are lending the world money and we are
America's International Trade 9
selling the world goods, and both to such an extent that our foreign
financial outlook and the condition of our export trade have taken
on within ten months an entirely new significance. That which
was strange is becoming familiar. Peoples whom we did not inti-
mately know are borrowing large sums from us and tendering us
large orders. A new spirit has come into our commercial life; a new
sense of relationship to others and of our power to help them and
of our ability to supply them. The change which has come over
our commercial life is not unlike that which took place when with
the close of the Spanish War we realized that a new vision of our own
place in the world had come to us. That was a sense perhaps
chiefly of a new political importance in the world's councils. This
is a sense of a new financial and industrial power. Would that we
had been fully ready for the opportunity. It is our misfortune
rather than our fault that at a time when we were struggling hard to
pay debts for which creditors were insistent, we were not able to
loan largely to those of our sister nations who were needy and who
could get funds nowhere else. Not so much in excuse is to be said
for our commercial unreadiness to utilize the opportunity. There
have not been wanting, indeed, men of light and leading, equipped
with knowledge and experience in the foreign field, appreciating
its value to our commerce, ready to deal with this crisis in a broad
and intelligent way. It is fortunate indeed for us that there have
been such and so many of them. The spectacle on the whole, how-
ever, has been too much that of industrial inertia — much more
concerned with parochial pessimism than with a broad and cour-
ageous outlook. Training in national inability had done its work,
and when the hour of opportunity struck, relatively few of us were
ready to take the step of progress.
Try now, as we have tried, to find trained men of business
speaking at least one foreign language well and familiar with the
customs of other lands and see how sadly few there are. Go among
our industries and test the knowledge of the great world and see how
it compares with the thorough training in the German business
world. We must not generalize too broadly or forget the many
men whom this opportunity has inspired. Yet on the whole there
is much that is supine. There is contentment with industrial
dependence. If once there could be a year of that devotion which
has sent the sons of the belligerents to the war directed in our
10 The Annals of the American Academy
own land to pushing forward the power of American commerce
and industry throughout the globe, we should alter the face of things
in the world's markets. One cannot wisely be pessimistic however.
It is perhaps too much to expect that the outlook of our people
should change in the mass as rapidly as circumstances themselves
have altered. It is a fact that we are looking outward more and
more and are less and less nursing our inward and relatively petty
troubles. We see in our every morning's mail the cry on the part
of commerce and industry for knowledge; the outreach into untried
fields. We note with gladness the placing of American banks
abroad and we honor the courage and the foresight of the men who
do this thing. We see that research is winning her place in our
industries and we hope and believe her place is to be a large one.
The days of the rule of thumb are passing and it is a good sign that
men are sensitive about being inefficient. In all this there are the
beginnings of a new and a better day whose sun will see the peaceful
flag of America carried on helpful and commercial errands far and
wide.
It is, perhaps, nay, it is doubtless, risky to foretell what the
ultimate effects of the current war shall be upon our commerce. We
know where we were before the war began — a great and growing
competitor of others who had many advantages over us. We know
where we are now while the war goes on — the one great industrial
and commercial country which is at peace and certain to remain so.
We know that there is no other land in which a foreign buyer can
place an order requiring months for its execution with the reasonable
certainty that the alarms of war will not delay it. We know that
we are passing over from the debtor to the creditor stage; that our
floating debt is paid and much of our funded debt as well, and that
we are pa5dng more interest to ourselves and less to others. These
things we know and are glad that they are so. No one with vision to
see but sees that the United States holds a unique position and one
of great dignity in the world today. What shall the future be?
This may not be answered broadly, but certain things we think
we see are suggestive.
One of our great competitors has for eight months been out of
the market. No one has suffered from her competition during that
period. Another and a lesser competitor has also been excluded. A
third great competitor has been so intensely occupied in the struggle
America's International Trade 11
as to be unable to sustain at highest pitch in other fields the com-
mercial enterprises which have made her great, and a fourth, having
much of her industrial territory occupied by hostile troops, is in a
measure crippled thereby in her foreign trade. We know that in an
industrial organization continuity is a vital factor. One of the
weak spots in the factories that pay small wages is the changing
character of their working force normal to such conditions, which
always means enhanced cost of production. Continuity of opera-
tion, keeping the staff together, holding the organization intact,
these are cardinal principles of industry. Absence from the market
is a hurtful thing. You insure your factory against direct loss by
fire and against use and occupancy, but, if you burn, the loss of
business during the months taken to rebuild is often serious. Those
of our competitors who have been out of business will find it imprac-
ticable to pick up the threads just where they were broken. Those
of our competitors whose continuity of operation has been broken
will find it impracticable to operate soon just as they did before the
break. The customers of these nations have not ceased consuming
while the nations have been absentees. They have gone elsewhere
for the goods they need and they may have found, and doubtless to
some degree will have found, goods that please them in the new
places. In such a case the work of commercial conquest must be
done over if the business is to be turned back into its old channels.
It will not be so easy to make the conquest anew if the organization
that sustained it in the first instance has ceased to exist and must
itself be re-created.
Two factors then will affect America favorably in the coming
days. One is the loss of good will by her competitors through
enforced absence from business. The other is the injury to her
competitors through broken or suspended organization. This is
not all. The organization in many cases has not only been broken
or suspended but the units which composed it have been slain. It
would be hard to find a factory in the belligerent lands which, were
all its former staff called to assemble today, would not have many
gaps in the ranks. This would be true both of the working and the
managing staff. Many a trained hand and many a guiding brain
are gone and others are going. Bad as are the loss of good will and
the disruption of organization, far worse is the loss of the skilled
hand and the trained mind. These are not to be replaced by going
12 The Annals of the American Academy
into the market places. They must be found and taught anew. It
must in this connection be remembered that the fighting forces have
consisted of men, many if not most of whom were at the height of
their earning power, and that the economic loss is not to be reckoned
as so many human units merely but at the loss of productive power
which these particular units represent.
War has this stupendous folly that it destroys most rapidly
those we need the most. This process has already gone on to a
frightful cost. It continues. What the end may be no one can
say save only this that so far as it goes it means growing a greater
weakness. Every day means a loss of good will. Every day means
more cost from the broken organization. Every day destroys the
material with which alone that organization is in time to be replaced.
In many an industrial center factories and their equipment have
been physically destroyed, and where all was industry nothing
tangible survives. Here must an industry be built anew from the
very ground, and when it is built must take up anew the work of
making its place in the world under the conditions we have described.
There has been enormous waste of things which must be replaced,
and, ere the normal currents of business can flow, millions must be
spent to provide the means of transit and exchange. Some of the
fighting nations have thus far escaped in any large measure the
actual physical destruction of their industries. What shall be done
to them before the war shall end one cannot say. So far as this
goes it means building up from the bottom with painful steps and
slow that which was before lusty and full grown. The circumstances
under which this rebuilding shall be done, whether it be the rebuild-
ing of the physical factory or of the entire good will or the broken
organization, whether, I say, it be one or all of these, and it must
in most cases be at least two of them and in many cases all, will be
circumstances of peculiar hardship.
No one will deny that taxes will be heavier after the war or
that before the war they were deemed burdensome and now are to
be more so. The price must be paid and it can only be paid by
taxation. More will therefore be taken out of purses that are more
nearly empty than they were before with which to pay the cost of
the frightful folly in which men have indulged. The purses will
be more nearly empty, I have said, because capital— the people's
savings, the nation's wealth— has been wasted in destruction as
(
America's International Trade 13
never before. Even to the victor the cost of victory will be enor-
mous, and to those who besides have lost home and furniture and
workshop and equipment and many things else, who live in the
towns or villages that have ceased to be, to them there must be
poverty indeed. The debt must, however, be paid, and there will
be less with which to pay it and capital will not be had at the same
price to restore a ruined industry at which it could be had to keep
that same industry moving in the prosperous days of yore. Say
what he will, cheer himself as he may, the manager of industry in
the belligerent countries knows very well that his future path is no
easy one. If it be his ill fortune to be in the very seat of war itself,
the task will be slow and serious indeed. How long it may take will
depend upon the extent to which the process of destruction goes on.
A single bomb may in a moment destroy that which a year will
hardly replace. A single bullet may as truly destroy the highly
specialized brain which cannot be replaced. We have no precedents
on which to go, for there has not been a world-wide war since the
industrial system was founded. But we may be reasonably sure
that the recovery will be not sudden but slow and that its possibility
and degree will depend upon the extent of exhaustion which the
combatants permit themselves.
We may not deny that incidental advantages may come of
great value to one or another of the belligerents which will in a
measure compensate in time for the sacrifices made. We are, of
course, familiar with the wonderful recoveries our own cities have
made from overwhelming disaster. The new San Francisco, to
which many are flocking now, is a marvel of the time. Neverthe-
less, the loss of the old remains a true loss, absorbed indeed by the
abounding economic power of our people, but we should have been
just so much richer had it not happened. I take it, the loss in San
Francisco, great and painful as it was and not to be minimized or
mentioned lightly, was yet by comparison trivial to that which
weekly has gone on for many months abroad with added elements of
economic weakness which make the situation worse than at first it
seemed.
The suggestion of incidental advantages that may grow out of
the war leads to some interesting speculations. How, for example,
is Africa to be affected? The projected Cape to Cairo railway, now
in operation for long distances northward from the south and south-
14 The Annalb op the American Academy
ward from the north, seemed to find an obstacle in the conditions
near Lake Tanganyika. This great inland sea, four hundred miles
in length and but about thirty wide, touches British territory indeed
at both extremes, but its entire western front is Belgian territory (the
Kongo), and its eastern shore was German territory (German East
Africa) . Were either of these powers hostile, the line of communica-
tion might be cut, and under present conditions it would be seriously
threatened had it been built. Is one of the results of the war to be
the removal of these restraints and the assurance that the great rail-
way may safely proceed through its entire course? What about
crossing Africa from east to west? The last link in the line of rail-
way and steamship communication from the Atlantic to the Belgian
frontier of the Kongo at Lake Tanganyika was completed but a few
weeks since. A German railway through German East Africa now
runs from Tanganyika to the sea. It is therefore now physically
possible to cross the African continent by rail and steam. Part of
the line, however, is in the territory of a nation hostile to that which
owns the rest. Is one of the results of the war to be the setting free
of this great transcontinental route from the restraints which are
now imposed upon it?
Are we to see the release of Russia from the restraints that
have hitherto always bound her? Are the Dardanelles and Bos-
porus to be open doors, wide apart without restraint, to the com-
merce of the great Russian people? Are her wheat and oil and other
products to be free from all hindrance henceforth by this route?
Finally, and not least important, turning to Asia, what is to
become of the Bagdad railroad? Something like a thousand miles
of it have been built by German capital. Its eastern outlet on the
Persian Gulf is now held by the British. Cyprus and Egypt, British
possessions, are near its western terminal. A glance at the map will
show this to be a short line to India which would economize greatly
over the passage through the Red Sea and around Arabia. Is India
to be thus moved a day or two nearer Europe, and another portion
of the burden of distance taken away?
It hardly needs to be said that any one of these things will have
far-reaching importance and all of them seem to be among the cards
on the table waiting to be played. If all of them are cast into the
crucible of progress to come forth in useful form, they are quite as
Americans International Trade IS
likely to affect the commerce of the world and with it that of America
as seriously as did the Suez or the Panama Canal.
What the effect of all these conditions upon American inter-
national trade is to be cannot be limited or defined, but it would
seem plain that our resources are undiminished, our capital secure,
our labor safe, that we are saving when others are losing, that we
are living when others are dying, that with us the path is upward
and with them it is in large measure downward. It seems certain
that one result is to be our own greater industrial independence.
We have learned that for us to depend upon any one foreign source
of supply for articles of necessity is to be in a position at once dan-
gerous, expensive and humiliating. We shall hardly be content
to rest long in such a position now that our notice has been sharply
directed to it. I hope we shall include among the humiliations
thus to be thrown off that of depending upon others for the trans-
portation of our sea-borne trade. It is not fit that the commerce
which is of our very life should be in the control of others than our-
selves. We have been of late, but we ought not to be, depending
upon foreign navies for the privilege of transporting the goods which
it was necessary for us both to buy and sell. This fact, once known
and realized among us, will not long continue to exist among a proud
and self-reliant people.
I do not forget the ideals for which the combatants fight nor
underestimate the really spiritual forces which are the impetus to
the strife for these ideals. There is a side of war in its devotion to
cause and country, in its willingness to spend all for what that
country needs, and in its heroism which is strong and fine. Never-
theless, we are speaking of trade, and economic destruction is not
made good even with the highest ideals save over long years of
atonement.
It seems clear to me that if we do our part we shall change our
place among the great competitors. The world is never the economic
gainer in the last analysis by war. The losses must be absorbed
and we must do our share of absorbing, but in the process of absorp-
tion places relative to one another may be exchanged. No one, I
think, would be surprised to find the United States second in the
world's competition, nor, if the war shall long continue, be astonished
to find her first. It depends, of course, not merely on what is
destructively done yonder but on what is constructively done here.
16 The Annals op the American Academy
If we are willing to lay aside passion and prejudice and partisanship,
to look at things with an international instead of a parochial view-
point, to realize that effectiveness is patriotism and that inefficiency
is unpatriotic; if we are ready to give up inertia and take a step
forward out of ourselves to the help of others; if we remember that
commerce is mutual exchange to mutual benefit and not a species of
industrial war; if we can learn the lesson that the well-paid workman
is the cheapest producer and that science must be applied to indus-
try if we are to win; if these things can be done I see no reason why,
with our resources and intelligence and organization, we may not
become the first among the world's great trading nations. We
shall have to give up a good deal if we are to reach that goal. We
must abandon mutual distrust and pull together. We must not
think that gain made in any way that greed may dictate is a thing
that the conscience and spirit of America will permit. We must
remember that in industry a social wrong makes no economic right
and that factories cannot be so operated as to injure our fellow
creatures for our own personal gain. The men and the women in the
mill and the children kept out of the mill must have their chance.
We shall not gain by grinding, but by growing. The law of grasp
and gouge is not the law of business permanence. That which is
socially undesirable cannot continue commercially profitable. We
cannot win in the world's markets by driving men and women
employed at the lowest market rate that poverty requires them to
accept, but by leading our fellow men in such wise that their respon-
siveness to our leadership will draw forth rewards for them adequate,
yes, ample, and for those who lead returns beyond their dreams in
personal power and in filled purses, too. For our beloved country
the result of these conditions would be that supremacy in the world
of which we dream, for which we pray, and of which we hope that
it shall be peaceful because it is powerful and powerful because it is
filled with the spirit of peace.
THE FUTURE OF AMERICA'S
FOREIGN TRADE
By Theodore H. Price,
New York.
The future of any trade or business is dependent upon two
factors that are fundamental. One is the cost of producing the
things that are to be sold, and the other is the need for them and the
purchasing power of those who are likely to feel that need.
In regard to America's ability to produce the raw material,
of which two-thirds of our export trade has hitherto been composed,
at a cost which will enable us to compete successfully with the rest
of the world, there can be little doubt.
We shall doubtless continue to be able to produce cotton,
com, wheat, tobacco and other agricultural staples just as cheaply
as they can be grown elsewhere.
There is a fear that after the war is over, and the millions of
men now at the front have returned to peaceful industry, we shall
be unable to compete with the cheap labor of Europe, and that
in consequence we shall lose whatever trade in manufactured goods
we may have been able to develop during the military preoccupation
of Germany, France and England, who are our chief competitors.
It is because of this fear and upon this theory that the voice of the
Protectionist is already heard in the land, urging that a high tariff
shall be re-enacted so that our home demand may at least be
preserved for American industry.
Whether the apprehension that is professed with regard to
the possible effect of the war in reducing the cost of manufacturing
abroad is justifiable, it is difficult to say. We are facing unprece-
dented conditions, and the outcome is almost beyond human ken.
It has been calculated that if the war lasts a year, or until the first
of August next, the national debt of the belligerent nations will
approximate $42,000,000,000. Adding to this the indebtedness
of cities and other political sub-divisions of the countries at war,
there is a total of probably not less than fifty billions of dollars, the
interest on, and amortization of, which will have to be provided for
17
18 The Annals of the American Academy
by taxes, which will be laid upon an aggregate population of about
350,000,000 persons. This population, therefore, faces an indebt-
edness of about $150 per capita.
The United States Department of Commerce has just completed
an investigation into the national, state and municipal indebtedness
of the United States. Its figures indicate that the total political
debt of this country less sinking funds, i.e. net debt, is $4,850,460,-
713. This debt is distributed as follows:
Federal $1,028,564,055
States 345,942,305
Counties, cities, etc 3,475,954,353
$4,850,460,713
The total is equal to about $48.50 per capita for a population
estimated at one hundred millions.
This comparison between the political debt of Europe and that
of the United States is introduced because it brings into relief the
most important question to be considered in connection with the
future, not only of American trade, but of trade throughout the
world. This question briefly stated is: Are the people of Europe
willing and able to submit to the heavy taxation which will be nec-
essary to support the integrity of the enormous debt with which the
war has saddled them and their posterity? If not, a partial or en-
tire default will occur, and the result will be general financial de-
moralization, which will restrict trade throughout the world, whether
it be intranational or international.
There are, however, two different methods which may be
followed by nations which find themselves unable to meet their
political or national debts. One is direct repudiation and formal
refusal to pay. The adoption of this method seems unlikely. The
other is inflatation, or the legalization of an irredeemable paper
currency, which gradually depreciates in value as compared with
real property and so defers or gradually wipes out the obligations
of the issuing government to its creditors. Unless this paper
currency be ultimately redeemed in gold, the effect is a cancellation
of the obligations of the debtor to the creditor class and a confession
of practical bankruptcy.
As a matter of fact, gold is now at a premium in all the countries
America's Foreign Trade 19
of Europe, and although specie payment is nominally maintained
in Great Britain, it is conceded that unless the war is soon ended a
suspension of the Bank Act will be necessary to protect the reserve
of the Bank of England, which is already down to less then 19 per
cent.
To the practical mind, the immediate future of America's
trade as affected by the war is, therefore, largely dependent upon the
effect of European inflation upon trade in general.
Fortunately, we are not without precedents in considering
the effect of inflation. It has been frequently resorted to. In
nearly every case it has given a fevered impulse to speculation
and has advanced the price of commodities and labor very rapidly.
In his book on Crises and Depressions, Senator Burton says:
As affecting crises, inflation of the currency stimulates the speculative fever
and promotes unprofitable enterprises. It is particularly true that, if irredeem-
able paper money is issued in any considerable quantity, prices are sure to rise.
An unnatural rise in prices is the most fruitful parent of injudicious investment.
Investors do not stop to think that while an article may bring many more dollars
than before, the dollar has not the same purchasing power. The result of inflation
was never better illustrated than in the period during and after the late Civil
War. An increase in nominal values was caused by the large increase in paper
money. This created a desire for new and, in many cases, useless undertakings.
In the eight years from 1866 to 1873, inclusive, a greater mileage of railways was
built than from the completion of the first railway in the United States in 1830 to
the end of 1865. Many of these were commenced after the premium on gold had
fallen, and prices were more nearly normal; but the buoyant spirit of enterprise,
which had been stimulated by rising prices and unusual profits, still continued,
and resulted in the severest crises this country ever experienced.
If the experience of the United States during the time when
gold was at a premium here is a precedent upon which we may base
a prophecy as to the effect of similar conditions in Europe, it seems
reasonable to expect that the next four or five years will be a period
of advancing prices for both commodities and labor in Europe,
and that this advance will enormously stimulate speculation in the
purchase of both necessary and unnecessary things.
Beyond this, no one, who has respect for his own reputation, or
a consciousness of his mental limitations, can undertake to forecast
the future, and even a prediction which looks no farther ahead than
four or five years, implies no little temerity in him who attempts it.
It may be remarked, however, that in the past, one effect of inflation
has always been to permanently advance the wages of labor in the
I
20 The Annals of the American Academy
country where it prevailed, and that thereafter it has been found
diflScult, if not impossible, to reduce them, even though specie
payment was ultimately reestablished. The inflation of our cur-
rency during the Civil War greatly advanced the wages paid for
all sorts of human energy, and they have never since been seriously
reduced, although the purchasing power of the "Green-back"
dollar was greatly increased by the disappearance of the premium
on gold and the final resumption of specie payment in 1879.
It may therefore be possible, and it seems not improbable,
that the effect of inflation in Europe will be to permanently raise
wages there and so dispel the fear that we shall be unable to meet
the competition of the "pauper labor of Europe" in supplying the
domestic, as well as the foreign, demand for our manufactured
goods.
What may happen when the "Butcher's bill" comes to be
paid, if it is ever really paid, with things of value that are the prod-
uct of human energy, I confess myself unable to foresee. The war
promises to unloose so many social, political and financial factors
that have hitherto been inoperative or suppressed, if not unthought
of, that only a rash philosopher would be bold enough to dogmatize
with regard to the distant future.
That future may reveal to us the existence of a "fourth dimen-
sion" in political economy, that we are at present unable to visu-
alize, and it may be that with an expanded vision we shall be able
to see that the progress of humanity has been helped rather than
hindered by a struggle which has thus far disappointed the pessi-
mists and defied the economist in its effect upon America's affairs.
Since the foregoing was written, the following correspondence
of the Associated Press, dated London, April 17, has been published
in the New York Times of April 28. It indicates that the advance
in wages which is nearly always incidental to great wars has
already commenced to be felt.
War as a wage raiser has brought to a considerable proportion of the laboring
classes in England some compensation for the increased cost of living. Social
workers estimate that the increased cost of living average is at least 10 per cent
while the average increase in wages is not over 5 per cent. The plentiful supply
of overtime work available in most trades makes it easy for most workmen to
more than even matters.
The upward tendency of the English workingman's wages was very marked
in March. According to the official Board of Trade reports, the increases granted
America's Foreign Trade 21
during the month reached a total of nearly $365,000. The number of work-
people who shared the increases was 440,000.
Increased wages in some of the leading branches of industry are summed up
briefly as follows:
Railwaymen — All around increase of 75 cents a week.
Longshoremen — Increases varying from 25 cents to $2 a week.
Policemen — War bonus of 75 cents a week upward.
Carpenters — War bonus of $1 to $1.50 a week.
General Laborers — Increase of 75 cents to $1.50 a week.
Miners — Employers generally offer 10 per cent advance in pay; miners
demand 20 per cent.
Postal Employes, including Telephone and Telegraph Workers — Increase
of $1 a week has been demanded.
Gas Workers — Increases averaging $1 a week.
Bakers — Increase of $1.25 a week asked, but employers' offer of 75 cents
accepted pending negotiations.
Textile Workers — Bonus for overtime work in factories doing work on army
clothing.
Boot and Shoe Workers — War bonus of 5 to 10 per cent granted in some
places.
Coopersmiths — Average wage before war, $9; now $12.50.
Clerks — Some increases; 180,000 grocers' assistants have asked a readjust-
ment of wages; similar movements pending in other branches.
Engineering and Building Trade Workers — Some sections have secured
substantial increases.
The number of unemployed in Great Britain shows a large falling off the
past February and March as compared with the corresponding months of last
year. The Board of Trade's labor gazette prints statistics from the government's
403 labor exchanges, according to which there were 87,004 names on the register
last month as against 100,616 for February and 123,714 for March of last year.
The number of vacancies in esnployment reported to the exchanges also
shows an increase over the late winter of 1914, having a daily average of 5,746, or
a hundred more than the average for February and 1,600 more than the average
for March of last year.
lyondon passed through the winter with fewer cases of destitution demanding
relief from the Poor Funds than any winter within the memory of the present
Poor Law oflFicials.
THE EFFECT OF THE EUROPEAN WAR ON AMERICA'S
TRADE WITH INDIA
By Daniel Folkmar,
Editor of Handbook of IndiOf Department of Commerce.
Fifteen years ago I heard a distinguished geographer lecture in
Paris on the Pacific as the future center of the world's commerce.
That is what I want to preach, the gospel of the future of the Far
East and of the New Pacific. It can be more easily grasped today
than fifteen years ago, for since then the Canal has been dug and
Japan has beaten Russia and risen to a place of first importance in
deciding the destiny of nations. Japan has forged ahead in our
international trade until it takes one-half of all the goods we send
to Asia. China comes next, and has vaster possibilities than Japan.
British India stands third among the countries of Asia as a
buyer of American goods and is the farthest of the Far East from
our shores. It is exactly half-way around the globe from the
United States, east and west, and because of its position on the
Indian Ocean it must perhaps be considered a permanent appendage
of Europe commercially rather than an integral part in the trade
of the New Pacific. Yet our trade with India is already of vast
importance, and a study of it during the last few months of the war
is interesting as an example of the general condition which the Euro-
pean catastrophe has brought on throughout the entire civilized
world. It illustrates the results of the stoppage of shipping, es-
pecially during the cruise of the Emden in Indian waters, the dis-
turbance of financial and general industrial conditions through
interference with production in Europe and abroad, and the embar-
goesj^laid upon certain exports and imports by England. I also
find in a study of the most recent figures, some of which are herewith
published for the first time, a complete demonstration not only of
the decrease in trade during the first months of the war but of a
decided increase during the last month or two as compared with
previous years. An interesting question suggests itself: — may this
not be one of the cases in which an expected permanent losss in the
trade of Germany and Austria is already being diverted to the
22
America's Trade with India
23
United States? And is it not possible that the far greater trade of
England in India will be diverted in some measure to this country?
In the case of England this may not be because of the war so much
as because of serious opposition in India itself to trade with Great
Britain, which is just now becoming manifest under the name of the
Swadeshi movement.
While the Swadeshi movement was directed in the first place
against all foreign goods and strove for the upbuilding of native
industries, it is becoming directed against England more and more
in the hands of political agitators and revolutionsts in India, and to
some extent in favor of American trade. I do not know the relation
of Prince Sarath Ghosh to the Swadeshi movement, but I heard a
significant statement from him, as an expert student of the economic
history and industries of his native country. In a recent address
in America, he said:
Our importations from England, first, then from Germany, France and
Austria, were tremendous. Now the market is open for other goods, and if
America seizes the opportunity she can hold much of this trade. You are looking
to South America for your market Meanwhile, you overlook India, where more
than 300,000,000 people are making surprising strides in civilization, so that
their needs far outstrip the present importations. . . . There are the many
products we bought from England and the Continental nations. We must look
elsewhere for chemicals, medicine, drugs, machinery, building materials, and
scores of other manufactured products. Wonderful opportunities await the
alert American merchant.
Notwithstanding the advantage England has over other coun-
tries in obtaining the trade of India, British India is already one of
the nine or ten greatest purchasers of American goods outside of
Europe. In fact, there are only ten countries in Europe which
buy more from us annually than does India. But this gives no
indication of the vastness of India as a market and the possibilities
in the increase of American trade in that country, for the United
Kingdom holds at present 70 per cent of its import trade, and, in
fact, more than 95 per cent of the Indian purchases in the largest
line, that of cotton piece goods.
India has always cut a figure of first importance in the trade
of the world. Students of Indian trade point out that the rulers
and governments that have controlled it have become the wealthiest
of the world. India in 1910 ranked eighth in the list of all importing
countries and eleventh in the list of the exporting countries of the
24 The Annals of the American Academy
world. India's purchases of British exports were equal to the
purchases of Canada, Australia, South Africa and New Zealand,
combined. The total import trade of India from Great Britain
amounts to $330,000,000 per year, of which more than $180,000,000
is for cotton goods. India takes two-fifths of the entire value
of the exports of Great Britain to all countries.
This is all the more astonishing when the poverty of the masses
of India is taken into account. The purchasing power per capita
is only $2 as compared with $80 in Australia. This indicates the
inevitable character of the greater part of India's purchases. Goods
must be cheap. But the total profit is immense because the 300,-
000,000 of India's population must be clothed — largely with the
products of foreign cotton mills — and must have simple agricultural
tools and even large amounts of machinery for the equipment of
native industries.
India As a Buyer of American Goods
The great proportions that American trade has already reached
in India will be better realized from the following details :
British India is the largest buyer in the world of our cheapest
cotton goods, excepting only China — I am speaking of our $15,000,-
000 export of unbleached cottons. British India, including Aden,
which politically belongs to British India, takes one and a half times
as much of our unbleached cottons as all South American countries
combined. India buys more than $3,000,000 worth of our iron and
steel manufactures and more than $3,000,000 worth of our petro-
leum. Among all the countries of the world, India stands tenth
in rank as a purchaser of our lamp oils, and sixth in rank as a pur-
chaser of our lubricating oils, the purchases of the latter amounting
to more than $1,000,000 per year. In this line India is equalled as
a buyer by only one South American country, Argentina.
As to the particular lines of iron and steel manufactures pur-
chased by India, only one other country, Canada, buys so much
hoop and band iron from the United States as India; only three
other countries buy more wire nails from us than India; only five
other countries buy more non-galvanized iron sheets and plates from
us; only eight other countries take a larger share of our $16,000,000
export of structural iron and steel — including one country in South
America's Trade with India 25
America; only ten other countries buy as much of our $5,000,000
or $6,000,000 export of tin plate as India; and only ten other coun-
tries buy as much structural machinery as India out of our total
export of $8,000,000.
Even our tools are used in India in great numbers. For exam-
ple, our saws — outside of Europe, India is one of the twelve largest
purchasers from us in the world; and of our miscellaneous tools,
amounting to an export of $8,000,000, only five other non-European
countries buy so largely from us as India. The same is true of wire:
before the war, at least, India bought more barbed wire from us
than any country in Europe, except England. Even our patent
medicines, typewriters, and automobiles go in amazingly large pro-
portions to India. Only six other countries have taken so much of
our total export of $7,000,000 worth of patent medicines; only twelve
other countries have taken so many typewriters — which might
have been thought to be a luxury rather than a necessity in so poly-
glot and primitive a country as is India; and as regards the most
notorious luxury of the age, automobiles, India was one of the fif-
teen largest purchasers of our total exportation of $21,000,000.
Last of all, I will mention a significant and unexpected fact: of our
total export of $3,000,000 worth of lamps, no country in the world
bought so many as India, with the one exception of Canada, which
is, of course, commercially a part of ourselves.
India is today the world's greatest buyer of the goods upon
which America's future development largely depends, that is, cer-
tain manufactured products. India is the greatest foreign purchaser
of European manufactures. It has been evident for many years
that America's trend in commerce has been away from the agri-
cultural exporting business of the earlier years and in the direction
of increased production and trade in large manufactures. India,
as an agricultural nation, must buy what America most wants to
sell as a growing manufacturing nation. It is simply a case of bring-
ing together the buyer and the seller.
Much has been said about capturing South American trade.
India has 300,000,000 inhabitants that must be clothed and pro-
vided with a wide range of manufactured goods, while South Amer-
ica's population is less than 50,000,000. India has vast wealth
inherited from preceding generations and is the most densely popu-
lated portion of the globe; South America is as yet the most thinly
26 The Annals of the American Academy
populated great division. In railroad mileage India stands fourth
among the great countries of the world, ranking below only the
United States, Russia and Germany. India has more railroads than
Canada, or Great Britain and Ireland; more than all the other
countries of Asia combined.
The imports of British India in the fiscal year 1913-1914
amounted to $752,000,000, and the exports to $831,000,000. Of
the imports, 36 per cent were cotton goods, a line in which the
United States is rapidly increasing its production, while its possi-
bilities as the chief cotton producer of the world are almost unlimited.
Second in order in the value of India's imports are metals; manu-
factures of iron and steel form about 9 per cent of the total imports.
Thus about 45 per cent of the total imports of British India last
year were composed of the classes of articles for which the United
States has special facilities of production and ranks among the
world's greatest producers, and more than three-fourths of the im-
ports of India were of the classes of merchandise which the United
States produces and exports. Yet in spite of this fact, less than 9
per cent of India's imports in 1913-1914 were from the United
States.
The exports of the United States to India are increasing more
rapidly in value than the imports, although they are much less in
value than the imports. According to the official statistics of the
United States, imports from British India increased only from
$48,000,000 in 1902 to $50,000,000 in 1912, while the exports from
the United States to India more than trebled in size in the same ten
years, rising from a total of $4,600,000 in 1902 to $15,600,000
in 1912. The total imports of India from all countries by sea
reached the astounding total of $752,000,000 in 1914, and its exports
a total of $831,000,000. ''The wealth of the Indies" is the only
phrase that adequately describes it.
Principal and Permanent Effect of the War — Loss of Trade with
Germany cmd Austria
What has been and will be the effect of the war on this enor-
mous trade, especially as concerns the United States? The immedi-
ate effect is of small consequence, compared with the final effect,
which is sure to come, except in so far as the former indicates the
I
Americans Trade with India 27
latter. The final effect that we can clearly foresee is the permanent
loss of trade which Germany and its allies will suffer in India as a
British possession. England will never let it " come back." Other
belligerents also may lose some of their Indian trade permanently
to the United States, especially Belgium; possibly also, France.
Even England may lose portions of her Indian trade if the United
States gets a good start on it during the war; for example, in cotton
goods, which you will remember is the chief trade, and even more
certainly in those manufactures of iron and steel and machinery
in which the United States naturally excels. I do not need to reca-
pitulate our natural advantages over competing trade, residing in
our iron and coal fields and the cheaper methods of production which
are being introduced, and especially in the natural genius for inven-
tion which the world recognizes in America, which has grown in
part out of the necessities of a new country, and which has enabled
us already to lead the world in agricultural machinery and similar
products that characterize America. Desperately as our trade is
handicapped at present by the lack of American shipping, this will
right itself in time. Our other delinquencies also will be overcome.
We shall learn how to adapt our manufactures to the peculiar de-
mands of such great buyers as India and how to pack and mark
our goods as England, and particularly Germany, have learned to
do, and how to best extend our trq,de by sending representatives
abroad; and when advertising and commercial travellers and com-
mission houses and especially, in India, English houses, will not in
the nature of the case extend the sale of American goods as branch
American houses, and more adequate organization may do.
What will be our chief gain in India from the war ? Note
that the three belligerents which will naturally have lost the
most of their trade with India have exported four times as much
merchandise to that country as did the United States. In other
words, first in rank after Great Britain's share in the total imports
into British India stood Germany, sending about 7 per cent of the
total; and then the United States, Austria-Hungary and Belgium,
all nearly even in rank (the United States 2.6 per cent; Austria-
Hungary and Belgium, 2.3 per cent each); then came France,
contributing only 1.5 per cent of India's imports, and Italy, con-
tributing 1.2 per cent. Germany has been the most important re-
cent competitor of Great Britain in Indian trade. The increase in
26 The Annals of the American Academy
German sales of metals, cottons, woolens, hardware and cutlery,
machinery, glass and glassware, and paper, was considerable.
Germany, next to Austria-Hungary, easily competed in the glass
trades. Of Belgium's exports of about $14,000,000 worth of goods
to India annually, many were goods of German origin. The articles
from Belgium which showed considerable increases recently were:
cotton goods, coal-tar dyes and iron and steel. The coal-tar dyes
purchased in India were, of course, mainly German. The steel trade
of Belgium with India was the trade which Great Britain had re-
cently most to fear. It consisted chiefly of bars and channel steel.
Excepting Germany and Belgium, other countries of the conti-
nent had but a small foothold in the Indian import trade. Austria-
Hungary exported only $10,000,000 or $15,000,000 worth of goods
per year. At times half of this amount was in sugar. Other lines of
some importance were glassware, hardware and cutlery, and cotton
manufactures. The smaller sales of France in British India amounted
to $6,000,000 or $7,000,000 per year, consisting mainly of liquors,
clothing, woolens and silks. The only other trade worthy of particu-
lar notice is that of Japan. Its sales to India have increased greatly,
nearly doubUng in five years. They amount to more than $15,000,-
000, more than one-third in 1913 being silk manufactures. Other
leading items were cotton hosiery, metals and matches.
The British and Indian governments have been quick to see
the opportunities resulting from Germany's loss in Indian trade
and have issued a Blue Book covering the subject. I repeat some
figures from it, which sums up the situation during the first months
of the war. The figures given are for the calendar year 1913 and
the oflScial year ended March 31, 1914:
The total Indian imports from Germany and Austria in 1913
were valued at $55,000,000, which was more than one-tenth as
much as all the imports into India from all other parts of the world.
In other words, of India's total import trade in private merchandise
in 1913-1914, nearly 7 per cent was with Germany and 2.3 per
cent with Austria-Hungary. At least 75 per cent of Germany's
imports into India were of goods such as the United States should
be able to sell. Thirty per cent of her sales were of metals, in-
cluding manufactures; 11 per cent were of cotton manufactures;
and 8.5 per cent were of woolens: these three items making a total
of exactly 50 per cent of the goods sold by Germany to India and
America's Trade with India 20
being in lines in which we are best able to compete. Smaller items
among the imports from Germany are: hardware, machinery and
millwork, railway plant and rolling stock, oils, glass and glassware,
haberdashery and millinery, paper and pasteboard, liquors, and
silk manufactures, the last and smallest item amounting to less
than 2 per cent of the total and the other items being in lines which
interest us. The only important line of imports in which Germany
has been above competition as a manufacturer has been that of
dyes; her sales of dyes into India amounted to 7. 4 per cent of the
total imports into India from Germany.
India's imports from Austria-Hungary are perhaps of less in-
terest to us, for the largest item, one-third of the entire import,
is sugar. Items interesting to us are: glass and glassware, 20 per
cent; cotton goods and hardware, 8 per cent each; and haberdashery,
5 per cent. These five items cover three-fourths of Austria-
Hungary's sales to India.
Put into dollars, the principal imports into India from Ger-
many that may interest us were as follows: metals (excluding ores),
$12,524,000, of which mixed copper or yellow metal for sheeting was
the largest item, amounting to $3,280,000; cotton manufactures,
$4,596,000, including blankets, $2,054,000, colored piece goods,
$1,187,000, and hosiery, handkerchiefs and shawls, $1,071,000;
woolens, $3,484,000, mainly shawls and piece goods; and hardware,
machinery and millwork, railway plant and rolling stock, amount-
ing to $4,725,000. Germany even sold miscellaneous kinds of
mineral oils to India amounting to $1,049,000. Minor imports
from Germany which are worthy of notice comprised: engines,
electrical and musical instruments, gold, silver, and embroidery
thread, cement, bricks, umbrellas, stationery, biscuits and cakes,
condensed milk, ivory, furniture mouldings, paints, starch and
farina, artificial and mineral manures, motor cars and wagons
and clocks and other timepieces.
The values of India's principal imports from Austria-Hungary
during the period 1913-1914 were as follows: sugar (16 D. S. and
above), $4,487,000; glass and glassware, $2,837,000, composed
principally of glass bangles; cotton goods, $1,095,000, principally
colored and printed piece goods; and hardware, $1,085,000, princi-
pally unenumerated iron ware. Minor items are: haberdashery
and millinery, German silver, nails and rivets, stationery, writing
30 The Annals of the American Academy
paper and envelopes, woolen piece goods, safety matches and wear-
ing apparel. Still less in value among imports from Austria-
Hungary were: hosiery, strong boxes of metal, iron and knitting
wool, timber, electrical instruments, boots and shoes of other ma-
terial than leather, noils and warp, earthenware and soap.
The total number of vessels cleared at British Indian ports to
Germany in 1913-1914 was 163; the total number cleared to Austria-
Hungary was 108. While these figures look large compared with
American shipping to India, they form only 6 per cent of the
total number of vessels which cleared British Indian ports during
the year.
Immediate Effect of the War — Freight Increases
Let us turn now to the latest official information regarding
the immediate effect of the war on our trade with India. Before
quoting the latest American figures available at the Department
of Commerce I may say in short that they disclose a rapid increase
in trade in January and February as compared with all previous
trade, in spite of the decreased trade of the six months ending in
December. This increase in the last two months' trade comes de-
spite the fact that shipping facilities between America and India
have been worse during these months. The vessels cleared at
United States ports for India in January had only half the tonnage
of those cleared in January a year ago; the vessels cleared in Feb-
ruary, 1915, had but little over a third of the tonnage of the clear-
ances of February, 1914.
This deficiency in shipping is accompanied by gradually in-
creased freight rates and is part of a world-wide situation which
need be referred to but briefly and which may be vividly illustrated
by consular reports received within the last week. I should prem-
ise this showing with the statement that there is at present but
one line making direct trips between America and India, the Amer-
ican and Indian fine, since the German Hansa line, which was the
principal line for direct shipments before the war, is, of course,
unable to continue in the trade, and a considerable number of
British steamers formerly engaged in direct service between the
United States and India have been requisitioned by the British
authorities.
America's Trade with India 31
It will also be remembered that the German cruiser Emden
exercised a disastrous material as well as moral effect upon ship-
ping with India early in the war, having even bombarded the
port of Madras. The consul at Madras reported that as a re-
sult of the official announcement made early in November of
the destruction of the Emden, two steamers immediately cleared
from the port, both of which carried large shipments for the United
States.
New freight rates to the Far East amounting to an increase
of forty per cent over the rates obtaining before the war were an-
nounced a week ago in the daily publication of the Department
of Commerce in a report from the consul general at Hongkong.
Similar rates have been agreed upon by way of both the Panama
and Suez Canals, effective as of April 1. This includes an increase
of ten per cent made in the rates soon after the opening of hostilities
in Europe. The reasons given for this increase apply to shipping
everywhere: the disappearance of German and Austrian vessels
from the sea, the use of a large number of British, French and other
vessels for transport service or as auxiliary cruisers, and the de-
mand for tonnage otherwise for war purposes.
The reasons for the crisis in Far Eastern shipping are given
fully in a memorandum read at a joint meeting of chambers of com-
merce in Manila thus:
1. The whole large German mercantile fleet is at present either captured
or interned in neutral ports. While a few of the captured vessels have already
been made available by the allied governments for mercantile purposes, these
boats are being used by the AlUes themselves for transport purposes.
2. The allied governments have requisitioned a large proportion of the better
class of mercantile tonnage for war purposes.
3. For some four or five months some of the main French and British ports
have been closed to commercial work, and the remaining ports have been unable
to handle the enormous amounts of produce and foodstuffs which have been
poured into them. This has caused delay of as much as two months in the dis-
charge of the steamers, and has prevented them from being able to get back to
producing countries to load new cargoes.
4. The causes above stated have led to the comparatively small number
I of neutral vessels being chartered at high rates to go on long trips to Europe, and
have thereby cleared the Orient of vessels it depended upon for the shorter trades.
The usual supply of Japanese steamers which could formerly be called upon in
case of stringency is finding profitable employment partly in these long European
charters and partly in its own special work.
32 The Annals of the American Academy
The result of this situation in the Philippines is that
in Iloilo thoiisands of tons of sugar are pouring into the market without not only
tonnage to move it, but enough warehouses to store it. The steamers now serv-
ing the Islands leave them full to their utmost capacity. The irony of fate is
that there are seventeen German freight and passenger steamers interned in
Manila Harbor waiting the end of the war.
The memorandum further stated that freight rates from the
Philippines to the United States had increased about threefold,
on hemp increasing from $15 per ton last year to $45 per ton at the
present time, and on sugar from $7.50 per ton last year to $20 per
ton at present.
Trade Decreases During Six Months, Then Increases
As I have indicated, notwithstanding the increased freight rates,
our export trade with India (excluding kerosene), increased 12 per
cent in January, 1915, as compared with January, 1914, and 5 per
cent in February, 1915, as compared with February, 1914. This
shows a revival in trade following the serious decrease of 7 per cent
in our export trade with India during the preceding six months (as
compared with the six months ended December 31, 1913). The
following figures for January and February apply to the port of
New York only, and, together with some of the details for the pre-
ceding six months, are from the unpublished customs returns in
the Department of Commerce.
It is interesting to note that the increased trade in January
and February was largely in the same classes of merchandise that
show a falling off in the trade of the preceding six months. Among
such articles may be singled out, for instance: plows and culti-
vators, patent medicines, brushes, unbleached cottons, insulated
electrical appliances and motors, bottles and miscellaneous glass-
ware, household goods, bolts and hinges, firearms, iron pipes and
miscellaneous manufactures of iron and steel. Many other Ameri-
can manufactures show an increased exportation from the United
States to British India even during the first period of six months,
as: miscellaneous agricultural implements, of which $20,198 worth
were exported from American ports in the six months ended De-
cember 31, 1914, more than three times the value exported during
the corresponding period in 1913, and this was followed in January
America's Trade with India 33
with an exportation valued at $4,093 as compared with an export
of only $347 in January, 1914. Other large increases in exports
from the United States to India during last January or February
as compared with the same months in 1914 were in: oatmeal and
other food preparations, lubricating grease, belting, automobile
tires, steel bars, metal-working machinery, wire, miscellaneous
machines and surgical appliances.
There were many other articles in which our exportations
decreased during the first months of the war and had not yet re-
covered in February. I cite only: illuminating oil, mowers and
reapers, passenger automobiles (these decreased from $239,775 to
$99,441 in the six months' period already cited, slightly decreased
in January and decreased again to one-half the exportation of a
year ago in February), motor-cycles and miscellaneous vehicles,
certain minor cotton manufactures, electrical appliances, medical,
optical and other instruments, razors and miscellaneous cutlery,
stationary and traction engines, mining machinery, typewriters
(our export of $132,842 worth in July to December 1913, fell to
$93,957 worth during the same months of 1914 but nearly re-
covered their normal value in January and February), steel plates
(the exports of steel sheets increased), axes, saws and other tools,
barbed wire, lamps (the sales during the six months' period in 1913
totaled $314,685, but fell to less than one-third of this sum in the
last six months of 1914), men's shoes, harness and saddlery, rosin,
spirits of turpentine (a small decrease, the export for the half year
being about $12,000 in each case), paint and varnish, playing cards
(we sold over $20,000 worth during the half year in question),
leaf tobacco and cigarettes (exports of plug have increased during
the war excepting in January), and, finally, fir lumber (nearly
$100,000 worth being sold in the last six months of 1913 and about
one-tenth of this in the same period in 1914). These, I repeat,
are articles of which our exports decreased, as might be expected,
as a result of the war.
Our trade with India was in some respects more adversely
affected by the war than our trade with the world at large — the
belligerent powers always excepted — although not so seriously af-
fected, for example, as our trade with South America. Both our
imports and our exports in trade with India in January of this year
amounted to about 70 per cent of the value of the correspond-
34 The Annals of the American Academy
ing trade of January of last j^ear, while, including the United King-
dom, our imports to all countries in January, 1915, were about
80 per cent of the corresponding imports of 1914 and our exports
reached the large volume of 130 per cent of the January exports of
1914. Again, during the seven months ended January 31, 1915, our
imports from British India ran about as in January, 70 per cent of
the imports of the preceding year, while our imports to all countries,
including the United Kingdom, were 87 per cent of those for the
corresponding period in 1914; but our exports to British India
during this period of seven months ran even with our exports to all
other countries during the corresponding period. In ether words,
our exports during the last seven months ended in January were 90
per cent as large as those of the corresponding months of 1914,
both in the case of India and of all countries combined.
Our trade with South America shows greater fluctuations than
our trade with India. Our imports from South America show an
increase of 118 per cent, whether comparing the seven months'
periods as before or comparing January last with January
of 1914. On the contrary, however, our exports to South America
show the smallest per cent I have yet given, a fall to 56 per
cent, comparing the seven months ending in January each year.
They show a more favorable figure, that is a fall to 81 per cent,
comparing the months of January, 1914 and 1915.
In conclusion, I have shown, I think, that the door of oppor-
tunity stands wide open at the present moment for great trade with
India and that the opportunity will be vastly greater when the
shipping problem is solved, as we must and will solve it. I have
shown that it is one of the greatest trades of the world; that it is
of greater importance, in many respects, in its future possibilities
than our trade with South America; and that it makes a special
appeal to America as an integral factor of the age-long campaign
which we must enter upon in order to sustain our natural domi-
nancy in the commerce of the Far East and of the New Pacific, the
future center and chief arena, says the Paris savant, of the com-
merce of the world.
TRADE POSSIBILITIES IN GERMANY AND AUSTRIA
By Isaac Wolf, Jr.,
President of the American Association of Commerce and Trade, Berlin.
American business men as a class, whether they are doing busi-
ness in Germany or not, or whether they have in the past had any
German trade at all or not, should awaken to the fact that the
greatest chance for trade expansion is going to come to the United
States as a result of this war, and that this chance for trade ex-
pansion is with Germany and Austria.
Americans are talking a lot about the opportunities for trade
expansion with South America presented by the war. But there
is nothing heard of the far more important field afforded by Ger-
many and Austria. South America has a population of about
35,000,000. Germany and Austria have a combined population of
about 115,000,000.
The manufacturers of the United States should arouse them-
selves to the fact that the Teutonic allies are going to offer a
superb market for American goods in consequence of the war.
The goods which were hitherto imported from Great Britain and
her colonies, from France and from Russia, can in large measure,
be supplied hereafter by the manufacturers of the United States if
American business men will once understand that there is to be a
vast market presented in those countries.
The question is often asked, " What goods will sell well in Ger-
many?" In general any manufacture of first class quality will sell
in Germany. When this war is over Germany will need almost all
kinds of goods and it will be good time to get into the German mar-
ket and we shall find Germany one of the best foreign markets.
In general, a firm going into the German market should have its
own special representative — this special representative will be found
to be the connecting line between producer and consumer. This
applies to doing business with most countries. The first requisite of
foreign trade is superiority of goods. There is no reason why
American textiles, especially hosiery and knit goods, in which
branches we have made great strides, should not compete with those
36
36 The Annals of the American Academy
of German make. There will always be articles with which we can-
not compete, otherwise trade ceases to be reciprocal. The sale of
American footwear in Germany has increased about half a million
during the past year. Our tanning processes are said to be superior
to the German and we are also very careful to put good stock into
our footwear. American fur-trimmed clothing could be exported
with profit, as furs are cheaper with us — provided however, we
consult the tastes of our customers. In hides and leather, also
in woolen goods, we could compete. In manufactures of paper we
are in many respects ahead of Germany as to variety of good designs
and uses to which we put paper — these are finding a ready market
in Germany. Instead of importing made-up cotton goods from
Germany, we ought to export them and supply our own needs from
our own mills. American ready-made suits for men and boys are a
new article for Germany and are selling well at present in the de-
partment stores in Berlin, where also American collars, cuffs and
shirts are marketed. This is a branch that would not fail of a good
sale; to be sure we already have our goods there, but in small quanti-
ties only. A German collar sells for a quarter, so that there ought to
be a good profit. Other things that could be sold in such a store are
travelers' requisites and every requisite for a gentleman's outfit, and
American steel ofl&ce furniture. Little attempt has been made to
sell office furniture, only one American firm, so far as I know,
having made an attempt. Our state department at Washington
has lately been in the habit of furnishing its offices abroad with this
kind of furniture, a practical advertisement if pointed out to visitors.
There are many other articles which would sell well in Germany.
During the few months I have been in the United States the
usual greeting I receive is, "Well, you are lucky to get away from
Germany just at this time." I mention this as indicative of the
erroneous impression concerning present conditions in Germany.
I say erroneous — because if you were in the city of Berlin today,
you would not imagine that the country is engaged in one of the
most formidable wars Germany ever undertook. It is remarkable
to what extent normal conditions have been maintained in Berlin
since the beginning of hostilities. You see just as many able-
bodied men on the streets, you see just as many ladies doing their
shopping as ever, you will find the caf^s and co^ifectioners as fre-
quented as ever, only you will find the Germans quieter and more
German and Austrian Trade Possibilities 37
subdued as a natural result of the terrible sacrifices almost every
family is making.
The retail stores, especially the great department stores, are
still doing a good business. Electric and other power cabs are
still running, although in reduced numbers owing to the lack of
chauffeurs. The auto omnibuses, however, are running regularly
on all lines. A small number of the wives of conductors on the
surface lines have been given the places of their husbands, who have
gone to the front. Factories, other than those for military needs,
are working on half-time, half-wages and half-force. Merchants are
meeting their liabilities as in times of peace and there is no morator-
ium. Everyone is trying his or her best to bridge over the business
situation. Those working for the army, in any capacity, are mak-
ing hay while the sun shines, and the average shoemaker, saddler
and petty tailor have for years not reaped such golden harvests as
at the present time. Latest statistics show that the improvement
of the labor question is making steady strides and the number of un-
employed is not as large as might be expected. Of course taking
5,000,000 men for the army lessens the number of mouths to be fed
at home.
The Industrial Situation
It is unnecessary to remark that industrial activity under-
went many limitations during the days of mobilization, but assumed
fairly normal shape after concentration of the military forces.
No slack was experienced by the industries connected with the
production of food products. The metal and clothing industries
are, on the whole, engaged to their full capacity. During the months
of September and October the following industries increased their
activity and output: the metal, chemical, textile, clothing, leather
goods and printing industries.
Prices of Foodstuffs
The harvests in Germany last fall were almost normal. The
yield of rye exceeded that of previous years by a million and a half
hundredweight, and rye forms the staple article of food. All the
crops were harvested expeditiously by aid of the pupils in the higher
classes of the schools and the seeding next spring will probably be
done by the same persons.
38 The Annals of the American Academy
In October the federal council prescribed maximum prices for
wheat, to take effect November 4. The maximum price for home-
grown rye differs somewhat in the various provinces, but keeps
within the limit of between 209 and 237 marks per ton. The maxi-
mum price for home-grown wheat amounts to 40 marks more than
for rye. The object of these fixed maximum prices is to insure
steady provision of food for the population at normal prices.
In scrutinizing the future of American exports into Germany,
it can safely be said at the outset that soon after the war a tremen-
dous boom may be expected. Three conditions, however, govern
this desirable and hoped-for situation, viz.:
First, that the friendly political relations of old between Amer-
ica and Germany continue;
Second, that the same commercial relations continue, unharmed
on either side by prejudice or envy;
Third, that American exporters deal with their German cus-
tomers direct.
In regard to the first item, any sane person does not expect any-
thing but continuation of the old, never disturbed friendship be-
tween the two countries.
The second item calls for tolerance on the part of both countries,
and efforts in this direction, combined with intelligent study, in
order to widen the export possibilities, will surely lead to splendid
results.
The third item represents but natural results of the attitude of
the English government which now prohibits any commercial inter-
course with Germany. American exporters, who have given sales
privileges for continental Europe to business houses in England,
will in the future have to do their business with the representatives
in Germany direct.
I
COOPERATION IN EXPORT TRADE
By William S. Kies,
Of the National City Bank of New York.
Organized effort in any line generally succeeds over individual
endeavor. Particularly is this true in the contest between nations
for commercial supremacy. In highly competitive markets success
is attained by the country whose forces of production are most
efficiently organized, whose financial resources are capable of the
quickest mobilization, and whose sales campaigns reflect intelligent
collective effort.
The best example of national achievement resulting from intelli-
gent coordination of efforts is that of Germany. Twenty-five years
ago Germany set for herself the task of building up her foreign trade.
Her economists saw clearly that national wealth and prosperity
were the sure rewards of a successful foreign commerce; that selling
to other nations, in return for their raw materials, the products of
factory and workshop, meant a permanent income to Germany from
the labor and skill of her citizens, and that the value added by the
processes of manufacture gave to her either a call upon the gold
supply of the world or the option of a credit which could be used in
the purchase of foodstuffs or other raw materials. Germany went
about the matter in a thoroughly scientific manner. An intensive
investigation of the possibilities of the various markets of the world
was begun. The characteristics, customs, manners and wants of
her future customers were carefully studied in an endeavor to as-
certain what goods were desired and those for which a demand could
be created. There was to be no attempt to force upon people what
they did not want.
Cooperative societies were organized for the advancement of
export trade. Chambers of commerce, which were active bodies
and not paper organizations, collected data and information for
the benefit of all interested.
The government, keenly alive to the fact that commercial
supremacy means national power and greatness, shaped its export
policies along broad and constructive lines. Export trade needed
39
40 The Annals of the American Academy
encouragement; consequently drawbacks and export bounties were
provided. The merchant marine needed to be built up; subsidies
Were voted. Manufacturing towns distant from the ports were at
a disadvantage in the matter of railroad rates; the rates were forth-
with adjusted so as to encourage manufacturing for export. For-
eign trade had to be financed. Branch banks, under liberal banking
laws, were established and became active agencies for promoting
trade in foreign countries. In order to safeguard the domestic
market, a protective tariff was instituted. To assist the German
manufacturer to compete with others efficiency methods became the
subject of careful study, and when it was demonstrated that com-
bination meant lessened waste, greater concentration of effort,
and more effective production, combination was encouraged.
Price agreements, to avoid wasteful competition at home and abroad,
were recognized as necessary and made legal. If, in order to meet
the competition of other nations in foreign markets, it was necessary
to sell below the price prevailing in the domestic market, a public
opinion was created which applauded such a course as entirely
patriotic, in that the greater the sale of German products abroad
the nearer would German manufacturing establishments approach
capacity production, and capacity production was early realized by
German efficiency experts as the best means of reducing economic
waste in production and lowering the unit cost of the products.
Germany saw that successful cultivation of foreign markets
must be based upon a thorough knowledge of foreign countries.
She planned an educational system for her youth whereby they
were taught commercial geography, the business languages, and
the financial customs and manners of different peoples, and her
young men were encouraged to go into different parts of the world
as commercial missionaries to convert the consumer into a user of
German goods.
The United States has been given by nature all of the resources
necessary to build a great manufacturing nation. We have iron,
timber and other building materials with which to construct fac-
tories and workshops. We have water power and coal in abund-
ance. We raise in this country vast quantities of raw materials.
Not only do we supply our own manufacturing establishments,
but each year we export millions of dollars worth of such raw ma-
terials to other countries, and we have the power to increase indefi-
Cooperation in Export Trade 41
nitely such production. With these advantages in our favor, the
United States should become the greatest manufacturing nation of
all times.
We have made great progress in recent years, and the percentage
of increase in the export of manufactured articles was greater in
the period of 1900 to 1912 than that of Great Britain or Germany,
but if the figures for oil, steel products, refined copper and agricul-
tural machinery be deducted, the remaining totals would not be
encouraging.
A study of our export figures indicates that the greatest progress
in the development of foreign fields has been made by reason of an
intensive study of markets and an intelligent organization of sales
forces on the part of great industrial corporations like The United
States Steel Corporation, The International Harvester Company,
The Standard Oil Company, and the selling companies representing
the refined copper interests. What has been done in Germany on
a national scale, through the cooperative efforts of all classes, with
the encouragement of the government, has been accomplished by
these large American corporations without government encourage-
ment, and entirely as a result of the skill and ingenuity of the
American sales manager with a large vision and a constructive
imagination.
In the last few years, however, public opinion, if it has been
correctly reflected in recent governmental action and in legislation,
has decreed that large combinations of industrial units shall no
longer exist, and that production shall be carried on by smaller
units, actively competing with each other, irrespective of the eco-
nomic waste resulting from competitive methods, the duplication of
sales organizations, advertising and promotional expenses, and
overhead costs in general.
We are in the midst of this period of disorganization of the
forces of industry at the exact moment when there is presented to
this nation an opportunity which will probably never again come in
its history — an opportunity for introducing American goods in
markets hitherto closed to this country. Admittedly, the tre-
mendous power developed by great combinations of capital has been
in numerous instances abused, and the economic value to the nation
of highly organized instrumentalities of production has been lost
sight of in the popular indignation aroused as a result of the exposure
42 The Annals of the American Academy
of abuse of power, and the injury done by unfair practices to com-
petitors. But we are too often extremists. Our tariff is either
unreasonably high or ruinously low. We stubbornly refuse to
adjust it scientifically through the agency of a board of experts.
We permit our railroads and public service corporations a free rein,
and when the abuses which such a policy fosters are brought home,
we proceed to hamper their usefulness and to block their growth
and development by the passage of unscientific restrictive laws, and
by over-regulation on the part of many state commissions. Too
often we seem to prefer to tear up by the roots rather than to use
the pruning knife. And so in dealing with our trust problem we
have refused to recognize the great advantages of concentration of,
effort in production, and the economies which come with efficient
organization. We have been willing to sacrifice all this rather than
to attempt, by intelligent, constructive legislation, to preserve that
which is economically sound.
The Sherman Act forbids combinations in restraint of trade,
or which would tend to restrict competition in foreign and domestic
commerce. The recently enacted anti-trust acts do not change the
terms of the Sherman Act, but have provided a Federal Trade
Commission with very large inquisitorial powers, which, while not
endowed with the functions of a court of last resort, nevertheless
will have a large influence in determining the boundaries within
which cooperative effort may safely be carried on.
The Commission, since its organization, has shown a keen in-
terest in the subject of foreign trade, and, judging from the char-
acter of its membership, may be expected to do all within its power
toward aiding in the development of constructive plans for building
up our foreign commerce.
It is plain, from the experience of Germany and England, that
material progress in the development of foreign commerce depends
upon cooperative effort, not only between manufacturers, but be-
tween the government and those interested in foreign trade. Within
the limits of the trust laws, the government has shown a most lauda-
ble cooperative spirit. The Department of Commerce is doing
splendid work, and the present chief of the Bureau of Foreign and
Domestic Commerce has built up an organization of experts who are
giving real service to our manufacturers. The Treasury Department
has applied itself to the study of the financial needs of the South
Cooperation in Export Trade 43
American countries, with the desire of being helpful, and is working
along constructive lines.
There does not, however, seem to be that spirit of cooperation
among manufacturers themselves which is necessary to the accom-
plishment of permanent results. This, to a large degree, no doubt,
is due to the feeling of uncertainty existing in the minds of manu-
facturers as to the extent of the application of the Sherman Act to
combinations engaged in foreign commerce. Some lawyers have
held that the Sherman Act does not apply in foreign commerce;
others have held that it does. While the process of unscrambling
combinations is still going on, and so long as there is any doubt
about their validity, there will be hesitancy about forming new
combinations irrespective of their economic value.
A great deal has been said recently about the necessity of or-
ganizing combinations among industries interested in foreign trade
if new foreign markets are to be successfully developed. There
seems to be quite a general agreement that the Sherman Act should
not apply to combinations organized for export trade. That the
Administration itself recognizes the necessity for cooperative effort
in opening new markets is indicated by the speech of the President
of the United States before the Third Annual Meeting of the Cham-
ber of Commerce of the United States, on February 3, 1915, when
he said:
I want to know how cooperative methods can be conducted for the benefit
of everybody who wants to use them, and I say frankly that if I can be shown that,
I am for them. If I cannot be shown that, I am against them. I hasten to add
that I hopefully expect that I can be shown that.
Congress will not meet again until next winter, and, therefore,
legislation clarifying the situation by amending the Sherman Act
so that it shall not apply to combinations in foreign trade cannot
be expected for at least a year. In the meantime, opportunity,
kept waiting at the closed door, may turn on its heels.
It would seem of vital importance that the best thought and
study of those who are interested in the development of our foreign
commerce should at this time be directed toward the finding of
some temporary expedient, if possible, which will permit manu-
facturers in certain lines to combine in organizations for the study
and development of new markets.
Opening new markets abroad costs money. Wasteful competi-
44 The Annals of the American Academy
tion in such markets injures the American manufacturer, serves to
discourage effort, and benefits only the foreign consumer and the
foreign competitor. In its last analysis, unprofitable foreign trade
is a burden upon the industry at home, whereas profitable export
business results in a prosperity for the particular industry, in which
capital and labor share, and which ultimately benefits the domestic
consumer.
There are no restrictions in the Sherman Act against combina-
tion for the purpose of studying foreign markets, collecting and dis-
seminating information, investigating efficiency methods in produc-
tion, or against promoting in general the interests of the American
manufacturer. Combinations under the Sherman Act are only
illegal if they restrain or tend to stifle competition among the manu-
facturers of this country, whether the competition be in foreign or
domestic business. Combinations for the doing of export business,
which would result in the shutting out of other concerns from the
foreign field as the result of a monopolistic scheme of organization,
would probably be illegal under the Sherman Act as at present con-
strued. And yet export trade, with its many difficulties and prob-
lems, requires such a concentration of resources and effort that the
great benefits to be derived by the whole country from a large
foreign commerce argue powerfully for the removal of all restrictions
upon combinations in export trade.
Without wanting to be understood as favoring, under any
circumstances, the retention of the provisions of the Sherman Act
which so seriously handicap the development of export business,
but realizing that while waiting for congressional action the manu-
facturers of this country are losing precious time in which should
be begun preliminary foundation work of greatest importance in
the upbuilding of our foreign business, I desire to suggest in brief
outline, for your consideration, a concrete plan for the organization
of export societies, which, in its essentials, would appear not to
violate the prohibitions of the Sherman Act, when interpreted
according to the "Rule of Reason."
Let there be organized under the laws of one of the states a
corporation to be known, for example, as The American Drug Manu-
facturers Export Corporation, The American Coal Producers Ex-
port Association, or some similar title; the organization to be incor-
porated with sufficient capital stock to permit all of the members of
Cooperation in Export Trade 45
the industry throughout the country, or in certain cases those in a
particular locality, who so desire, to become members upon exactly
the same terms. Each producer desiring membership to subscribe
to a definite amount of stock, his subscription being payable in
equal instalments over a term of years; suflScient stock to be re-
tained in the treasury to provide for those who might subsequently
desire to become members upon equitable terms fair to the original
members, each member to own exactly the same amount of stock.
The general scheme and method of operation, which will con-
stitute the contract between the corporation and the members, as
well as between the members themselves, will properly be embodied
in the articles of association, and will be along the following lines:
1. The corporation is to be impartially organized in a manner
fair to all its members, and the management selected with expert
ability as the sole test.
2. Membership on the board of directors to be arranged so
that in due course of time every member shall receive representa-
tion. To avoid possibility of unfair treatment, there will be pro-
vided a permanent arbitration committee, to be selected in an
impartial manner, and to be made up of persons having no interest
in the industry. To this committee shall be referred any questions
in dispute, and its sei*vices may be invoked by any member.
3. Each member shall, at the beginning of the year, report to
the export corporation the amount of its product available for export
during the year, the conditions of delivery and of acceptance of
orders, and the price at which it is willing to sell in a foreign market.
These tenders may be changed from time to time, under such
conditions as may be thought advisable, and special quotations of
additional quantities may be named whenever desirable.
4. The sales force of the corporation will undertake the disposal
of the exportable surplus of its members on the terms and condi-
tions specified, obtaining the best price possible, making use of the
export conmiission houses, the local representatives, the trained
salesman and every agency of value in building up foreign trade.
The difference between the price quoted and the price obtained
shall belong to the export corporation as a profit, and upon all sales
all members shall pay to the export corporation the same percentage
as a commission.
5. Whenever a demand shall be found to exist in a particular
46 The Annals of the American Academy
market for a certain quantity of goods which must be sold at a lower
price than quoted by any of the members in order to meet foreign
competition, all members shall be notified of the possible order, and
given an opportunity to meet the foreign price. Competitive bids
will be received, and the lowest bidder is to receive the order; or,
if there are a number of low bidders, the order is to be divided.
6. All profits, after deducting all expenses, and setting aside
such a sum as shall be deemed necessary for promotion, advertising,
establishment of permanent quarters, etc., shall be distributed
equally among the members.
7. The export corporation shall pro\ide an expert who shall
collect statistical data and information of value to the industry,
which shall be distributed promptly, and under the same conditions,
and in the same manner, to all members. The export corporation
shall also have on its staff an efficiency engineer, who shall make
intensive study of methods of production in the industry, cost of
production, competitive margins, and the productive capacity of
various plants. His services shall be available to any of the members
for the purpose of giving advice as to the development of greater
efficiency in production, diminishing the cost of production, or
increasing the output. He shall also give to all members technical
advice as to the best methods of meeting peculiar requirements of
foreign markets.
8. The export corporation may also act as a purchasing agency
for raw materials. Being able to purchase in large quantities, as a
representative of many consumers in a given line, it will be able to
buy in foreign markets at the lowest prices. All members will be
entitled to the corporation's services in this respect upon the same
terms.
It is, of course, not necessary to limit the membership in such an
organization to particular lines. Groups of manufacturers in allied
lines could profitably unite to form one export company which could
conduct a sales campaign for all, as, for example; a drug manufac-
f urers' export corporation might well include manufacturers of toilet
articles, cosmetics, perfumes and bathroom accessories. Manu-
facturers of cottons, woolens and silks might combine in one large
textile export association.
In the scheme of organization outlined, competition is unre-
stricted among all the members of the corporation. Each member
I
Cooperation in Export Trade 47
fixes the price at which it will sell its product, and in effect tenders to
the export corporation the disposal of a certain product at a certain
price. If the price is too high, the product of a particular member
remains unsold. When special opportunities are found in a partic-
ular market, all members are given a chance to bid for the business.
Fair competition without favor is thus guaranteed to each of the
members. The member with small resources and a minimum out-
put is not placed at a disadvantage if he cannot meet the prices of
the more powerful members of the group, because he will receive
his share of the profits of the corporation, which will result, in a
large degree, from the commission which each member, whose
product is successfully sold, must pay.
The corporation cannot be said to restrain the trade of its
members or those who are not members. Its benefits are open to
all in the industry on the same basis. Its members are not obliged
to sell exclusively to or through the corporation, and are thus free
to develop trade for special brands, if they can do so better than
through the corporation. The prohibitions of the Sherman Act,
in regard to restraint of trade, are meant for the benefit of the Amer-
ican consumer and the American manufacturer, and neither the
American consumer nor manufacturer can be injured by the opera-
tions of the corporation. Competition in domestic markets is not
affected. If the American consumer is affected at all, it will be
beneficially, because through the disposition of a large part of the
output on the foreign field, American manufacturers will be able
to approach nearer to capacity production, thereby bringing down
the unit cost of the article manufactured, with a possible reduction
in price, in the domestic market.
The greatest advantage to be derived from such an organization
is the concentration of the resources of different manufacturers in
the building of a thoroughly efficient, highly trained, sales organiza-
tion, under skilled management, devoting all its energies to the
development of foreign markets.
One of the greatest benefits to be gained from a thorough or-
ganization of our export activities would be unity of thought and
action in dealing with some of the large problems connected with
foreign commerce.
Experts representing various industries, working in conjunc-
tion, could accomplish much toward simplifying the mechanical
48 The Annals of the American Academy
details of export trade. Greater uniformity in bills of lading, shij)-
ping documents, consular practices and fees, customs house regula-
tions and port charges might be brought about by united effort.
Better service could be exacted from steamship companies and with
greater knowledge and closer attention to details the numerous
delays, exactions, and fines in foreign customs houses, which are
so exasperating to the importer and exporter, could, to a great
extent, be avoided. To a body of experts of this character could be
intrusted the investigations, if not the preliminary formulation of
commercial treaties of the United States, which are of such impor-
tance in the development of reciprocal trade relations with foreign
countries.
The idea of such an association may appear Utopian to some,
but practical Germany has demonstrated the value of intensive
organization and concentration of effort in foreign commerce.
The above plan is put forth not as a finished scheme of organi-
zation which should be adopted without modification, but merely
as a suggestion in broad outline, in the hope that by focusing atten-
tion upon a concrete proposition some definite results might be
accomplished. If the scheme of such a cooperative export corpora-
tion or society, which is about the only form of legal combination
possible under our existing laws, should prove to be impractical in
its application to present conditions, that fact in itself should em-
phasize the immediate necessity of unshackling American business
so as to permit freedom of action in the foreign field. On the other
hand, if so reasonable a plan for cooperative action as that outlined
be considered, in its fundamentals, as violating the provisions of
the Sherman Act, then the absurdity of having such a law upon our
statute books would appear to be clearly demonstrated.
Of course, it must be recognized that cooperation through the
means of some legal form of combination is not essential or neces-
sary to the development of foreign business in all lines, although in
standardized lines where foreign competition is keen our manu-
facturers must have the right of organization if progress is to be
made.
For the marketing of many products, the present export or
commission house, with its thoroughly efficient organization, fur-
nishes the best of facilities to the exporter, although even here an
organization among various manufacturers, for the purpose of de-
Cooperation in Export Trade 49
veloping a market and carrying on a general publicity and sales
campaign for the benefit of all, will prove valuable. Such a selling
organization might arrange with the commission house to attend to
all of the necessary details in the actual exportation of the goods.
In certain particular lines, too, where a manufacturer is inter-
ested in developing a market for a particular brand or design, there
might be little advantage in combination with a competitor, except,
perhaps, that there should be a clearly recognized right among such
competitors to make binding agreements in regard to the extension
of terms in foreign countries.
As indicating the necessity of our manufacturers being permitted
to make agreements in the matter of the extension of credits, let
me quote from a letter received from a large manufacturer a day or
so ago. He says:
Of course, our principal trouble at the present time is with credits. We are
limiting our dating to "90 days from date of invoice," and we have heard of some
competitors who have given 120 days, but we have called their attention to the
fact that if the various American manufacturers are going to sell terms in com-
petition with one another, instead of merchandise, we shall all be losers in the
long run, because the buyer in Buenos Aires will simply play one concern against
the other to secure the longest dating.
The matter of credits, due to the difficulty in obtaining credit
information concerning firms in foreign countries, is a serious ob-
stacle to the growth of export business. The long time credit which
has heretofore been customary in South American countries and
Russia is violative of sound financial principles. A man should
receive such time for the payment of his bills as will permit him to
realize upon the sale of goods. When he has received the money
from the sale of the goods, a part of it belongs to the merchant who
sold him the goods and the rest is his profit. If he is allowed to
keep that which does not belong to him for a further length of time,
he will be tempted to speculate or at least to divert the money into
other sources. Too long credits encourage over-stocking, over-
extension and speculation. If, in the cultivation of new markets,
American manufacturers, in order to get business, will be obliged
to compete with each other in the extension of lengthy credits, and
will be denied the right of agreement or coSperation in matters of
this kind, the results in the long run are bound to prove disastrous.
Injurious competition between our manufacturers in foreign
50 The Annals of the American Academy
markets will inevitably result in making the business for all unprof-
itable, forcing many out of the market in disgust, to the entire
satisfaction of our foreign competitors, who derive profit and en-
joyment from our attempts to destroy one another in internecine
industrial warfare.
It cannot be denied that in the scheme for an export corporation
as outlined, there are opportunities for abuses and the growth of
practices which may be injurious to some of the members. By the
appointment of a permanent arbitration committee, one of whom
might very properly be a member of the Federal Trade Commission,
any member who felt himself discriminated against, or unfairly
treated, could obtain redress. The Federal Trade Commission, too,
has power under the law to correct such abuses upon complaint.
The important thing is to find some plan of cooperative effort, which
is fundamentally legal and at the same time practical; some plan
which can be availed of by our manufacturers without danger of
criminal prosecution, until such time as the law shall have been
changed.
The smaller manufacturer, of necessity, has become interested
in the subject of developing export trade. In many instances he
cannot afford the cost of a promotion campaign in a foreign market.
The very prohibitions of the Sherman Act which are designed to give
him an equal opportunity operate to put him at a disadvantage with
the larger manufacturer capable of maintaining an effective sales
organization in foreign lands.
By combining the resources of manufacturers in a given line, a
highly trained and efficient organization can be developed, operat-
ing at a minimum expense, which can scientifically study the markets
of the world, disseminate information for the benefit of all and con-
duct comprehensive sales campaigns along educational lines, which
will be sure to bring favorable results.
The possibilities of our commercial future carry a striking ap-
peal even to the ordinary imagination. Whether the great oppor-
tunity in the nation^s history will be taken advantage of in full
measure, to the lasting benefit of the whole people, will depend upon
the education of our people to the value to this country of export
trade; upon the development of a genuine spirit of cooperation
among our manufacturers in the intensive study of the possibilities
of new markets; upon the patience, skill and tact which are exercised
Cooperation in Export Trade 51
in the cultivation of the foreign field; upon the building up of a
public opinion which will compel the removal of the fetters from
legitimate business; and, of most importance, upon the assumption
of leadership in this movement by men of broad vision, untiring
energy and unselfish devotion.
I
k
THE IMPORTANCE OF AN AMERICAN MERCHANT
MARINE
By Bernard N. Baker,
Baltimore, Md.
I feel highly honored by the request to address your influential
body upon the importance of an American merchant marine in the
development of our trade with Central and South America. I wish
to present this subject from a practical business standpoint and
from long experience in the merchant marine.
To begin with, we will take one country, the Argentine Republic,
and one class of merchandise, coal, and show you what can actually
be done. The annual consumption of coal in the Argentine Republic
is about 5,000,000 tons per annum. So far they have been able to
find little or no coal there, so they must depend upon other coun-
tries for their supply. Now their coal supply is mainly from Eng-
land. The last quotation of which I have accurate information is
of the date of April 17, the average price of coal in Buenos Ayres is
about $9 per ton. For a number of years the price of coal f. o. b.
at the various English ports varying from the very best Welsh
steam coal to the poorest coal produced on the east coast was $8
per ton for the best Welsh coal and $5 a ton for the poorest quality.
The rate of freight at the same time to the River Plate is $7 a ton.
Now this would make the coal delivered to Argentine ports of the
best quality of coal $15 a ton, or poor quality $12 a ton. The very
best American coal f. o. b. at the Virginia Capes, or Lambert's
Point, the most convenient ports to ship from (and the best American
coal is equal to the very best Welsh) can be placed on board vessels
at Newport News or Lambert's Point at a cost of $3 per ton and
even less. We have no American ships to carry this coal, but one
of the largest ship-building concerns in England would undertake
to provide the actual construction of ships to deliver coal to Buenos
Ayres, bringing the ships back in ballast, at a cost less than $3 per
ton, making the difference in cost between American and English
coal of $9 per ton, delivered to Buenos Ayres. This is not a theory,
these are facts.
52
American Merchant Marine 53
Why have not our large coal interests taken advantage of the
opportunity to develop such a trade with the United States? First,
and most important, is the fact that all the large consumers of coal
in the Argentine are almost entirely controlled by English interests
and there is in existence today in England a combination known as
the Cambria Coal Combine which prevents business being done by
agreements with the American coal interests.
But the reply will be made that American steamship companies
in their past experience have not been successful. This is true, but
anyone who will make a careful study of the cause and condition
governing these various American enterprises will find without
exception that good and sufficient reasons can be given for their
failure.
Until the beginning of 1914 there existed such a powerful com-
bination in the control of the import and export business from the
United States and Europe to South America, upon foreign-owned
steamers, that it was impossible for any independent service to
attempt to secure cargo, particularly coffee, from Brazil to the
United States at any rate of freight whatever. Without going into
the details of this, I would call attention to the effort made by a
New Orleans company as testified to before a committee of Con-
gress as to the impossibility of securing cargo at any rate, so powerful
was the combination that any shipper that shipped by any inde-
pendent service could not secure freight room to any ports, not only
American, but also foreign for all future time.
With regard to the profitableness of the operation of steamship
lines, it is a very remarkable circumstance that while today, and I
quote from the report of the Cunard Steamship Company just
issued for the calendar year, ending December 31, their 'business
had been so profitable that they had earned sufficient to pay not
only a 10 per cent dividend, but a 10 per cent cash bonus dividend
and carried over $700,000 to the credit of profit and loss, while the
only large American company (the International Mercantile Marine
Company) on April second went into the hands of a receiver. What
do we lack? Is it good management or a lack of interest? In
1903 at the time of the formation of the International Mercantile
Marine Company a careful calculation was made and the request
made of every steamship company or firm owning 20,000 tons of
ocean steamers and over for a statement of their accounts. The
54 The Annals of the American Academy
result of this was that reports came in from eighty-nine steamship
companies representing 2,530 steamships with a tonnage of 7,433,-
575 tons. This represented every nationality (except American),
namely, British, German, French, Japanese, Austrian, Nether-
lands, Spanish, Italian, Danish, Russian, Norwegian, Grecian
and Swedish. The result for a series of years of these companies
showed an average net dividend payment of 6.33 per cent per
annum. Another fact, the average price today of steamship securi-
ties in England is on an interest basis return, regarded more favor-
ably than almost any other possible investment. I will only quote
under date of March 25 the last quotations available: Anchor Line
4} per cent bonds are bringing 105; the 4^ per cent Cunard Bonds
102^; Peninsular and Oriental Navigation Company 3| Debentures
85; this, too, in the time of war. I have been informed that in one
hundred years there has not been in the history of the English mer-
chant marine one dollar lost on mortgage investments in the promi-
nent British steamship companies. Can any of our railroads or
any of our industrial enterprises show such results? Why, therefore,
is it not possible to have in our country a merchant marine under
our own flag?
First and most important is the first cost of the ship. This
varies, according to the character of the ship from 40 to 60 per cent
more in the United States than in any other country, particularly
England and Germany. Now, Congress has passed legislation
(Act of August 18, 1914) allowing any ship, owned or purchased by
citizens of the United States under a foreign flag, to be transferred
to American registry without duty, if engaged in the foreign trade,
so this provides a remedy.
The second and most important question is that of crews,
crews' wages and regulations governing same. These are in a most
hopeless state, and until the United States can get all the other
important maritime nations to cooperate with her in the regula-
tion of payment of the crews' wages, etc., it will be impossible for
an American owner under the American flag to compete in the
foreign ocean-carrying trade with other countries. It seems to me
that this could be done with the cooperation of other countries.
How can we accomplish this?
Let us study what has been done to build up our merchant
marine.
American Merchant Marine 55
The first and most important bill that actually passed at a
session of Congress was known as the " Mail Contract Act of March
3d, 1891." Every party platform in every national election has
advocated in various forms the upbuilding of an American merchant
marine. From the time of the passage of this act in 1891, to the
present time, there have been numerous bills introduced, but never
could the Senate and the House agree on the passage of a bill, and
it has nearly always unfortunately been made a party measure,
even down to the last legislation proposed, known as the "Ship
Purchase Bill."
In 1911 the post office department, under the terms of the Act
of March 3, 1891, advertised for the establishment of services with
various ports, especially to use the Panama Canal, and in the
proposed service was established a special system of barge service
both from Colon and Panama to the north coast of South America
and also the west coast, as it was thought there would be an enor-
mous distributing station at both these ports. The only conditions
in this advertisement were that the control of any corporation taking
advantage of a mail contract should not be held by the railways or
by any interest doing business with these countries on their own
account. Although this advertisement was twice inserted and was
equivalent to a guarantee of 10 per cent on the capital required for
the American ships under the American flag, in a trade limited to
the American flag, not a single bid was received. The reasons for
this could easily be explained, but it would take too much time.
But this is only quoted to show the efforts that have been made.
Over $30,000 was expended in the way of placing this proposition
of the government (in President Taft's administration) before the
public, and yet, as stated, not a bid was received. The proposition,
just as it was made, was submitted to a large English interest at
present engaged in the steamship business, and their comment was
that such a proposition offered by England would have had at least
100 bids. So impressed was one of these interests that they agreed,
provided it was agreeable to their New York banking correspondents,
to take $500,000 interest in a company to make a bid. It is hardly
necessary to state that these bankers declined to approve of this
friend taking any interest.
In my thirty years' active, earnest work before nearly every
commission and every important investigation by Congress various
56 The Annals of the American Academy
discussions have been brought forward as to how to remedy these
conditions, and let me say now that never have I met a senator or
congressman from any state that did not think it was a question of
vital importance that we should have an American merchant marine.
I know of no better suggestion than that contained in an article
published in the North American Review of January, 1910, by me,
over five years ago, and that was that, under no circumstances,
could an American merchant marine be established without assist-
ance from the government, and the practical way in which to secure
this assistance was by the appointment of a commission of practi-
cal, experienced business men who had a knowledge of the subject
to outline to the government the necessary assistance, with authority
to act and agree with other countries upon condition and regulation
governing the operation of oversea traffic. This assistance would
vary much according to the different ports to which lines might be
established and could only be carried out successfully and to the
benefit of our country by men having such practical experience, as
to different routes of trade, as it would require a different basis of
assistance depending upon the class of ships, and the nature of the
business to be developed. This would especially apply to our Cen-
tral and South American commerce. That this suggestion has not
been changed in five years, I would call your particular attention to
the recommendations of the Chamber of Commerce of the United
States and by a special committee of the Chamber of Commerce
of New York, which reported, January 28, 1915, at a special meeting
called for the purpose of considering suggestions for the establish-
ment of an American merchant marine, that a commission be
created.
Can we not trust good men with practical experience and with
a spirit of patriotism independent of what may be their own gain, to
carry forward successfully the reestablishment of our merchant
marine? The appointment of a commission of such men by the
President of the United States under the authority of Congress, to
reestablish our merchant marine, giving them full authority to do
so, would be a wise move. In the recent bill known as the "Ship
Purchase Bill," the main and important objection seemed to be
that they could not trust any commission with so much power.
How else can it be done? Look at the trust and confidence we are
putting, and it has been demonstrated, successfully to our best
American Merchant Marine 57
interest, in our Federal Reserve Board in control of the finances of
the country. Why not do the same thing with the merchant ma-
rine?
Did it ever occur to you how jealous and how proud other
countries are of the development of the merchant marine in this
respect? Do you know that you cannot today, as an American
citizen, hold a share of stock in the Cunard Steamship Company
which is especially under the control of the British government?
I shall not attempt to weary you further, but I would like to
call your attention as to how an American merchant marine was
valued by the noted writer, Alexis De Tocqueville in his Democracy
in America^ written nearly one hundred years ago.
The Anglo-American has always displayed a very decided taste towards the
sea. The Americans themselves now transport to their own shores nine-tenths
of the European produce which they consume, and they also bring three-fourths
of the exports of the new world to the European consumer. Thus not only does
the American merchant face the competition of his own countrymen, but he even
meets that of other nations in their own ports with success. As long as the mer-
cantile shipping of the United States preserves this superiority, it will not only
retain what it has acquired, but will constantly increase in prosperity. But I am
of the opinion that the true cause of that superiority must not be sought for in
physical advantages, but that it is wholly attributable to their moral and intellect-
ual quantities.
Have we the same moral and intellectual qualities which were
attributed to us by this noted writer nearly one hundred years ago,
or have we lost them all?
THE FUNCTION OF GOVERNMENT IN ITS RELATION
TO INDUSTRY
By Joseph E. Davies, *
Chairman, Federal Trade Commission, Washington, D. C.
The subject "Relations of the United States with Central and
South America as Affected by the European War," is fertile in its
suggestion and most timely. The relations of this country with our
neighbors of the South are brought forcibly to our attention by
conditions precipitated by the European war. These relations are
therefore interesting by reason of several factors in the situation, to-
wit: the manner in which our industrial and financial organiza-
tions have been affected; the relations that will arise in a business
and industrial way between the republics of this hemisphere by
reason of the changing of the currents of the world's trade; and
the manner in which these conditions will react upon the policies
of the various sister republics of this hemisphere, where such policies
are practically founded upon a common purpose and conception
of the relation of government to industry.
With differing degrees of severity the European war has affected
all the republics of this hemisphere, so far as industry, agriculture
and finance are concerned, in much the same manner. We have all
suffered by reason of this violent change in world conditions.
The possibilities of mutual advantage through the development
of new courses in the world's trade and greater intensity of commer-
cial development in the course of trade already established between
this country and the governments to the south of us give great
promise.
In the development and growth of the business of these countries
it should be a matter of congratulation that, fundamentally, there
is identity of outlook on the governmental policy which the respec-
tive governments take with reference to the relationship of govern-
ment to industry.
' Remarks as presiding officer at the fourth 8e88ion of the Nineteenth Annual
Meetint? of the American Academy held in Philadelphia on April 30 and May
1, 1915.
58
Function op Government Relating to Industry 59
In the evolution of industry and business the world over there
are two types of governmental attitude that are fundamentally
characteristic. Under the monarchical form there is a tendency
toward centralization of power, not only in government, but as well
in industry and finance, with the resultant disposition toward the
recognition of monopoly, and indeed, perhaps, the fostering of
monopoly, with the participation in the fruits thereof by the favored
classes. Among self-governing peoples, on the other hand, there
has crystallized a fundamental conception in national policies that
there must be equality of opportunity in industry under a govern-
ment that purports to be a government for the benefit of all the
people; that the declaration of equal political opportunity is futile
unless there be governmental policies that will preserve equality of
opportunity for development consistent with the differences of
abilities that reside in men. In other words, the policy of self-
governing peoples, generally speaking, has been to develop such a
governmental attitude as would preserve the channels of trade open
through the processes of regulated competition, and practically all of
the republics of the western hemisphere have that common attitude
of the relationship of government toward industry.
By reason of this common point of view which pertains fun-
damentally to the governments of this hemisphere, there is great
promise of future sympathetic and continuous cooperative devel-
opment. This common outlook upon the functions of government
has been supplemented as well, within the comparatively recent past,
by developments of an international character which have created
greater confidence in the integrity of motives of the Pan-American
republics. I refer to the so-called Mexican Mediation Conference
which was held with reference to the Mexican situation last year.
It is therefore but natural that trade should develop in greater
and continuing measure between this country and the South
American republics. We have not only a common point of view
with reference to the function of government in its relation to
industry, but also a greater degree of assurance in the integrity and
disinterestedness of each other's motives. Trade, to exist and to
grow, must be established not only upon mutual advantage arising
through trade, but as well upon mutual confidence in the integrity
of purpose and points of view of the people trading with each other.
CENTRAL AND SOUTH AMERICAN TRADE AS AFFECTED
BY THE EUROPEAN WAR
By James A. Farrell,
President of the United States Steel Corporation and Chairman of the National
Foreign Trade Council.
The commercial interdependence of modern nations became
strikingly apparent when the first shock of the European war halted
neutral commerce as abruptly as that of the belligerents. Although
transportation and exchange were dislocated in every country of the
globe, probably no other neutral nations were affected to so serious
an extent as were the twenty Latin American repubhes to the south
of us. Not only were their business relations with the United King-
dom, France, Germany, Austria and Belgium subjected to an ab-
normal strain, but their commerce with each other and with the
United States was interrupted and is only now beginning to resume
encouraging proportions.
The completion of the Panama Canal and propaganda in favor
of closer relations with our sister republics are partially responsible
for the fact that the American public has developed a tendency to
view world trade in terms of Latin America, overlooking the fact
that the total trade of the twenty republics with other nations and
with each other is but 6 per cent of the total foreign trade of the
world, and that the Dominion of Canada normally buys more from
us than the whole of Latin America.
Educational Power of Varied Trade
Those who, by reason of their interest in the greater consuming
markets, may view this attitude of the American public with dis-
appointment, should realize, however, that the study of the many
conditions governing this trade and the tariffs and laws to which
it is subject is rapidly acquainting the general public with valuable
knowledge concerning foreign trade policy. It is needless to look
beyond our Latin American export trade for examples of the strength
and weakness of our commercial intercourse with all nations.
In gauging the effect of the European war upon Central and
60
Central and South American Trade 61
South American trade and its future development, it should be
remembered that European investment has been the chief factor in
the growth of these nations. Such financial assistance was essential
to the development of their natural resources and the establishment
of manufacturing industries.
European Investment
At the beginning of the European war, more than five billion
dollars of British capital had been invested in Latin America; while
investments of French capital were variously estimated at from four
hundred million to one billion two hundred million dollars, and
German investments at somewhat less. British investments were
estimated to yield an average annual interest of over 5 per cent, or
two hundred and fifty million dollars, more than two-thirds of the
value of the United Kingdom's yearly imports of Latin American
products. In other words, the Latin American natural products
imported for the life and industry of the British Isles were largely
paid for by earnings of British gold invested in securities of Latin
American governments and in the shares of enterprises in those
countries, such as railroads, steamship lines, plantations, mines,
manufacturing industries, nitrate fields, etc. Moreover, this British
investment ensured preference for British exports, as a railroad
financed in Great Britain was usually equipped with British mate-
rials and British mines were operated with British machinery, etc.
German investment was accompanied by still greater financial
influence, as the German industrial system contemplated the impor-
tation of raw materials, their fabrication into a much greater volume
of products than Germany herself could consume necessitating a
wide export market for the surplus. In accordance with the Ger-
man policy, industry and finance were closely allied, various classes
of manufacturers concentrated their resources, supported by the
great German banks and upheld by a constructive governmental
policy which molded diplomacy, education and national thought to
the extension of Germany's influence in world trade, with the result
that there was a steady advance in demand for German goods in
Latin America.
Each great German financial group was represented in South
America by banks which, in addition to conducting a general bank-
M The Annals of the American AcademV
ing business for the commercial public, were indefatigable in their
efforts to obtain a market for products of the mergers and coopera-
tive foreign selling syndicates which the parent banks in Germany
had helped to organize and finance.
Limited American Investment
This influence of financial Europe steadily gained in power in
every republic from the Rio Grande to Cape Horn, but its effect
was neutralized by American investment in such countries as Mexico
and the chain of states extending to Panama and the West Indies.
Large American holdings in mines and plantations, fruit trade
investments, railroads, tramways, light and power plants and steam-
ship lines, coupled with our greater familiarity with the markets, a
fairly considerable American population, and the influence of travel
and association, have combined to create an equal opportunity for
American goods in the countries north of Panama and in the Carib-
bean.
Our exports to Central America normally consist more largely
of highly finished manufactures than those to any other part of the
world. Cuba is the only American country under whose tariff we
enjoy a large advantage. To the ten Central American and Carib-
bean republics and to Venezuela, Colombia and Peru, we sold more
merchandise last year than did all the rest of the world, which is
sufficient proof of our ability to produce results when supported by
helpful association and sound financial investment, in addition to
our sound selling methods and high-quality products.
Further south, the influence in behalf of American export trade
steadily diminishes, for the reason that our South American invest-
ments, except in mines in Peru, copper and iron-ore properties in
Chile and packing plants in Argentina, are immaterial; so, also, is
American population, while European immigration has been heavy.
The importance to a nation of merchants residing in foreign coun-
tries cannot be overestimated. British and German merchants
scattered throughout the world conducting business as importers of
products of their native lands are vital factors in British and German
oversea trade, while an American merchant resident in a foreign
land is an exception.
Central and South American Trape 4(3
Effect of War
Even before the outbreak of the war the effect on Latin Amer-
ican markets of curtailed European investment, beginning with the
second Balkan war, was marked. Dependent as new enterprises
were upon the selling of securities on the British and Continental
bourses, prosperity in South America had long been dependent on
the European money market, and all industry and most govern-
ment finance showed distress a full year before the great European
war began.
When hostilities were declared, the situation became the worst
in their history, and moratoria were promptly declared in practically
every country. Pending loan negotiations were halted, new con-
struction was suspended, sterling exchange, the almost universal
currency of Latin American trade, soared to unprecedented heights,
steamship communication was interrupted, and confidence was com-
pletely impaired. The demoralizing effect of the crisis upon the
domestic, as well as the foreign business of the United States, is not
yet forgotten; in Latin America it was even more severe. Trade
between the United States and South America came almost to a
halt and, even after British control of the sea restored transporta-
tion, the credit situation and the diflftculties of collections prevented
the resumption of normal business.
Purchasing Power Curtailed
Those whose enthusiasm led them to believe that, with Ger-
many out of the race for trade, the United States could immediately
gain the export trade formerly enjoyed by that country, failed to
consider the fact that Latin American purchasing power had shrunk
by reason of the curtailment of British investment and the loss of
the German, Austrian and other customary European markets for
their products. More thoughtful exporters realized that the
mechanism of commerce must be restored before present business
could Ixj taken care of, leaving aside the question of a greater future
trade. The disadvantage of the former custom of liquidating
transactions in our trade with Latin America at London in sterling
bills of exchange was made apparent, and its excessive expense bred
in exporters and importers the desire for the establishment of doliar
exchange and direct settlements between this country and southern
64 The Annals of the American Academy
markets. In the furtherance of this desire, the federal reserve bank-
ing law is timely. Its authorization of the federal reserve banks to
deal in acceptances representing transactions in the export and
import trade created in each of the great export centers a discount
market for this paper, with the result that bills drawn on oversea
customers find ready sale when accepted by banks belonging to the
federal reserve system, and the extension of credits has been greatly
facilitated.
Immediately the war assumed its present gigantic proportions,
it was plain that the purchasing power of Latin America had dwin-
dled to the value of its exportable products, and much depended,
therefore, upon the state of crops, such as wheat in Argentina,
coffee in Brazil, and elsewhere.
Situation Improving
Fortunately, these crops were large and foodstuffs commanded
unusually high prices in the European market, with the result that,
within the last three months, trade has quickened, confidence has
been partially restored, and business is beginning to be conducted
"as usual," except that all new construction is at a standstill and
no extensive development is contemplated until the end of the war.
A notable effect of the war in our commercial relations with
Latin America has been the increasing reexportation of characteris-
tic Central and South American products. New York and other
ports of the United States are now important distributing points for
international commerce, as shown by the fact that exports of foreign
merchandise for the eight months ending February, 1915, were
valued at $33,166,512, as against $20,541,138 for the same period in
the previous year. This gain was especially notable in the case of
cacao, the reexports of which increased more than fivefold, reaching,
for the eight months ending with February, a total value of $2,835,-
591. The reexports of coffee leaped from $968,530 to $4,482,368.
This was largely due to the closure of Hamburg and conditions
prevailing in other European ports, formerly the center of the world-
distributing trade. In comparison with these old-world centers,
New York became the greatest open port. By reason of restrictions
placed upon the export of rubber by the United Kingdom, to prevent
its being used by the enemy, the importance of American ports for
Central and South American Trade 65
the distribution of India rubber greatly increased, the value of
reexports growing about 80 per cent.
Trade Balance Adverse to United States
During the eight months ending February 28, 1915, our exports
to all Latin America and the West Indies were valued at $159,742,-
863, as compared with $212,227,558 for the corresponding period
ending February 28, 1914, a decrease of 25 per cent, while our world
exports during the same period decreased 3f per cent. Our imports
from the same countries, during the same period of the present fiscal
year, amounted to $316,374,763 against $289,318,891, an increase
of 9 per cent, although our world imports decreased 13 per cent.
This comparison shows a trade balance of $156,631,900 in favor of
Latin America and the West Indies, which will adequately answer
the demand of those who are urging us to buy more freely from Latin
America, but even in normal times, the balance is in our neighbors'
favor. Under the provisions of the federal reserve law, we can
reasonably look for largely increased sales of American products.
The reasons for this decrease in our exports were the practical
suspension of commerce during the first few weeks of war and the
acute depression which followed. This decrease was noticeable in
shipments of all construction materials, such as iron and steel manu-
factures, lumber and cement, agricultural machinery and equipment,
automobiles, railway cars, locomotives, sewing-machines and other
highly finished manufactures, while exports of actual necessities
occasionally increased, by reason of the lack of European competi-
tion. For instance, exports of coal, which, before the war, except
to Central America, were not heavy, trebled to Argentina, and
greatly increased to Brazil, while shipments of American paper,
because of the need of replenishing stocks and the elimination of
German competition, also grew in volume, while inquiries began to
pour in for numerous small lines, thus increasing the diversification
of our export trade, -^t the close of the war, however, we will find
it necessary to exert every effort to maintain this newly-won trade
against the determined competition of Europe.
The increase in value of imports from Latin America is largely
due to higher prices of various products, combined with the fact that
trade routes have been changed and New York has become more
66 The Annals of the American Academy
active as a distributing point, as shown in the case of cacao, some
importers of the Ecuadorian, Brazilian and Dominican product
expecting to see it become the greatest distributing point in the
world. The use of cocoa and chocolate in the ration of the modern
army proved the salvation of Latin American cacao growers.
The demand of the European belligerents for foodstuffs and
supplies has saved the situation both in Latin America and the
United States. The development of Latin America cannot proceed,
however, without foreign capital. Citizens of the United Kingdom
are forbidden, during the war, to invest in foreign enterprises, which
eliminates England, France, Germany or Belgium, leaving the
United States as the only great nation whose trade balance is in-
creasing and whose gold is accumulating.
Source of Future Investment
That American capital is educated to foreign investment is
proven by the fact that its holdings in the Dominion of Canada are
nearly seven hundred million dollars, exclusive of agriculture, and
half a billion dollars in Mexico, Central America, Cuba, Haiti,
Santo Domingo, Chile and Peru. Since the beginning of the war,
fifteen million dollars of short term Argentine treasury notes have
been taken in the United States, one of the conditions of the issue
being that the proceeds should remain in the United States as a
credit against the Argentine purchases of American merchandise.
This unusual condition illustrates the advantage of making loans
to countries which can become large purchasers of our products.
British investors are retaining their Latin American properties,
which will prove more valuable than ever after the war, in view of
their freedom from the heavy taxes which war imposes upon invest-
ments in the United Kingdom. How important a part British
capital will play in the financing of Latin America after the war
remains to be seen, but the consensus of financial opinion seems to
be that interest rates will materially increase, and the amount of
this increase, as compared with the price of United States loans, will
doubtless determine the question of who is to be the chief investor.
Central and South American Trade 97
Relation of Investment to Export Trade
Of greater importance than the interest rate is the creation of
a greater export market for American manufactures through rail-
way and industrial loans. By reason of European investment, the
area into which we can expect to send American exports is restricted.
For instance, in view of the fact that railways promoted by European
capital are confining their purchases of materials to Europe, our
only field for railway supplies and equipment has been the govern-
ment railways. When the output of American factories is increased
by foreign investment, the investment becomes in reality a domestic
investment and its encouragement by the United States govern-
ment should naturally be expected. Upon this attitude will depend
largely the future of American business enterprise abroad. With
governmental support and intelligent cooperation between investors
much can be accomplished, although some hesitancy on the part of
capital may be encountered, owing to the deterrent effect of the
Mexican revolution. However, the awakened interest of the entire
American business public in the possibilities of Latin American
trade is a great assurance of future increase.
While the establishment of dollar exchange will not, perhaps,
entirely replace confidence in sterling bills at the conclusion of war,
a beginning has been made for American banking.
Excessive versus Adequate Credits
Although much is said in favor of conducting business in accord-
ance with the desires and standards of our Latin American customers
we should remember that this applies only to what is recognized
by the world to be sound business practice. Arguments in favor
of granting six, nine and twelve months' credit do not recognize the
fact that extension of unusual credits was an important factor in the
industrial depression preceding the war, Germany's eagerness for
British trade having led many German firms to extend credits which
deferred merchants' obligations several months beyond the time
when they realized on the purchased goods. With this ready money
at hand, the merchant frequently speculated in land, with the result
that collapse of the land boom caused heavy losses and failure to
pay at maturity of even these long credits.
98 The Annals of the American Academy
British exporters frequently voluntarily suffered the loss of old
and valued business in preference to extending excessive credits,
and Americans with experience in Latin American trade are of the
opinion that the limit of credit should be sufficient only to cover
the time required by purchaser to realize on the goods bought,
taking into consideration the harvesting and marketing of crops.
TRADE RELATIONS WITH CENTRAL AND SOUTH
AMERICA AS AFFECTED BY THE WAR
By John Hays Hammond,
New York City.
One of the lessons we learn from the present European war
as regards our trade relations with Central and South America,
is the dependence of those countries upon Europe and America,
and especially upon Europe, for financial assistance, not only for
governmental purposes but for the development of their national
industries; and, as a corollary, the restriction of the purchasing
power of Central and South America when deprived of such financial
assistance. South America, particularly, has depended upon
European money for the development of its natural resources, from
the exploitation of which it has been able to make earnings so as to
further increase its borrowing power.
The European war has, however, made it temporarily impossible
for the South American countries to obtain financial assistance from
that Bource and for that reason they have suffered in an exceptional
degree from financial, industrial and commercial depression. This
condition has been aggravated, too, by the loss, in a large measure,
of European markets for their products; but, even before the begin-
ning of the great European war, many of the most important South
American states were in desperate straits financially owing to the
difficulty in meeting their European obligations. It will, in all
probability, be many years before Europe will again become the
banker and broker of those countries in any adequate measure, at
least.
Therefore, it is obvious that if the United States is to realize
its ambition to secure a large increase in its Latin American com-
merce, our capitalists must be prepared to render these countries the
required financial assistance. Our country will need a large part
of its capital during the next decade for its own industrial develop-
ment, as in all probability cheap money from European financial
centers will not be readily available.
69
70 The Annals of the American Academy
The rehabilitation of the industries of Mexico, when peace
shall have been restored in that country, will also require large loans
and investments from this country for the protection of the large
investments already made there by Americans.
In order to induce our capitalists to supply working capital
to Latin American countries they must be assured of the encourage-
ment and cooperation of our national administration and of the
guarantee of the protection of their investments against discrimina-
tory laws and confiscation, especially in time of revolutionary
movements. Our citizens must be assured at least of the same
degree of protection that is guaranteed by other governments to
their nationals. This does not by any means imply a truculent
attitude on the part of our government toward weaker nations —
indeed, nothing would be more prejudicial in the long run to the
interests of our citizens than such an attitude on the part of our
government. But cheap money is invaluable in the development
of new industries, and cheap money can be obtained only by a
guarantee of the protection of invested capital against political
exigencies.
To obtain the confidence of investors in Pan-American invest-
ments, I believe a Pan-American supreme court should be created
to deal specifically with disputes as to foreign investments and as
to commercial transactions between Pan-American citizens. Such a
court should be composed of the leading jurists of our own and of
Latin American nations and should sit in neutral territory. If
inspired by self-interest only, it would obviously be the aim of such
a tribunal to establish confidence in Latin American investments
generally and at the same time to reassure our Latin American
customers of fair treatment in their business transactions with
the exporters of the United States. This is quite as important as
the establishment of confidence of our capital in Latin American
investments.
Such a court might well be one of final resort. In any event,
it should try cases and endeavor to adjudicate them before appeal
through diplomatic channels, which almost invariably results in
friction and often, indeed, in extreme tension.
Genuine, not merely professed amity, is a great asset in commer-
cial relations, and since the larger South American nations regard
the Monroe Doctrine as supererogation on our part, it would seem
Trade Relations and the Eubopean War
71
good business, to say the least, to restrict the application of the
Doctrine to such territory as is necessary for the defense of the
Panama Canal and of our sphere of influence in the Caribbean Sea
area. As to the rest of South America, the Monroe Doctrine might
well be superseded by a Pan-American defensive alliance against
attempts at territorial aggrandizement from abroad.
TRADE CONDITIONS IN LATIN AMERICA AS AFFECTED
BY THE EUROPEAN WAR
By Edward Ewing Pratt,
Chief, Bureau of Foreign and Domestic Commerce, Washington, D. C.
Much has been said in the public prints and in public utter-
ances as to the opportunities for the extension of our trade with
Latin America. An almost equal amount has been printed and
otherwise circulated with reference to Latin American commercial
conditions as affected by the war in Europe. Special emphasis has
been laid on the disastrous effects of the war and it is often stated
that the financial and commercial conditions in Latin America are
so bad that American manufacturers and exporters are not war-
ranted in soliciting trade there at the present time.
What the business world desires in this matter is not opinions
but facts — definite concrete facts — as to the actual present-day com-
mercial conditions in Latin America. It is then the privilege of
each business man to formulate his own opinions and depend on his
own judgment as to whether he desires to take up the active devel-
opment of Latin American trade today, tomorrow, or at any time
in the future.
Let us consider then in the brief time at our disposal, three sets
of facts: (1) the general economic situation of the Latin American
countries; (2) the immediate effects of the European war upon the
Latin American countries; and (3) the recovery, if any, which has
been effected up to date. The facts which I shall present are based
largely on first-hand information which has been received by the
bureau of foreign and domestic commerce from our own commercial
attache and commercial agents who are stationed in Latin America,
and from the American consuls and the department of state.
I. The great sensitiveness of Latin American countries to dis-
turbances in Europe and the close interrelation which has existed
between the two sections were graphically illustrated two years ago,
when the trouble in the Balkans, involving directly only a few small
nations in the east of Europe, was sufficient to cause a decided de-
73
Latin American Trade Conditions 73
pression over practically all of Central and South America. In some
countries it checked a tide of prosperity that had been running high
for several years, and in others helped to bring about a liquidation
that continued until the outbreak of the present war. It can be
realized, therefore, how tremendously the great war, involving all
the major powers of Europe, has affected the economic and com-
mercial life of the various South and Central American countries.
Although they are separated from the scene of hostilities by 7,000
miles of ocean they were much more severely affected than the
nations contiguous to the warring nations. The commerce of Latin
America was cut in half, immigration ceased, industry was tempo-
rarily paralyzed, thousands of men were thrown out of employment,
and all public improvements, except those absolutely indispensable,
were suspended.
The reason for the strong and sudden check to every line of ac-
tivity is to be found in the closeness of the ties that have heretofore
bound all the countries of South America, and to a less extent those
of Central America, to the great European nations — England, Ger-
many, France, Spain, Belgium, and Italy. It is only recently that
the United States has awakened to the strength of those ties, and
has come to realize that the growing countries to the south of us
are much more closely related to Europe, except perhaps in form
of government, than they are to the United States.
The ties between Europe and Latin America are of two kinds,
financial and commercial. In both they have been strengthened
because of the basic fact that the interests of Europe and South
America have been reciprocal. Europe has capital to in vest, [South
America needs capital for development. Europe has manufactures
and coal to sell and South America must obtain them from abroad.
Europe desires to purchase foodstuffs and raw materials, and South
America has an abundance of both to dispose of. It is this funda-
mental reciprocity of commercial interests that has caused the
South American countries to feel so heavily the shock of the war.
In at least three of the largest countries loans involving
millions of dollars were in process of negotiation at the outbreak of
the war. Negotiations closed at once and no loans were obtained.
The impossibility of getting further loans has called a halt on nearly
all important projected public improvements and private enter-
prises. Further development of the rich resources of the continent
74 The Annals op the American Academy
must await the accumulation of European capital after the war or
the aid of the United States.
The nitrate, coffee, cocoa, hides, tin and rubber of South Amer-
ica have been largely marketed in Europe. On the first of August
the European market practically ceased to exist. The vast pro-
ducing sections of South America were without an outlet for their
products. Their chief sources of income were unsalable or salable
only at greatly reduced prices. The only hope was in the United
States, which at first could absorb but limited quantities of prod-
ucts the consumption of which had heretofore been world-wide.
But all sections of South America do not suffer to the same
degree from the lack of a market for their products. Some products
are in great demand. Let us hurriedly run over the principal ex-
ports of the various countries of the continent: Argentina exports
cereals, hides, meat and wool; Uruguay, grain, wool and other live-
stock products; Paraguay, hides and forest products; Chile, nitrates,
copper, wheat and wool; Bolivia, tin, rubber, silver and copper;
Peru, sugar, rubber, cotton, silver and copper; Ecuador, cocoa and
tagua; Colombia and Venezuela, coffee, gold and hides; the Guianas,
sugar; Brazil, coffee, rubber, hides and cocoa. Of these, cereals,
meat, wool, sugar and copper are in great demand across the sea.
The other products are in little demand and have been left in the
hands of the miners and planters. The result is that in a few sec-
tions the currents of trade are again running strong and optimism
prevails, while in others trade, finance, and enterprise are still mark-
ing time, with small prospects of marked revival until the war ends.
II. The continent of South America may be conveniently
divided into four general sections, in each of which similar
conditions prevail. These are: (1) the River Plate section, in-
cluding Argentina, Uruguay and Paraguay; (2) the West-Coast
section, Chile, Bolivia, Peru and Ecuador; (3) the North-Coast
section, Colombia, Venezuela and the Guianas; and (4) Brazil.
As compared with South America the countries of Central
America are of much less importance. They need hardly be con-
sidered separately because in products, internal conditions, ship-
ping facilities, climate, and general character they are very similar
to the north-coast countries of South America.
In normal times the River Plate section is the region of the
greatest commercial activity. For example, in 1912, the total import
Latin American Trade Conditions
75
South and Central American Commerce with Europe and the United
States
United States,
per cent of total
Principal
countries
Europe,
per cent of total
Argentina, 1913:
Imports
Exports
Com (a) . . .
Wheat (a) . .
Wool (a) . . .
Oats (a) . . .
Meats (b) . .
Brazil, 1913:
Imports
Exports
Coffee (a) . .
Rubber (a) .
Ox hides (a)
Venezuela, 1913:
Imports (c) . .
Exports (c) . . .
Coffee
Cacao
Peni, 1913:
Imports (c) . ,
Exports (c) . . .
Copper (d) .
Cotton (d) .
Sugar (d) . .
Chile, 1913:
Imports (c) . .
Exports (c) . .
Nitrate. . . .
Copper ....
Wool
Bolivia, 1912:
Imports
Exporta
Tin
Rubber. . . .
Ecuador, 1911:
Imports
Exports (e) . .
14.7
4.7
.4
.4
10.2
.1
15.7
32.5
42.1
50.4
3.6
38.5
28.7
31.2
14.3
28.8
33.2
72.
56.4
27.5
46.8
88.8
78.7
62.2
48.4
39.6
49.6
89.6
46.8
57.5
68.
44.3
63.1
63.1
16.7
67.5
21.0
70.4
21.4
71.8
55.6
43.2
.04
99.1
9.3
64.5
.5
98.
0.02
99.8
2.3
97.4
23.6
69.88
23.6
64.40
76
The Annals of the American Academy
South and Central American Commerce with Europe and the United
States — Continued
Items
United States,
per cent of total
Principal
countries
Europe,
per cent of total
Ecuador, 1911:
Cacao
Hats
Coffee
Uruguay:
Imports, 1910
Exports, 1912
Wool, 1910
Hides and skins, 1910
Meat and meat extracts, 1910
Paraguay, 1912:
Imports
Exports (f )
Colombia, 1913:
Imports (c)
Exports (c f)
British Guiana, 1912 (year ended March 31) :
Imports
Exports
Raw sugar
Balata gum
Rum
Dutch Guiana, 1911:
Imports
Exports ,
Balata gum
Sugar
Cacao
19.2
18.9
31.9
10.6
5.4
3.3
17.3
.2
6.
.01
28.3
55.
25.9
20.3
23.7
19.3
26.1
40.8
19.6
52.2
93.3
72.80
72.18
22.40
70.24
65.91
84.34
74.98
34.78
68.12
60.64
57.38
27.92
49.58
25.59
13.58
80.70
89.54
1.90
5.77
.65
1.49
2.52
(a) Figures for 1912.
(b) Figures for 1914 meat shipments show United States took following per
cent of exports: frozen beef, 11.2 per cent; chilled beef, 17.9 per cent; mutton,
7.2 per cent; lamb, 15 per cent. Practically all the rest went to Europe.
(c) Figures include gold and silver.
(d) In 1909, the latest year of record, the United States took 81 per cent of
Peru's exports of copper, 10 per cent of cotton, and 8 per cent of sugar.
(e) Includes so-called "optional orders."
(f) Figures of exports by articles and countries not available for a recent year!
Latin American Trade Conditions 77
trade for the continent of South America was $965,123,000, and the
import trade of the River Plate countries was $427,533,000. Out of
a total South American export trade of $1,178,829,000, these
countries had $518,070,000. Out of a grand total trade of $2,143,-
952,000 for all of South America, the River Plate was credited with
$945,603,000, or almost half. In spite of their strong commercial
positions these countries were, at the end of July, in no position to
withstand the shock of a catastrophe such as the war in Europe.
When the war began Argentina was undergoing a heavy liquidation
and the business of both the other countries was affected by it. This
liquidation had been made necessary because of the overcapitali-
zation of the country and the eagerness of speculators to realize big
profits from its rapid development. Although only about a fifth of
the arable land of the country is as yet under cultivation, the expan-
sion over new territory in the last decade or two has been rapid.
Trade and commerce have experienced a corresponding expansion.
This has resulted in the building up of large fortunes and has stimu-
lated speculation in land to such an extent that values rose beyond
the point which even the rapid progress of the country could
sustain. Liquidation was thus inevitable and it became pronounced
about the beginning of 1913. All through that year the depression
prevailed and was at lowest ebb about the close of last July, when the
coming of the war deep)ened it still further. The process of liqui-
dation and the effect of the war conditions are graphically shown by
the figures for commercial failures in the various months of 1913 and
1914:
Commercial Failures in Argentina
1913 1914
January $1,884,902 $7,154,979
February 2,653,966 13,105,001
March 3,789,540 ' 12,382,677
April 7,894,399 10,468,472
May 4,244,050 15,257,975
June 10,144,167 10,613,880
July 7,597,110 12,409,360
August 6,823,957 36,774,289*
September 4,006,942 17,195,420
October 6,505,357 21,254,864
Norember . 10,141,258 12,808,200
December 7,749,897 13,209,605
* It should be explained that the high mark for August, 1914, was due in part
to the failure of the French Bank of the River Plate, which has since opened its
doors without loss to depositors or stockholders.
78 The Annals of the American Academy
The news of the European conflagration practically put a stop
to all business activity and for weeks trade and commerce were
practically paralyzed. Foreign trade, on which not only the pros-
perity and advancement but almost the whole business life of
Argentina depend, dropped to nearly nothing. Shipping that had
been en route at the time war broke out came in and remained idle
in the ports. Industry of all kinds was suspended. The large
meat-freezing establishments stopped work and discharged practi-
cally all their employees. Public improvements were discontinued.
The efforts of Argentina to raise a loan of $77,000,000 for the pur-
pose of reorganizing the sanitation system of Buenos Aires were
frustrated. It was later necessary to float a loan of $15,000,000 in
the United States to pay back advances which had been made in
connection with this work. Exchange operations came to a stand-
still and no regular quotations were made for months. There was of
course no trading in stocks and even the government securities,
unquestionably sound, fell many points.
Emergency measures taken by the authorities included the
declaration of a bank holiday on August 2, which lasted eight days,
and the declaration of a moratorium covering all of August. The
Conversion Office was closed and gold was no longer given in ex-
change for paper. This office is still closed and may remain so until
the end of the war. The exportation of gold from the country was
forbidden by law, and an embargo was laid on the exportation of
flour and wheat, which was not removed until December. Measures
were taken to relieve unemployment by starting work on the high-
ways wherever possible, opening the large Immigrants' Hotel, and
establishing soup kitchens. A large issue of paper money was
authorized, and legations and embassies of Argentina in foreign
countries were directed to receive deposits of gold, against which
equal amounts of paper money might be obtained from the Conver-
sion Office in Buenos Aires. In this way the difficulty of shipping
gold or of paying high exchange was obviated. In October an inter-
national moratorium was declared, releasing debtors during its
continuance from the obligation of paying debts arising from com-
mercial transactions with countries at war or under moratoria.
This provision is still in effect and will probably remain in effect
until the close of the war.
Latin American Trade Conditions
79
The commercial effect of the outbreak of the war is strikingly
shown by the decrease in the principal exports:
Decrease in Principal Exports of Argentina
Exports for week ending
Wheat
Metric Ton*
Cor^
Metric Tons
Linseed
Metric Tons
1913
1914
1913
1914
1913
1914
August 21
14,490
13,318
4,242
8,385
1,734
119,045
156,422
113,205
23,711
27,455
83,238
18,641
12,728
12,212
1,819
2,046
6,254
August 28 . . .
September 24
Oata
Metric Tons
Wool
Bales
1913
1914
1913
1914
August 21
989
575
5,473
600
630
326
127
778
1,413
77
200
August 28
September 24
Meat. Frozen and ChUled
Chilled beef quarters
Frosen beef quarters
Mutton carcasses
1913
1914
1913
1914
1913
1914
August 28
53,674
50,204
6,822
49,745
13,681
9,917
5,168
54,911
14,860
453
1,051
September 24 . . . .^. . .
25,699
Lamb carcasses
1013
1914
August 28
10,744
1,400
1,000
16,095
September 24
An even more graphic illustration of the effect of the war on th^
trade of the country is that of the figures showing customs receipts
at l^uenos Aires for the first weeks of the war as compared with the
corresponding weeks in 1913:
80 The Annals of the American Academy
Decrease of Customs Receipts at Buenos Aires
Week ended
1913
1914
Paper
Gold
Paper
Gold
August 7
August 14
August 21
August 28
September 4
September 11
$3,668,177
3,933,219
3,196,412
3,937,137
3,144,098
3,047,197
$48,286
81,324
27,701
44,143
31,400
43,074
$1,130,501
3,851,598
2,553,312
1,765,495
1,911,563
$16,749
2,069
It should be noted that the customs receipts collected at the
Buenos Aires custom house comprise a very large part of those col-
lected in the whole country, and show the dropping off in imports.
The receipts did not increase during the rest of the year.
It will be unnecessary to consider the immediate effects of the
war on Uruguay. They were in general similar to those of Argen-
tina, as the situation and products of the two countries are so
similar.
In Brazil the first effects of the war were even more serious.
Here, as in the River Plate section, the blow fell just when the
country was in the midst of a severe depression which had lasted
since the beginning of 1913. It had been brought about by general
extravagance, both national and individual, which followed several
years of almost feverish prosperity; by the Balkan wars and the con-
sequent difficulty in getting credit and loans in Europe; by un-
economical management of public finances; and by the decline in
the prices of rubber and coffee, the two great staples of the country.
This depression unlike that in Argentina had been attended by very
few commercial failures, owing largely to the praiseworthy co-
operation between the banks and the mercantile houses. It had
shown itself rather in the almost total lack of fresh enterprise and
industrial activity, in the increasing financial difficulties of the
government and the continued necessity for raising new loans. The
government was just about to conclude arrangements with the
Rothschilds for flotation of a large new loan which would have in-
volved the entire reorganization of governmental finances when the
outbreak of the war summarily ended the negotiations. It is under-
Latin American Trade Conditions 81
stood that this arrangement included a plan by which the Roth-
schilds were practically to assume control of the paper currency of
the country. The situation, already serious, was rendered almost
dangerous by this turn of events, and Brazil has not yet been able to
find a way out.
The immediate results of the war were as in Argentina the
paralysis of industry and shipping, and the suspension of foreign
trade. The shutting off of imports was beneficial, as it helped to
regulate exchange and enforced economy. The drop in the export
trade, however, especially in coffee, was little less than disastrous.
Upon the sale of this crop depends not only the individual prosperity
of the planters but also the maintenance by the government
of the exchange rate on its paper. This exchange rate is subject to
extensive fluctuations, due to the fact that, except for a small part
of the paper currency, it is not maintained by a permanent conver-
sion fund and depends largely on the continued building up of
credits abroad through sales of coffee. Shortly after the beginning
of hostilities the rate of exchange began to decline, and from a
normal rate of sixteen pence or thirty-two cents per milreis it fell to
eleven pence. Dire predictions were made that it would go as low
as six or eight pence, but instead there was a recovery and it reached
fourteen and one fourth pence. This recovery was only temporary,
however, and it again declined. On February 23 the exchange rate
was twelve and one half pence per milreis. The decline of exchange
was materially assisted by the authorization of an issue of $80,000,000
of new paper money, although the country was already carrying a
heavy load of inconvertible paper. Observers at present regard the
issue of still further amounts of paper money as inevitable, and if
this comes to pass the exchange rate will receive another downward
thrust.
Commercially, Brazil benefited greatly in the months following
the outbreak of the war through its heavy trade with the United
States. This alone prevented the entire loss of one-half or three-
fourths of the foreign trade. There was a considerable falling off
in the exports of everything except sugar.
The exports of Brazil for the five months of the year following
the beginning of the war were only $76,000,000 as compared with
$164,000,000 for the corresponding period of the previous year,
although the export trade up to August had been about normal.
82
The Annals of the American Academy
Imports for this period showed an even heavier decline, amounting
to only S42,000,000 as compared with $127,000,000 for August-
December 1913 and $137,000,000 for the corresponding period of
1912. It should be noted, however, that the imports had fallen off
in the first part of the year, amounting to $130,000,000 from January
to July as compared with $200,000,000 for the first seven months of
1913.
Pbincwal Exports from Brazil
Articles
1913
1914
August
September
August
and
September
August
September
August
and
September
c°«« {:t:::
^"^ {Z:t::
guayan tea) , ,
^^^ iZl''::
c«« {"^r*
I value . . .
Cotton i^';''^'
I value . . .
Tobacco (P«"°^«-
1 value . . .
^- i:rr::
^ {^:t::.
1,132.120
$17,943,303
4,791,952
$2,712,451
13,034,377
$1,090,663
5,747,386
$806,221
6,276,734
$731,974
3.318,757
$438,880
3,497,527
$429,047
448,160
$230,397
103,492
$2,786
1,590,258
$21,680,394
4,899,600
$2,762,462
15,801,331
$1,316,391
3,990,730
$790,272
6,756,235
$791,706
5,862,322
$744,158
4,678,557
$505,455
977,753
$523,316
84,887
$3,391
2,722.378
$39,623,697
9,691,552
$5,474,913
28,835,708
$2,407,054
9,738,116
$1,596,493
13,032,969
$1,523,680
9,181,079
$1,183,038
8,176,084
$934,502
1,425,913
$753,713
188,379
$6,177
396,333
$4,389,634
3,333,095
$1,627,384
12,874,611
$783,824
1,361,602
$175,068
2,168.165
$225,873
439.806
$55,659
219,666
$29,771
358,730
$179,598
11,422
$757
832,756
$9,958,443
5,716,856
$2,720,910
11,366,168
$766,839
3,817,317
$424,472
3,914,737
$404,805
676,014
$90,257
1.339.730
$173,021
768.362
$316,390
5,072,034
$156,977
1,229,089
$14,348,077
9.049,951
$4,348,294
24,240.779
$1,550,663
5,178,919
$599,540
6,082,902
$630,678
1,115,820
$145,916
1,559,396
$202,792
1,127,092
$495,988
5,083.456
$157,734
The almost desperate situation in which Brazil was placed by
the sudden closing of foreign sources of loans, the withdrawal of
invested capital, the obvious impossibility of getting fresh supplies
of capital, the wiping out of a large part of the market for its chief
commodities, and the derangement of shipping facilities, called forth
as in other countries a number of emergency measures which have
made possible the temporary weathering of the storm. A bank
holiday and a moratorium were declared. The latter was twice
extended and lasted until the middle of March. The Office of
Conversion, which maintained a gold reserve for redeeming a small
percentage of the currency, was closed. The semi-official Banco do
Brasil, however, was permitted to exchange notes for gold, and did
80 to such an extent that a reserve of $50,000,000 on July 31 was
Latin American Trade Conditions 83
reduced to about $30,000,000 on March 1. The issue of the
$80,000,000 of paper referred to was authorized, and steps were
taken looking to the prevention of the exportation of gold from the
country.
These measures did not, however, remove the fundamental
difficulty in the situation. This difficulty was the unsound financial
position of the government, which for several years had been cover-
ing annual deficits by new loans, and which on the failure to obtain
the proposed loan from Rothschild & Co., found itself without the
means either of meeting its obligations abroad or satisfying creditors
at home. The Banco do Brasil was forced to ship considerable
amounts of gold to England to cover exchange requirements and
could give no assistance to the government in meeting its interest
obligations. The result was that the government was unable to
pay $7,000,000 worth of treasury bills due in London, August 21,
and was obliged to fund these obligations by issuing new one-year
bills at 107, with 1 per cent commission for the exchange. Again in
October the government was unable to meet interest and sinking
fund payments on its external debt and was forced to fund these also
into new loans, secured by a guarantee on the customs revenue.
Finally the floating debt due to creditors in Brazil itself could not
be paid, thus intensifying the seriousness of the business situation.
No way out has yet been found and it is this situation which more
than any other, even including the lack of a market for coffee and
rubber, is causing the pessimism in the business circles in Brazil.
In the west-coast countries the war has produced varying effects
because of differences in the economic resources of the different
countries and because some were fortified by sounder financial
conditions than others. At first there was the same paralysis of
business that obtained on the east coast. During the entire month
of August (except perhaps in Ecuador), a state of confusion and
uncertainty existed. This was particularly true of industrial es-
tablishments, which were either entirely closed or run on part time.
Unemployment became a serious problem, the solution of which
engaged the attention of the various governments although the
measures taken afforded only comparatively small relief. Embar-
goes were placed on the exportation of foodstuffs and this had a
beneficial effect on prices. In none of the west-coast countries,
however, is the commercial and industrial life so highly developed
84 The Annals of the American Academy
as in the River Plate countries or Brazil. Hence the forced read-
justment was rendered somewhat easier.
The prosperity of the west-coast countries, like that of the rest of
South America, depends very largely on the continued exportation
of a few principal products. In Chile the keynote to the situation
is the trade in nitrate. A great part of the nitrate produced in
Chile is exported to continental Europe where it is used in agri-
culture. The war practically eliminated this market and there is
no likelihood that normal trade conditions can be attained until
after the cessation of hostilities. The extent to which Chile was
affected by the war will be realized when it is stated that the exports
of nitrate amount to practically three-fourths of all the exports of
the country. Out of a total of $142,801,556 worth of domestic
exports in 1913, nitrate composed $111,454,397.
Exports of Nitrate prom Chile, 1913
Exports to
Spanish quintals (101.4 pounds)
Great Britain (including shipments for orders)
Germany
France
Spain
Belgium
Holland
Italy
United States
All other countries
Total exports of nitrate
21,847,342
13,680,368
2,640,676
147,725
2,580,198
2,182,410
232,236
13,712,783
2,505,372
59,529,110
This means not only that the owners of the nitrate lands and
factories had their income cut off and that thousands of laborers
were thrown out of employment, but that the government revenue
was radically reduced. The export taxes on nitrate have amounted
to about $30,000,000 annually and have yielded over 60 per cent of
the national revenue. Customs receipts showed a decrease of
$11,683,000 or 23 per cent in the first eleven months of 1914 as
compared with the corresponding period of 1913. In August and
September the customs revenues were only, $8,313,000 as compared
with $12,421,000 in 1913, a loss of 33 per cent. This may be
expected to continue with perhaps only slight improvement, while
Latin American Trade Conditions 86
the war lasts, unless the country can quickly turn to the develoj)-
ment of its latent mineral and agricultural resources.
The unemployment situation was particularly severe. The
northern part of the country, in which nitrates are produced,
is a rainless desert which has no other resources. When nitrate
production ceased, there was no means of earning a livelihood or
providing the necessaries of existence, either water or food, both of
which must be imported. The result was that many villages were
practically depopulated and thousands of working men and their
families were forced to leave and go to the southern sections of the
country. The problem of unemployment was thus rendered much
more acute in the agricultural and mining regions of the country.
Although some government measures were taken looking to relief,
the problem remains a serious one.
The general situation in Chile is rendered much more serious
by the lack of a stable currency. In spite of the fact that for years
the country has had a bountiful source of revenue, it has failed to
put its currency system on a sound basis. The result has been a
continual fluctuation in exchange. Speculation in paper is the
principal business of the stock exchange. Several attempts to
remedy this situation have met with the opposition of the
large landholders and employers of labor who find it to their
advantage to export their products for gold and pay their domestic
obligations in depreciated paper. At the beginning of the war,
however, a plan was being put into execution to establish a con-
version office and stabilize the currency. This plan was to have
gone into effect January 1, 1915, and supplies of gold were being
brought into the country for that purpose. The war, of course,
made the execution of this plan impossible. The result has been
great fluctuations in the value of the paper peso. From a normal
value of 'twenty cents it had fallen to nineteen cents shortly before
the war. By September 16 it was down to thirteen and one half
cents, the next week it rose to sixteen cents, in October and Novem-
ber it fell again to fifteen cents. Since that time its value has been
erratic.
Among the emergency measures taken by the government were:
the sale of two war vessels building in Great Britain and other
vessels, which were said to have brought in a total of $25,000,000;
the issue of $20,000,000 worth of one-year treasury bills bearing no
86 The Annals of the American Academy
interest and guaranteed by the supplies of gold which had been
collected to carry out the conversion scheme; the reduction of all
government salaries and other economies and retrenchments; and
the proposal of new taxes on inheritances, property, and salaries
and the increase of taxes on beer, alcohol and tobacco. These
measures have been of assistance in steadying the business situation
but the fact that the principal financial support of the government
and of the productive interests of the country have failed makes read-
justment a more drastic and far-reaching process than in the other
countries. There is no question that Chile has been hard hit
by the war and it will take months or years for her to entirely
recover.
Peru is rich in minerals, and mineral production is an important
source of revenue. Its chief mineral product, copper, has been in
constant demand. The largest single item of export, however, is
sugar, which has commanded high prices. Among its important
minor products is wool, for which record prices are now being paid.
Peru, therefore, was not basically in a bad position. The principal
immediate effect of the war was an industrial paralysis. Many
factories closed down entirely and others discharged a large per-
centage of their employees. In most cases this was due to the lack
of immediate capital to carry on manufacture. The customs
receipts, like those of other countries, showed a considerable falling
off and in 1914 amounted to only $4,699,000 as compared with $6,-
483,000 in 1913, a decrease of about twenty-seven per cent. There
was a deficit of $462,000 in the year's budget. An important feature
of the situation, however, has been the fact that foodstuffs have
remained cheap and that an embargo placed on their exportation
temporarily lowered prices. This together with the action of the
government in providing work on railway construction has to a
limited extent relieved the unemployment situation. The curtail-
ment of copper production has had a depressing effect. In one
respect the country was in a good position to meet the crisis — it had
no paper money in circulation except that issued by the banks on
their own responsibility. The government was, therefore, able to
authorize the banks to issue $5,353,000 in the middle of August to
be secured by a 35 per cent deposit of gold and the rest by securities.
In October another issue of notes to the amount of $5,353,000 was
authorized. These notes drove gold and silver out of circulation
Latin American Trade Conditions 87
but the government met the situation by passing a law on November
3 forbidding the sale of gold at a premium. The exportation of
gold and silver was also forbidden. A thirty-day moratorium was
declared on August 7, was extended several times, and is now
effective for an indefinite period. While there are a number of
features in the situation in Peru which make for stability, the
country can hardly be considered wealthy except in latent
mineral resources. It is only in the last ten or fifteen years that
Peru has been making economical progress and it has yet a good
way to go before it attains healthy conditions of national growth.
Bolivia, from the time when the first white man set foot on its
soil, has been a producer of minerals, and with a limited amount of
rubber and other forest products, these have continued to form
practically its sole output. Until ten or a dozen years ago silver
held the center of the stage but the rise in the price of tin has made
the mining of that metal more profitable.
Bolivia has depended almost entirely on its tin and to a lesser
degree on silver. No tin has been smelted in the United States.
This has been a European industry. The United States, however,
is the greatest consumer of tin in the world. If, therefore, some
provision can be made whereby the tin ore can be smelted in this
country, normal conditions will be restored in Bolivia and a new
industry begun in the United States. This readjustment has not
yet been effected and Bolivia has continued to feel the paralysis
of its export trade which followed immediately upon the outbreak of
the war.
Ecuador was ih the best position of these four countries. Its
economic life depends largely on the exportation of cocoa and the
very large crop of last year had practically been marketed before
the outbreak of the European war. Ecuador, moreover, is not a
country of large commercial enterprise and the readjustment to the
new conditions was easier for her than for her neighbors.
The principal complaint of the north-coast countries is that
since the first of August practically all credit has been withdrawn
and they have been unable to obtain their usual supplies. Naturally
they felt this most keenly in the matter of foodstuffs. They had
been accustomed to long credits from Germany and England and to
somewhat shorter credits from the United States. Upon the out-
break of the war, however, even thoroughly responsible houses found
88 The Annals of the American Academy
it difficult and at times impossible to obtain goods on credit either
from Europe or from this country. The result of this has been a
marked falling off in the import trade and a corresponding decrease
in the export trade due to the inability to market their principal
products. These products are coffee (which is by far the most im-
portant), hides, cocoa, gold, and rubber. In Venezuela the previous
year's crops had not been wholly marketed by the first of August and
the harvesting of the new crops was made difficult because of the
lack of money. The immediate cost of gathering the crops of
Venezuela amounts to $2,000,000 or $2,500,000 which for several
years has been supplied by German firms. General stagnation in
business resulted with a consequent rise in prices and reduction in
salaries. The government of Venezuela cut the salaries of govern-
ment employees in half and this example was followed to a certain
extent by commercial houses. Biscuits, canned meats, cheese,
butter, ham, flour, lard, sugar, cotton goods, drugs and medicines,
ironware, machinery and other commodities rose from 15 to 20 per
cent in price, while rice, one of the most important staples of Vene-
zuela, increased by 40 per cent. These conditions have pretty
generally prevailed in Venezuela up to the present time.
In Colombia, as in Venezuela, prices rose on practically all im-
ported foodstuffs, especially rice. This condition has continued to
a greater or less extent up to the present. In Colombia, however,
one or two features of the situation seem to give promise of more
prosperous times in the near future. One of the noticeable features
of the situation has been that the government, although consider-
ably affected by the new conditions, has not defaulted in the pay-
ment of its interest obligations abroad. A month or two after the
war a decided improvement in conditions at the principal port was
reported and the outward cargo movement considerably increased.
A later report about the first of January noted that the commercial
situation was improving, that exports were normal although there
were many unemployed. In the Guianas the principal export is
sugar and they have therefore not felt the effects of the war so
keenly. Their trade, in fact, is not far from normal. Throughout
all the north-coast countries as well as throughout the countries of
Central America, the inability to market the coffee and other prod-
ucts at good prices and the difficulty of getting the usual imports
Latin American Trade Conditions
89
on the expected credit terms have created a depression which will
hardly disappear before the close of the war.
III. Thus in all parts of the continent there was a paraly-
sis of nearly all activities immediately following the beginning
of the great war, and this was followed by a natural revival
which was feeble or strong according to the character of the re-
sources of the various sections and the state of affairs preceding
the war. In spite of the unfavorable outlook in July, the River
Plate countries, or at least Argentina and Uruguay, have recovered
most quickly and show the greatest signs of prosperity. This is
due in large part to the fact that their chief products are in demand
across the sea and very good crops have given them a large surplus
for export. By the end of January the exports of all principal
products except linseed from Argentina had about reached normal
proportions and shipments of all grains, meat and wool have been
heavy since the first of the year. The following figures of exports
of these products will show the increased volume of the trade over
last year, and will serve as a contrast to the comparative figures
for August and September previously quoted:
Exports for week
ending
Wheat
Metric tons
Corn
Metric tons
Linseed
Metric tons
1914
1916
1914 1 1916
1
1914
1916
January 29
39,858
56,146
23,679
109,426
37,322
13,519
78,049
62,354
46,134
50,815
19,619
40,352
March 12
Oats
Metric tons
Wool
Bales
1914
1916
1914
1916
January 20
March 12.
31,309
9,273
50,185
20,526
13,321
6,050
16,860
20,456
These figures show that the lifeblood of the country is cours-
ing freely. Prices received for these products are good, and
deposits amounting to as much as $5,000,000 a week are being made
in Argentine legations in Europe. Imports, on the other hand, as
90 The Annals of the American Academy
indicated by the customs receipts, are still far below normal. At
the Buenos Aires custom house the receipts for 1915 up to March
12 were $6,477,411 paper, as against $12,863,005 paper and $372,311
gold for the corresponding period last year. The proportion of
receipts to this date in 1915 as compared with 1914 is hardly greater
than that of the receipts last August as compared with the previous
Aiigust.
The following figures will show the steady advance in the
volume of business transacted by the banks since last July. They
represent the movement in the Bankers' Clearing House at Buenos
Aires (figures are in terms of Argentine paper peso, worth $0,424
U. S. Currency) :
MonthB 1913-14 1914-15
July 1,495,935,402 1,144,762,179
August 1,322,112,617 446,626,599
September 1,372,702,435 664,191,953
October 1,447,982,009 739,126,362
November 1,249,818,887 814,168,216
December 1,407,140,798 1,016,845,465
January 1,414,180,605 992,918,636
February 1,212,189,351 1,056,520,090
A report of March 8 stated that wheat exports to that date
had aggregated 1,200,000 metric tons, or about 44,000,000 bushels,
which was more than the entire exports of the 1913-14 crop. The
report further says that the crop of all grains at that time promised
to be one of the best ever harvested in the country.
The rate on money, which remained at 8J to 9 per cent during
all the latter months of 1914, has been lowered to 7 per cent and
even lower, at which figure it stood on March 8.
All this indicates that the country is getting on a sound
basis financially, and the coming of prosperity would seem to depend
more upon careful management and the restoration of confidence
than anything else. The liquidation that has been under way for
a year or two, however, is not yet ended, as the record of commercial
failures in February shows. The liabilities of these failures
amounted to $8,561,685, as compared with $13,105,001 in Febru-
ary of last year. This was a notable decrease, but on the other
hand, although February is a shorter month than January, the
liabilities exceeded those of the previous month which were $6,504,-
027. The country is not yet out from under the cloud that has
Latin American Trade Conditions #1
been hanging over it for two years, and recovery must be gradual.
It is said, however, that a decided spirit of optimism prevails and
the return before the year is very old to normal times or better is
looked forward to.
The recovery of Uruguay is also noticeable, although it is still
gradual. Wool shipments up to the middle of March were running
only about half those of the previous year, the figures for the 1913-14
season (beginning October 1) being 82,361 bales up to March 12,
while those for the corresponding period of the 1914-15 season were
44,121 bales. It may be added that of the shipments this year
24,673 bales went to Genoa as compared with 2,854 bales in the
corresponding period of the previous year, and 7,114 bales to the
United States, as compared with 9,138 bales. The smaller ship-
ments this year are due partly to the lack of shipping facilities,
unfavorable service, and unfavorable exchange rates. The import
trade is slowly improving, as is evidenced by the gradual gain in
customs revenue, about one-seventh of which comes from export
duties and the rest from import duties. The figures of receipts from
the customs in each month from last July to February are shown
in the following table (these figures are for Uruguayan pesos; peso =
$1,034 U. S. currency):
1913-14 1914-15
July 1,320,517 1,105,750
August 1,372,658 829,732
September 1,378,187 831,592
October 1,179,810 806,026
November 1,111,329 707,652
December 1,248,386 893,877
January 1,422,127 942,270
February 1,269,502 925,246
Total 10,302,520 7,042,149
The figures for February are somewhat misleading on the sur-
face, as that month has but 28 days. The daily average for Feb-
ruary was 10 per cent higher than for January.
The recovery noted in the River Plate region, however, has
not been duplicated in Brazil. That country has yet to find a
pathway out of the financial and economic ills with which the war
and the previous national extravagance have surrounded it. The
salvation of the situation seems to depend on the wisdom and
resourcefulness of the present government.
92 The Annals op the American Academy
Although some observers regard the situation as desperate,
it has some favorable elements. Chief of these is the strong
position of the banks, which have throughout followed a wise
and prudent course, and have been able in the last few months
to fortify themselves because of the lack of demand for loans and
discounts. On December 31, the cash on hand in the Banco do
Brasil and the six leading foreign banks was 60.3 per cent of the
demand deposits. It must also be considered that the revival of
business in the crisis of 1898 was very rapid after the reorganiza-
tion of the country's finances, and this may occur again. The
present import tariff is said to be much too high, and not only
increases the cost of living but keeps down the revenue derived
from the customs. A revision of this tariff is likely to take place
during the coming session of Congress in May and this may be of
benefit not only in relieving internal conditions but also in provid-
ing a sorely needed addition to government receipts of gold. If in
addition to this the government can obtain considerable loans from
the United States (though this is doubtful) its finances may again
be set in good older. One feature of extreme importance is the
fact that coffee can be stored for years without deterioration, and
the surplus that cannot be marketed now will therefore not be a
dead loss. The government is doing all it can to establish new
agricultuial industries such as cotton-raising in the north and cattle
and fruit-raising in the south. These efforts if successful will put
the country on a sounder basis, although nothing is to be expected
from these enterprises in the immediate future. It will be interest-
ing to observe what the genius of the Brazilian people can accom-
plish in extricating the country from this accumulation of economic
difficulties.
Figures showing features of the present situation as compared
with that a year previous follow:
^ January 1914 January 1916
Federal customs revenue 7,961,333 milreis 3,179,383 milreis
Federal inland revenue 2,153,347 milreis 2,260,690 milreis
Clearances of coffee at Rio de Janeiro and Santos for the week
ended February 18 amounted to 427,795 bags, as against loadings
of 399,995 bags. Sales of only 127,539 bags were declared at the
two ports, as against 273,684 bags for the previous week and 105,795
Latin American Trade Conditions 98
bags for the corresponding week last year. Entries at the two ports
for the week amounted to 319,075 bags, as against 321,648 for the
previous week and 123,600 for the week ended February 19 last
year. For the crop entries to February 18 were 9,761,849 bags, as
against 11,784,861 bags last year. The total cleared from the two
ports to February 18 was 8,154,118 bags, valued at £16,546,395 as
against 10,737,956 bags valued at £31,373,128 last year.
The heavy drop in quotations of government and industrial
securities from 1914 is indicated in the following list, showing quota-
tions for February 20 of the two years (from Wileman's Review,
Feb. 23, 1915) :
1914 1916
4 per cent, 1889 75^ 51i
Funding, 1898, 5 per cent 101 98
Funding, 1914 74}
1910 4 per cent 74 52
Sao Paulo 1888 97 91^
Sao Paulo 1913 99^ 891
Leopoldina stock 73^ 36}
Sao Paulo Railway, Ordinary 243} 189
Traction Ordinary 91i 50}
Brazil Railway 32 7
Dumont Coffee Co. (Ltd.) 10 8i
Conflols 76} 68i
Recent advices from Chile are meager and it is thought the
country is for the present doing little more than marking time. A
report, however, dated February 23, is to the effect that the produc-
tion of nitrates since August, 1914, has been as follows: August,
4,830,233 Spanish quintals; September, 2,856,600 quintals; October,
2,865,494 quintals; November, 2,659,875 quintals; December, 2,428,-
759 quintals; January, 1915, 2,082,549 quintals. This is compared
with an average monthly production from January to July of 5,404,-
729 quintals. It will thus be seen that although the output is drop-
ping off slowly month by month it is yet 40 per cent of normal.
Stocks are accumulating and it is estimated that there is now
enough nitrate on hand to supply a year's export at the usual rate. It
is understood that the enterprises in which American capital is in
control, nitrate factories and copper mines are continuing active.
The increase in copper prices (as noted on page 94) has created
considerable optimism among the producers of that metal in Chile,
04 The Annals op the American Academy
and it is believed that a number of mines and smelters forced to
close down will be reopened or have been so already.
In Peru certain favorable basic elements have led to the gradual
improvement of conditions and considerable optimism prevails.
This optimism is illustrated by the views of a prominent business
man connected with a large American export house doing an exten-
sive business in Peru.
The country is producing on a scale much greater than its consumption and
this leaves in its favor a balance of trade representing solid gain. The most
important product of this country is sugar, the production of which is increasing
daily and it would not surprise me to see the production for 1915 reach a total of
5,000,000 quintals, which at the prices ruling today represents a value of 30,000,000
soles (sole = 48.6 cents), of which sum it is probable that 12,000,000 soles go to
the producer. Also in cotton, although the year's crop will be very inferior and
although the price of Egyptian is less than that ruUng in previous years, there is
still a margin of profit for Peruvian producers that is relatively satisfactory, and
as for the asperos (rough) and semi-asperos cottons, they are selling at exception-
ally high prices. Copper is higher today than before the war, and the same with
rubber. The wool of ewes and alpacas is bringing very good prices, as well as all
the by-products, skins, furs, etc., encountering an easy and profitable market.
Inasmuch as Peru is producing normally and can find satisfactory markets for its
products, the country is in an exceptionally favorable position. It is a basis so
solid and so secure that it augurs an excellent future, even within the critical era
through which we are passing.
Furthermore, the general financial situation of the country has improved
notably. The issue of banknotes was a sheer necessity because there does not
exist sufficient gold in the world, nor will there be, to allow any country to do
without paper money. We have been very fortunate in securing a paper issue so
strongly guaranteed as that at present in circulation and thus we have a soUd
base for the financial organization of the country. It is necessary that all of the
institutions of the country protect the banknote in every way possible in order to
prevent its depreciation. The lack of silver change, which at the beginning was
very accentuated, owing to the fact that all of the banknotes were launched upon
the Lima market, has abeady become less marked, and as the banknotes have
been circulated through the Provinces the supply of silver money has adjusted
itself in such a manner that today throughout the country there is sufficient silver
for necessities.
The industrial life of the country is also slowly returning to more normal
conditions. Although many establishments are not working up to their full
capacity they are operating sufficiently to give their employees enough income to
meet their hving expenses, and, as a result, in no part of the country are there
men out of work, except a very small percentage. Peru in this way is in a very
fortunate position and the country has not been forced to face the famine condi-
tions which today exist in many countries of the world.
The government revenue has declined considerably through the decrease in
Latin American Trade Conditions 95
the customs returns but there has been a similar decrease in all countries. The
increase of the revenue from other sources will largely meet this deficit while the
remainder would naturally be covered by the economies which the government
should practice, as all private individuals with foresight are practicing economies
today.
The increase in copper prices in recent months has been one of
the chief causes of the better trend of events in Peru. The range
of copper prices since January, 1914, as quoted for Peru in accord-
ance with the London standard, was as follows:
1914 Price per 1915 Price per
Month metric ton Month metric ton
January $312.92 January $300.79
February 317.63 February 306.59
March 312.80 March 321.67
April 315.09
May 307.47
June 298.49
July 295.59
August No quotations
September No quotations
October No quotations
November 259.02
December 276.61
Late in March one of the large mining concerns was operating
at about 70 per cent of normal and another, an American company
and the largest in Peru, was operating at 85 per cent of normal.
In the north-coast countries, as in Central America, the prin-
cipal hope of greater prosperity, at least while the war continues,
lies in closer relations with the United States. A project has been
under way for some time looking to the establishment of an American
bank in one or both of the north-coast countries and if this is effected
it will have an excellent influence on the commercial situation.
These countries sadly need capital and credit, and both of these, it
is hoped, will be forthcoming from the United States as soon as our
business men become better acquainted with conditions there.
Better steamship facilities are also a requisite. These, if provided
in the near future, will greatly brighten the outlook for Colombia
and Venezuela. As it is now, however, business must await this
assistance or the closing of the war before it can expect a return to
normal conditions.
It was only natural that when the crisis arose at the outbreak
96 The Annals of the American Academy
of the European war the countries of Latin America should look to
the United States for assistance. They have looked and are looking
to the United States to supply a market for their surplus products,
to secure the credit for making new purchases, and to advance the
loans to take the place of European capital which has been with-
drawn. Heretofore South American countries have known as little
about the United States as this country has known about South
America or perhaps even less. Mutual understanding and acquaint-
ance are necessary before the United States can take even in part the
place which Europe occupied before the outbreak of the war. This
process of getting acquainted is going on as rapidly as might be
expected. With the establishment of banking institutions such as
the branches of the National City Bank in Argentina, Brazil, and
Uruguay, a great advance may be expected in the promotion of
more intimate relations between the United States and Latin
America.
The pertinent question which every manufacturer and exporter
must ask himself, however, is whether or not conditions in South
America warrant his taking up the active development of that
market. It has been my purpose in the brief review which I have
made of the situation immediately following the outbreak of the
European war and the recovery which has been accomplished to
date, to give the necessary facts for forming a judgment on this
point.
The most important aspect of the situation, however, and one
which should count most in determining our trade invasion of Latin
America is not so much the present conditions there, which on the
whole promise hope, but rather the attitude of the American manu-
facturer and exporter. The American manufacturer should use, in
developing the Latin American market, the same sane, common-
sense business methods which he has so successfully used in develop-
ing the domestic markets in the United States. The manufacturer
or merchant who treats the Latin American field as one which is
not amenable to the application of the same business methods as
he would use at home is not going to be successful.
Whether the American business man thinks that he can get
immediate orders in South America or whether he thinks he cannot,
his program of action should be substantially the same. It is abso-
lutely necessary that before thinking of making profits out of this
Latin American Trade Conditions 97
new market which he expects to develop he should give it very
careful study. Now is the time for the American manufacturer to
lay the foundations of future business in Latin America; now is the
time, in spite of any handicaps which may exist in the present com-
mercial or financial situation in Latin America, for the American
business man to lay the foundations for future trade; now is the
time to send out his investigators, to send out his business diplomats
to study and report on the possibilities; now is the time to make his
connections and form trade relations which he can follow up and
develop in future years.
The countries of Latin America which were almost paralyzed
commercially, industrially, and financially by the outbreak of the
great European war are showing remarkable vitality and are grad-
ually recovering. It cannot be expected that they will fully recover
their normal prosperity before the close of this war, but on the
whole they have already gone much further toward recovery than
might have been expected from an analysis of the situation which
confronted them immediately after the first of August.
EXISTING OBSTACLES TO THE EXTENSION OF OUR
TRADE WITH CENTRAL AND SOUTH AMERICA
By Maurice Coster,
Export Manager, Westinghouse Electric and Manufacturing Company,
New York City.
As a preface I may say that we need not look for any great
improvement in trade with Central and South America until the
war has been brought to a close. English bankers have been for-
bidden by their government to participate in financial undertakings
outside of Great Britain. Undoubtedly, similar restrictions have
been imposed by the governments of other warring nations. The
Central and South American countries, with the possible exceptions
of the Argentine Republic and the United States of Colombia,
are not in a position to finance new enterprises.
Some of our American bankers have taken the commendable
lead in establishing branches in some South American countries.
I doubt, however, if these bankers will, under existing conditions, be
justified in extending their business in those countries to any con-
siderable extent or to finance enterprises as was done formerly by
foreign banks.
The Second National Foreign Tradp Convention, recently held
in St. Louis, meetings of various chambers of commerce and export
associations, the recent very important annual meeting of the
American Academy of Political and Social Science and the Pan-
American Financial Conference will assist our foreign trade but
little if existing laws and policies are not changed.
In order to insure permanent success and an increase in our
export trade, we must revise our statutes in so far as they relate to
these subjects. For instance, we should have a law admitting to
American registry all vessels, whether built in the United States or
not, when owned chiefly by American citizens or by American cor-
porations, and when engaged in foreign trade with the United
States, such vessels should be exempt from the provisions of the
American navigation laws. The special regulations appertaining
to the treatment of crews, to safety appliances, etc., of such vessels
Central and South American Trade 99
should conform to those of the merchant marine of the great mari-
time nations.
It may surprise some of you to learn that, in the past, ships of
certain foreign nations have not only discriminated against our
merchants in the matter of rates, but they have deliberately delayed
the delivery of American cargoes in the interest of their own na-
tionals. Frequently the demurrage charges, incident to such wilful
delays, have been paid by foreign associations or foreign govern-
ments. Hence, the great importance to our export trade of having
our own merchant marine.
The Seamen's Bill should be amended so as to apply only to
coastwise trade and that of the Great Lakes. It is necessary to
have vessels running direct between the ports of the United States
and those of Central and South America, providing the very best of
passenger accommodations in order to induce our Latin cousins to
visit us and spend some of their holidays here so that we may be-
come better acquainted. Before the war they usually went to
Europe. Those who came here had to take the additional time of
crossing the Atlantic twice or endure inferior accommodations.
We cannot have such ships if the Seamen's Bill is not amended as
suggested above.
There has been considerable agitation of late regarding the
creation of a new merchant marine. How can we hope to succeed
in this if, in the face of all the earnest work done on this account,
such a law as the recently enacted Seamen's Bill must be respected?
This bill has undoubtedly many very good points but it should not
apply to foreign trade. If it does, we will kill the small merchant
marine we now have and American labor cannot be benefited if
there are no American ships. It is also a mistaken idea that this
law will protect American labor on ships of other nations trading
between this and foreign countries, inasmuch as the vessels engaged
in this trade are usually manned by foreigners and the question
suggests itself why should we go out of our way to protect foreign
sailors at the expense of our foreign trade?
Railroads and steamship lines should be permitted at all times
to issue through bills of lading to foreign countries and to make
special rates to meet foreign competition. The railroads should
make preferential freight rates on shipments of manufactured arti-
cles from inland points to the coast. This is the common practice
100 The Annals of the American Academy
in foreign countries. The railroads will not suffer by this reduction
in rates as it will not interfere with their domestic business and they
will be compensated by increased foreign shipments.
The Sherman Act should be amended in order to exclude from
its provisions foreign business. The amended law should be so
clear as to leave no doubt as to its interpretation.
Laws relating to drawback, being a refund of duties on mate-
rials used in the manufacture of articles exported, should be amended
so as to encourage our foreign trade and to conform to similar laws
already in successful operation in foreign countries for some years
past.
In addition to the above, Congress should appropriate sufficient
funds to permit the United States to be represented by able men in
Central and South America. We should not be content to have the
type of man who is limited in his traveling expenses to a daily allow-
ance of $5 and, consequently, cannot represent our government in
a manner to command respect. We need men of the class employed
by foreign governments who are able to make reliable reports on the
activities and methods of our foreign competitors and the condi-
tions surrounding proposed industrial undertakings, reports on
which our banks can place absolute reliance when they are requested
to assist in the financing of enterprises.
You will probably be surprised to know that some of these
foreign representatives at present act in the capacity of "trade
spies," so to say, and furnish their governments with information
concerning the business done by subjects of competing countries.
They even go to the extent of supplying their governments with
detailed copies of invoices of American manufacturers which they
can easily obtain when the invoices are made collectable through
foreign banks.
Our government should adopt a definite policy favoring foreign
trade. Under this new policy it should become impossible to have
our experience in Mexico repeated, whereby about one billion dollars
of American investments have been allowed to suffer. All present
laws and policies, having for their object the benefiting of foreign-
ers at the expense of American enterprise, should be repealed or
amended.
Our government should use its influence to induce all the
Central and South American republics to make their tariff laws
Central and South American Trade 101
dependent on specific duties, based on weights or otherwise, and
not on ad valorem values. The American exporter suffers very
much from the illegal practices of some foreign manufacturers who
swear to undervaluations amounting to as much as from forty to
sixty per cent of the true invoice value, whereby they are enabled
to pay less duty on their goods, thus placing American exporters,
who will not condescend to these fraudulent practices, at an unfair
disadvantage.
After the present obstacles have been removed by the enactment
of suitable laws and the adoption of a favorable governmental policy,
we will be able to call on the bankers for more help than I am in-
clined to believe they intend to give under existing conditions. If we
wish to compete effectively with foreign countries, our banks should
be prepared to assist in financing Central and South American gov-
ernments and deserving enterprises in those countries just as foreign
banks have done for years with scarcely any losses. Our banks
cannot be expected to do this under the present governmental
policy.
Foreign manufacturers have, in the past, investigated foreign
enterprises and, upon favorable report of the government agent or
other responsible party, have been able to secure the assistance of
their banks in financing these undertakings. Credit was then usu-
ally extended on first mortgages as security for acceptances running
for a term of from three to five years. These first mortgages provide
the investor with the most ample protection. The foreign manufac-
turers are thus enabled to obtain cash for their goods while their
banks have secured from eight to ten percent interest on acceptances
which they have been able to rediscount at from three to four per
cent. The French have established several loan associations in South
America which, after investigating some of the foreign financed
undertakings and having found them to be good properties, have
taken over the acceptances of some foreign banks before they became
due, thereby enabling the original promoters to come into posses-
sion of the funds they have advanced much sooner than at first
anticipated.
When referring to financing of foreign undertakings, I do not
wish to convey the idea that, if a man comes to this country and asks
for, say, six months' credit, he should be accorded this accommoda-
tion. In fact, we should refuse to extend to such a man any credit
102 The Annals of the American Academy
whatever, for in case he should default, we would not be in a position
to commence legal proceedings against him unless we have a
representative of standing in his native country. Furthermore,
a man asking for six months' credit is not in a position to accurately
estimate his profit as, in six months, rates of exchange may be such
as to convert his estimated profit into loss. If this man has the
proper standing in his own country, he will be able to discount his
notes easily locally as the banking facilities in ordinary times have
been very good in South American countries, there being in addition
to local banks, English, German, French, Italian and Belgian banks
which are nearly always ready to discount good commercial paper
charging, of course, a greater rate of interest than is customary in
the United States.
We must not deceive ourselves in expecting that the war will so
cripple our European competitors as to make their competition
negligible in the future. We must not expect to take away much of
the trade formerly held by our foreign competitors, chiefly the
Germans and the British, unless we are put as nearly as possible on
an equal footing with them.
In conclusion, I wish to say that the American press have, with
praiseworthy activity, taken a great interest in our foreign trade
with practically the only result of increasing our mail with applica-
tions for imaginary positions in connection with our export business.
It seems to me that one of the first things to be done, in order to
obtain the somewhat seemingly radical changes of laws and policies
suggested, is to educate the press. Show them what really is
required to increase our foreign trade and have them in turn, post
the masses who, together with the former, should influence necessary
legislation. They must make the American public realize that
every dollar we export in merchandise makes the American nation
so much richer and that the American laborer will be benefited to a
proportionate extent. They must also be made to understand that
foreign trade is absolutely necessary as a ''filler-in" in times of
depression. We should encourage our press to write leading
articles on the proposed changes and to agitate the matter before the
public in such a vigorous way as to make the laboring man under-
stand that what is suggested above is in his interest. The voters
should use their influence with their representatives in Congress
and with the government to bring about the new laws and policies.
Central and South American Trade 103
The representatives of the press should interview leading exporters
who understand foreign business and obtain their views and reasons
for wishing to create the new conditions. Let them explain to
their readers that we ask for no special privileges and no subsidies,
but on the other hand we should not be hampered by unjust and
unnecessary regulations.
We can, in most instances, overcome the difference in cost
between American and European labor by our more extensive and
ingenious methods of manufacture, but we should not be required
to do more than this.
I
THE PRESENT FINANCIAL SITUATION
By Frank A. Vanderlip, ^
President, National City Bank, New York.
It seems to me that it takes a great deal of courage to tell you
what the effects of this war on the finances of America are to be. I
know, however, that most of us do not appreciate the gravity of the
war. We do not fully appreciate the tremendous forces that have
been set in motion, nor do we well apprehend the direction in which
we are moving.
Let us take a broad view of the facts which we do all know.
We all know that ten bjllions of war bonds have been issued. Those
figures are so large that it is impossible really to comprehend what
they mean except by comparison with the indebtedness that has
been issued before by these nations or by their total wealth.
I happened to note in a newspaper clipping today an
estimate of the wealth of different nations and I was struck by the
fact that the amount of war bonds already issued is about equal to
the total wealth of Spain and the Netherlands. This is a
striking comparison. We have suggestive figures, but we do not
really know what the cost of this war is for a year — not the cost in
the creation of securities alone — but in the capitalized value of the
lives lost and in the effect of industry impeded. I do not know how
accurate the statement may be, but an eminent Enghsh economist
has suggested that the cost might reach forty-six billion dollars.
That is half the wealth of Great Britain.
This is a destruction that our minds have not attempted really
to comprehend. We can hardly take it in. Now, if this great
destruction has been going on, why have we not felt it more? Why
is it that the world is still fairly cheerful? We have rising stock
markets, not only here but abroad, rather an industrial boom in the
stock market of Germany, and surprisingly easy money everywhere.
Can we stand that sort of destruction of wealth and have nothing se-
rious follow? It might seem so from the facts as we see them now,
' Remarks as presiding ofificer at the fifth session of the Annual Meeting
of the American Academy held in Philadelphia on April 30 and May 1, 1915.
X04
Present Financial Situation
105
and as they concern us now, but I believe the effect has not yet been
really felt. There have been an inflation of note issues and an infla-
tion of credit which have prevented the world from feeling this shock,
but my own opinion is that a shock is eventually going to be felt
more severely than our rather superficial consideration has yet given
us cause to anticipate. I can however only call attention to
what seems to me the seriousness of the situation and cannot at-
tempt at this time to go into any real analysis of it.
I
THE EFFECT OF THE WAR ON AMERICA'S FINANCIAL
POSITION
By Thomas W. Lamont,
Member, firm of J. P. Morgan & Company, New York.
In analyzing the financial effects of the war, our first view must
be in retrospect. The first effects which we witnessed were just
prior to, or contemporaneous with, the outbreak of the general war.
Those effects were calamitous. We saw our high-grade securities
fall with great violence; we saw the entire fabric of foreign exhange,
built up over many generations, knocked completely awry; we
found ourselves unable to buy sterling exchange wherewith to pay
our debts in London. Our gold was being exported in great volume.
Within the two weeks after the outbreak of war between Austria
and Servia we sent out $55,000,000 of gold. Domestic rates for
money advanced to a high figure, and even at that money was scarce
and hard to obtain. Ocean transportation was violently disarranged.
It was impossible to get bottoms wherein to ship; and the rates for
marine and war insurance ran so high that manufacturers could no
longer afford to ship. To a period of general business depression
that had existed for many months was added almost complete
prostration of trade in various lines particularly affected by the
phenomena just enumerated.
The remedies that the country took to save these serious situa-
tions just described were prompt, logical and effective. Our securi-
ties were being dumped upon us in large volume by foreign holders.
Therefore, we closed our stock exchanges so as to prevent an over-
whelming flood of such sales. Gold was being exported and there
was danger of a money panic. Therefore our banks went upon a
clearing house certificate basis, and plenty of currency was assured
to us by reason that under the Aldrich-Vreeland Act $400,000 of
additional currency was almost immediately issued. Our bank
situation was strengthened by the efforts to put into prompt work-
ing order the new institutions established under the Federal Reserve
106
America's Financial Position 107
Bank Act. With equal logic, when it was found that our ocean
transportation was all upset, the Federal Marine Insurance Act
was passed, thus making it possible for manufacturers to ship under
reasonable rates of insurance.
When London and Paris, in which two cities New York City
had outstanding a total of over $80,000,000 due and pay-
able before January 1, 1915, began asking whether they were going
to get their money, New York City responded through her bankers
in the formation of the famous $100,000,000 syndicate. Under the
terms of this syndicate New York City sold $100,000,000 of its
6 per cent notes, receiving payment therefor to the extent of $80,-
000,000 in gold, or adequate exchange, and thus showing the world
that under the most difficult conditions she would certainly pay her
debts. When other foreign creditors of America raised some question
as to their position, the banks of the country organized a gold pool of
$100,000,000 to show that there was plenty of gold that could and
would be exported, if necessary. When all the South seemed on the
verge of a financial breakdown, owing to the depression in the cot-
ton industry, there was organized a banking pool to lend up to
$150,000,000 on cotton and, therefore, to bring order out of chaos
in that region.
All these remedial measures were taken quietly and effectively,
a comparatively few active and patriotic men acting as leaders, but
with the loyal and united support of the whole financial community,
East and West, North and South. Never did all parts of the country
act in cooperation more harmoniously than they did at that time,
and I believe that the spirit of the harmony then aroused is some-
thing to reckon with and to be glad for, for a long time to come.
Those perplexing and even agonizing days seem now to have
passed. What is the situation today?
There has, in effect, been a tremendous reversal of conditions.
Money is easy, we are importing gold on a good scale, having al-
ready brought back over $50,000,000 of what we sent out last year.
Our stock exchanges are opened, with the trading free as air, not
hampered by the minimum limits which still rule on the London
stock exchange.
As to foreign holdings of our securities, they are still being
sold to us in large volume, and we are easily absorbing them. We
even welcome such sales, for they serve to ease up the foreign ex-
108 The Annals of the American Academy
change situation which now has turned almost as heavily in our
favor as, last September, it was against us.
Note well these sure indications of how we are turning from
debtor into creditor: it costs England IJ per cent more than normal
to make her remittances to us; it costs France 2^ per cent; Germany
over 12 per cent and Russia nearer 20 per cent.
We are piling up a prodigious export trade balance. By the
end of the government year, June 30 next, it looks as if it would be
over one billion of dollars. Many of our manufacturers and mer-
chants have been doing wonderful business in articles relating to the
war. So heavy have been these war orders, running into the hun-
dreds of millions of dollars, that now their effect is beginning to
spread to general business which, even if it is still depressed, shows
distinct signs of improvement.
And as a climax to all this improvement, America is becoming
a large factor in the international loan market. These foreign loans
have been so scattered that perhaps the total of them has not been
fully appreciated, but just let me enumerate:
To various municipalities and provinces in Canada, American
investors have, since January 1, 1915, loaned over $60,000,000;
To Russia, twenty-five millions, in addition to private credits
which that government has arranged to approximately the same
amount, I should guess;
To France, forty million dollars, or thereabouts;
To Germany, it is stated, although I am not sure of my figures,
about ten millions;
To Switzerland, fifteen millions;
To Norway and Sweden, about three millions apiece;
To the Argentine, forty million dollars;
The grand total, therefore, of these foreign loans that we have
made since war broke out is well above two hundred million dollars.
Such is the situation today. Now what of the future? Many
people seem to believe that New York is to supersede London as the
money center of the world. In order to become the money center
we must of course become the trade center of the world. That is
certainly a possibility. Is it a probability? Only time can show.
But my guess would be that, although subsequent to the war this
country is bound to be more important financially than ever before,
it will be many years before America, even with her wonderful re-
I
America's Financial Position 109
sources, energy and success, will become the financial center of the
world. Such a shifting cannot be brought about quickly, for of
course to become the money center of the world we must, as I have
said, become the trade center; and up to date our exports to regions
other than Great Britain and Europe have been comparatively
limited in amount. We must cultivate and build up new markets
for our manufacturers and merchants, and all that is a matter of
time.
Therefore, I think I am warranted in saying that this question
of trade and financial supremacy must be determined by several
factors, a chief one of which is the duration of the war. If, as all
humanity is bound to hope, the war should come to an end in the
near future, our position would still be much different from, and
more important than, what it was prior to the war but, on the other
hand, we should probably find Germany, whose export trade is now
almost wholly cut off, swinging back into keen competition very
promptly; and we should find that the building up of our foreign
trade would be a much slower matter than if the war were to con-
tinue indefinitely, thus leaving those foreign fields of trade endeavor
more open to us.
Another factor, depending upon the duration of the war, is the
extent to which we shall buy back American securities still held by
foreign investors. Just prior to the war and since its outbreak we
have bought back hundreds of millions of such securities, but the
amount still outstanding in the hands of foreign holders must aggre-
gate several billions of dollars. If we should continue to buy such
securities back on a large scale — and the chances are that if the war
continues long we shall do that — then we should no longer b6 in the
position of remitting abroad vast sums every year in the way of
interest. It would not be necessary for us to secure so much ex-
change on London and Paris. We should be paying the interest upon
our debts to our own people, not to foreigners. Such a develop-
ment would be of the utmost importance for this country financially.
A third factor, and that, too, is dependent upon the duration of
the war, is as to whether we shall become lenders to the foreign na-
tions upon a really large scale. I have pointed out that since the
war began we have loaned direct to foreign governments something
over S200,000,000. Yet this is comparatively a small sum. Shall
we become lenders upon a really stupendous scale to these foreign
110 The Annals of the American Academy
governments? Shall we become lenders for the development of
private or semi-public enterprises in South America and other parts
of the world, which up to date have been commercially financed by-
Great Britain, France and Germany? If the war continues long
enough to encourage us to take such a position, and if we have the
resources to grapple with it, then inevitably we shall become a
creditor instead of a debtor nation, and such a development, sooner
or later, would certainly tend to bring about the dollar, instead of
the pound sterling, as the international basis of exchange.
These thoughts I have thrown out simply in the way of in-
quiry and suggestion. No one can make a safe prediction and it is
idle to attempt to do so. There are so many cross-currents, so
many hidden factors involved, that have a bearing on international
trade and international finance, that no one can gauge the future.
We are witnessing extraordinary developments on the other side of
the water; we are seeing government control of industry being under-
taken on a gigantic scale. Will such control continue in part or in
whole after the war? Will the value of the cooperative effort which
is now being demonstrated, be so great as to demand continuance
after the war is over? Shall we see in these belligerent countries,
after the storm is ended, renewed energy and fresh organization, or
shall we see languor and prostration?
Here in America shall our manufacturers and merchants be
able to take effective steps, with the active cooperation of the govern-
ment for the development of foreign business? Will American pro-
ducers be able to arrange for cooperation among their organizations
for foreign sales so as to effect economies in capturing foreign
markets? Today our laws do not allow them. Will it be possible
to bring about such a change in our shipping laws as to permit the
establishment of an American mercantile marine so that Americans,
and not foreigners, will reap the benefit of all our enormous trans-
oceanic carrying charges? Will our diplomacy be both helpful
and courageous? Will our merchants be wise enough in catering to
foreign markets, to build always for the long future and to exhibit
the best there is in salesmanship, quality and general disposition
to please? I believe so. But these are all questions that, like the
others I have enumerated, time only can solve.
We must remember, too, that when we talk about this enor-
mous trade balance in our favor, which as I have said may run up
Americans Financial Position Ui
this year to one billion dollars, a considerable part of that balance
is due to falling off of imports, rather than simply to an increase of
exports; and another part of it is due to the fact that we are securing
much higher prices than normal for a great many different com-
modities, wheat, for instance, selling at almost double the price per
bushel that it commanded a year ago. Therefore, we must not
look upon this year's heavy balance in our favor as a normal one.
It is abnormal because of the two factors that I have just mentioned.
In our calculations we must be conservative and bear these most
important facts in mind.
In all these questions that we have been considering and that
will in the coming months press upon us for solution. Finance must
naturally play an active part. Some people fail to realize that
finance and general business are so interwoven that the success of
manufacture and trade depends entirely upon the cooperation of
finance. Finance is not isolated, does not work by itself. Finance
is not speculation. It is rather a gigantic fabric, delicately and yet
strongly built, patiently constructed through many generations of
sound dealing. It is the business of finance to provide the means for
the development of mines, our manufacture, our commerce, and
even, in some measure, of our agriculture.
For the development of all these industries capital is required
in large and increasing measure. On the other hand capital is
constantly seeking investment. The frugal are laying by for a
rainy day, large estates must reinvest their surplus incomes. It is
the important function of finance to bring these two movements to-
gether to see that these savings are turned into the form of sound
investment for the development of the country's industries. For
this reason the conditions of finance are of world-wide importance.
In this country they affect every investor who helps to keep indus-
try supplied with funds for development, and every wage-earner
who is dependent for continued and contented employment upon
the success of such industries.
And furthermore we must remember that Finance is an orderly
process, never haphazard, never casual. As we look back we can
now realize that those great remedial and protective steps that I
have briefly alluded to, the raising here of $200,000,000 of gold,
taken by a few gentlemen quietly and without legislative action,
112 The Annals of the American Academy
were all parts of the great engine of finance working steadily through
the industries of the country.
One last word, at the end of it all — how shall finance have
fared? Am I too fervid when I say this:
When that terrible, blood-red fog of war burns away we shall
see finance still standing firm. We shall see the spectacle of the
business man of all nations paying to one another their just debts.
We shall see the German merchant keeping his word sacred to the
English ; and the French to the Turk. We shall see finance standing
ready to develop new enterprises; to find money to till new fields;
to help rebuild a broken and wreck-strewn world; to set the fires of
industry blazing brightly again and lighting up the earth with the
triumphs of peace.
THE RESULTS OF THE EUROPEAN WAR
ON AMERICA'S FINANCIAL POSITION
By W. p. G. Harding,
Federal Reserve Board, Washington, D. C.
We hear a good deal nowadays about dollar exchange as applied
to the financing of transactions arising from our trade with foreign
countries. A year ago this was almost an unknown expression,
and, generally speaking, long bills drawn against international
transactions were in sterling, in reichsmarks or in francs. Our
great incorporated chartered banking institutions were not per-
mitted to engage in the acceptance business, and when a cargo of
grain or cotton left an American port for Liverpool, drafts against
the shipment were drawn in sterling, or when a vessel laden with
dyestuffs or jute bagging cleared from Bremen or Hamburg for
Boston or Savannah, credits covering the invoices were expressed
in reichsmarks, so that the foreign banker exacted his toll in both
directions. In April, 1914, however, the New York legislature,
by statute, permitted banks incorporated by that state to accept
drafts and bills of exchange drawn against not only shipments of
goods to and from foreign countries, but against domestic transac-
tions as well. The federal reserve act, which was enacted by Con-
gress in December, 1913, contained a clause permitting national
banks, in transactions involving the importation or exportation of
goods, to accept for amounts not exceeding 50 per cent of their
capital and surplus; and by a recent amendment, this limitation has
been extended to the full amount of capital and surplus. Figures
recently compiled show that trust companies in New York State
and the national banks have outstanding $117,000,000 of accept-
ances.
The development of the American acceptance business has un-
doubtedly been promoted by the European war, and the progress
already made by a large New York City national bank toward es-
tablishing foreign branches under the provisions of the federal re-
serve act indicates a disposition on the part of the national banks
to supplement the efforts of the trust companies that have already
113
114 The Annals of the American AcademV
established foreign branches and engage in financial operations of an
international character. The most inviting field for foreign branches
at present seems to lie in the West Indies, in the Canal Zone and
in the South American countries. The recent conference with
South American financiers held in Washington is an evidence of
the interest that our government is taking in the development of
closer trade and banking relations with our South American neigh-
bors. While we have for years been large purchasers of South
American commodities, such as coffee, rubber, nitrate and hides,
our exports to those countries have been negligible as compared
with the trade controlled by Eurpean nations. The deplorable con-
ditions now existing throughout Europe have not only given us an
opportunity of taking over a substantial part of this business, but
have almost compelled us to arrange to do so, besides opening the
way for an extension of our trade with Europe and with the Orient.
Shortly after the outbreak of the war last summer, international
balances against us on current account were ascertained to be
around $450,000,000, and it was estimated at the same time that
the total value of American securities held abroad was probably
not less than $6,000,000,000. Notwithstanding the serious depres-
sion in cotton, which fortunately proved temporary, the loss in that
staple was more than made up in the total volume of our trade by
the high prices received for our exports of foodstuffs. The balance
against us was in a few months entirely wiped out, and large bal-
ances in our favor began to accumulate. Certain lines of industry
in this country, such as the manufacture of munitions of war and
accessories, have received a tremendous impetus. Reports to the
department of commerce indicate, according to a statement made
by Secretary Redfield, total exports for the current fiscal year of
two and three quarter billion dollars, with a resulting trade balance
in our favor of about one and a quarter billions. This balance,
however, is due to our smaller volume of imports, rather than to
increased exports. For the past nine months our excess of exports
over imports has amounted to $719,000,000, and it is thought pos-
sible that our net trade balance for the calendar year 1915 may be as
high as $2,000,000,000, or about four times what might have been
expected under normal conditions. As against this all the belligerent
powers have been obliged to float temporary loans for enormous
sums, to which there is reason to believe substantial subscriptions
Results of European War on America's Finances 115
have been made in this country, and should the war continue for
several months longer, it is thought that American subscriptions
will undoubtedly assume far greater proportions. The removal of
stock exchange restrictions and the notable rise in the market
value of standard stocks and bonds which has been in evidence for
some weeks past, together with the breadth of the market, have
given foreigners an excellent opportunity to dispose of their Ameri-
can securities, and while there may have been some purchases for
European account, it seems certain that sales by foreigners have
greatly exceeded their purchases; some authorities contending that
since the beginning of the war, net sales have been made in our
market for foreign account of about 2,000,000 shares of stock and
possibly $300,000,000 of bonds; these figures, however, are prob-
ably exaggerated.
Europe has been selling our stocks and bonds steadily but only in relatively
small amounts. It was carefully estimated a month ago that European sales
were averaging about $1,000,000 a day. It is believed that the temptation of
rapidly risen prices has led to somewhat heavier selling than within the last week,
but even if the European liquidation averaged steadily $2,000,000 a day it would
fall far short of the current excess of exports, which for the last three months has
averaged about $5,000,000 a day. The invisible balance against us is as undeter-
mined as the amount of Europe's holdings of our securities, but it can hardly be
$2,000,000 a day and may be less than $1,000,000. If it were $2,000,000 and
Europe was selling us each day that amount of securities, we would still be ac-
cumulating net credits at the rate of $1,000,000 a day through our excess of ex-
ports over imports.
It is, of course, impossible to predict the duration of the war or
its ultimate results, but there are several elements that will enter
into our financial position at the close of the war. One is the dura-
tion of war, and another is the terms of peace. Should the war be
brought to a close in the near future on the basis of a "draw," the
demands upon capital would, of course, be much less than would be
the case if it is fought to a finish. In that event, our position would
be somewhat different should war settlements be made by cession
of territory only, than it would be should large cash indemnities be
imposed by the victors upon the vanquished, which would involve
complicated readjustments of capital. Some authorities hold that
the European countries have much greater wealth than is generally
supposed, and that their recuperative powers are correspondingly
greater, but it seems clear that no nation can withstand for a very
116 The Annals of the American Academy
long period of time the tremendous loss of life and property which
has characterized the present conflict. The first effects of a peace
that follow a great war are by no means a sure indication of what
the ultimate results will be, and sometimes it happens that the fi-
nancial status of nations that have not been engaged in the war is
disturbed almost as seriously as that of the participants. When
the long series of Napoleonic wars had been brought to a close in
1814 by the exile of the French emperor to Elba, there was a pro-
nounced trade revival in England which came to a sudden halt upon
Napoleon's return to France in March, 1815. His final defeat at
Waterloo resulted in a great advance in British Consols, but the
United Kingdom entered at the same time into a period of indus-
trial and commercial depression which lasted several years. A
similar depression was also experienced in this country, which had,
since 1812, been engaged in a war with England. Our Civil War
witnessed a destruction of life and property and an accumulation of
debt somewhat parallel to that now being experienced by European
belligerents, and it was also accompanied by a marked inflation of
the currency, under the stimulus of which the dominant section
experienced a trade revival accompanied by an era of railroad build-
ing which continued until 1873. Our Civil War was the source of
serious inconvenience to Great Britain, which country was depend-
ent upon the South for the greater* part of its cotton supply, yet
England was prosperous during the time of our conflict and during
the year succeeding its close, so that not until the crash which
followed the failure in 1866 of the London firm of Overend, Gurney
& Co., did she face the greatest crisis she had experienced in two
generations. The war indemnity imposed upon France by Ger-
many in 1871 of 5,000,000,000 francs, made it necessary for French
investors desiring to subscribe to the indemnity loan to become
heavy sellers of securities in London and elsewhere. British mar-
kets, as well as French, were seriously affected, so that within a few
months it became impossible to sell American securities abroad,
maturing loans were called, and many great railroad enterprises
were halted during their construction. Thus the indemnity to
Germany was a powerful contributing cause to the great crisis
of 1873. Our affair with Spain in 1898, is, according to modern
standards, hardly worthy of being dignified with the name of war.
It, however, marked the termination of the years of depression which
Results of European War on America's Finances 117
followed the panic of 1893, and at its conclusion began one of
the greatest expansive periods of modern history, which, suffering
no serious interruption either from the Boer war or from Russia's
war with Japan, came to a sudden end in the fall of 1907.
We should not forget that, although we have passed through no
periods of pronounced activity since 1907, there is a strong tempta-
tion today towards inflation in this country as well as in Europe,
where inflation is a result of war financing. The loans of our na-
tional banks were on March 4, according to reports to the comp-
troller of the currency, about $142,000,000 greater than they were
on the same date in 1914, which were in turn greater by about
$232,000,000 than appeared in corresponding statement in 1913.
Restoration of peace will necessarily bring about many readjust-
ments. Demand for war material will cease, and in its place will
spring up a demand for the commodities of ordinary trade, and
particularly for those materials used in constructive work and re-
pairs. Great Britain, Germany and France will use every effort
to recover lost trade and will endeavor to avail themselves of Ameri-
can markets, our margin of exports over imports will shrink, and as
war debts are permanently funded, securities will doubtless be sold
by citizens of countries lately at war to enable them to subscribe to
their national loans. The volume of these sales will be governed
partly by security prices and by trade balances, and the effect upon
our money market will depend upon the provision we have made in
advance to offset or to finance these purchases.
While we have now in operation a sound currency and banking
system, we must not permit ourselves to be lulled into a false sense
of immunity from all trouble, or to feel that we have a license to
disregard well-established principles. We must be discreet, we
must resist any tendency toward inflation, and we may be sure, that
by avoiding a wild temporary boom which would certainly result
in a collapse later on, this country will be in a far better position to
reap throughout a long series of years to come the benefits which
should accrue to it as the only great world power not engaged in the
war. By adhering to this course, by exercising patience and self-
control and by adopting a policy of wise statesmanship in husband-
ing our resources and applying them only in directions which will
tend towards bringing the best ultimate results, not to the individual
but to the nation as a whole, our position upon the reestablishment
118 The Annals of the American Academy
of peace will be far stronger than it was before the war began. We
shall be able thereby to hold and to follow up advantages gained,
and shall reach ultimately not merely a second or third but a prom-
inent and commanding place in the field of international finance.
AMERICA'S FINANCIAL POSITION AS AFFECTED BY
THE WAR
By Alexander J. Hemphill,
Chairman, Guaranty Trust Company, New York City.
The two weeks' period between July 24 and August 7 of 1914
marked the creation of a new epoch in international finance, es-
pecially for the United States. During the first week in this period,
extraordinary fluctuations in exchange indicated that some porten-
tous event was impending and the second week, after the happening
of the event, marked the dislocation, if not the destruction, of the
entire financial machine. Ruin seemed to be the inevitable result
of the great catastrophe, but its very immensity served to bring
about a unity of purpose to restore order from chaos and to re-
create the necessary mechanism for the restoration of international
transactions. These efforts involved a series of unprecedented
remedial methods: the closing of exchanges; the resort to clearing
house certificates for settlement of balances between the banks, in-
volving the cessation of payments in gold; the issue of emer-
gency currency; the creation of a gold fund, and of a fund to carry
the surplus of a record cotton crop. These are recited merely to il-
lustrate the tremendous difficulties which confronted the bankers
of the country and the hard work necessary to restore a sem-
blance of normal conditions. Fortunately, there was a ready
public recognition of the necessity for such measures and the
runs on banking institutions usual at such times were averted.
For some time prior to the declaration of war, our indebted-
ness on current account to the European financial centers had been
steadily growing so that on August 1 that debt had assumed the
very substantial proportions of somewhere between $250,000,000
and $400,000,000. In the attempt to avert gold shipments, ex-
change rates soared to unprecedented figures, transactions taking
place at the rate of $6.50 for sterling exchange, and remaining at
$5.00 for a protracted period. Of course, it was essential in or-
der that the credit of the United States might not be seriously
prejudiced, that this discount on American exchange should be
119
120 The Annals of the American Academy
reduced. The bankers of the country, therefore, consented to
make contributions to a gold pool of $100,000,000 and this, in
connection with the beginning of a favorable trade balance,
shortly restored exchange equilibrium.
For several years prior to 1914 our financial position left much
to be desired. Securities were discredited, and at an unfavorable
time we were compelled to absorb liquidation by foreign investors
which, under the circumstances, entailed great depreciation in the
market value of all issues. We had for so many years depended
upon the savings of other countries, particularly Great Britain, to
finance a part of our undertakings, that we were some time
in realizing that we must henceforth depend upon our own financial
resources. This forced a period of economy, which was evidenced
in the enormous growth of our bank deposits.
Steps taken by the warring nations to protect their gold reserves
offered an opportunity to this country to secure a leading position in
the world of finance. Fortunately for us, it so happened that the
organization of the federal reserve system had just been completed,
conferring powers for purchasing bank acceptances and redis-
counting, with consequent currency issuing. This for the first
time rendered possible the creation of dollar exchange. The ab-
normal situation in Europe made this step so logical that it met
with ready acceptance from all quarters. Bills which had here-
tofore been drawn on London in sterling were now beginning to be
drawn on New York in dollars. This particularly applied to the
Latin American republics; commercial transactions with those
countries, which under customs prevailing before the war had
been settled through London, are now cleared through New York.
The war forced the return to this country of thousands of
Americans traveling abroad and a consequent saving for this country
of immense sums which were currently spent on the other side.
Imports of merchandise showed an enormous shrinkage and as we
almost immediately began to supply the necessities of the warring
countries in the way of foodstuffs, etc., our exports reached large
proportions. The balance of trade in our favor enabled us, there-
fore, soon to pay off our debit balance, and a large credit balance
took its place. To the extent to which foreign holders of our securi-
ties were willing to sell we have repurchased from them, but this
liquidation since the war although of considerable volume is but a
America's Financial Position 121
comparatively small percentage of their total holdings. The bal-
ance of their current indebtedness to us must be discharged in
other ways. We have in some cases purchased their short-time
obligations and in others granted credits. We are not yet pre-
pared to take their long-time obligations. That time will arrive
after the declaration of peace.
The reversal in our financial position has been so sudden and
complete that it really has been little less than revolutionary.
Most of our financiers have had little experience or training in
international finance to meet the conditions involved in this sudden
change. In addition to this lack of experience we had to cope
with defective financial machinery. It was not until the national
monetary commission published the result of its investigations of
European methods that this country began clearly to see how
necessary it was that we should depart from our archaic methods
and adopt a banking system which would enable the creation of an
acceptance and discount market. These views and findings of the
commission were wisely incorporated in the federal reserve law and
comprise the chief measure of benefit that the country now de-
rives from that act. State institutions have availed of this new
feature in granting acceptances to a larger extent than the na-
tional banks.
London has not yet drawn any bills of exchange in dollars.
When that is once done we may pride ourselves upon our progress.
London financiers recognize our new efforts in the field of finance
and applaud our aspirations. No obstacles from that quarter will
be interposed. At the present time she is concentrating all her
efforts on the one object of financing the war. Nevertheless we
must recognize that she will maintain as strong a grip as possible
upon the markets which she previously controlled, and our credit
will be only temporary unless we make our dollar exchange stable
and desirable.
It is essential that our manufacturers who desire to export
their products should develop an efficient export organization.
To this end they must study the markets which they desire to
supply and be prepared to take the financial responsibility involved
in the granting of credits and not leave this important feature to
agencies. In the final analysis the manufacturer exporter must
take the risks of export business rather than the banker. Our
122 The Annals of the American Academy
manufacturers desiring to export must understand that they must
use the same intelligence in meeting foreign markets as they do in
taking care of their domestic business. The clearing of all this
business should, in the main, be done through New York.
The conclusion of the war will create new conditions and the
greatest demand will then be made upon financial America. The
destruction and wastage of capital occasioned by the war has
been estimated on the basis of a year's duration at $40,000,-
000,000; and while it may not be necessary to restore all of this at
once, yet from present indications the demand on us will be enor-
mous. First, there will be the call on our merchants to furnish
materials in connection with the rehabilitation or rebuilding of
the devastated country and, secondly, we will have to give credit
either through making direct loans or through the repurchase of
American securities held abroad. From present indications the
foreign investors will part from our securities slowly and will be
tempted to liquidate only at high prices. It is more than probable
that several of the foreign countries will ask us for some of our gold
in order that they may restore or build up their gold reserves.
These demands upon our financial resources seem to presage more
than an active and firm money market.
There is no doubt that should we continue to practice economies
and follow the sound business methods which we have recently
pursued, we will not only have abundant resources for our own
prosperous business but also be able to take care of the reasonable
demands of other nations.
THE FINANCIAL MENACE TO AMERICA OF THE
EUROPEAN WAR
By Simon N. Patten, Ph.D.,
Wharton School of Finance and Commerce, University of Pennsylvania.
In a national crisis there is difficulty in applying old principles
to new situations. It is often said that there is nothing new, every
situation being the repetition of antecedent experience. It is
equally valid to assert that new conditions demand a restatement of
old laws; only through such reconstruction can they be applied to
current events.
An attempt to apply the economic theories to the present situ-
ation shows a confusion that exists, not so much on account of the
fallacy of principles as on account of the particular way in which
they have been stated. The data on which they depend have not
been worked over, and as a consequence the theories have remained
rather as statements of particular forms of experience than as its
general statement. This is especially true of the economic doctrines
that arose in the last century, since their essence is distributive.
Their goal is some rule by which the produce of society can be divided
among the various producers. The real question today is how much
of the national wealth can be taken from producers and given to
the state. The present situation in Europe is described by saying
that, in the past, 10 per cent of the annual income of each country
has been turned over to the state, while under the new conditions
40 per cent of the annual income must be given to meet the increase
of public expense the war involves. How far this can be done and
in what ways without interfering with the processes of production
is the vital issue. We have thus to do with the total income of the
nation, not that of some class or industrial group; only the most
material wants are to be kept in mind.
If 90 per cent of the total revenue of England in the year 1913
was devoted to the private uses of its citizens, how can they adjust
themselves in 1915 so that 40 per cent of the total income of the
nation can be turned over to public uses? If this much is demanded
of England, still more is demanded of the people of France or Ger-
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124 The Annals of the American Academy
man}^ if they are to meet the situation imposed on them by the
European conflict. If this view is taken, certain fundamental rela-
tions between people and environment must be maintained to carry
on a long struggle under conditions where the resources of the nation
go to public needs rather than to private uses.
The first of these is the relation between food and population.
Deductions in this field are known as the law of diminishing returns.
It is not necessary to discuss the implications from this law as all na-
tions are conserving their food supply and endeavoring to increase it
by every means in their power. The relation between capital and in-
dustry may occasion more difficulty. Here we find the law of
economic cycles, as it has been called by Professor Moore, to whom
its best statement is due.^ Fluctuations in industry are primarily
alterations in the annual production of commodities. A series of
good years cause also increasing industry and rising industrial
values, while a series of bad years result in depression and disaster.
Such cycles have come in the past with great regularity, and they
show us the danger to industry from any diminution in the total of
the food of the community. The importance of this law is, how-
ever, not so much in any anticipated diminution of the food supply,
but rather that it throws light on what will happen in a community
where there is a large decrease in the quantity of capital.
Tn the past, changes in values have come from fluctuations in the
amount of crops. There has never been a material decrease in the
quantity of capital, and usually there has been from year to year a
decided increase. Now for the first time we face an actual decrease
in quantity of capital. How are we to measure its effects on values
and on industry? The reply is that its effects will be similar to the
effects coming from a diminution in the annual yield of the farms.
A poor crop is as much a destruction of wealth as if the crop were
produced and then destroyed. If this is true, other types of de-
struction will have the same general effect on industry.
If we look to the relation of food and population for the basis
of our static relations and to the relation of capital to industry for
our fluctuating changes, we should measure the progressive changes
in society through the relation between the present and the future
of which the rate of interest is the best expression. One group of
economists assert that interest depends upon productivity, and
^ Economic Cycles: Their Law and Cause.
America and the European War 125
therefore rises and falls as productivity increases or decreases.
Other economists affirm with equal earnestness the theory that the
rate of interest depends upon the estimate individuals make of their
future welfare. Are we to look upon these two laws as opposing
tendencies or as reflecting different conditions under which the rate
of interest manifests itself? To my mind, they represent two ele-
ments whose combined influence determines the rate of interest.
People cut down their present consumption in favor of future con-
sumption, through the fear of future want. Any new conditions
diminishing the fear of future want will check the tendency to save
and cause an increase of present consumption. The diminution of
fear means a rising rate of interest. On the other hand, whatever
reduces the risks of industry tends to create a lower rate of interest.
Industrial progress is thus from a state where fears are static while
risks were diminishing to a condition in which fears are diminishing
and risks are static.
Let me explain this formidable but after all simple proposition.
For a long time the social conditions under which industrial people
lived remained the same, their anticipation of future dangers were
correspondingly fixed, and hence the same motive from generation
to generation existed to set aside a part of their income to provide
for future contingencies. Two generations ago it could be said that
if the family income was increased from $1,000 to $1,200, the $200
additional would, in nine cases out of ten, be turned into capital.
During this time, however, the risks of industry were diminishing,
and as a consequence, the element of danger was reduced. The net
result is a faUing rate of interest. At the present time, however,
risks have come so near their minimum that they are a static ele-
ment. People think less of tomorrow than their forebears did.
There is an increase in present expenditures by those whose fore-
fathers would have saved.
In general terms, we can say that an increasing product raises
the consumers' margin and creates a rising rate of interest. The
rate of interest is an index of the progressive changes taking place
just as is the law of diminishing returns of our static relations. We
thus have a law of static change, a law of fluctuating change, and a
law of progressive change. These three laws I shall attempt to
apply in determining the danger that American industry fares as a
consequence of the present war.
126 The Annals op the American Academy
The first question to decide is whether industry has been so dis-
arranged that its returns have diminished. During the Napoleonic
wars, England was undergoing a tremendous industrial revolution
that increased her productive power from 50 to 200 per cent. The
result was that after the twenty years' struggle England found her-
self richer than before. The expenses of the war had reduced the
profits of the nation, but had not destroyed them. The same result
followed our Civil War. New inventions in agricultural machinery
were introduced to such an extent that the diminishing labor supply
caused by the enlistments was more than made up by the increase
in the power of machinery. As a result, the North found itself
wealthier at the end of the war and the rate of profit was also larger
than at the beginning. These two examples are often used in a con-
fusing way because they seem to show that war brings prosperity,
when in reality they only show that war is a burden a nation can
stand if the increase in productive power is sufficiently great. At
the present time, with no great industrial improvements in sight,
it seems wiser to assume that the burden of the war will rest upon
the nations who have taken part in the struggle. How will this
burden be distributed, and upon whose shoulders will it fall? In
answering these two problems we are likely to be confused. When
we discuss the effect of the war on securities we should have in mind,
not the ultimate value of these securities twenty or thirty years
from now, but what will be their immediate value at the close of
the war. After every period of food shortage there has been a de-
pression in industry and in security values. We can infer from this
what will follow in the present case for the destruction of war
illustrates the same causes as a shortage of food. If bad crops
create depression, we have a right to infer that a like depression will
follow the destruction caused by war. Professor Moore's conclu-
sions are that the depression in industry lags four years behind the
shortage in agricultural crops, and if this holds in the present case,
we can infer that the burden of the war will be settled by an indus-
trial depression in the near future.
This inference is justified by what' we know of the relation of
wealth to value. An increasing product causes a still greater in-
crease in value, while a diminishing product has a powerful effect in
lowering values. It is hard to express this relation in simple mathe-
matical terms, but it is an understatement of the facts to say that
America and the European War 127
a reduction in product produces a double effect in value, and there-
fore a reduction of 10 per cent in produce may produce 20 per cent
in reduction in industrial values.
It is universally admitted that the cost of the war for one year
is about $15,000,000,000 to the nations concerned. If we take into
consideration the losses of private property in Belgium, Poland,
France, and other places actually within the war zone, and the dis-
turbance of industry in other regions, a like destruction of $15,000,-
000,000 has resulted. We thus have an actual destruction of prop-
erty to the amount of $30,000,000,000, and if the loss in value is
double the loss of product, we must assume that at the end of the
year the value of the world's capital has been reduced by $60,000,-
000,000. As the world's total wealth foots up to something like
$300,000,000,000, this means that at the end of the year there has
been a loss of 20 per cent in values if the distribution of these losses
were equal. That, however, is not likely to be the case. What
usually happens under such circumstances is, not an even fall in
values and an even burden upon all industry, but rather a commer-
cial crisis in which the losses are unequally distributed, and thus
greatly increased. If the war continues more than a year, the
losses will be enormously increased and the difficulties of readjust-
ment correspondingly great. I do not, however, from this, wish to
infer that the total value of the world's wealth will be permanently
decreased. No matter how destructive the war is, none of the
permanent resources of the world will be disturbed, and sooner or
later the liquidation of the losses will take place and then the recrea-
tion of values will follow, giving a higher total value than before.
Such, at least, has been the result of all the financial crises in the
past. It is risky, therefore, at the present time to hold securities
no matter how safe they appear to be because they will be seriously
affected by the industrial collapse that is bound to follow the closing
of the war. The risk in regard to bonds and the effect that the war
will have on them is different because the bond market is deter-
mined, not so much by the fluctuation in the relation of wealth to
value nor by the current rate of profit in the community, as by the
rate of interest. A high rate of interest results in a relatively low
value of bonds and securities, while a low rate of interest corre-
spondingly raises the value of stocks and bonds. We must deter-
mine whether the rate of interest is changing in a way that will
128 The Annals of the American Academy
affect the value of bonds. If the American people have to a con-
siderable degree stopped saving, a rise in the rate of interest must
take place in order to counteract the growing tendencies toward
immediate consumption.
In the past, we have had three classes of savers. The laboring
population has its saving measured by the amount in savings banks.
There is no reason to assume that they will fall off in the immediate
future. The same I take it to be true of the large saver — a man
whose income is above $5,000. If the savings of the wealthy are
decreasing, it is more likely to be the result of increased taxation
than any change in their character or motives. There is an eager-
ness on the part of the public to tax this class, and should it take
the form of income or inheritance taxes, the savings of the wealthy
will be absorbed, and thus limit the additions to capital that now
take place. The most interesting group to study is the middle
class, those whose family incomes range from one to five thousand
dollars. This class has practically ceased to save except as it
affects life insurance and the education of their children. They
are even ceasing to own their homes. The tendency at the present
time is to rent an apartment rather than to live in a house. The
eager desire for consumption produces a pressure upon their incomes
that causes them to expend all they earn.
These changes may take a generation to work but in the end
the normal rate of interest will rise from 4 to 6 per cent. If this
prediction proves correct, any person investing in bonds having
many years to run will lose 20 per cent of their value when the final
payment is made. It is probable that the rate of interest will
remain low for a time, but all the more certainly can we predict
that a person thinking of his welfare twenty years from now will
suffer very serious losses if he buys long term bonds at present rates.
The change in values that affects stocks will be immediate but tem-
porary, while the changes in the value of bonds will be slow but
permanent.
An illustration will fix these facts more clearly. Take a cor-
poration with an income of $100,000 a year, $40,000 of which goes
to pay the interest on a million dollars in bonds, while $60,000 pays
dividends on one million in stocks. Both bonds and stocks would
be at par if the interest rate were 4 per cent and the average return
on investments were 6 per cent. If a rise in the interest rate from
America and the European War 129
4 to 6 per cent occurs and a corresponding rise in the return on
investments increases from 6 to 8 per cent the average profit of
industry, the value of the bonds would fall to $670,000 and that of
the stock to $750,000. This would be the initial loss. When the
bonds are refunded on a 6 per cent basis, $60,000 instead of $40,000
a year must be paid as interest on the new bonds. This leaves the
stockholders a net return of $40,000 a year which on an 8 per cent
basis would give their stock a value of $500,000. The industrial
loss of a 2 per cent rise in the rate of interest can be estimated as
follows: bonds 20 per cent; farm values, 30 per cent; stocks, 40
per cent; city real estate, 50 per cent. To offset these losses are
the gains from inventions and new industrial processes which, how-
ever, everyone must estimate for himself.
This does not fix the real loss America must suffer. It is not
the treaty of peace that settles the burden of the war, but the finan-
cial adjustment following the crisis which the war creates. The
French did not pay the indemnity at the cldse of the Franco-Prus-
sian War. The ownership of the world's resources was settled by
the crisis of 1873 with its destruction of values. The great losses
were those of Germany and America and they were thus the real
payers of the war expenses.
It should be remembered that at present America is getting
nothing but paper credits for the enormous export of food and arms.
Imports have fallen off and little gold is imported. The financial
crash at the close of the war alone will determine the value of this
paper. How much will the farmers gain from selling their wheat
for an advance of fifty cents a bushel if at the close of the war their
land falls 20 per cent in value? If two billion dollars' worth of
securities are returned in exchange for food and war material while
the crisis lowers all our stocks and bonds by 20 per cent, we have
not only given the food and aft-ms to Europe for nothing but have
also paid a bonus. We figure out great profits today, but they are
after all only paper promises. Tomorrow the reckoning will come
and then the holders of securities will bear the burden. Happy
will be the man who has kept gold in his own pocket and has let
his confiding neighbor have the glittering gains the stock market
offers.
THE PROBABLE CONDITION OF THE AMERICAN
MONEY MARKET AFTER THE WAR IS OVER^
By Joseph French Johnson, D.C.S.,
School of Commerce, Accounts and Finance, New York University.
When I promised to prepare a talk on the probable condition
of the money market after this great war is over, I was hoping
that I might get some light on the subject by making an inquiry
into the phenomena incident to the great conflicts of the last hundred
years. I regret to say that I have been disappointed.
The historical method of study, so far as I have been able to
apply it, does not yield either convincing or illuminating conclu-
sions. The world of today is very different from the world in
which the Napoleonic, the Civil and the Franco-Prussian wars were
staged and the wars of later date did not call all Europe to arms
as the present war has done. Comparison is, therefore, difficult.
Difficult'^ of Forecasting
The problem contains so many unknown factors that no scien-
tific forecast is possible. We do not know, for instance, how long
the war will last, or which side will be victorious, or whether heavy
indemnities will be exacted, or whether at the end the nations of
the earth will lessen or increase their outlays for the maintenance
and equipment of navies and armies. Furthermore, we are uncer-
tain as to the increase in the world's stock of gold, available for
use as money during the next few years. All these matters, never-
theless, possess real significance in relation to our money market.
I shall assume that the war will be over in six months from
date, and that its total cost measured in our money will be at least
twenty billion dollars. In this estimate I include the extraordinary
expenditures which several neutral nations, such as Italy, Switzer-
land and Holland, have been forced to make by what has seemed
to them a most threatening emergency. I assume also that at
least seventy-five per cent of this vast sum will have been raised
^Published abo by the Alexander Hamilton Institute.
130
The American Money Market 131
by the sale of bonds and by a corresponding increase in the funded
indebtedness of Japan and Europe.
Decrease in World's Savings
A Belgian statistician estimates that the people of the earth
save about four billion dollars a year for investment purposes. The
higher interest rate now paid for capital is doubtless tempting
many people to economize and increase their savings; but any such
increment will probably be more than offset by the world's lessened
productive capacity. Not only are many millions of able-bodied
men engaged in destroying property and life, but many other mil-
lions are out of employment in all countries because there is no
market for the goods they produce. Hence we are forced to the
conclusion that not only is the current addition to the world's
supply of loanable investment capital inadequate to finance the
present war, but that the current saving is less than normal.
Effect on Bond Prices
We must conclude, further, that the price which warring na-
tions must pay for capital will continue to rise throughout the war;
and it is even conceivable that, if the war should last another year
instead of merely six months, the interest yield demanded might
become so high and the prices of government bonds so low that
investors would get exceedingly nervous about the prospects of
repudiation, and decline to turn over their savings to some, if not
to all, the nations at war. What might be the possible effect upon
our market if the finish of the war were brought about as the re-
sult of such financial exhaustion is a question which I do not care
to contemplate at present.
In any statistical inquiry to arrive at the influence which all
expenditures have upon prices of bonds and the rate of interest, it
is necessary to take into account the effect which is more or less con-
stantly exerted by an appreciation or depreciation of the monetary
standard. In a period of rising prices such as the world has ex-
perienced since 1897 the general tendency of bond prices, other
things being equal, is toward lower levels; while in a period of
falling prices, such as we passed through after the Civil War, bonds
prove a more attractive investment and their prices rise.
132 The Annals of the American Academy
British Consols and Previous TTars
The Napoleonic wars came to an end during a period of falling
prices; and during the next five years, that is from 1815 to 1820,
England was ransacking the earth for gold in order to place her
monetary standard upon a firm basis. In 1815 British consols
ranged in price from 61 to 72. In 1816 they were at a lower level,
the range being 53 to 65. In 1817 and 1818 they sold above 80
and never below 60. In 1819 the highest price was 79 and the
lowest 64. In 1820 they fluctuated between 65 and 70. These
figures possess little significance for us, nor does the fact that their
level is above the average of the quotations for the last ten years
of the war, for a century ago corporation bonds were an almost
negligible factor in the investment market; so that government
bonds were not in competition with a large mass of other securities,
as they are at the present time.
The year 1871 marks the end of a decade during which capital
amounting to several billions of dollars was destroyed in wars in
Europe and the United States. But it was also a period of gold
appreciation, which, in its relation to security prices, tended to
offset the destruction of capital in the war and to make for a strong
bond market. As a matter of fact, consols were practically station-
ary for the five years ending with 1874, but lower than they had
been in 1867. In the latter year they ranged from 89 to 96, whereas
in 1874 the range was from 91 to 93. In 1875 they began to rise;
after 1880 they were above par until 1889, when the interest rate
was reduced from 3 per cent to 2.75 per cent.
In the decade ending with 1905 a large amount of capital was
wasted in war. There was our own war with Spain, costing around
a billion dollars. The Russo-Japanese war, lasting eighteen months
in 1904 and 1905, is estimated to have cost Japan and Russia each
over one billion dollars. It cost England about one billion dollars
to subdue the Boer in South Africa in the first two years of this
century. All told, it is probable that at least four billion dollars
was wasted in war between 1898 and 1905. This was extraordinary
expenditure over and above the sums which the nations were al-
ready expending in the maintenance of their armaments.
This was a period also of rising prices, as well as of heavy war
expenditures, and the bond market, as most of us remember,
was steadily weakening. It is not surprising, therefore, that
1'hb American Money Market 138
British consols declined from their high-water mark of 113 in 1898
to between 85 and 91 in 1904, or that their prices have since then
been steadily declining.
I think we are justified in assuming that war has been largely
responsible for the high investment rate of interest which capital
has been able to command in all parts of the world during the last
ten years, and it seems inevitable that the tremendous waste of
capital now going on in Europe must soon force the rate of interest
to such a height that costs of production in general will be increased
and the prices of many of the necessaries of life be raised.
Our Home Demand for Capital
We must also take into account certain imperative capital
needs in our own country. For instance, there are now in exis-
tence at least half a billion of railway securities maturing this year.
If we include all the railways in the United States, Mexico and Can-
ada, it is a conservative estimate that they must raise within the
next five years at least 750 million dollars to take care of their obli-
gations which will mature within that period; and 250 million more
will be needed to take care of equipment trust obligations and pro-
vide for new capital expenditures. In other words, the railways in
this country will need at least one billion of new capital during the
next five years. How much will be needed for industrial corpora-
tions cannot, of course, be estimated, for their needs will depend
upon market conditions which cannot now be foreseen.
It is evident that the real cost of the war cannot be estimated
in money or measured by the sums of money which the nations in
combat will expend. The war has blocked the wheels of industry
in every country on the globe. It has turned back the hands of the
clock of our material or industrial civilization. It is making us all
poorer because it is making us produce less and at the same time
pay more for the satisfaction of our wants.
Credit Inflation
If I knew that peace were in sight and that its terms might be
ratified before the next snowfall, I believe I should be justified in
predicting that the governments of Europe, in order to help their
people recover from the effects of the war and regain their old
134 The Annals of the American Academy
standing in the world's markets, would be as ingenious and daring
in their use of credit as they have been during the last eight months
in their schemes and devices for financing the war. We have seen
England issue between two and three hundred million of what we
could call greenbacks, a legal tender government currency redeem-
able in gold by a private institution, the Bank of England; further-
more, England has floated an enormous war loan, and that same
bank has agreed to lend against this debt, sovereign for sovereign.
Here we have the possibility of a currency and credit inflation that
would promise a financial millenium to any of our most ardent ad-
vocates of fiat money.
In France we find the same remarkable extension of credit.
The Bank of France has increased its note issues over 50 per cent,
and cities and towns throughout France have put forth unrestricted
issues of paper money. The business of the country, it seems, is
done entirely upon credit; the government bank has increased its
holdings of gold until they now equal nearly one billion dollars,
but it is evidently the policy of the bank to hold the gold of the
country as a reserve and to compel the transaction of business with
credit instruments.
In Germany we find the same unprecedented use of credit.
By the organization of loan banks throughout the empire with the
cooperation and assistance of the government and the Reichsbank,
the country has been flooded with a mass of paper currency, and
every man possessing any kind of property has been able to get
bank credit for the support and furtherance of his business or
industry.
Never at any time in the world's history have the leading civ-
ilized nations of the earth resorted to any such remarkable financial
expedients. We simply do not know what the outcome will be;
but we do know that there is a chance that the credit of one of these
great nations may be stretched to the breaking point, and we know
that a collapse of credit in any one of these nations means its defeat
in war.
Government Guaranty of Industrial Securuties
It goes without saying that with the advent of peace every
possible effort will be made by the people of Europe to vivify their
abandoned industries and trade. Of the three factors necessary
The American Money Market 136
to the production of wealth, land alone will be intact and undimin-
ished. There will be a relative decrease in the supply of labor,
but this decrease will not be so large or important as many people
seem to imagine, thanks to the marvelous developments of modern
surgery in the last quarter century. The really deficient factor will
be capital. We may leave out of account the factories and work-
shops that have been destroyed, and assume that a bench or a
machine is awaiting every soldier when he lays aside his uniform.
Nevertheless industry and trade cannot be resumed on the old
scale unless money can be got for the payment of wages and for the
purchase of raw materials. I do not believe that this necessary
supply of capital can quickly be obtained unless private industrial
credit is reinforced by government or national credit. I am dis-
posed, therefore, to predict that the end of the war will be followed
by issues of industrial securities backed by the direct or indirect
guarantee of a government. Just as our own government assisted in
the construction of our Pacific railways, so I expect to see European
governments, in the not far distant future, lending their aid to
private enterprises.
Whence will come the money that will place Europe indus-
trially and commercially again on her feet? There can be but one
answer to this question, for there is only one country with resources
and wealth great enough to be of real assistance — and that country
is the United States. If Europe is to make quick recovery from the
effects of the war, she must borrow capital. That capital will go
to Europe not in the form of gold but in the form of foodstuffs and
raw materials, and the bulk of them will go from the United States.
This means, if I am right, that during the first years of peace our
export of goods will be abnormally large, and that we shall
sell goods mainly on credit. We shall take in payment not gold,
but the guaranteed industrial securities of European nations.
These securities will necessarily bear a high rate of interest, for
otherwise they will make no appeal to the American investor.
Danger To The United States
If Europe does draw capital from us, what is to become of our
own industries? Will our march of industrial progress be halted
or can we, in some way that is without precedent, manage to convert
bank credit into capital and continue the extension of our railroads
136 The Annals of the American Academy
and the enlargement of our industrial plants? Here we are entirely
in the realm of conjecture, for we have no idea what will be the
temper or attitude of the American people or of the American
banker. It is possible, however — nay, I think it even probable —
that the close of the war will have a strong psychological effect.
The burden of debt, anxiety and uncertainty, which now every-
where restrains enterprise, will be lifted. The business sky will
be free from clouds. Once more the world will seem eager to take
our surplus products at high prices, and we shall be in danger of
overlooking the fact that our best customer, Europe, is buying with
borrowed money. We may also overlook the fact that European
purchases from us will be abnormally large for not more than two
years after the end of the war, and that thereafter her people will
practice the severest economies in order to get out of debt. This
country will then be exposed to the same peril which destroyed its
temporary prosperity in 1818 following the Napoleonic wars —
namely, a flood of European imports for sale at ruinous prices.
That, of course, would mean panic in the United States.
The New Banking System
I shall close with no such gloomy prospect in view. Fortunately,
we now have a banking system upon which we can place some
reliance. Its power to protect the business interests of the United
States will certainly be tested within two years after the war is
ended. Although it is not an ideal system, it is so much better than
anything this country has had during the last seventy-five years
that I believe we may look to it with confidence, trusting that its
managers will keep business men fully warned as to the dangers
that threaten them, and will be prompt and powerful in the appli-
cation of measures of protection and relief.
If our federal reserve banking system had been in full opera-
tion at the beginning of last August, with power to mobilize our
enormous gold reserve, there would then have been more than an
even chance that New York City would have become the world's
financial center, and that the American dollar would have elbowed
the British sovereign out of its ''place in the sun."
Finally, since it is so easy to make predictions when you don't
know too much about a subject, let me call your attention to an
The American Money Mabkbt 137
interesting possibility, if not probability. I have said that Euro-
peans will come to us after capital. They will get it by the offer
to us of new securities and by the resale to us of our own securities.
Protests will go up from all quarters of the United States, and I
shall not be surprised if societies are organized for the protection
of the American dollar against foreign greed. But no tariff or tax
barriers will prevent an efflux of capital if the foreigner only bids
high enough. So it is quite possible that this war, besides imposing
on us an abnormal rate of interest, will also work an unlooked-for
miracle and transform the United States from a debtor nation into
the world's commanding creditor nation. If this happens it will
be an involuntary achievement on our part; and it certainly will
not happen at all unless the American people have a change of heart
and cultivate the favor and good will of the goddess of sane living,
namely, economy.
THE SITUATION OF THE UNITED STATES AT THE
CLOSE OF THE WAR AS A QUESTION OF
NATIONAL DEFENSE
By Edward S. Mead, Ph.D.,
Wharton School of Finance and Commerce, University of Pennsylvania.
The financial situation of the United States at the close and as
a result of the European war can be forecasted with a fair degree of
accuracy, and the result of the forecast can be regarded with a degree
of satisfaction. Indeed it is difficult to understand the basis of the
forebodings expressed in many quarters that the interests of the
United States will be in any way injured in the process of world
readjustment which must follow the conflict. The probable results
of the war upon our principal competitors have been set forth in the
various papers read at this and previous sessions with substantial
unanimity of opinion. We know that European nations will be
burdened with enormous debts, with resulting heavy taxation which
must increase the overhead charges of industry. We know that the
loss in their working population, and especially in their directing and
executive population, has already been severe and continues to in-
crease. We have no reason to expect that the war will settle any-
thing except the endurance of the fighters, so that the crushing
burdens of armament will continue to be borne.
We can reasonably expect, moreover, that the conflict, when it
finally dies, will leave a legacy of hatred, of jealousy and suspicion,
among the warring powers which will, for many yearp^ interfere with
the extension and cultivation of friendly commercial relations.
That the United States is certain to profit from this situation is
evident. While no fighter loves the neutral bystander, at any rate
he does not hate him. The American manufacturer will have in
future an easier time in competition with his foreign rivals in the
markets of their enemies. No matter if the temporary war trade
dies with the war, the connections formed can be turned to profitable
account in advancing the interests of American export trade.
138
r
The United States and National Defense 139
Apprehensions are expressed that American markets will be
flooded with low priced European goods at the end of the war.
European manufacturers, with their regular trade disorganized, will
be forced to invade on a large scale the markets of the United States.
It is not, however, contended that this situation will be permanent.
The handicap of a high protective tariff still continues and it is not
beyond the bounds of possibility that the handicap may be increased
in the near future. Certainly a general European fire sale after the
war will furnish a strong argument for at least a temporary advance
in duties.
The same answer can be made to the argument that a flood of
European laborers will, at the close of the war, endanger the Ameri-
can standard of living and lower American wages. Europe's
machinery of protection is substantially untouched. This war,
costly to human life, has not been characterized by wholesale
devastation and destruction of property. Factories, mills, ships
and railroads are intact. Outside of the foreign trade of Germany,
industries are being still carried on on a reduced scale. When the war
is ended, the millions of men, those that are alive and whole, will
return to the places whence they came out. The demand for labor
will remain, but the supply, by wounds, disease and death, will be
much reduced. Why the European laborer should run away from
the opportunity of higher wages and more assured employment
here presented to try the doubtful hazards of the new world, even
if his governments will let him run away, a most unlikely permission,
has not been clearly explained.
So much for the immediate effects of the European war upon
this country. We have not been seriously injured by war and the
immediate results of peace will not, apparently, work to our dis-
advantage.
It is not the proximate, but the eventual, situation of the United
States which should concern us.
This war is not likely to establish so great a preponderance of
international advantage as to make future wars impossible. The
machinery, the organization, the habits and instincts, the hatreds,
jealousies and envies, the phrases and the songs of war will survive
the conflict. Man is by nature, as one philosopher put it, a fighting
and quarreling animal. He likes to fight. He likes to watch other
men fight. His life, if successful, is a conflict with his competitors;
140 The Annals of the American Academy
a conflict which President Wilson and his supporters are doing their
best to make permanent by statute and commission. So it always
has been, and so, at least in the time of our grandchildren, it is
likely to be. Within the confines of each national state, he fights
according to rules which keep the struggle within certain decent
bounds. But beyond the international boundary line, law ceases.
Nations make their rules as they go along. When national advant-
age indicates the time for war, war is declared without warning, on
any pretext, and war is waged without any regard to any rule
except the rule of expediency in the light of military advantage.
Observe the present conflict. When we objectify the war,
look at it, if we can, unbiased by our own inherited prejudices, and
unbiased also by the unconscious though powerful motives of trade
advantage, both proximate and remote, which incline us to the
allies, can there be any question of who is right, can there be any
doubt that the blame is shared by every one of the combatants?
Each one entered the war for selfish reasons of national advantage,
although publicly, especially when invoking divine blessings upon
the respective armies, they claim for themselves the loftiest motives
of patriotism; or even beyond these, they assert that the organized
and wholesale murdering in which they -are engaged is inspired by
the pure passion of international brotherhood and sympathy for
oppressed peoples. Where is international law? In the face of
broken pledges and torn scraps of paper, in the face of the slaughter
of civilians, the shelling of unfortified towns^ the attempted star-
vation of great nations, the forced levies upon captured cities, the
sinking of neutral vessels; what has become of the laws of war?
They do not exist except in times of peace.
And what assurance has the United States that we shall be
able, because of the friendliness which the cosmopolitan character of
our population disposes us to show to all nations, to keep out of
future conflicts? Inevitably the tendencies of our foreign trade,
the pressure of capital for investment in the profitable fields of
exploitation of Asia, the West Indies, South America, are drawing
us into the international field. We have asserted and are prepared
to maintain a suzerainty over the countries to the south of us. At
present we do not feel sufficient responsibility to make the Mexicans
or any other Latin American nation, except Cuba, keep the peace.
We allow them to settle their own difficulties in their own way, but
The United States and National Defense 141
even the most pacific administration in American history would not
tolerate meddling in Mexican affairs by European powers.
Of course this policy of responsibility without duty cannot be
continued. The commercial, and to a large extent, the financial
interests of the United States, are bound up with the orderly develop-
ment of the countries to the south of us. These territories form,
with the United States, an economic unit entirely self sufficient.
These Latin American countries have enormous natural resources.
They offer an almost untouched field for industrial and commercial
exploitation. They are the natural field for American energy and
enterprise. It is unreasonable to expect that the policy immortal-
ized by the late Wilkins Micawber will be continued by future
administrations; that United States' lives and property will be left
unprotected while Mexican mob armies, in the sacred name of lib-
erty, fight each other to determine what set of plunderers shall
control the offices and the graft.
For the present, it is true, the tendency is to deny to the in-
vestor the right to large profits in the development of his own
country, and when he goes into foreign lands with his money, to
deny him protection because he did not remain at home. This
tendency, however, it is fair to presume, will be changed at an early
date.
A vigorous, sustained, consistent foreign poHcy, carried on
without reference to party politics, or the fortunes of statesmen, but
with exclusive reference to perceived national advantage is neces-
sary for the future development of the United States. It is neces-
sary to keep the trade we now have, to get more trade, to safeguard
our large investments in certain foreign countries, and to make new
investments. All this means a vigorous foreign policy.
A vigorous foreign policy will naturally bring us into conflict
with the interests of foreign nations. Even more urgent will be
their pressing into the foreign trade. Already their trade interests
in Asia and Latin America are enormous and these interests will
continue to grow. It is altogether likely that our interests, in these
undeveloped regions, will clash with theirs. And when the clash
comes, if we are found unprepared; if any of our European or Asiatic
friends of whom we never speak publicly, save in terms of lofty and
affectionate compliment, think that they can wrest from us with
impunity any of our possessions, we may be certain, if the gain is
»
142 The Annals of the American Academy
greater than the hazard, that they will make the attempt. The
only thing that will restrain them is the size of the hazard, repre-
sented by the army and navy of the United States.
And so we come to the conclusion that the financial destiny
of the United States, so far as it relates to the foreign trade, is bound
up with the question of national defense. No one ever attacks in
war. Japan did not attack Russia in 1904. The South did not
attack the North during the Civil War. Germany did not attack
Belgium and France. Attacking is bad form. The thing to do is
to defend, always remembering the military maxim that the best
defense is a strong, sudden, unforeseen attack. So we will assume
that the United States would never attack anyone, no matter what
the provocation, no matter how vital the interests involved. We
should, however, defend ourselves if attacked, and at present we are
by no means prepared even to protect our shores from invasion,
much less to carry the war to our foes.
It is time that the American people — the richest, and at the
same time, the most excitable and sensitive people in the world —
should realize that they are living in a world of force and should
make their preparations accordingly; that they should draw from the
Scriptures not merely the mild doctrines of peace, non-resistance and
submission to wrong, but should remember that the same Scriptures
contain the warning, peculiarly applicable to the United States at
the present time, ''When a strong man armed keepeth his palace,
his goods are in peace, but when a stronger than he shall come upon
him, he taketh from him his armour in which he trusted, and
divideth the spoil."
THE EFFECT OF THE EUROPEAN WAR ON AMERICAN
BUSINESS
By A. B. Leach,
President, Investment Bankers Association, New York City.
The question uppermost in the minds, not only of the bankers
but of the business people of this country today is, just how will
the European war effect American finance, American business.
The subject is so broad and there are so many elements still unde-
termined that any opinion must be given with great reserve. My
thought is that the points best settled today are:
First. For a long term of years Americans will not be able
to finance new improvements or developments in the railway or
commercial world through funds obtained from Europe. We must
finance ourselves.
Second. As affairs become more stable, the rate of invest-
ments, at least upon government obligations in Europe, will so
nearly approach the investments held from this country, that there
will be a continuing return of bonds and stocks now held in Europe.
This will result in a partial extinction of the indebtedness of our
industries to Europe.
Third. During the continuance of the war and probably for a
year or two afterward, all of the countries who have been at war will
be practically upon a paper basis. Gold will be principally used for
exchange between countries, and as long as this continues, money
should remain cheap for short terms and the real pinch will not
come until an effort is made to get back to a gold basis.
Fourth. In spite of the best credit facilities, after the war it
will be extremely difficult for the European countries to finance their
oversea trade for long periods and on such liberal terms as they
have done in the past. This should enable American merchants
and manufacturers to obtain a very much better hold upon the
South American and Far Eastern business. At the close of the
war and the return of the men now in the armies, a very large
output of manufacturing products will be pushed forward with
almost unheard of haste because of the needs of these various
143
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144 The Annals of the American Academy
countries to supply goods for export, and I believe that our Amer-
ican manufacturers must face a very strong competition.
Fifth. Out of these different currents of business and trade
brought on by the war, I believe that America is practically the
only country in this world that will be benefited and I believe that
we will be very substantially benefited. We are not equipped
perhaps today to assume the first position in business, in trade
world-wide, but backed by the enormous home consumption and
home trade, I believe that the future for this country is brighter
today than it has ever been.
THE MEANING OF NEUTRALITY
John Bassett Moore, ^
Professor of International Law, Columbia University.
The subject of American neutrality and the European war is
one intimately and vitally connected with the history and policy of
the United States. One hundred and twenty-two years ago, or less
than five years after the federal constitution was established, the
government of the United States was required to make a momentous
decision. The wars growing out of the French Revolution were
well under way and the circle of conflict had just been rounded out
by the entrance of the power which then held and has since con-
tinued to hold the world's naval supremacy.
Those who speak in awe-struck whispers of the problems, grave
though they be, that confront us today, perhaps are not always
acquainted with the appalling uncertainties and awful responsibili-
ties that rested upon the statesmen of an earlier day, who furnished
us with the chart and compass by which we have since sailed.
Regarding Europe as having a set of primary interests in which the
United States, with its geographical and political detachment, had
no direct concern, the administration of Washington announced to
the world that the United States would pursue a neutral course.
The history of American diplomacy during the twenty-two years
that followed, down to the close of the Napoleonic wars, is chiefly
concerned with the efforts of the United States to perform the duties
and maintain the rights appertaining to it as an independent and
neutral nation. This period of storm and stress has well been
denominated the struggle for neutrality, and in it were formulated
the fundamental principles on which the modern system of neu-
trality is based. In the task of formulation, the chief part was
borne by Thomas Jefferson, whose philosophic discernment, keen
intelligence, and extended learning enabled him to give to his work
a peculiar logical and original character. What we call neutrality
> Remarks as presiding officer at the third session of the Nineteenth Annual
Meeting of the American Academy of Political and Social Soienoe, held in
Philadelphia on April 30 and May 1, 1915.
145
146 The Annals of the American Academy
is a system of conduct regulated, not by the emotions nor by indi-
vidual conceptions of propriety, but by certain well defined rules,
and it is synonymous with impartiality only in the sense that those
rules are to be enforced with impartial rigor upon all belligerents.
It is proper to advert to the fact that, during the war that is
now going on in Europe, various neutral nations have issued embar-
goes under which the exportation of various articles is forbidden.
These are commonly interpreted, I think erroneously, as "neutral-
ity proclamations." In reality they are essentially regulations of
a domestic nature, employed for the purpose of preserving a proper
supply of articles, including even arms and munitions of war, in the
countries concerned.
THE NEUTRALITY RULES ADOPTED BY BRAZIL
By His Excellency, the Brazilian Ambassador,
Senhor Dom Domicio Da Gama.
I crave your indulgence for a brief presentation of the rules
adopted to define, secure and maintain the neutrality of Brazil in
the present European war. I will not undertake a detailed dis-
cussion of them; I only desire to call your attention to them as a
contribution towards the maintenance of friendly relations between
belligerents and a country not involved in the war. The observ-
ance of these rules, which was announced at the beginning of the
war, seems to have been approved by the belligerents, and particu-
lariy by one of them, which has gone so far as to propose that they
be taken as an example elsewhere. But the fact that the rules
wisely adopted by Brazil in matters of neutrality could not be fol-
lowed by others is another proof that international problems have
to be treated according to internal conditions, and their solution
subordinated to national conveniences. '' For geographical reasons' '
was a rather elegant phrase lately used in the declination of official
invitations to cooperate in defensive actions of government. This
is a new proof of the fact that, in some cases and particularly in
those involving responsibility, governments may feel safer in acting
alone than in finding themselves in good company.
I am prepared to admit that reflections such as these may
serve to cool the generous enthusiasm of the honest preachers of
international solidarity; nor should I wish to appear to be sarcastic
as I credit philanthropy with taking the initiative in the improve-
ment of international relations. And I also recognize that optimism
is at the basis of every constructive work, and should be an alto-
gether good thing. But we must also know that virtue among
nations has not reached such a pitch as to justify the belief in an
international society of nations, ruled by the same restraining, vir-
tuous, moral principles that preside over the relations of individuals
living in society. We are well acquainted with lessons of history
which not only sadden our hearts and darken our minds with the
tragedies of ambition, both in individuals and in nations, but which
147
148 The Annals of the American Academy
also teach us that optimism, especially in the sense of undue self-
confidence, may hurry us on to grave catastrophes. We are all
thinking of the present war — this war, that none of us would like
to be responsible for; this, to the cool-minded man, suicidal war,
was rendered possible by optimism in that sense. Some good
people, honestly believing that they had grievances to redress, felt
that all they had to do was to start and strike at those who stood
in the way, and that they would get their due for being brave and
strong and having confidence in themselves. And they went out
and struck and have been striking ever since, but cannot yet say
when the fighting will cease, because there are others in the way,
equally brave and strong and self-confident. The lesson of this
tragic mistake cannot destroy the hope that is immortal in the
heart of men, hope for better times when peace will rule the world ;
but it may warn us against the dangers of miscalculation through
optimism and, if some good may arise from so much evil, it will
come through fear — which in many respects is the beginning of
wisdom — fear that we are not safe, that we are not sufficiently
protected by our overestimated and over-trusted civilization.
Rules of neutrality appear as a consequence of the salutary
fear of entanglements and complications with other peoples' troubles.
These rules are rather precarious, being based on precedents or, more
exactly, upon the respect of the belligerents, a respect that may
naturally diminish as it comes to conflict with the needs of war.
When the rules are violated, protests are promptly made, explana-
tions and excuses follow, for the sake of international good feeling;
and the history of violations of neutrality is augmented by another
page on which is specially recorded yet another incident connected
with the solving by arms of the conflicts between nations.
For this, among other reasons, neutrality suffers a certain dis-
paragement in the minds of plain people, not to say of belligerents.
Nor are we neutrals credited with absolute impartiality before the
struggle, and, although "the state of neutrality avoids all considera-
tion of the merits of the contest," it cannot go so far as to sincerely
"recognize the cause of both parties to the contest as just," unless
a man has arrived at that degree of cynicism in which all human
ambitions and strifes appear as mere foolishness. From the average
man, even from professors of international law, hardly can we
Brazilian Neutrality Rules 149
expect such unearthly detachment as to preclude sympathy in the
decisions of absolute justice.
There is nothing to prevent us as individuals from making a
choice. We are free to have preferences, to take sides, if only
morally, in a contest of such magnitude and far-reaching conse-
quences. This is our personal right and almost bounden duty.
Where political reasons intervene it is in not showing our prefer-
ences, in expressing opinions and sentiments that might carry a
moral weight in favor of one of the contending parties ; and such a
reservedness, amounting to more than usual discretion and pro-
priety in social relations, is not obtainable without much care and
a real effort on the part of the governments.
Now, there seems to be no real reciprocity on the part of the
belligerents for such a consideration from the neutral. Enemies
are sometimes shown courtesies that are omitted with friends that
are neutral, and this is perhaps because they are neutral, that is to
say, friendly to the other party also. If it is true that the friends
of our friends are not always our friends, the friends of our enemies
may easily be found to be our enemies; or, at least they cannot be
of the best we may have in matter of friends. Oh! it is a poor
friendship, — the one which simply reads as the contrary of enmity.
It goes by degrees and has restrictions and wears out at the first
and lightest friction, as a label of no consequence upon a bottle of
doubtful wine.
This is what we imagine belligerents feel about neutrality, if
they do not really express themselves so clearly about it. And the
mortification of being under suspicion is thus added to the worries
and cares of the neutrals in their dealing with the special situation
created by an international war; a situation which should prevent
nations from armed conflicts, if the memory of past sufferings could
appear as vivid in our mind at the critical moment; which at all
events could be considerably improved if the interests of the neu-
trals were properly taken into consideration and their rights clearly
defined and respected by belligerents. A movement in this sense
was initiated last year by the governments represented at the Pan
American Union. A committee of study was appointed, which has
been working steadily and has already nearly completed its report,
and the nations of our continent, taken by surprise and finding it
difficult to legislate in time of war without affecting positions ac-
I
160 The Annals of the American Academy
quired and advantages gained by one or other of the belligerents,
prepare themselves to codify the rules of neutrality that may be
adopted in common and will in future conflicts serve the interests
of peace without interfering with the contest. I am not authorized
to speak about this preliminary work, which has still to be sub-
mitted to the consideration of our governments, unless it is to say
that it was conducted upon the most liberal principles. The
Brazilian rules of neutraUty given in full in the footnote ^ were among
the elements that were considered by the sub-committee in charge
of this codification. And from them, because so much has been said
about the exportation of arms and ammunitions of war to bellig-
erents, I select two articles which read :
Art. 4th. The exportation of arms and ammunitions of war from Brazil
to any port of the belligerent nations under the Brazilian flag, or that of any
other nation, is absolutely forbidden.
Art. 5th. The states of the Union and their agents are not permitted to
export or to participate in exporting any kind of war material for any of the belhg-
erents, severally or collectively.
These rules are not new. The first of them was promulgated
by the Minister of Foreign Affairs of Brazil on April 29, 1896, on
the occasion of the war between the United States and Spain. The
second is an extension of the first, and affirms the authority of the
federal government on an international matter.
Lately a circular dispatch dated February 22 of this year was
sent by the Minister of Foreign Affairs to the Brazilian Embassies
and Legations, saying that:
According to our law, that follows in this the principles of commercial law
common to all civihzed nations, the commercial associations established and
operating in the country and registered in the Brazihan boards of trade are con-
sidered as Brazihan irrespective of the nationality of their individual members.
Although this may bring as a consequence a difference between the juridic per-
sonality of these societies and that of their members, the Brazilian government will
not give its support to the claims made by commercial societies composed of for-
eign members, against acts of any of the beUigerent nations, until and when,
having duly examined the facts and carefully considered the circumstances, it
will be convinced, not only that the claim is absolutely well founded, but also
that it is free from any pohtical objects. It is the aim of the government of
Brazil to see by this decision that a juridic principle true and useful in time of
peace, may not be diverted from its moral purposes of tutelage and organization
80 as to cover acts not consistent with the neutrality that Brazil has so rigorously
maintained. (Signed) Lauro Mtiller.
* For General Rules of Neutrality see following pages.
Brazilian Neutrality Rules 161
Everything points to the practical wisdom of these rules.
They have proved satisfactory so far, but I am not aware of their
being put to a test. It was not so long ago when the papers re-
ported that reply of the commander of a British squadron to the
captain of the enemy warship, who claimed the right of asylum in
neutral waters: "I have to sink you first: diplomacy will settle
the matter afterwards." Brazilian diplomacy has not been settling
questions of violation of neutrality in our territorial waters.
GENERAL RULES OF NEUTRALITY
Art. let — National and foreign residents in the United States of Brazil must
abstain from any participation in aid of the belligerents or any act that may be
deemed hostile to one of the nations at war.
Art. 2nd — The belligerents are not allowed to promote in Brazil the enlist-
ment of their nationals, or of Brazihan citizens, or of subjects of other nations, for
service in their forces on land or sea.
Art. 3rd — The government of Brazil does not consent that privateers be
armed and equipped in the ports of the Repubhc.
Art. 4th — The exportation of arms and ammimitions of war from Brazil to
any port of the belligerent nations, under the Brazilian flag, or that of any other
nation, is absolutely forbidden.
Art. 5th — The states of the Union and their agents are not permitted to ex-
port or to participate in exporting any kind of war material for any of the belliger-
ents, severally or collectively.
Art. 6th — A belligerent is not permitted to have a naval base of operations
against the enemy at any point in the littoral of Brazil or its territorial waters,
not to have in said waters wireless telegraph stations to communicate with bellig-
erent forces in the theatre of the war.
Art. 7th — In case the military operations or the sea-ports of any of the bellig-
erents are situated at less than twelve days from the United States of Brazil,
reckoning travel at twenty-three miles an hour, no warship of the other belliger-
ent or beUigerents will be allowed to stay in Brazilian ports, harbors or roadsteads
longer than twenty-four hours, except in case of ships putting in on account of
urgent need.
The case of urgent need justifies the staying of the warship or privateer at
the port longer than twenty-four hours;
1. If the repairs needed to render the ship seaworthy cannot be made within
that time;
2. In case of serious danger on account of stress of weather;
3. When threatened by some enemy craft cruising off the port of refuge.
These three circumstances will be taken into consideration by the govern-
ment in granting a delay for the refugee ship.
Art. 8th— If the distance from the Brazilian port, harbor or roadstead of
refuge to the next point of the littoral of the enemy is groutex than twelve days'
152 The Annals of the American Academy
sail, the duration of the stay of the refugee ship or ships of war in the Brazilian
waters will be left to the determination of the government, acting according to
circumstances.
Art. 9th — Regardless of the distance between the Brazilian ports and the
principal field of military opverations or between the Brazihan ports and those of
one of the belligerent countries, privateers will not be allowed to stay in ports,
harbors or territorial waters of Brazil longer than twenty-four hours, except in the
three cases mentioned in Art. 7th.
Art. 10th — The rules established by Articles Nos. 7 and 8 for the limitation
of the stay of ships in the ports, harbors and territorial waters of Brazil do not
apply to ships of war occupied in scientific, religious or philanthropic missions,
nor to hospital ships.
Art. 11th — Any act of war, including capture and the exercise of the right
of visit, by a belligerent warship in territorial waters of Brazil constitutes a viola-
tion of the neutrality and offends the sovereignty of the Republic.
Besides due reparation, the government of the RepubHc will demand the
release by the belligerent government or governments of the vessels captured,
with their officers and crew, if such captured vessels are already beyond the jiu-is-
dictional water of Brazil and immediate repression of the abuse committed.
Art. 12th — Once war is declared, the federal government will prevent, by all
means, the fitting out, equipping and arming of any vessel that may be suspected
of intending to go privateering or otherwise engaging in hostilities against one of
the belligerents. The government will be equally careful in preventing the sailing
from the Brazihan territory of any vessel there adapted to be used as a warship
in hostile operations.
Art. 13th — The belligerent warships are allowed to repair their damages in
the ports and harbors of Brazil only to the extent of rendering them seaworthy,
without in any wise augmenting their mihtary power.
The Brazilian naval authorities will ascertain the nature and extent of the
proper repairs, which shall be made as promptly as possible.
Art. 14th — The aforesaid ships may take supphes in Brazilian ports and
harbors:
1. To make up their usual stock of food supplies as in time of peace;
2. To take fuel enough to reach their next home port or complete the filling
of their coal-bunkers proper.
Art. 15th — The belligerent warships that take fuel in a Brazilian port will
not be allowed to renew their supphes in the same or other Brazilian port before
three months have elapsed since their next-previous supply.
Art. 16th — BeUigerent ships are not allowed to increase their armament,
mihtary equipment or crews in the ports, harbors or territorial waters of Brazil.
They may claim the services of the national pilots.
Art. 17th — The neutraUty of Brazil is not affected by the mere passage
through its territorial waters of belligerent warships and their prizes.
Art. 18th — If warships of two beUigerents happen to be together in a Brazil-
ian port or harbor, an interval of twenty-four hours shall elapse between the sail-
ing of one of them and the sailing of her enemy, if both are steamers. If the first
to sail is a sailing vessel and the next being an enemy is a steamer, three days' ad-
Brazilian Neutrality Rules 153
vance will be given to the first belligerent ship. Their time of sailing will be
counted from their respective arrivals, exceptions being made for the cases in
which a prolongation of stay may be granted. A belligerent ship of war cannot
leave a Brazilian port before the departure of a merchant ship under an enemy
flag, but must respect the aforesaid provisions concerning the intervals of de-
parture between steamers and sailing vessels.
Art. 19th — If a belligerent warship having received due notice from the com-
petent local authority does not leave the Brazilian port where her stay would be
unlawful, the federal government will take the necessary measures to prevent her
sailing during the war.
(a) The officer in command of a ship of war flying the flag of a nation having
ratified the 13th convention of The Hague, October 17, 1907, or having adhered
to it afterwards, is under obligation to facihtate the execution of those measures.
(b) If a conmiandant of a beUigerent ship refuses to comply with the notice
received, for some reason nonapphcable, or for lack of adhesion to that and other
clauses of said convention of The Hague, the federal government will command the
naval and military authorities of the Repubhc to use force to prevent the violation
of Brazilian neutrality.
(c) A belligerent ship being detained in Brazil, her officers and crew shall be
detained with her.
(d) The officers and men thus detained may have their quarters in another
ship or in some place ashore, to be under the restrictive measures that are advis-
able, keeping aboard the warship the men necessary to her upkeep. The officers
may have their freedom, under written pledge, on their word of honor, not to
leave the place assigned to them in Brazilian territory without authorization from
the minister of the navy.
Art. 20th — The captures made by a belligerent may only be brought to a
Brazilian port in case of unseaworthiness, stress of weather, lack of fuel or food
provisions, and also under the conditions provided hereinbelow in Article 2l8t.
The prize must depart as soon as the cause or causes of her arrival cease.
Failing that departure, the Brazilian authority will notify the commander of the
prize to leave at once, and, if not obeyed, will take the necessary measures to have
the prize released with her officers and crew, and to intern the prize-crew placed
on board by the captor.
Any prize entering a BraziUan port or harbor, except under the aforesaid
four conditions, will be likewise released.
Art. 2l8t — Prizes may be admitted that are brought, under convoy or not,
to a Brazilian port, to be placed under custody pending the decision of the com-
petent prize-court. The prize may be sent by the local authority to some other
Brazilian port. If she is convoyed by a warship, the officers and prize-crew put
aboard by the captor may return to the warship. If she sails alone, the prise-
crew put aboard by the captor is left at liberty.
Art. 22nd — Belligerent warships that are chased by the enemy, and, avoid-
ing attack, seek refuge in a Brazilian port, will be detained there and disarmed.
But they will be allowed to go if their officers in command take the pledge of not
engaging themselves in war operations.
Art. 23rd — No prize will be sold in Brazil before the validity of her capture
154 The Annals of the American Academy
is recognized by the competent court in the country of the captor. Nor is the
captor allowed to dispose in Brazil of the goods in his possession as a result of the
capture.
Art. 24th — From the officers in command of naval forces or warships calling
at Brazilian ports for repairs, or supplies, a written declaration will be required
that they will not capture merchant ships under their adversary's flag, even out-
side territorial waters of Brazil, if met between 30 degrees Long. W. Greenwich,
the parallel of 4 degrees, 30 minutes N. and that of 30 degrees S., when these mer-
chant ships have taken cargo in Brazihan ports or are bringing cargo to the same.
Art. 25th — Belligerents cannot receive in Brazilian ports goods sent directly
to them in ships of any nation, since this would mean that the warships did not
put in in a case of urgent need, but intended to cruise in these waters. To tolerate
such an abuse would amount to allowing Brazilian ports to be used as a base of
military operations.
Art. 26th — Belligerent warships admitted into the ports and harbors of
Brazil shall remain in the places to them assigned by the local authorities, per-
fectly quiet and in peace with the other ships, even with the warships of other
belligerents.
Art. 27th — The Brazilian military, naval, fiscal and police authorities will
exercise the greatest care to prevent the violation of the aforesaid measures in the
territorial waters of the Republic.
Department of State for Foreign Relations, Rio de Janeiro, August 4th, 1914.
Frederico Apponso de Carvalho.
Decree No. 11,141 op September 9th, 1914, Completing the Rules of Neu-
trality Approved by Decree No. 11,037 op August 4th, Abrogates the
Last Part op the 22nd Article op the Same Decree
The President of the Republic of the United States of Brazil
Resolves to incorporate into the Decree No. 11,037 of the 4th of August ul-
timo the following rules:
Art. 1st — No merchant ship will be allowed to sail from a Brazilian port
without a previous declaration from the consular agent of her nation, stating the
ports of call and destination of said ship, with an assurance that she is employed
only on commercial business.
Art. 2nd — In case it will be known, by the length of her voyage or the route
of her sailing, that a ship sailing from a Brazihan port went to other ports than
those declared in her statement, and she returns to Brazil, she will be detained by
the Brazihan naval authorities to be considered as belonging to the fleet of war
of her nation and as such submitted to the dispositions of Article 19th of the De-
cree No. 11,037 of August 4, 1914.
Art. 3rd — Abrogates the last clause of Article 22nd of the rules approved by
Decree No. 11,037 of the 4th of August, 1914.
Rio de Janeiro, September 9th, 1914.
Hermes da Fonseca.
Lauro Muller.
NEUTRAL RIGHTS AND OBLIGATIONS OF AMERICAN
REPUBLICS
By Paul Fuller,
New York City.
The fortunate isolation of our hemisphere from the turmoils
and political rivalries of the eastern world has, with a few notable
exceptions, hitherto made our neutral obligations easy and our
neutral rights safe.
The present war, with its new methods, its novel and destruct-
ive enginery, its wide scope, has brought forward with some sharp-
ness the limits of our obligations and the need for defining our
rights.
Materials hitherto innocent, and now adapted to warfare, to
the manufacture of explosives and asphyxiating gases, to the con-
struction of aeroplanes, have made unexpected additions to contra-
band; the scale and magnitude of warlike operations have made
endurance the vital, rather than an incidental, element in the ulti-
mate outcome, and have brought foodstuffs into the forbidden circle;
the aircraft threatens the humane limitation that hitherto kept
undefended towns and their non-combatant population safe from
bombardment; the submarine, with the floating mine, while sub-
verting the character of blockade and demonstrating the inade-
quacy of its prior limitations, makes restricted navigability the plea
to justify the disregard of neutral flags and of non-combatants, and
threatens to convert the restricted right of search and seizure into
a right of destruction without warning. The predominance of sea
power is met by the converted cruiser roaming the western and
eastern oceans in search of unarmed and peaceful ships of commerce,
recalling and surpassing the palmiest days of the universally dis-
carded and rejected privateer.
The time is opportune to define and to emphasize the protection
due to neutral interests, and it behooves all neutrals to unite in
every effort to minimize the dangers and the injuries arising from
these changes in modern warfare.
I should be sorry, in pleading for the rights of neutrals, to show
165
156 The Annals of the American Academy
any lack of sympathy with the stress and strain that war brings upon
belligerents, or to minimize those perils and that anguish of war
which justify offensive and defensive measures, of necessity involv-
ing considerable interference with the normal commerce of neutral
countries. This recognition, however, must be reconciled with the
proper consideration for the industrial and commercial life of those
who have no part in the unfortunate conflict, and are not to be held
responsible for its inception. And there should be no especial
diflftculty in establishing rules for the protection of our western
hemisphere, hitherto considered so safely distant from the dangers
of European wars. The great concern of beUigerents, even among
many of those of today, has been, as it always should be, to cir-
cumscribe the area of any unavoidable conflict. In this design,
which has so lamentably failed on the present occasion, belligerents
would be greatly aided to their own relief, as well as to the benefit
of the world, by the joint cooperation of all neutrals.
It is a satisfaction, in discussing this question before the Amer-
ican Academy of Political and Social Science, to recall the initiative
taken by our South American brethren on the same subject at the
session of the Pan-American Union in December last (1914). On
that occasion the distinguished representative of the Argentine
Republic moved the formation of a committee of nine members,
which should study the new problems of international law arising
from the present war, and submit such suggestions as should
seem to be for the common interest. It was noted that the new
problems arising were of interest to the whole civilized world; that
the methods of warfare now in vogue were such as to threaten grave
injury to neutrals; and that a precise definition of those rights, in
view of the new contingencies, was urgently called for; to the end
that the freedom of commerce should not be infringed upon beyond
the limit absolutely requisite for the military operations of the
belligerents. The committee was formed, with our own secretary
of state as chairman, and the ambassadors of Brazil, Chili and
Argentina, and the ministers of Uruguay, Peru, Honduras, Ecuador
and Cuba, as members. No more timely a task could be under-
taken, I venture to say, under the lead of this Academy than to
awaken the widest interest in the propositions there made, and in
the forthcoming work of the committee there appointed. It is an
opportunity, moreover, in seconding the initiative of our southern
Neutral Rights and Obligations 157
brethren, to thus give them a formal assurance of the cooperation
which they may always expect from us in any movement which may
testify to our solidarity in all that can help towards good government
and towards just and equitable international relations; and at the
same time to forward the immediate purpose of defining clearly the
limitation of the privileges accorded to belligerents and framing an
equally clear definition of the rights of neutrals in war times. We
cannot do better than to join hands with our sister republics to the
south in helping to establish these new rules, and with them, broader
privileges for the neutrality of this hemisphere.
It is not inappropriate to meet the new creation of war zones
with the creation of corresponding and more beneficent peace zones.
In 1820 it was one of the hopes of Jefferson that some day there
might be established "a meridian 6f partition through the ocean
which separates the two hemispheres, on the hither side of which no
European gun shall ever be heard." While so large a hope may still
be of distant realization, the suggestion is pertinent and timely
today. With the advent of guns carrying their dreadful missiles a
distance of twenty miles, the reason for the three-mile limit of olden
times has vanished, and the limit itself should be enlarged to meet
the new possibilities of the ordnance of today. The large increase
of coasting trade, moreover, calls for a much extended and thor-
oughly safe zone around the two Americas, beyond which no
belligerent should venture without incurring the peril of internment;
not otherwise can even our distant shores carry on their com-
merce with absolute freedom.
The liberty of coaling in neutral zones, so liberally accorded to
belligerents, defeats its own purpose when the coaling of European
vessels is done on the South Pacific. The injunction that suflftcient
coal may be furnished to a belligerent vessel to enable her to reach
her nearest home port, never had in view the possibility of war-
vessels from the ports of Europe marauding in the Indian Seas or
the Pacific Ocean. The result of this unlooked for activity has
been that belligerent vessels have coaled in the ports of South
America, obtaining a sufficient provision to bring them to their
nearest home port, and, instead of accepting the corollary of such
liberal provision and proceeding to their home ports, have utilized
as war material the provision of coal so furnished and have con-
tinued their belligerent cruising in close vicinity to American shores.
158 The Annals of the American Academy
I indicate this simply as one of the points with reference to which
the rights of neutrals on our hemisphere require a new and a more
protecting definition.
The invitation by the South American republics to take up the
study of such a question in a joint conference is a welcome and a not
unexpected addition to the friendly service extended to us by the
Argentine Republic, Brazil and Chili, in the offer of their mediation
to put an end to controversies arising from the unfortunate events
in our sister republic of Mexico. And as we welcomed that friendly
and pacific suggestion, so it seems to me it would be appropriate
that we should act in concert with South America upon this broader
and equally beneficent proposal. The proposal is itself comforting
as a manifest assurance that the men entrusted with the political
destinies of these sister republics do not share in the doubts, too
often and, perhaps I may add, too vehemently expressed by publi-
cists upon whose shoulders do not rest the present burden of govern-
ment. Only such distrust could stand in the way of profitable
cooperation between North and South America at this stage. This
distrust, I am confident, is not universal, and I am still more con-
fident is quite unfounded. Our cooperation today must tend to
dissipate it and correct any misconceptions of our attitude towards
our sister republics.
The basis of this distrust is largely a misinterpretation — not
to say a distortion — of the policy adopted by this country nearly a
century since, and which has become to many a household word —
to others a by-word — under the title of the "Monroe Doctrine."
This misinterpretation has not been confined to our South American
brothers. A large share of it was born on our own soil, and many
Americans have been anxious to avoid joint political action, while
the South Americans have dreaded it, as the insidious approach to
a control inconsistent with the respect due to independent national-
ities.
''Yankee imperialism" is the term applied to the American
policy by Mr. Perez Triana, while admitting that from the time of
the declaration of President Monroe "Europe has acquired no
colonies in America because the United States has prevented it,"
and admitting the danger of the present war to be that "no matter
which group may win, victorious militarism will impose itself for a
long time upon the official policies of the nations"; and conceding
Neutral Rights and Obligations 159
the fact that if European conquerors have not invaded America
in the past, and will not in the future, this may be attributed
entirely to "the potential power of the United States."
Yet, as early as October, 1808, Jefferson voiced the feeling of
this country when he wrote to Governor Claiborne — " We consider
the interests of Cuba, Mexico and ours as the same, and that the
object of both must be to exclude all European influences from this
hemisphere." How truly that represented the feeling of the Amer-
ican people may be attested by what happened to Cuba nearly a
century later, and although at no time during that century were we
blind to the strategic importance of that island for the protection
of the United States against the European influences from which the
South American continent has been so long protected, the dis-
tinguished Argentine statesman, Senor Saenz-Pena, gives utterance
to the same distrust, and both of these gentlemen emphasize the
fact that the policy enunciated in Monroe's message was one of
self-interest and self-protection for the United States. This need
not be questioned, but it remains none the less true that only by
securing our own protection could we obtain or retain the power to
extend equal protection towards our new-born brethren. Nor can
it obscure the fact that, in adopting such a policy, our own interests
were happily at one with the higher and nobler cause of political
freedom.
The distinguished Peruvian, Garcia Calderon, in a profound
study of the Latin democracies, while acknowledging that all the
efforts of the new republics could not have prevailed against the
aspirations of Europe to establish their supremacy over them, unless
the Monroe Doctrine had stood in the way of such conquests and
extended its tutelage as a protection; while admitting that the
United States had upheld the independence of feeble states, pro-
claimed the autonomy of the continent, and contributed to conserve
the nationalities of Southern America by forbidding the formation
of colonies, and defending the republics against reactionary Europe;
that South America cannot dispense with the influence and the
exuberant wealth of the Anglo-Saxon North — who, he generously
concedes, has created an admirable democracy, reconciled equality
with liberty, given to all her citizens fair play and equal opportu-
nities, liberated Cuba, and transformed an exhausted island into a
prosperous country, installed schools which furnish adequate educa-
160 The Annals of the American Academy
tion to the "impressionable and nervous race" — yet insists that the
aim was to make a trust of the South American republics; and that
to save themselves from "Yankee imperialism," the American de-
mocracies would almost accept a German alliance or the aid of
Japanese arms; that our patriotism has been transformed into im-
perialism, and our policy passed from defense — through interven-
tion— to offense, and that the autonomy procured for Cuba at such
sacrifice of blood and treasure may well be a treacherous gift — like
to the Trojan horse!
Yet, Mr. Calderon, in pleading for a thorough South American
union, is forced to concede that the United States have used all their
influence to bring it about in the case of the Central American
republics.
What can we do to allay these suspicions of our southern
brethren?
Surely, to unite with them in pressing for a proper definition
of neutral rights on this hemisphere, and a proper limitation of
neutral obligations, must have some weight in convincing the
doubtful.
Calderon himself admits that contact with Anglo-Saxon civil-
ization may partially renew the South American spirit without
infringing upon its originality, or its traditions, or its ideals.
In 1869 William H. Seward wrote:
All that remains now necessary is the establ^hment of an entire tolerance
between the North American states and the South American republics, and the
creation of a mutual moral alliance — to the end that all external aggression may
be prevented, and that internal peace, law and order, and progress may be secured
throughout the whole continent.
Some form of cooperation is essential to the carrying out of a
program so beneficial to both North and South America; not neces-
sarily an alliance, but surely an understanding, or, to use the French
phrase, an "entente."
We have — not unwillingly — tendered our offices to stand
between Latin- American republics and forcible seizure by European
powers. Let us now show that these were amicably extended, as
from one independent sovereignty to another, by today acting in
unison with these same independent sovereignties upon an inter-
national subject that concerns us all equally, even though not to
the same degree.
Neutral Rights and Obligations 161
An early evidence of our anxiety, not to interfere in any manner
with South American autonomy, was the message of President
Adams of the 26th of December, 1825, in which, treating of the
forthcoming Panama Congress, he suggested an agreement that each
of the countries represented should undertake, by its own means,
to prevent the establishment of European colonies within its limits;
and that the acceptance of this principle should be urged upon the
new nations to the south of us, so that this national responsibility
should be recognized as an essential corollary of their independence.
And again in March, 1826, Mr. Adams declared that whatever
agreement should be arrived at should not go beyond the mutual
covenant of all to maintain the principle, each upon his own terri-
tory.
Surely, this gave no evidence of the desire to impose an
undesired hegemony; nor does our patience with the internal
struggles of our immediate neighbor to the south, with whose priv-
ileges of nationality we are unwilling to interfere, although as
Calderon tells us, ** there anarchy is paving the way to servitude."
It is small wonder, then, that Carlos Calvo, the great inter-
national publicist, who does such honor to Argentina, should have
said of the policy of the United States that it was "declaratory of
complete American independence," or that Anibal Maurtua, from
Peru, should have said, as late as 1901, that the message was "a
Pan-American declaration," or that Carlos Arena y Loayza should
have said in 1905 that the policy is
linked with our past, and with our present, and gives us the key to the future of
these Republics .... which are called upon to have one and the same spirit,
and to work in accord, in edifying friendship, for justice and peace on earth.
Nor should our friends forget, in taxing the policy with total
selfishness, that, in the very incipiency of their movement of libera-
tion, as early as the 14th of May, 1812, Monroe — then secretary of
state — wrote to Alexander Scott — then already established as a
United States agent to Venezuela:
Instructions have already been given to their ministers at Paris, St.
Petersburg and London, to make known to these courts that the United States
take an interest in the independence of the Spanish Provinces.
We are told that the possibility of armed invasion is a thing of
the past, and that, in the words of Mr. Maurice Low, "the lust for
162 The Annals of the American Academy
land no longer exists." This may be doubted if we consider how
recently the Treaty of Berlin proved rather an aid than an obstacle
to the absorption of Bosnia and Herzegovina; when we recall the
appropriation of Turkish Tripoli, explained by Mr. Ripardi-Mira-
belli in the Belgian Review of International Law as a necessity for
the expansion of Italy's new national life, and the logical outcome of
the absolute freedom of states to make war upon another whenever
they consider it indispensable for the satisfaction of their primary
needs.
That this "lust for land" has not disappeared, but, quite the
contrary, is searching for new fields, is the testimony of Dr. Kraus,
of Leipzig, who warns us that if Southern America has not yet
become the field of fierce rivalry among European nations, it is
because of the policy to which the United States has firmly held, to
which he adds, that
it would require a conscious effort for the people of a continent whose political
sense and feeling are at present influenced by an incessant rivalry for colonial
expansion, to conceive that a state may have any other political ideal — that its
ambition may not necessarily strive for increase of power by colonial acquisition.
Calderon also tells us that German professors are condemning
the Monroe Doctrine and
regard the Yankee thesis merely as a perishable improvisation upon a fragile
foundation. The interest of Germany demands that the United States should
abandon their tutelage, and that the swarming Germanic legions should invade
the southern continent.
But, assuming that Mr. Low's "lust for land" has so far
diminished that its satisfaction is not likely to be sought for by
deliberate invasion, the old method has been supplanted by the
more subtle influence of economic advantages, of commercial and
financial penetration. Professor Loria, of Turin, who does not
take the advanced (or retrograde) view of Ripardi-Mirabelli, calls
our attention to these monetary relations, which he warns us have
acquired great importance in our times and may be the cause of
seriously undermining the independent sovereignty of smaller
states. The non-payment of interest on bonded debts — no matter
by what cause payment is delayed — exposes the debtor state to an
intervention of the creditor states, which, beginning by the appoint-
Neutral Rights and Obligations 163
ment of a mixed commission, often ends in actual political inter-
ference.
The logical application of the policy which would preserve
intact democratic sovereignties on this hemisphere, must find some
remedy for this twentieth century method of possible political con-
trol by European powers. Mr. Poincar^, writing an appreciative
preface to Mr. Calderon's keen exposition of the South American
situation, expresses particular approval of Calderon's warning
against excessive loans. Calderon's warning is against the influence
of capital. "Against flat invasion by any power the tutelage of
the United States is a protection," he tells us. But he adds, as
already noted, that South America cannot dispense with the "exu-
berant wealth" of the Anglo-Saxon North, and that "the defense of
the South should consist in avoiding the establishment of privileges
or monopolies, whether in favor of North Americans or Europeans."
Beaumarchais, an unsparing analyst and critic of the American
policy, declares that the policy involves the freedom of the former
Spanish colonies from the commercial subjection to Europe.
That such an application of the American policy should not
interfere with activities "purely economic" — to use Dr. Kraus'
words — or "merely commercial activities" — as Professor Wambaugh
phrases it — goes without saying. But the record shows too vividly
how difficult it is to restrain within these bounds financial operations
which may result in such eventualities as the enthronement of
Maximilian in Mexico, or as the loud demands of European cannon
for economic redress at the ports of Venezuela and of San Domingo.
Even with larger and more prosperous nations within the European
boundary, examples of a financial bondage are not wanting. It is
notorious that German capital in Italy was so intrenched, so inter-
woven with her pressing needs, that liberation was indispensable
to give Italy a freed hand — a liberation brought about by allied
advances which cancelled the indebtedness towards Germany.
So that, while it is universally conceded that the policy first
expressed in international form by Monroe stood in the way of
European occupation of American territory, or the establishment
of European governments on this side of the Atlantic, the logical
development of that policy and its application to new situations
require that this hemisphere shall also be defended against such
financial situations as may result in the practical subjection to
164 The Annals of the American Academy
European influences, with the danger of armed interference as a
result of financial disaster.
That this should still be a live question is largely due to our
own lack of appreciation of the opportunities and of the duties
which lay before us, due to the natural difficulties of assimilation
and to our own apparent unwillingness to bend ourselves to the
necessities of the situation and get a better comprehension and a
more sympathetic appreciation of the qualities of our southern
neighbors. It is this which has permitted the commercial and
economic primacy of Europe, as well as its intellectual dominance
over the South American continent. Only within the most recent
period has the enterprise of an American bank brought Argentine
exchange to New York, and not yet is it feasible to make as rapid,
or as comfortable, a journey from Buenos Ayres to New York as
from Buenos Ayres to London.
This is the new application and logical expansion of the policy
enunciated in 1823; and I speak of it as a policy rather than as a
doctrine. It is the enunciation of a system countenanced by
America in the conduct of its public affairs and relating to its inter-
course with European countries in reference to this hemisphere.
As such a policy, it is in consonance with the aspirations of all
America. Between those who choose to treat it as dead, those who
would abandon it, those who misinterpret it, those who make of it
the vehicle of swaggering imperialism, those who dread the conse-
quences both to ourselves and to our neighbors of its expansion into,
or acceptance as, an American "entente," is there no happy medium,
no middle way which would bring us all together on the path of
unselfish and wise unity, in reaching which we may find that sincer-
ity, fair dealing, regard for the rights of others, strict respect for
national autonomy, comprehension of others' needs, as well as of
our own, make not only for peace but for mutual prosperity?
This is the policy as today understood and as today applied.
It is not amiss to repeat here the words of our distinguished
president on this subject. Addressing a commercial congress at
Mobile, in October, 1913, he says:
You hear of "concessions" to foreign capitalists in Latin America. You do
not hear of concessions to foreign capitalists in the United States. They are not
granted concessions. They are invited to make investments. It is an invitation,
not a privilege; and states that are obliged, because their territory does not lie
Neutral Rights and Obligations 166
within the main field of modem enterprise and action, to grant concessions are in
this condition, that foreign interests are apt to dominate their domestic afifairs, a
condition of affairs always dangerous and apt to become intolerable. What these
states are going to see, therefore, is an emancipation from the subordination,
which has been inevitable, to foreign enterprise and an assertion of the splendid
character which, in spite of these difficulties, they have again and again been able
to demonstrate. The dignity, the courage, the self-possession, the self-respect
of the Latin American states, their achievements in the face of all these adverse
circumstances, deserve nothing but the admiration and applause of the world.
They have had harder bargains driven with them in the matter of loans than any
other peoples in the world. Interest has been exacted of them that was not
exacted of anybody else, because the risk was said to be greater; and then securi-
ties were taken that destroyed the risk — an admirable arrangement for those who
were forcing the terms.
I rejoice in nothing so much as in the prospect that they will now be emanci-
pated from these conditions, and we ought to be the first to take part in assisting
in that emancipation.
We must prove ourselves their friends and champions upon terms of equaUty
and honor. You cannot be friends upon any other terms than upon the terms of
equahty. You cannot be friends at all except upon the terms of honor. We must
show ourselves friends by comprehending their interest whether it squares with
our own interest or not. It is a very perilous thing to determine the foreign
policy of a nation in the terms of material interest. It not only is unfair to those
with whom you are deahng, but it is degrading as regards your own actions.
Comprehension must be the soil in which shall grow all the fruits of friendship.
. . . I want to take this occasion to say that the United States will never
again seek one additional foot of territory by conquest. . . .
She must regard it as one of the duties of friendship to see that from no
quarter are material interests made superior to human hberty and national oppor-
tunity. I say this, not with a single thought that anyone will gainsay it, but
merely to fix in our consciousness what our real relationship with the rest of
America is. It is the relationship of a family of mankind devoted to the develop-
ment of true constitutional hberty. We know that that is the soil out of which
the best enterprise springs. We know that this is a cause which we are making
in common with our neighbors.
In emphasizing the points which must unite us in sympathy and in spiritual
interest with the Latin American peoples we are only emphasizing the points of
our own life, and we should prove ourselves untrue to our own traditions if we
proved ourselves untrue friends to them.
At a Still earlier date— on the 12th of March, 1913— the presi-
dent made this formal announcement:
One of the chief objects of my administration will be to cultivate the friend-
ship and deserve the confidence of our sister republics of Central and South
America, and to promote in every proper and honorable way the interests which
are common to the peoples of the two contineDts. I earnestly desire the most
166 The Annals of the American Academy
cordial understanding and cooperation between the peoples and leaders of Amer-
ica, and, therefore, deem it my duty to make this brief statement.
Mutual respect seems to us the indispensable foundation of friendship
between states as between individuals.
The United States has nothing to seek in Central and South America except
the lasting interests of the peoples of the two continents, the security of govern-
ments intended for the people and for no special group or interest, and the develop-
ment of personal and trade relationships between the two continents which shall
redound to the profit and advantage of both and interfere with the rights and
liberties of neither.
This "cause which we are making in common with our neigh-
bors," and these "interests which are common to the peoples of
the two continents," unquestionably embrace a proper limitation
and a clear definition of American neutral rights and obligations,
and the occasion offers us an opportunity to unite with our sister
republics of the south in this common cause, which in this instance
is also the common cause of humanity.
Surely, all the nations of both Americas are desirous of avoid-
ing entanglements with European or Asian nationalities; all are at
one in the determination that they must be unhampered in develop-
ing their own political future in the democratic forms of government
which they have adopted; safe from either forcible or insidious
influence of other powers. To this their distance from the shores of
the eastern hemisphere is some protection, but their own mutual
understanding and cooperation will always be far more potent.
As for material progress and development, a like understanding
and cooperation must surely enhance it; a more active commercial
intercourse; more and better means of communication will open
additional markets for their exports, and greater competitive fields
from which to draw their imports. The financial center is no longer
safely anchored in Europe; the present growth and the immediate
possibilities of our own money markets offer opportunities for trade
which, in the interest of all, should be availed of and fostered; it is
the part of wisdom that every portion of the western world should
come to an intelligent and amicable understanding of the respective
advantages which each portion offers to the other, and by such
understanding make them the more fruitful.
It is time for suspicion and distrust, — restless and disturbing
bedfellows, — to give way to confidence. It is time for united action
in all those things which are unquestionably of common interest.
Neutral Rights and Obligations 167
Fair and liberal commercial relations are one of these things; favor-
able credits on the one hand, reasonable security on the other;
mutual helpfulness in the enhancing of transportation facilities,
due regard for local requirements in shipping; all these are helps
which will be of equal benefit to all.
The safeguarding of our distant and neutral shores from any-
noxious effects of eastern wars is a prerequisite condition of unin-
terrupted economic activity, to ensure which we can and should un-
hesitatingly unite.
To work this forward step in the international relations of war
will be also, let us hope, a step in our further union; our further
union for the protection and enhancement of our mutual economic
interests; our union in an earnest endeavor to bring about that
financial and economic emancipation of all Latin American coun-
tries, which President Wilson has so earnestly and eloquently
advocated — precisely as in the message of President Monroe a like
emancipation was sought against political and governmental
influences on this western hemisphere. We may thus hope to give
assurance to the world that America — the two Americas — stand
together, and that, far from becoming imperialistic and oppressive,
the policy of Monroe has blossomed into a newer and larger frater-
nity which henceforth may be known as the '^Wilson Doctrine."
THE RIGHT OF CITIZENS OF NEUTRAL COUNTRIES
TO SELL AND EXPORT ARMS AND MUNITIONS
OF WAR TO BELLIGERENTS
By William Cullen Dennis,
Lawyer, Washington, D. C.
Since the beginning of the present war two questions as to the
rights and duties of the United States have engaged the attention
of our people before all others, I think because of the human interest
which they involve. The first of these is the question whether the
United States as one of the leading neutral nations signatory to the
Hague conventions had a right and duty to protest against the
violation of the neutrality of Belgium. People were interested in
this because, beyond the technical questions of conventional law,
they saw the ruin of a rich country and the destruction of a brave
people, and ultimately a great injury to civilization itself.
The second question which has evoked general interest, and to
which I propose to ask your attention for a few minutes is whether
the United States has either a legal or moral duty to forbid the ex-
portation of arms and munitions of war to the belligerents. This
question is not a new one, or peculiar to the present contest; witness
Lowell's complaint in his inimitable Biglow Papers of a similar traffic
on the part of British subjects during the Civil War, when he said:
You wonder why we're hot, John,
Your mark was on the guns.
The neutral guns that shot, John,
Our brothers and our sons.
Witness also Sir William Vernon Harcourt's masterly defense under
the pen name of Historicus, of the right of the citizens of neutral
nations to engage in this trade, a defense to which it is submitted
practically nothing can be added at the present day aside from
bringing it up to date.
The Present Rule of International Law is Clear
Fortunately there is not and cannot be any serious dispute as
to what the rule of international law upon this subject is. It was
16$
Rights of Neutral Countries 169
laid down in unequivocal terms over one hundred years ago by
Jefferson^ and Hamilton ^ in the midst of a crisis which, as our
chairman has pointed out, was infinitely greater for our infant
nation than that through which we are passing today. And it is
interesting to note that it was defended by them upon practically
the same grounds upon which it is defended by the official reporter
of Convention V^ of the Hague conference of 1907, "Respecting the
* " In one of these memorials it is stated that arms and military accoutrements
are now buying up by a French agent in this country, with an intent to export
them to France. We have answered that our citizens have always been free to
make, vend, and export arms; that it is the constant occupation and livelihood
of some of them. To suppress their callings, the only means, perhaps, of their
subsistence, because a war exists in foreign and distant countries, in which we have
no concern, would scarcely be expected. It would be hard in principle, and im-
possible in practice. The law of nations, therefore, respecting the rights of those
at peace, has not required from them such an internal derangement in their
occupations. It is satisfied with the external penalty pronounced in the president's
proclamation, that of confiscation of such portion of these arms as shall fall into
the hands of any of the belligerent powers, on their way to the ports of their
enemies. To this penalty our citizens are warned that they will be abandoned,
and that the purchases of arms here may work no inequality between the parties
at war, the hberty to make them will be enjoyed equally by both." (Jefferson to
Temant, French Minister to the United States, May 15, 1793. American State
Papers, Vol. 1, p. 147, quoted in Moore's International Law Digest, sec. 1308, Vol.
7, p. 955.)
* "A neutral nation has a general right to trade with a power at war. The
exception of contraband articles is an exception of necessity; it is a qualification
of the general right of the neutral nation in favor of the safety of the beUigerent
party. And it is from this cause, and the diflSculty of tracing it in the course of
commercial dealings, that for the peace of nations, the external penalty of con-
fiscation is alone established." (Hamilton to Washington, May 15, 1793. Hamil'
ton's Works (Lodge), Vol. 4, p. 416.)
* This convention was reported to the conference by a sub-commission over
which the distinguished Dutch jurist, M. Asser, presided, and which numbered
among its members: Major General de Giindell, military delegate of Germany;
Brigadier-General George B. Davis, U. S. A.; Baron Giesl de Gieelingen, major-
general and mihtary delegate of Austria; and the distinguished jurists M.
Beemart, M. Louis Renault, and Lord Reay. Colonel Borel, professor at the
University of Geneva, and plenipotentiary delegate of Switzerland, was the
official reporter; and he explains and justifies the rule laid down in Article 7, in
the following language:
"The rule which this article lays down is justified in itself independently of the
reasons of a practical nature which militate in its favor. As a matter of principle,
neutral states and their i>eopIee ought not to suffer the consequences of a war
which is foreign to them. The burdens and restrictions which it plaoes upon their
170 The Annals of the American Academy
rights and duties of Neutral Powers and Persons in case of War on
Land," to which both Germany and the United States are parties,
and which reads, Article 7, as follows:
"A neutral power is not called upon to prevent the export or
transport on behalf of one or other of the belligerents, of arms, muni-
tions of war, or, in general, of anything which can be of use to an
army or fleet."
It may be granted that this convention is not technically in
force in the present war, but it affords a concise and authoritative
statement of the acknowledged rule of law, a rule of law which
appears to be recognized by Germany, which while strongly remon-
strating against the contraband trade engaged in by the citizens of
the United States as inconsistent, under the circumstances, with
**the spirit of true neutrality" appears to admit that it does not
constitute a "formal breach of neutrality."^
liberty of action should be confined to what is absolutely necessary. There is no
good reason for prohibiting or burdening the commerce of the inhabitants of neu-
tral states even in regard to articles mentioned in the text just cited. Every
restriction upon neutral states in that matter which might be suggested would
bring about in practice the greatest diflBculties and would create inadmissible
burdens on commerce in general." (Proceedings of the Second Hague Conference,
Vol. 1, p. 141. Free translation.) Hague Convention XIV of 1907, "Concerning
the rights and duties of neutral powers in naval war," to which the United States
and Great Britain are parties, has an identical provision with Article 7 above
quoted of Convention V.
* "The German government believe that they are obhged to point out very
particularly and with the greatest emphasis, that a trade in arms exists between
American manufacturers and Germany's enemies which is estimated at many
hundred million marks.
"The German government have given due recognition to the fact that as a
matter of form the exercise of rights and the toleration of wrong on the part of
neutrals is limited by their pleasure alone and involves no formal breach of neu-
trality. The German government have not in consequence made any charge of
formal breach of neutrality. The German government cannot, however, do other-
wise, especially in the interest of absolute clearness in the relations between the
two countries, than to emphasize that they, in common with the pubhc opinion
in Germany, feel themselves placed at a great disadvantage through the fact that
the neutral powers have hitherto achieved no success or only an unmeaning suc-
cess in their assertion of the right of trade with Germany, acknowledged to be
legitimate by international law, whereas they make unhmited use of their right
to tolerate trade in contraband with England and our other enemies. Conceded
that it is the formal right of neutrals not to protect their legitimate trade with
Germany and even to allow themselves knowingly and willingly to be induced
Rights of Neutral Countries 171
It would be a work of supererogation to pile up diplomatic and
judicial authorities in support of the right of the citizens of a neutral
nation to engage in contraband trade with a belligerent. * Despite
the protest which the belligerent frequently makes, neutral nations
have almost universally asserted and maintained this right. The
exceptional cases in which the ordinary rule has not been followed
in practice by neutral nations — such as the very significant exception
to which His Excellency the Brazilian ambassador has called atten-
tion, • the prohibition of the exportation of arms and munitions of
war by Brazil during the Spanish-American war and during the
present struggle, only serve to bring out more clearly the practical
unanimity with which the nations of the world have not only accepted
the ordinary rule, but acted on it. There is perhaps no important
rule of international law better settled than that which permits the
inhabitants of neutral countries to sell and export contraband to
belligerents, subject to the belligerent's right to intercept on the
high seas and confiscate contraband destined for its adversary.
When any rule of international law emerges from the perennial
conflict between neutrals and belligerents with such unanimous
acceptance it may be safely assumed that whatever may be said
of it in theory it is based upon sound practical considerations. The
justification for the particular rule in question is not far to seek.
So long as war is to be waged, a fair balance of convenience must be
by England to restrict such trade, it is on the other hand not less their good right,
although unfortunately not exercised, to stop trade in contraband, especially
the trade in arms, with Germany's enemies. ... In regard to the latter
point (contraband trade especially in war materials by neutral merchant vessels],
the German government ventures to hope that the American government upon
reconsideration will see their way clear to a measure of intervention in accordance
with the spirit of true neutrality." (The German minister for foreign affairs, to
the American ambassador at Berlin, February 16, 1915.) See also the note of the
German Embassy to the secretary of state, of April 4, 1915, transmitting a "mem-
orandum on the German- American trade, and the question of delivery of arms"
in which the Imperial government observes that "It is necessary to take into con-
sideration not only the formal aspect of the case, but also the spirit in which the neu-
trality is carried out"] and further says that " If it is the will of the American people
that there shall be a true neutrality the United States will find the means of pre-
venting this one-nded supplying of arms, or at least of utilizing it to protect legiti-
mate trade with Germany, expecially that in foodstuffs." (The italics in all
are those of the present writer.)
* See Moore's InUmatvmal Law Digest, Vol. VII, sec. 1308, pf^sntn,
'Seepage 150.
172 The Annals of the American Academy
struck between the necessities of belligerents and the rights of
neutrals. It would be oppressive and impracticable to call upon
a neutral nation to harass its own citizens and restrain their con-
duct in their own country in manufacturing, selling and exporting
munitions of war. On the other hand it would be futile to expect
a belligerent to sit passively by and allow these munitions of war,
once they have left the country of their origin and are embarked
upon the high seas, to reach its adversary. Hence the compromise.
Neutral citizens may sell and export; a belligerent nation may in-
tercept and confiscate if it can.
7s it desirable in the abstract to change the present rule?
It is to be conceded, of course, that there is nothing sacred about
the compromise embodied in the present rule of international law.
The rule can naturally be changed by common consent or international
convention, and the United States can, if it sees fit, without reference
to the rule of international law, change its municipal law by for-
bidding the exportation of arms and munitions of war to belliger-
ents. Several bills to this effect were introduced at the last session
of Congress, and there is an organized propaganda in the country
working to this end.
In considering the proposed embargo, two general questions
are presented for consideration: first, whether or not the proposed
change is desirable in the abstract at any time; and second, whether
or not it is desirable at this time. The abstract question will be
first considered.
If the rule of international law is changed, if the inhabitants of
neutral countries are inhibited from exporting munitions of war to
belligerents, then immediately it becomes the duty of the neutral
nations to prevent such exportation just as it now is their duty to
prevent armed expeditions from being set on foot on their territory
to attack belligerents. And in like manner belligerents become en-
titled to take an interest in the performance of this duty on the part
of neutrals, and to make reclamations for damages if the duty is
not fulfilled with "due diligence." Of course the United States
could not work a change in the general rule of international law by
laying an embargo. But it could enlarge the international duties
of the United States. As soon as the embargo act became a law,
belligerents, by virtue of the Hague convention of 1907, No. V,
Rights of Neutral Countries 173
above referred to (Article 9), as well as by the general principles of
international law, would be entitled to demand that the new legis-
lation should be "impartially applied.'* The practical result would
be, therefore, that, whereas at present we have no responsibihty
with respect to ordinary commercial shipments of munitions of war,
the day after the proposed law went into effect we would find our-
selves liable to representations with possible claims for damages in
the background, from any and all of the belligerents because, say, of
alleged failure to use "due diUgence'' impartially to apply the new
law by stopping the exportation of Winchesters from Portland,
Maine, or Oregon, ostensibly for lion-hunting in Abyssinia, or
blasting powder from El Paso, Texas, billed to some American mine-
owner in Mexico. If in enforcing the new law we looked merely
to the primary destination, it would be a farce. If we endeavored
to look to the ultimate destination, it would impose an intolerable
burden.
Moreover, the belligerents would take an interest, not merely
in the final act of exportation, but they would naturally be watch-
ful of the manufacture and shipment within the United States of
arms and ammunition which might ultimately be destined for export,
and would diligently seek to keep themselves informed thereof by
their secret agents, and as diligently bring the reports of their secret
agents to the state department with requests for preventive action.
Far from tending toward international harmony, the proposed
legislation would, it is believed, tend to multiply our duties and
burdens, and thereby create international claims and international
animosity. Neutral duties would be enormously increased and
neutral rights restricted in an age when we had been taught to be-
lieve that peace and not war was to be the normal status of the
nations. As Sir William Vernon Harcourt said in his Letters of
HistoricuSy with reference to a similar proposition advanced at the
time of our Civil War:
If the sale of munitions of war is to be held a breach of neutrality, " instantly
upon the declaration of war between two belligerents, not only the traffic by sea
of all the rest of the neutral powers of the world would be exposed to the incon-
veniences of which they are ah*eady impatient, but the whole inland* trade of
every nation of the earth, which has hitherto been free, would be cast into the
fetters. ... It would give to the belligerent the right of interference in every
act of neutral domestic commerce, till at last the burden would be so enormous
that neutrality itself would become more intolerable than war, and the result oC
174 The Annals of the American Academy
this assumed reform, professing to be foimded on *the principles of eternal justice/
would be nothing less than universal and interminable hostilities." '
Moreover, although the proposition now being most discussed
is limited to forbidding the exportation of arms and munitions of
war, once the principle of such legislation finds approval it is likely
to lead to still further encroachments on neutral commerce. The
next step will naturally be to demand an embargo on conditional
contraband,® whatever that may be, and no one can well foresee
the complications to which this might lead.
"If Mexico," said Mr. Seward, "shall prescribe to us what merchandise we
shall not sell to French subjects, because it may be employed in military operations
against Mexico, France must equally be allowed to dictate to us what merchan-
dise we shall allow to be shipped to Mexico, because it might be beUigerently
used against France. Every other nation which is at war would have a similar
right, and every other commercial nation would be bound to respect it as much
as the United States. Commerce in that case, instead of being free or independent,
would exist only at the caprice of war." •
Such being the justification for the present rule and the practical
objections to the proposed change, what can be said in the abstract
in favor of changing the established rule of international law in the
manner proposed? So far as the writer is aware the two main argu-
ments which have been urged in favor of such a change are: first,
that it is wrong for neutral governments to permit their citizens to
trade in munitions of war to be used against nations with which
they are at peace; and second, that the prohibition of this traffic
would tend to diminish the frequency, duration and severity of fu-
ture wars. The ethical argument is, of course, sound from the point
of view that all war is wrong, and that any assistance — direct or
indirect — toward carrying on war is wrong under all circumstances.
Unfortunately, however, the world is not yet prepared to accept
this viewpoint. If it was, war would cease to exist at once, and there
' Quoted in sec. 1308, Moore's International Law Digest, Vol. VII, p. 970.
»If it be suggested as against this particular argument, that "conditional
contraband" should be abolished and a single list of contraband agreed on, aa
recently proposed by the distinguished chairman of this meeting, the answer is,
first, that this proposition has not yet been adopted; and second, that any agreed
list of absolute contraband is likely to be so lengthy as to involve a most serious
stoppage to neutral commerce in time of war.
' Mr. Seward, secretary of state, to Mr. Romero, Mexican minister, Decem-
ber 15, 1862. Moore's International Law Digest, sec. 1308, p. 958.
Rights op Neutral Countries lt5
would be no necessity for the legislation proposed. But granting
that wars must for the present be endured from time to time, it is
submitted that it is very doubtful whether the proposed change
would tend to render them less frequent or less bloody. It would
simply result in largely increased purchases of munitions of war
during times of peace (unless it is also proposed to prohibit commerce
in munitions of war in time of peace), and in the great increase in
every country, and particularly in the United States, of the amount
of fixed capital invested in the business of manufacturing munitions
of war. In other words, if international commerce in munitions of
war were forbidden while war itself remains, every country, accord-
ing to its capacity, would have to do as Germany has done in antici-
pation of failure to control the seas, and every nation would have its
own Essen and its own ''Kanonen Konig." And if by any chance a
peaceful country like the United States became involved in war
before it had adjusted itself to the new rule by building up great
establishments for the production of arms and armaments, it would
pay dearly for its neglect. Instead of decreasing, it is believed that
this would increase the influences in every state which make for war,
unless the whole business of the manufacture of arms and munitions
of war was everywhere made a government monopoly, which would
raise other interesting questions — among them, whether or not
the entire world has yet progressed to the point where liberty would
be safe if revolution were made practically impossible through uni-
versal governmental control of the manufacture of munitions of
war — questions which would lead us too far afield.
Let us not be deceived into thinking that we can abolish war
by making it more burdensome for neutrals, and compelling even
the non-military nations to join in the competitive construction
of gun factories.
78 it desirable to change the present rule at this timet
So much on the abstract question as to changing the long-
established rule of international law. But how stands the case for
the proposed change in view of the actual conditions now obtaining?
The proponents of the embargo proposition before Congress main-
tained "that it is a condition, not a theory which confronts us";
that as a practical matter England commands the seas, and arms
and munitions can only be exported to the Allies and not to Ger-
176 The Annals of the American Academy
many and Austria; that the rule of international law therefore lacks
under these circumstances the "moral background" ^° which sup-
ports it; and to maintain it, is to fail in genuine neutrality. In this
connection reference is made to Jefferson's statement that in order
that ''the purchases of arms here may work no inequality between
the parties at war, the liberty to make them will be enjoyed equally
by both." But the answer to this suggestion is obvious. The liberty
to make purchases, to which Jefferson referred, is still ''enjoyed
equally" by both beUigerents, and it is no more the concern of the
United States that Germany is unable to import contraband because
the British fleet commands the seas, than it would be if her failure
to make use of her liberty to purchase resulted from lack of money
to pay for the arms, or, as might well be the case, from the abundant
ability of the Krupp works to supply her necessities.
With all deference to those who talk about "changed condi-
tions," it is submitted that suddenly to change our law which con-
forms to our international duties, because England commands the
seas rather more completely than she did a hundred years ago, is
simply to intervene to undo the effects of her naval preparedness
and naval victories. There was a time not so very long ago when
Germany was victorious in the South Pacific. Would it have been
fair for Chile immediately after the German victory to have for-
bidden the exportation of arms and ammunition, on the ground that
none could get through to England?
Again, it is suggested, and this time in an official memorandum
of the German government, that it makes a difference that "all
nations having a war material industry worth mentioning are in-
volved in the war themselves, or are engaged in perfecting their own
armaments," and therefore the United States is "the only neutral
country in a position to furnish war materials." ^^ With all defer-
^°See Congressman Baxthold's statement before the House Committee of
Foreign Affairs, December 30, 1914, Hearings on H. J. Res. 377, 378, p. 25, etc.
See also the reference in the memorandum of the German government handed to
the State Department by the German ambassador, April 4, 1915, to ''this one-
sided supplying of arms," and to the "theoretical willingness to supply Germany."
See supra, p. 171, note.
" ''The situation in the present war differs from that of any previous war.
Therefore any reference to arms furnished by Germany in former wars is not
justified, for then it was not a question whether war material should be supplied
to the belhgerents, but who should supply it in competition with other nations
Rights of Neutral Countries 177
ence it is submitted that it would be very singular if either the legal
or the moral rights of the United States as a neutral could be affected
by the number of the belligerents or the character of their industries.
It is argued in the same German memorandum that it makes
a difference at least ''in accordance with the spirit of true neutral-
ity" that the arms industry of the United States is being developed
through the enlargement of the present establishments and the
building of new ones. ^^ But surely it is no new thing for war to
create as well as to destroy industries in neutral nations. One is as
legitimate as the other, provided the rules of international law are
observed. Belligerents cannot eat their cake and have it. Simi-
lar suggestions to the effect that the legitimacy of trade in contra-
band was effected by its size have been made in the past,^^ but
have never found a lodgment in the law. It is submitted with all
deference that they are totally impractical — as impractical as it
has been found to be to make mere bigness a test of the violation
of the Sherman anti-trust act.
Precedent for the proposed action under such circumstances as
the present, there is absolutely none. Obviously our embargo on
the exportation of munitions of war in 1794, when war with England
threatened, our general embargo of thirty days just before the war
of 1812, and our embargo on the exportation of arms and munitions
In the present war all nations having a war material industry worth mentioning
are either involved in the war themselves or are engaged in perfecting their own
armaments, and have therefore laid an embargo against the exportation of
war material. The United States is accordingly the only neutral country in a
position to furnish war materials. The conception of neutraUty is thereby given
a new purport, independently of the formal question of hitherto existing law."
(German memorandum enclosed in the note of the Imperial German Embassy of
AprU 4, 1915.)
""In contradiction thereto, the United States is building up a powerful
arms industry in the broadest sense, the existing plants not only being worked
but enlarged by all available means, and new ones built. The international con-
ventions for the protection of the rights of neutral nations doubtless sprang from
the necessity of protecting the existing industries of neutral nations as f ar aa
possible from injury in their business. But it can in no event be in accordance with
the spirit of true neutrality if, under the protection of such international stipula-
tions, an entirely new industry is created in a neutral state, such as is the develop-
ment of the arms industry in the United States, the business whereof, under the
present conditions, can benefit only the belligerent powers." (German memo-
randum enclosed in the note of the Imperial German Embassy of April 4, 1915.)
» See Moore's Digest, Vol. VII, p. 960.
178 The Annals of the American Academy
of war in 1898, just before we went to war with Spain, are not in
point, unless the pending legislation be advocated as a precaution
in view of our possibly becoming involved in the war. The recent
embargoes on the exportation of arms and ammunition, instituted
by neutral nations such as Italy and Holland, which have mobilized
and are admittedly making every preparation for possible if not
probable participation in the great struggle, are likewise not in
point. Nor are similar embargoes recently declared by certain
other neutral nations of Europe which, in addition to their desire to
keep all their munitions of war for possible use at home, are also
probably influenced by their desire to free their commerce as far as
possible from interruption by EngUsh cruisers searching for contra-
band destined for ultimate trans-shipment from the neutral country
to Germany.
As little relevant is our prohibition (under the old Spanish
war resolution of 1898) of the shipment of arms and ammunition
to San Domingo, in 1905, in aid of the pacification of the repubUc
in connection with the administration of the Dominican customs
and the adjustment of the Dominican debt through the aid of the
United States.
But the great reHance by way of precedent of both the domestic
and foreign critics of our present and time-honored policy of per-
mitting unrestricted trade in contraband is the act of March 14,
1912, which provides:
That whenever the president shall find that in any American country condi-
tions of domestic violence exist which are promoted by the use of arms or muni-
tions of war procured fromjthe United States, the president is hereby authorized,
in his discretion, and with^ such hmitations and exceptions as shall seem to him
expedient, to prohibit by proclamation the export of arms or munitions of war
from any place in the United States to such country until otherwise ordered by
the president or by Congress.
This is not the place for a discussion of the merits of this law
or the action which has been taken under it by President Taft and
President Wilson, with reference to Mexico, except to submit that
the whole policy of the United States in this connection has been
founded upon what were thought by Congress and the executive
to be the peculiar relations existing between the United States and
the other American republics, and not upon the general principles of
international law governing the relation of neutrality. As was said
Rights of Neutral Countries 179
in a statement given out at the White House at the time of the
president's proclamation, February 3, 1914, raising the embargo on
the exportation of arms and munitions of war to Mexico, "The Ex-
ecutive order under which the exportation of arms and munitions
of war into Mexico was prohibited was a departure from the ac-
cepted practice of neutrality.""
" Certain general expressions in President Wilson's address to Congress in
regard to the Mexican situation on August 27, 1913, are sometimes relied on as
supporting a different view. These expressions are: "It was our duty to offer
our active assistance. It is now our duty to show what true neutrality will do
to enable the people of Mexico to set their affairs in order again and wait for a
further opportunity to offer our friendly counsels. . . .
"For the rest, I deem it my duty to exercise the authority conferred upon me
by the law of March 14, 1912, to see to it that neither side to the struggle now going
on in Mexico receive any assistance from this side of the border. I shall follow
the best practice of nations in the matter of neutrality by forbidding the exporta-
tion of arms or munitions of war of any kind from the United States to any part
of the republic of Mexico — a policy suggested by several interesting precedents,
and certainly dictated by many manifest considerations of practical expediency.
We cannot in the circumstances be the partisans of either party to the contest
that now distracts Mexico, or constitute ourselves the virtual umpire between
them."
It is submitted, however, that there general expressions should be considered
in connection with the precise point under discussion here which was the ques-
tion of prohibiting the export of arms and ammunition to both sides and not merely
to the Constitutionalists, as had theretofore been done. If the Constitutionalists
and the forces of General Huerta had been independent nations, correct neutrality
would of course have required any embargo on the exx>ortation of arms and am-
munition to be enforced equally against both. It is submitted that the recent
German memorandum is not entirely happy in its reference to this Mexican prec-
edent. It is said:
"On February 4, 1914, President Wilson, according to a statement of a
Representative in Congress in the Committee for Foreign Affairs of Decem-
ber 30, 1914, upon the lifting of the embargo on arms to Mexico, declared that
' we should stand for genuine neutrality, considering the surrounding facts of the
case. . . .' He then held that 'in that case, because Carranza had no ports,
while Huerta had them and was able to import these materials, that it was
our duty as a nation to treat (Carranza and Huerta) upon an equality if we
wished to observe the true spirit of neutrality as compared with a mere paper
neutrality.' "
President Wilson's proclamation of February 3, 1914, hfted the embargo on
the ground that "as the conditions on which the proclamation of March 14, 1912,
was based have essentially changed, and as it is desirable to place the United
States with reference to the exportation of anns or munitions of war to Mexico
in the same position as other powers, the said proclamation is hereby revoked.'*
(ovbr)
180 The Annals of the American Academy
Another incident which has been very much overworked is the
supposed stopping by the German government of a ship "loaded
with arms and muijitions of war"^^ bound from Hamburg to Spain
during the Spanish-American war of 1898.
According to press dispatches the German ambassador at the
time of giving out the text of the German memorandum of April 4,
1915, mentioned the incident, and quoted a portion of Mr. Andrew
D. White's account in his autobiography. The facts of this incident
briefly related by Mr. White ^* are more fully shown in the appended
statement obtained on informal application at the department of
state." It will be observed that no shipment of contraband was
This proclamation was accompanied by the White House statement quoted in
the text, from the press dispatches of February 4, 1914, which asserts in the
clearest terms that the original imposition of the embargo by the United States
under act of March 14, 1912, was not an expression of this government's con-
ception of its duty as a neutral.
" Hearings before the Committee of Foreign Affairs of the House on H. J.
Res. 377-378, December 30, 1914, p. 28.
i« " As to the conduct of Germany during our war with Spain, while the press,
with two or three exceptions, was anything but friendly, and while a large majority
of the people were hostile to us on account of the natural sympathy with a small
I)ower battling against a larger one, the course of the Imperial government, espe-
cially of the Foreign Office under Count von Bulow and Baron von Richthofen,
was all that could be desired. Indeed, they went so far on one occasion as almost
to alarm us. The American consul at Hamburg having notified me by telephone
that a Spanish vessel, supposed to be loaded with arms for use against us in Cuba,
was about to leave that port, I hastened to the Foreign Office and urged that vig-
orous steps be taken, with the result that the vessel, which in the meantime had
left Hamburg, was overhauled and searched at the mouth of the Elbe. The Ger-
man government might easily have pleaded, in answer to my request, that the
American government had generally shown itself opposed to any such interference
with the shipments of small arms to belligerents, and had contended that it was
not obliged to search vessels to find such contraband of war, but that this duty
was incumbent upon the belligerent nation concerned." (Autobiography of
Andrew D. White, Chapter XVI, pp. 168, 169.)
" "It appears that on May 18, 1898, Ambassador Andrew D. White received
a telephonic message from the American consul at Hamburg that the Spanish
ship Pinzon would sail within an hour for Cardiff to take on a cargo of coal for
Spanish port; that a part of the message was indistinct, and that it could not be
clearly understood whether the ship was or was not liable to seizure on other
grounds. The ambassador, therefore, not desiring to incur delay by asking
explanations went immediately to the Foreign Office and asked for the arrest and
search of the vessel, and it was promised that everything possible should be done.
"On the next morning the ambassador received a telegram from the American
Rights of Neutral Countries 181
"stopped " but at the request of the ambassador a ship was searched,
no contraband being in fact found. The ambassador requested a
search of the ship on the strength of an indistinct telephone message
from the American consul at Hamburg which left Mr. White in
doubt as to whether or not the ship in question might not be liable
to seizure on other grounds than the carriage of contraband. Delay
was impossible since the ship was about to sail. As soon as the
department of state heard of the incident it instructed the ambassa-
dor to ascertain whether or not there were "any laws or regulations
in force in Germany, forbidding the shipment of contraband of war,"
observing that
It is important that if any such laws or regulations exist this government and
its agents may be informed of them so as to avoid the embarrassments which might
arise if it should appear to protest on the general principles of international law
against neutral governments allowing articles regarded merely as contraband of
war to be shipped from their ports.
The ambassador reported that there were no such laws or regula-
tions in force, and the matter was dropped.
It is submitted that neither as an abstract proposition, nor in
consul that the Pinzon when passing Cuxhaven the preceding night was searched
for war contraband by order of the German Chancellor, but that nothing was
found.
"Upon receipt of this information on June 6, 1898, the Department instructed
the ambassador that:
" 'In view of the reported action of the Imperial German government in
directing the search of the Pinzon for contraband of war the Department desires
to be advised as to whether there are any laws or regulations in force which forbid
the shipment of contraband of war from Hamburg or any other German port.
It is assumed that you can obtain such information without applying to the Ger-
man government for it. It is important that if any such laws or regulations exist
this government and its agents may be informed of them so as to avoid the em-
barrassments which might arise, if it should appear to protest on the general
principles of international law against neutral governments allowing articles
regarded merely as contrabands of war to be shipped from their ports.'
" In reply to this instruction the Ambassador on July 22 informed the Depart-
ment without application to the German government for positive information on
the subject that he had been unable to ascertain that there had ever been any
legislation upon the subject of contraband in the Empire. The ambassador added
that Grermany had never issued a proclamation of neutrality, and that the Reichs*
tag had not discussed the question of contraband since 1894, and that the Em-
bassy had no knowledge of the issue of any regulations on the subject since the
existence of war with Spain."
182 The Annals of the American Academy
view of the particular facts now obtaining, neither as a matter of
reason nor of precedent, should the United States depart from the
well-established rule of international law which secures to the in-
habitants of neutral countries the right to engage in trade in contra-
band of war, subject to the customary external penalty of capture
and confiscation at the hands of the belligerents.
THE SALE OF MUNITtONS OF WAR BY NEUTRALS TO
BELLIGERENTS
By Charles Noble Gregory, LL.D.,
Washington, D. C.
With respect to the rights of our citizens as neutrals to sell
munitions of war to any belligerent power, it is submitted:
1. That these rights are in no way denied by the rules of inter-
national law.
2. That these rights are not forbidden by any municipal statute
or ordinance except as to vessels of war and, in certain limited cases,
as to our neighboring American republics, when the latter are in-
volved in civil strife.
3. That such rights have been constantly exercised in this
country since the beginning of its history and in like manner have
been habitually exercised by the manufacturers of the most en-
lightened commercial nations of the world, not only in remote times,
but during all recent wars.
4. Thai such rights were fully recognized and reserved by the
conventions of the Second Hague Conference in 1907.
5. That the maintenance of such rights is wise and necessary
as their abolishment would force upon all nations a policy of the
highest military and naval preparedness, which policy is one of vast
economic loss and deeply hostile, instead of favorable, to peace.
6. That the fact that certain belligerents are prevented by the
forces of the other from taking advantage of our markets does not
make sales to those who have such access a breach of neutrality.
7. That the powers which most severely attack this right have
greatly profited by habitually exercising it in all recent wars and,
under parallel circumstances, where the market was accessible to
but one of the belligereirts, have continued these sales to the other.
As to the three first propositions that the right is denied by
neither international nor municipal law and has been constantly
exercised, one cannot do better than to quote a communication by
Thomas Jefferson, Washington's secretary of state, and often deemed
183
184 The Annals of the American Academy
the founder of one of our great political parties, to the British minis-
ter, May 15, 1793. Mr. Jefferson says:
Our citizens have been always free to make, vend and export arms. It is the
constant occupation and livelihood of some of them. To suppress their callings,
the only means perhaps of their subsistence, because a war exists in foreign and
distant countries, in which we have no concern, would scarcely be expected. It
would be hard in principle and impossible in practice. The law of nations, there-
fore, respecting the rights of those at peace, does not require from them such an
internal disarrangement in their occupations. It is satisfied with the external
penalty pronounced in the president's proclamation, that of confiscation of such
portion of these arms as shall fall into the hands of any of the belligerents' powers
on their way to the port of their enemies.^
Alexander Hamilton is clear in his declaration to the same effect
in his Treasury Circular of August 4, 1793, which declares:
The purchasing within, and exporting from the United States, by way of
merchandise, articles commonly called contraband, being generally war-like
instruments, and miUtary stores, is free to all the parties at war, and is not to be
interfered with.'
In 1796 Mr. Adet, minister of France, complained of the export
of contraband of war, namely horses, to the enemies of France but
Mr. Pickering, secretary of state, maintained such practice, subject
to the right of seizure in transit. He collects judicial decisions,
both state and federal to support his views.
When in 1862 our neighboring republic of Mexico complained
of the export of military supplies from the United States to that
country, on French account, Mr. Lincoln's secretary of state,
William H. Seward, replied:
If Mexico shall prescribe to us what merchandise we shall not sell to French
subjects, because it may be employed in mihtary operations against Mexico,
France must equally be allowed to dictate to us what merchandise we shall allow
to be shipped to Mexico, because it might be belligerently used against France.
Every other nation which is at war would have a similar right, and every other
commercial nation would be bound to respect it as much as the United States.
Commerce, in that case, instead of being free and independent, would exist only
at the caprice of war.^
^ Mr. Jefferson, secretary of state, to British minister. May 15, 1793. 5 M. S;
Dom. Let. 105; 1 American State Papers 69, 147; 3 Jefferson's Works, Pp. 558, 560.
quoted, 7 Moore's Digest, p. 955.
^American State Papers, Foreign Reports, p. 140; quoted, Moore's Digest, p. 955.
* Mr. Seward, secretary of state, to Mr. Romero, Mexican Minister, December
16, 1862. M.S. Notes to Mexico VII, 215-7; Moore's Digest, p. 958.
The Sale of Munitions of War by Neutrals 185
The above extract has especial force when we recall the strong
opposition of this government and of Mr. Seward to the French
occupation of Mexico, yet the principle was announced though
contrary to national sympathy and personal feeling.
Mr. John Bassett Moore collates, in his invaluable digest,
eighteen pages of extracts from the utterances of our presidents,
secretaries of state and other high officials, to like effect, including in
addition to those named. Presidents Pierce and Grant; secretaries
of state Henry Clay, Marcy, Fish, Evarts, Bayard, Frelinghuysen
Blaine, Foster, Olney and John Hay; attorneys general Speed and
Harmon ; also a clear and strong opinion by Mr. Elihu Root, when
United States district attorney for New York.*
Turning from the utterances of our executive officers to the
courts, we find the latter hold consistently that a contract for the
export of contraband by neutral citizens to a belligerent is neither
unlawful nor immoral; that it is merely subject to frustration by
the other belligerents by seizure on the high seas or in belligerent
territory; that courts of justice, therefore, though refusing to aid
all illegal or immoral contracts, or those against public policy, yet
fully recognize, enforce and give damages for breach of such con-
tracts as above, recognizing them as innocent and the rights founded
thereon as meritorious.**
In that case Lord Chancellor Westbury quoted the opinion of
our own Supreme Court per Story J. (perhaps our greatest judicial
scholar in international law) in the Santissima Trinidad (7 Wheaton,
p. 240) that "there is nothing in our laws or in the law of nations
that forbids our citizens from sending . . . munitions of war
to foreign ports for sale. It is a commercial adventure which no
nation is bound to prohibit, and which only exposes the persons
engaged in it to the penalty of confiscation.*'
In 1905 the English courts held like doctrine as to the shipment
of contraband during the Russo-Japanese war.'
In 1901 the United States Circuit Court for the Eastern Dis-
*See 7 Moore' 8 Digest, pp. 955-973.
•See Ex Parle Chavasse In Re Grazebrook 34 L. J. N. S. Bankruptcy 17
{ScoiCa Cases on International Law, p. 779).
•See Law Guarantee and Trust Soc. vs. Russian Banks K. B. Div. H., Ct.
Law Times, Vol. XVIII, p. 503. See also: t Oppenheim Intematiorud LaxVt p.
431; Taylor IrUemaHonal Law, p. 741.
186 The Annals of the American Academy
trict of Louisiana was applied to by three persons, owners of property
in the South African republic, to restrain the export of horses and
mules from the United States by Great Britain for use in the Boer
war, but such relief was denied, and the traffic in contraband was
held by the court to be lawful and the rule not changed by the treaty
relating to the Alabama Claims.'
The Hague Conference of 1907 adopted the following conven-
tion as to neutral duties in war on land and also as to maritime war :
A neutral pwwer is not bound to prevent the export or transit on behalf of
one or the other of the belligerents of arms, munitions of war, or, generally, of
anything which can be of use to an army or fleet."
The note in Hershey's Essentials of International Public Law*
page 459, to the above shows that official protests by belligerent
governments against this right are heard in nearly every war.
That the view represented by these protests is championed by a
small band of publicists, notably Hautef euille, Phillimore and Kleem,
Professor Hershey, who, by the way, holds a doctorate from Heidel-
berg University, adds very justly, "It is without sanction, either
in theory or practice."
One of the expert delegates of the United States at The Hague
told this writer within the week that he remarked at The Hague that
apparently the main object of the Conference was to prevent any
interference with the export of arms by the Krupps at Essen.
These Hague Conventions were generally ratified — Austria-
Hungary and Germany both ratifiying them on November 27, 1909.
I do not refer to these conventions as establishing any new rule but
as stating clearly and agreeing explicitly to the existing rule.
Turning from the legality to the policy of the rule in question,
it is submitted:
That a system under which a peaceful commercial state may
not, when attacked, use her cash and her credit in the international
markets to equip herself for defense is intolerable and in every way
pernicious.
The war-like and aggressive nation chooses the moment of
attack and is naturally fully equipped. If the nation assailed
^ See Pearson vs. Parson, 108 Fed. R. 461. The number of judicial citations
might be much increased if it were necessary.
• See Hershey's EsaenHals of International Law, pp. 459 and 467.
The Sale op Munitions op War by Neutrals 187
cannot replenish her supplies from outside she must always main-
tain them at the top notch of efficiency or she exposes herself to
ruin.
If a nation, the moment she becomes, willingly or unwillingly,
a belligerent, is helpless to augment her defensive equipment from
outside, if she cannot, as this writer, if he may be allowed to quote
himself, said recently in the Outlook, import "a pound of powder, a
gallon of petrol, an ounce of copper, a gun, a sabre, a harness or a
horse," then a wasteful system is forced on all nations under which
they must always, without intermission or relaxation maintain
their defenses and warlike supplies on a war footing of the highest
efficiency and amplitude.
One of the ripest scholars in international law was the late
Professor Westlake, one of the founders and presidents of the Insti-
tute of International Law. Moreover, his was one of the clearest,
strongest and fairest minds addressed to international questions.
In 1870, when a former Count Von Bernstorff, then German ambass-
ador at London, protested against the export of military supplies
from England to France during the Franco-German war. Professor
Westlake discussing the effect of forbidding such export wrote :
One disadvantage of no ordinary magnitude I can plainly see. The manifest
tendency of all rules, which interfere with a beUigerent's power to recruit his
resources in the markets of the world, is to give the victory in war to the belligerent
who is best prepared at the outset; therefore, to make it necessary for states to be
in a constant condition of preparedness for war; therefore to make war more
probable.
In other words, as Professor Westlake has pointed out, it would
tend strongly to force all nations to the extreme of militarism, a pol-
icy economically impoverishing and also most perilous to peace. The
policy of open neutral markets for war supplies enables peaceful
wealth to be transmuted and defense to be rapidly provided.
Neutral markets would not be denied the aggressor by the restriction
since he, knowing his plans, could largely provide for them before
belligerency. As this writer lately observed:
Wars now are sudden as conflagrations in their origin and the advantages of
preparation and initiative are immense. Why make them vastly greater? Why
tempt to secret preparation and sudden aggression by greatly reducing the re-
*Ck>llated papers, Westlake on Public IrUematianal Law, p. 391.
188 The Annals of the American Academy
sources and avails of the defending power? Why aid the wolf and hamstring the
lamb? Why by a change of law and policy aid and encourage the predatory
policy and debilitate defense? Such change must stimulate war and discourage
peace.
It is therefore opposed to the general interest of mankind and
the present rule is wiser and more pacific tending to maintain the
safety and stability of the nations whose main employments are in
the peaceful arts.
To bring the matter to a more recent date, a letter from the
present secretary of state, Mr. Bryan, to Senator Stone, chairman
of the senate committee on foreign relations, published on January
25, 1915, and understood to have been drafted by Mr. Robert
Lansing,^^ is in accord with the above. Mr. Bryan says:
There is no power in the executive to prevent the sale of ammunition to the
belligerents. The duty of a neutral to restirct trade in munitions of war has never
been imposed by international law or by municipal statute. It has never been
the poHcy of this government to prevent the shipment of arms or ammunition into
beUigerent territory, except in the case of neighboring American republics, and
then only when civil strife prevailed. Even to this extent the beUigerents in the
present conflict, when they were neutrals, have never, so far as the records disclose,
limited the sale of munitions of war.
His Excellency, the German ambassador to the United States,
communicated to this government, and on April 12, 1915, gave to
the press a statement criticising the conduct of this government in
permitting the export of munitions of war to belligerents as ''in
contradiction with the real spirit of neutrality." His Excellency
further urged an embargo against the shipment of war munitions
to the allies or the use of this trade to force the allies to permit the
export of food from the United States to Germany." In the com-
munication, this passage is found :
In reahty the American industry is supplying only German's enemies, a fact
which is in no way modified by the purely theoretical willingness to furnish Ger-
many as well, if it were possible.
In reply an able note was sent to His Excellency signed by
the secretary of state, Mr. Bryan, but said to have been penned by
President Wilson. This impliedly treats the rights of neutrals to
"See New York Herald, January 25, 1915.
• "See New York Herald, AprU 15, 1915.
The Sale of Munitions of War by Neutrals 189
export munitions of war to belligerents as settled and assured and
declares our government holds:
That any change in its own laws of neutrality during the progress of a war
which would affect unequally the relations of the United States with the nations
at war, would be an unjustifiable departure from the principles of strict neutraUty
by which it has sought to direct its action, and I respectfully submit that none of
the circumstances urged in your Excellency's memorandum alters the principle
involved.
It is constantly strongly urged that since the allies command
the seas, and the Germans cannot get access to our markets, while
the allies can, that real neutrality requires us to refuse such supplies
to the allies. It is submitted that nothing could be more impossible
or confusing than to shift the rule of neutral obligations with the
varying events and successes of war. The risks of capture may
thus shift, but not the obligation of the neutral.
As Professor Westlake says:^^
The standard set up is equaUty of treatment in the sense of permitting or
furnishing to both belligerents the same things which are permitted or furnished
to either, without regard to the fact that the passage of troops through neutral
territory, coaling of fleet in neutral waters, or any other thing, may mean victory
or salvation to the one, while the other may be unable to avail himself of the licence
or may find it of no value.
German citizens have habitually sold vast quantities of military
supplies to belligerents. Essen is perhaps the very center of mili-
tary supplies and has exported on an enormous scale to belligerents
in all modern wars, making, it is understood, vast profits from this
traffic in the late Balkan wars. It will be interesting to know what
has been Germany's practice when one of the belligerents had access
to her markets and the other had not. Has the rule been observed,
which she now presses upon us? Has she recognized this situation
as compelling her to deny to the power having access, the right to
buy, on the ground that real neutrality so required?
The war between the South African republic and Great Britain
began in October, 1899, and was closed by the Treaty of Pretoria
at the end of May, 1902. During the earlier portion of the war,
supplies were received by the Boers through Lorenzo Marques, a
neighboring Portugese port with some freedom, but in August, 1900,
** InlemationcU Law, p. 172.
190 The Annals op the American Academy
all the customs ofificials at Lorenzo Marques were dismissed and
their places filled by military officers and a force of 1,200 men was
sent out from Lisbon. The frontier was guarded and the trade
stopped.^'
The strictness of the Portugese authorities increased with the
decline of the fortunes of the Boers.
England had seized and searched a number of neutral steamers
— including three German steamers — and positively claimed the
right to seize contraband bound to the Boers though through a neu-
tral port. She relied for this largely on the precedents of our Civil
War, and it would appear that the access of the Boer force to German
markets was substantially destroyed. The question occurred to the
writer, would it be found that during the later years there were import-
ed from Germany into England large quantities of arms and military
supplies notwithstanding this situation? He therefore took the lib-
erty to apply to the British Embassy at Washington which very oblig-
ingly cabled to London for information. April 27, a letter from the
Embassy advised that ''when the Boers were shut off from supplies
by sea. Great Britain got from Germany 108 Fifteen-pounder quick-
firing guns and 500 rounds per gun. They were purchased from
Ehrhardt by private negotiation." It is respectfully submitted
that this is sufficient to support the practice of our government.
But this writer had made other investigations which showed vastly
larger military supplies passing from Germany to Great Britain at
this time. This appears from the statistics as to the foreign trade
of the United Kingdom compiled at the custom house, and pre-
sented to both Houses of Parliament by command of His Majesty
and printed for His Majesty's stationary office. These published
records long anterior to the present unhappy controversy preserved
in the Library of the Department of Commerce of the United
States show that there were imported from Germany into Great
Britain.
In 1899. Swords, cutlasses, matchets and bayonets, cwts. 782.
1900. Swords, cutlasses, matchets and bayonets, cwts. 1,664.
1901. Swords, cutlasses, and arms of other sorts not Firearms, cwts. 12,560.
1902. Swords, cutlasses, and arms of other sorts not Firearms, cwts. 50,734.
Many more than from any other source.
Rifles, carbines, fowling pieces, muskets, pistols or guns of any sort.
*' See Campbell's Neutral Rights in Anglo-Boer War, p. 60.
The Sale of Munitions of Wab by Neutrals 191
1899. Value £655; in 1900, £428.
In 1901. Metal cartridge cases, other than small arms ammunition (more
than six times as many as from any other source), 1,378,600.
1901. Cordite and other smokeless propellants, 231 cwts.
1901. Gunpowder, 318 cwte. 1902. 253 cwts.
Dynamite and other high explosives.
1901. 11,029 cwts. 1902. 14,771 cwts. and in latter year these explosives
were worth £84,894.
Rockets and other combustibles for warlike purposes. Explosives and
ammunition unenumerated.
1901. Of the Value of £29,546. 1902. Of £26,171.
Small Arm Ammunition
1901. Numbers 3,350,040. 1902. Numbers 4,732,500.
FiLses, Tubes and Primers
1901. Numbers 898,007. 1902. Numbers 2,033,116.
The consumption of ammunition in the present war is on so
vast a scale that the above figures may seem trivial but we must
remember that Mr. Lloyd George has recently said that in a single
battle in the present war more ammunition was consumed than dur-
ing the entire Boer war.
It is submitted that the above trade figures between Germany
and Great Britain embalm a principle and afford a German prec-
edent in entire accord with the law and practice announced by our
own government. They are the more convincing because Ger-
many's sympathy was strongly with the South African republic and
strongly against England.
It is submitted that the practice of the government of the
United States in declining to forbid the sale and export by its citi-
izens of munitions of war to either beUigerent at the present time
is not in conflict with international or municipal law. It is in
accord with a wise and salutary international policy. It is in entire
harmony with the express declaration of the last Hague Conference
and with the long continued practice of this country, and of those
countries which have questioned the practice.
AN ARGUMENT AGAINST THE EXPORTATION OF ARMS
By Edmund von Mach,
Cambridge, Mass.
The Democratic Text Book, 1914, issued by the Democratic
Congressional Committee and The Democratic National Com-
mittee, contains on page 43 the following announcement by Hon.
W. J. Bryan, Secretary of State:
The announcement made by this government, that it regards the making of
loans by American citizens to the governments of nations engaged in war as in-
consistent with the spirit of neutraUty, has created a profound impression through-
out the world. It is the first time that a great nation has taken this stand on the
subject of war loans. The matter has been discussed at The Hague and at peace
conferences, but it encountered so much opposition that nothing tangible has re-
sulted. The president, therefore, blazes a new way when, without conference
with other nations and without support from Conventions, he commits this nation
to his poUcy.
It is inconsistent with the spirit of neutrality for a neutral nation to make
loans to belligerent nations, for money is the worst of contraband.
In these two paragraphs Mr. Bryan himself has refuted all the
arguments of the opponents of a law laying an embargo on the ex-
port of munitions of war.
It is, moreover, noticeable that he uses the expressions "loans
by American citizens to the governments of nations engaged in
war" and "a neutral nation to make loans to belligerent nations"
as synonymous so far as America is concerned. And so it should be,
for here the sovereignty is the people's, and the government is theirs,
too. It is impossible to quote as true for America those passages
of the so-called Law of Nations — which really represents the crys-
tallized customs of Europe — which say that citizens either indi-
vidually or collectively can do what the government cannot do.
The American government is, at least in theory, the expression of
the collective will of the people.
President Cleveland expressed this idea in his annual message
to Congress, December 2, 1895, when he said:
The performance of this duty [i.e., to observe in "good faith" neutrality
toward Spain] should not be made more difficult by a disregard on the part of our
192
Exportation of Arms 193
citizens of the obligations growing out of their allegiance to their country which
should restrain them from violating as individuals the neutrality which the nation
of which they are members is bound to observe in its relations to friendly sover-
eign states.
And the Supreme Court of the United States has said (14 How.
38,49):
For as the sovereignty resides in the people, every citizen is a portion of it,
and is himself personally bound by the laws which the representatives of the
sovereignty may pass, or the treaties into which they may enter, within the scope
of their delegated authority. And when that authority has plighted its faith to
another nation that there shall be peace and friendship between the citizens of the
two countries, every citizen of the United States is equally and personally pledged.
The compact is made by the department of the government upon which he himself
has agreed to confer the power. It is his own personal compact as a portion of
the sovereignty in whose behalf it is made. And he can do no act, nor enter into
any agreement to promote or encourage revolt or hostilities against the territories
of a country with which our government is pledged by treaty to be at peace, vrith-
out a breach oj his duty as a citizen, and the breach of faith pledged to the foreign
nation.
From the foregoing quotations, the authoritative importance
of which for the conduct of American citizens and their government
is undeniable, it would appear that:
1. What is morally wrong for the government is morally wrong
also for each individual citizen.
2. When a large number of individual citizens persist in the
commission of acts which run counter to the moral obligations of
their government, the government has the right and the duty to
take steps to prevent such acts.
3. It is contrary to the spirit of American institutions and the
ideals of the American people, for the government to disclaim
responsibility for the continued and open acts of a large number of
their citizens.
4. American dealings with other nations must be bona fide and
according to the spirit, and not only the letter, of any compact or
understanding.
5. It is not unneutral for America to "blaze a new way," or to
regulate the conduct of her citizens by laws, proclamations or
otherwise, even during the progress of a war.
This last assertion has been severely attacked by the advocates
of an unlimited trade in death-dealing arms. They have argued
194 The Annals of the American Academy
that the Allies would be justified in considering the laying of an
embargo on the export of arms to be an unneutral act. The Allies
could not claim this, because they themselves have forced several —
if not all of the neutral states of Europe — to declare embargoes of
various kinds against Germany and Austria since the war began.
The case in favor of stopping the traffic in munitions of war,
therefore, may be summarized as follows:
1. The government of the United States cannot, either legally
or morally, export arms to either of the belligerents.
2. The export of arms by the citizens of the United States has
grown to such large proportions that it is known to all.
3. The government of the United States cannot advance the
excuse that it is not morally responsible for the acts of its citizens.
4. The president and secretary of state have publicly declared,
and asked for votes on the strength of their declaration, that the
government has the right "to blaze a new way" and that it is not
restrained from giving expression in law to the moral sense of right
and wrong of the American people.
5. It is, therefore, the right and consequently the duty of the
American government to have legislation enacted which will make
it legally wrong for individual citizens to commit acts, the moral
wrong of which nobody can deny, in view of the decision of the
United States Supreme Court quoted above.
6. The present American government itself has acknowledged
the moral wrong of the trade in contraband, in the passage
quoted above from the Democratic Text Book.
7. It is, therefore, committed to the enactment of legislation —
if it has no other means of accomplishing the same end — forbid-
ding the traffic in munitions of war.
GERMANY AND AMERICAN POLICIES
By Bernhard Dernburg,*
Formerly Minister of Colonial Affairs of Germany.
I did not come here except as a listener, but after the discus-
sion of this morning, which, I dare say, has been one of the most
interesting, one of the most conservative, that it has been my good
fortune to listen to, I feel that it is a debt of gratitude to say some-
thing as to the resolution that the previous speaker has just spoken
of, regarding the safeguards for a permanent peace. I dare say
that, of course details omitted and left open, I am in entire sym-
pathy with it, and I do not think that this matter ought to be left
to a Hague convention.
This is a world war and must be followed by a world peace —
a permanent one — and I do not think there are now a great many
people who do not know what the war means and who will not do
everything to avert such a catastrophe in the future.
If I may, with the permission of the presiding officer, I will
refer to something that was said last evening. One speaker,
discussing the shipping of arms and ammunition, said that Ger-
many had protested against the legality or right of shipping arms
and ammunition from this country. He made this statement the
subject of an attack against the representatives of this country
in the United States. I shall not enter into this question, but I
do want to say that a nation should not be attacked in this way.
I want to state here most emphatically that Germany at no time
has disputed the right to ship or to sell arms. This statement
that she has is absolutely false.
Every just endeavor by the United States to extend its trade
toward South America meets with sympathy in Germany. We
believe that the greater the possibility of free intercourse, that the
* Remarks made by Dr. Demburg at the fourth session of the Nineteenth
Annual Meeting of the American Academy held in Philadelphia, on April 30
and May 1, 1915.
196
196 The Annals of the American Academy
richer the people get, the more chance they have to provide them-
selves— the better off everybody is. We believe in specializing
according to the genius of nations. All of us, Americans, English
and French, can get along very well together. I have been greatly
satisfied by the attitude of this country when at the beginning of
the war there came statements from England and Russia that this
was a time to steal German trade — You said No, this is not in our
line and we are not going to take advantage, except a fair advan-
tage, a competitive merchant advantage, against Germany.
You have been told here that Germany has been selling to
these countries her cheap goods and that you in this country could
not compete with Germany. You have been told that we have been
extending credit beyond what was wise. I think this is an over-
statement of the case. Very poor people can buy only very cheap
goods. If you go to China and see how poor those people are,
you would, I think, see that you could not sell them a suit case for
one hundred dollars. You must give them less expensive things,
and, if you have confidence, some credit.
As far as imports into South America go, you are in a way
able to control them as to size. As for exports from South America,
you are not able to control them. Supposing you wanted to extend
your trade to Brazil in buying more of her coffee crop? What are
you going to do with the coffee? You cannot buy more than you
are able to consume. As far as Argentina is concerned, you are
sellers of cereals and not buyers. Those who want coffee and those
who want cereals have got to buy them from Brazil and Argentina.
We cannot detach at any one time the trade between two coun-
tries from their intercourse with the rest of the world. This world
is just one interdependent, interlocking commercial machine, and
whoever loses that conception is bound to make a serious mistake.
I want to say this because I believe that even in this commercial
world there should be a spirit between nations of a greater friend-
liness. You cannot assist backward nations without extending
some facilities — that is, credit — and you cannot do that without
extending friendliness; and as the United States was helped by
Europe, I hope that the United States will extend help to South
America by allowing credit to her, like the rest of the world.
FORCE AND PEACE
By H. C. Lodge,
United States Senator.
In the general Commination service to which Carlyle devoted
so much time and space he always found opportunity to hymn the
praise of the strong, silent man who looked facts in the face. Very
characteristically he dismissed with a sneer the most silent perhaps
of all great men, one certainly who looked at the many hostile facts
which he encountered in life with a steady gaze, undimmed by
illusions, to a degree rarely equalled. I do not mean by this that
Washington never spoke, never in speech or writing uttered his
thoughts. Many volumes attest the supreme sufficiency of his
dealings with all the crowding questions of war and peace which
in such victorious manner he met and answered. But there was one
subject upon which he held his peace, and that was himself. I once
searched every printed line of his printed writings, as well as those
of his contemporaries, and all that could be found in regard to the
man himself were a few sentences of his own capable of an inference
and elsewhere some stray anecdotes. We have his opinions, frank
and free, on all the transactions of his life but nothing about himself.
There silence reigns and hence he may be called in the truest sense
the most silent of the great men of modern times. A very noble
quality this, worthy of consideration in any age and especially in
an age of much delivery of personal feelings and much self-adver-
tising where publication is easy and passing notoriety extremely
cheap. From the many necessary words, however, written and
spoken by this most silent man upon all the far-reaching business
of his life and about the world of men and things which he touched
at so many points there emerge, very luminous and distinct, an
unfailing power of looking facts, whether favorable or unfavorable,
in the face, a fine freedom from illusions and complete refusal to
admit self-deception or to attempt the deception of others. In
these days when the readiness to accept words for deeds, language
for action and a false or maudlin sentimentality for true sentiment,
one of the noblest and purest of human motives; when, I repeat,
197
198 The Annals of the American Academy
the cheerful acceptance of these unrealities seems at least to be
extremely prevalent, such veracity of mind and character as that
possessed by Washington would appear more than usually worthy
of contemplation and imitation.
I am well aware that in saying this I lay myself open to the
famihar charge of having nothing to suggest but an effort to make
ourselves resemble:
**Some of the simple great ones gone
Forever and ever by."
I can hear the well worn accusation coming from earnest and intelli-
gent youth, that I am incapable of a new idea. Alas, it must be
confessed that any man who has passed middle life would be dull
indeed if he was not painfully aware of his incapacity in many
directions. He knows that it is to youth he must look for the energy
and faith which will keep the waters moving and save the world
from stagnation. Whether it is hopeful, happy youth which cries
out in the charming words of Miranda,
*'How beautiful mankind is! O Brave, new world!
That has such people in't:"
or Emerson's ''fine, young, Oxford gentleman" who declares,
''There's nothing new and nothing true and no matter,"
or earnest youth, serious and sad, which, bending under the sense
of responsibility, says with Hamlet,
"The time is out of joint; O cursed spite.
That ever I was born to set it right;"
all alike are interesting and attractive and awaken a melancholy
envy in the breasts of those who have passed through the early
shining years which to them are never to return. How keenly do
we long to have all those fascinating attributes of the young and wise,
to behold again all the fair visions of the morning of life. How
we wish we could possess once more, whether as optimists, pessi-
mists, or cynics, the finality, the completeness of judgment, the
certainty of decision, the unfaltering condemnation of all who seem
to differ with us in which we rejoiced in the days when the limits
of life were hidden in the mists of the future. There are no com-
pensations for such losses as these, but the merciless years bring
at least their lessons, for they are the most effective if the most
severe teachers to all who cannot avoid thought. He, whose
Force and Peace 199
mournful incapacity for the production of new ideas has come
sharply home to him, has the added pang of knowing how eagerly
he thirsts for those new ideas from others and how much his ability
to recognize an old idea has been developed and increased. Setting
aside the endless inventions and discoveries of science, he becomes
aware of the extreme rarity of really new ideas in all that concerns
society and government or the relation of men to each other. He
takes up the book of intelligent and earnest youth in which the
world is to be set right and after receiving the Rhadamanthine
sentence upon himself and his coevals, a sentence from which there
is no appeal, he sets out with the hope that springs eternal to find
the new ideas for which he longs and which will solve the problems
which have for so long pained and troubled him. He reads the
book, clever, confident, often ingenious, not marked by a sense of
humor, which is an older quality, but sure of everything and splen-
didly condemnatory of all differences of opinion. Then he lays it
down with a sigh of disappointment. The ideas, however tricked out
and newly dressed, are old friends with whom he has much more
than a bowing acquaintance. They may be new to the writer, but
they are old to the reader who has had the misfortune to live longer.
So the reader, as so often before, tries to be philosophical and begins
to reflect upon the alleviations for his disappointment. In relation
to society and government it may be repeated that new ideas are
rare; in regard to the latter, perhaps not more than two really large
and new ideas have been developed in as many millenniums. Has
not all progress, moreover, been attained chiefly by the energy of
youth in striving to apply old ideas to changed environments and
new conditions? There is comfort in the thought. The only
suggestion to be made is that an ardent zeal to reform the world
need not necessarily be accompanied by an entire recklessness in
dealing with existing arrangements which have slowly been evolved
and which represent the thoughts and hopes of mankind to which
they have been adapted. It would seem that in making changes
and what we believe to be advances by the application of old ideas
to altered facts we should do well to remember that the prime
I factor in our many problems is human nature and that human
nature, after all, is very permanent. I do not mean permanent
in terms of the universe, which we have reason to think is never at
rest, but permanent relatively within the very contracted limits
200 The Annals of the American Academy
of man's recorded history. This, by the way, is not a new idea.
The best known of Roman poets wrote nearly two thousand years
ago, "Naturam expellas furca, tamen usque recurret,'* and the
thought, if ne'er so well expressed, was probably some thousands
of years old when Horace wrote it down. Setting aside differences
of place and race and time, which are largely superficial and perish-
able, there is nothing within our knowledge at once so uniform,
so widely distributed and so unchanging, as human nature in its
broad outlines and fundamental qualities.
A brilliant French critic has said that two great emotions
have governed mankind and made his history — love and greed;
the one as beautiful as the other is unlovely and potent. Whether
these are the only ruling passions need not be discussed but they
certainly are examples of two at least of the enduring elements in
human nature. The young voices murmuring under the shadows
of the great Pyramid in the days of Chefren;
"the whispers
Of plighted youth and maid.
In April's ivory moonlight
Beneath the chestnut shade,"
so beloved, we are told, of Venus, did not differ in essence from the
words and vows interchanged by maidens and youths in appro-
priate circumstances under our own superior and more refined
civilization. We may also be sure that selfishness has always been
an attribute of human nature. I note this here because nations
of whose affairs and relations I am about to speak are but aggre-
gations of human beings and therefore selfishness is their attribute
also, but with this important difference, that in masses of men it
is almost never controlled or conquered by the nobler emotions as
it is constantly and very splendidly in the individual man.
So it is that when we come to attempting changes in society or
government, it is well to remember that the prime condition of our
problem, human nature, is a permanent one and that the past,
therefore, whether our guiding idea is most improbably new or
is an old idea with a new adjustment, may possibly furnish some
useful hints as to the method and outcome of such changes. I
know by heart the reply to this suggestion: "Oh, that is all very well,
but all these things happened a long time ago and everything is
different now." As an objection, this, if I may venture to say so,
Force and Peace 201
has never appeared to me quite conclusive. The Ten Command-
ments happened a long time ago but that does not seem to justify
us in not inculcating them today. It is nearly two thousand years
since the beautiful and immortal teachings of the New Testament
were given to mankind but no one, I imagine, would suggest that
for that reason they should be laid aside. The Epistles of St.
Paul, the dialogues of Socrates, the writings and discourses of Plato
and Aristotle are all old as finite man computes time, but I should
be sorry to dismiss them or refuse to consider them because of their
age. The writings of these men dealt with what was most lasting
in human nature, with right and wrong, with good and evil, with
the highest morals, with things spiritual and things of this world.
These thoughts were ancient at their birth and never have grown
old. They are always old and always new. So it is with great
men, the chosen exemplars of the race of man. Some of them at
least have shown qualities which we may do well to study and imi-
tate, which it might be wise to apply to our own problems as they
applied them to theirs. Thus, after a long circuit, I come back
to where I began. We, most fortunate, have one of these great
men, who was also a good man, a very shining figure in the fore-
front of our nation's life. He dealt with life on a very large
scale with high and rare success. One of his most salient quali-
ties was the power of seeing facts just £ts they existed, without
fear or favor, and therefore of meeting them with clear veracity
of purpose and with all the strength of mind which had been
granted him.
A great quality this, a great power, always much needed, as
I have said, in our daily life here in the United States but more
particularly demanded at this present moment when the world is
facing one portentous and awful fact which has excluded almost
everything else from the thoughts of men. For nearly a year
that fact has been with us in the form of the most desolating and
destructive war which has ever afflicted mankind. In this country,
far removed from the scene of strife, with its daily existence flowing
on untroubled, with its habits of life unbroken, untouched by the
war until the wanton killing of unresisting men and helpless women
and children on the Lusitania except in its trade, its commerce and
its monetary interests, the great conflict is none the less ever pres-
eDt in our minds. Its dark shadow falls across the pathway which
202 The Annals of the American Academy
from day to day is trodden by each one of us. We wake in the
morning with that vague sense of trouble which anxiety brings and
which defines itself in sharp outline as the merciful oblivion of sleep
passes away. Like a personal sorrow there comes between our eyes
and the page we read, or the sheet of paper on which we write, a
vision of fighting men and blood-stained trenches, of women and
children homeless, outraged, mutilated, dead; of the houses of God
and man shattered into hideous ruin. Our sympathies have been
wakened as never before and have manifested themselves in a gen-
erous aid to the suffering across the ocean to a degree never shown
by a neutral nation in all the recorded wars of history. To the
unhappy and innocent people who in the twinkling of an eye have
been deprived of a country and have found themselves cast forth,
penniless wanderers upon the earth, we have held out our hands to
lift them up with a generous kindness which will always be one of
the best memories of the American people. If such has been the
effect upon us, far distant, sheltered in our neutrality, how infinitely
greater has been the effect upon the nations engaged in war and
throughout those wide regions of Europe which for months have
resounded with the clash of arms and where the air has been rent
by the thunder of cannon and darkened by the dust and smoke of
crumbled towns and desolated farms. In the presence of that vast
struggle the interests, the habits of the life which seemed so per-
manent, have disappeared. The fantastic growths in art which
absorbed the public attention and sought to make eccentricity
pass for originality; the sexual novel, the effort to make us believe
that clinical lectures and medical reports were drama, with much
else of imaginary importance have withered in Europe before the
fierce heat of the struggle of nations for life. The veils of what we
call civilization have been torn away. Those conventions, which
are merely its manifestations but which we are wont to mistake for
fundamental principles, have been flung aside. An unrelenting, a
grim reality stares us in the face. If we are to learn anything from
it, if we are to do anything to prevent its return, we must first look
at it with steady eyes^ and see just what it is. I am not concerned
here with the rights or wrongs, with the guilt or the innocence
of those engaged in the war, nor by reality do I mean the horrors
of war. Every man and woman who can think knows what those
horrors are. Death, destruction, physical anguish, sorrow, misery,
Force and Peace 203
have been before our eyes for months. The vocabulary has been
worn out in describing them. There is no need of repeating more
exhausted words when all words are vain. What we need to look
at is the great dominant fact which stands out in the midst of all
the horrors and all the fighting. I read a letter not long since
from a young French officer who said that the one thing which filled
his mind was not the daily danger and the constant suffering but
the return of all about him, on both sides, to the condition of prim-
itive man. In a few weeks they had crossed all the evolution of
centuries with its slow upbuilding of civilization and returned to
the state of mind which was of immemorial antiquity when the little
space covered by our recorded history began. If we pause to think,
although we ourselves are not engaged in the struggle, we shall
realize that we have felt:
*'That jar of our earth, that dull shock
When the plowshare of deeper passion
Tears down to our primitive rock."
And now what is it that is disclosed? We can put it all into a sen-
tence. What we see is unchained physical force multiplied beyond
computation by all the inventions and discoveries of an unresting
science, as potent in destruction as it is in beneficence.
How is such a use of physical force, unlimited in its power,
terrible in its consequences, to be avoided? How is peace to be
established and maintained hereafter among the nations of the
earth? One thing is certain, it cannot be done by words. Nothing
will be accomplished by people who are sheltered under neutrality,
gathering outside the edges of the fight and from comfortable
safety summoning the combatants to throw down their arms
and make peace because war is filled with horrors and women are
the mothers of men. The nations and the men now fighting, as
they believe, for their lives and freedom and national existence
know all this better than any one else and would heed such babble,
if they heard it, no more than the twittering of birds. In our
Civil War when we were fighting for our national life, England
and France and other outsiders were not slow in telling us that the
Union could not be saved, that the useless carnage ought to cease,
that peace must be made at once. Except as an irritating imperti-
nence we regarded such advice as of no more consequence than the
squeaking of mice behind the wainscot when fire has seized upon
204 The Annals of the American Academy
the house. Neither present peace, nor established peace in the
future for which we hope, is helped by fervent conversation among
ourselves about the beauties of peace and the horrors of war, inter-
spersed with virtuous exhortations to others who are passing through
the valley of the shadow, to give up all they are fighting for and
accept the instructions of bystanders who are daring and sacrificing
nothing and who have nothing directly at stake. Peace will not
come in this way by vain shoutings nor by mere loudness in shriek-
ing uncontested truths to a weary world. No men or women
possessed of ordinary sense or human sympathies need arguments
to convince them that peace among nations is a great good,
to be sought for with all their strength, but the establishment
and maintenance of peace cannot be accomplished by language
proclaiming the virtues of peace and demonstrating the horrors
of war. The many excellent people who may be described as
habitual if not professional advocates of peace appear to be satisfied
with uttering and listening to speeches about it. They seem to
think great advances are made if we put our official names to a
series of perfectly empty and foolish agreements which it is chari-
table to describe as harmless follies, for they weaken and discredit
every real treaty which seeks to promote international good will
and settle international differences. They are so vain and worth-
less that, when the hour of stress came, no one would think it worth
while even to tear them up. Treaty agreements looking 'to the
peaceful settlement of international disputes and which can be
carried out are valuable to the extent to which they go, but treaty
agreements which go beyond the point of practical enforcement,
which are not meant to be enforced, and which have neither a
sense of obligation nor force to sustain that obligation behind them,
are simply injurious. If we are to secure our own peace and do
our part toward the maintenance of world peace we must put
rhetoric, whether in speech or on paper, aside. We must decline
to be satisfied with illusions. We must refuse to deceive ourselves
or others. We must pass by mere words and vague shows and
come clear-eyed to the facts and the realities. The dominant fact
today, I repeat, is the physical force now unchained in this great
war. Some people seem to think that if you can abolish force
and the instruments of force you can put an end to the possibilities
Force and Peace 205
of war. Let us for a moment go to the roots of existing things.
Let us make the last analysis.
When I was a very young man I saw a large part of my native
city swept away by fire in a single night. The calamity brought
with it an enormous destruction of property, of the accumulated
savings of years and much consequent suffering, both direct and
indirect. What was the cause of this destruction and suffering?
There was only one — fire. Not fire from the Heaven above or the
earth beneath, but fire produced and used by man, set loose without
control. The abolition of fire would undoubtedly have prevented
a repetition of this disaster, but no one suggested it. The impos-
sibility of attempting to stop the destruction of life and property
through fire by abolishing fire itself was as apparent as its absurdity.
Somewhere in the dim unwritten history of man upon earth a great
genius, perhaps several great geniuses, discovered the production
and control of fire. In the earliest traces of man there is, I think,
as yet no proof of his existence without fire, and yet we know that at
some period he must have discovered its production and control.
Even when we come far down to the little fragment of time covered
by man's recorded history we find that the thought of the produc-
tion and control of fire as the greatest of discoveries still lingered in
the human mind and found its expression in the symbolism of the
beautiful Promethean myth. Fire, therefore, has probably been
with man as his servant for a period which could only be expressed
in the vast terms of geology. In large measure, society and civiliza-
tion rest upon the use of fire. Without it, great spaces of the earth's
surface would become not only useless to man but uninhabitable.
Without it, the huge and intricate fabric of modern civilization in
its present form would not exist. Therefore no argument is needed
to convince men that the miseries and misfortunes caused by uncon-
trolled fire cannot be escaped by the abolition of fire itself. Relief
must be sought not in abolition but in a better and wiser control
which will render it difficult at least for man's best servant at any
time to become his master. It is unchained force with the dread
accompaniments of science which is today destroying life and limb,
happiness, industry, property, and the joys and beauties of the art
and devotion of the dead centuries. Is the terrible problem here
presented to be solved by the abolition of the physical force possessed
by nations? Go back again to the dark beginnings and study the
206 The Annals of the American Academy
comparatively few years, eight or ten thousand at the outside, of
which we may be said to have a record.
In the dim light of that remote dawn we see men engaged in an
unending conflict with the forces of nature, struggling with the
wilderness, with wild beasts, with heat and cold and continually
fighting with each other. Gradually they emerge in tribes with
leaders, and then come states, communities, kingdoms, empires.
But among all these confused events which make up history we find,
I think, that the one fact which marks the development of every
organized society, whether rude or complicated, of every political
entity whether great or small, is the substitution of the will of the
community and the protection of the community for the will of the
individual and for the self-protection which each man naturally
exercises. The one unfailing mark of what, for lack of a better
word, we call civilization is this substitution of the force of the
community, embodied in law and administered by what we describe
as government, for the uncontrolled sporadic force of each individual
member of the community. Wherever man is left to his own pro-
tection and his own defense there is nothing possible but personal
fighting and general anarchy. The man possessed of the greatest
physical force and the most effective weapons is the best protected.
About him others gather and submit to his leadership and give him
their support in return for his protection. Then we have the preda-
tory band which found its highest expression in the feudal system.
Gradually one band or lordship conquers or unites with itself other
bands or lordships and they establish control over a certain terri-
tory; a state emerges, and the process is repeated on a larger scale by
the conquest or union of other states. Physical is supplemented by
intellectual force and we have at last the kingdom, the great republic
or the mighty empire. But under it all lies the replacement of the
scattered force of the individual by the consolidated force of the com-
munity and power, order, commerce, art and peace, rest in the last
analysis upon the force of the community expressed in government
of some sort, such government being merely its instrument and
manifestation. You may carry your inquiry across the whole range
of history and over the earliest human societies of which we have
knowledge to the vigilance committees of the far West and you will
find that law, order and peace, were brought about by men coming
together and exercising the united force of the community, great or
Force and Peace 207
small, in order to put an end to the chaos and disorders of uncon-
trolled force exercised by each individual. When the civilization
and the society reach a high point of organization, the underlying
force upon which the entire social and political fabric rests is exerted
and is often effective through what may be called merely a symbol.
The longest period of general peace covering a large region of the
earth of which we have knowledge in historic times was probably that
of the Roman Empire, which endured for some three centuries.
There was fighting on the widely extended frontiers at intervals
diminishing in length as the end approached. After the decline
began there were internal wars also at intervals with the imperial
purple as the prize, but on the whole through the first three cen-
turies of our era the general condition of the Roman Empire and
throughout most of its extent was one of peace. That time is still
referred to as the period of the Pax Romana.
In his romance of the ** Last Days of Pompeii," Bulwer makes
a dramatic point of the Roman sentry motionless at his post while
the darkness and the flame and the burning flood were rushing down
upon the doomed city. That solitary sentry was the symbol of the
force of the Roman Empire. Peace, order and law reigned through-
out all western Europe, but it was the gleam upon the sword and
corslet of the Roman legionary which made men realize that behind
that law and peace and order was the irresistible force of the Empire
of Rome. Even before that time the force which the sentry in
Pompeii represented found like symbolic expression when the
younger Scipio went upon a mission to the eastern kingdoms
accompanied by only five servants. He went thus alone in safety
and with respect attendant on his footsteps because behind him
invisible but ever present was the fighting force of the dreaded
Republic.
Let me take a more homely illustration. We have all seen in
London and New York police oflftcers stationed at points where
the traffic is densest, regulating and guiding its movement by
merely raising one hand. They would be perfectly incapable of
stopping the vehicles carrying on that traffic, by their own physical
force. It could pass over them and destroy them in a moment, and
yet it is all governed by the gesture of one man. The reason is
simple; the policeman is the symbol of the force of the community
against which no individual force can prevail, and of this the great
208 'The AnnaLs Of the American Academy
mass of individuals are thoroughly if unconsciously aware. Law is
the written will of the community. The constable, the policeman,
the soldier, is the symbol of the force which gives sanction to law
and without which it would be worthless. Abolish the force which
maintains order in every village, town and city in the civilized world
and you would not have peace — you would have riot, anarchy and
destruction; the criminal, the violent and the reckless would domi-
nate until the men of order and the lovers of peace united and re-
stored the force of the community which had been swept away. It is
all obvious enough, it all rests on human nature, and if there was
not somewhere an organized force which belonged to the whole com-
munity there would be neither peace nor order anywhere. No one
has suggested, not even the most ardent advocates of peace, that
the police of our cities should be abolished on the theory that an
organization of armed men whose duty it is to maintain order, even
if they are compelled often to wound and sometimes to kill for that
purpose, are by their mere existence an incitement to crime and vio-
lence. If order, peace and civilization in a town, city or state, rest,
as they do rest in the last analysis, upon force, upon what does the
peace of a nation depend? It must depend, and it can only depend,
upon the ability of the nation to maintain and defend its own peace
at home and abroad. Turn to the constitution of the United States.
In the brief preamble one of the chief purposes of the constitution
is set down as provision for the *' common defense." In the grant
of powers to Congress one of the first powers conferred is to provide
for the "common defense of the United States." For this purpose
they are given specific powers; to raise and support armies, to pro-
vide and maintain a navy, to provide for calling forth the militia,
suppressing insurrections and repelling invasions. The states are
forbidden to engage in war unless actually invaded, and the United
States is bound to protect each of them against invasion and, on
their request, to protect them also against domestic violence. In
other words, the constitution provides for the maintenance of order
at home and peace abroad through the physical force of the United
States. The conception of the constitution is that domestic order
as well as peace with other nations rests upon the force of the nation.
Of the soundness of this proposition there can be no doubt, I think,
in the mind of any reasonable man. This obvious principle em-
bodied in the constitution and recognized by every organized govern-
Force and Peace 209
ment in the world is too often overlooked at the present moment
in the clamor against armament. The people who urge the dis-
armament of one nation in an armed world confuse armament and
preparation with the actual power upon which peace depends.
They take the manifestation for the cause. Armament is merely
the instrument by which the force of the community is manifested
and made effective, just as the policeman is the manifestation of the
force of the municipal community upon which local order rests.
The fact that armies and navies are used in war does not make them
the cause of war, any more than maintaining a fire in a grate to
prevent the dwellers in the house from suffering from cold warrants
the abolition of fire because where fire gets beyond control it is a
destructive agent. Alexander the Great was bent on conquest and
he created the best army in the world at that time, not to preserve
the peace of Macedonia but for the purpose of conquering other
nations, to which purpose he applied his instrument. The wars
which followed were not due to the Macedonian phalanx but to
Alexander. The good or the evil of national armament depends
not on its existence or its size but upon the purpose for which it is
created and maintained. Great military and naval forces created
for purposes of conquest are used in the war which the desire of con-
quest causes. They do not in themselves cause war. Armies and
navies organized to maintain peace serve the ends of peace because
there is no such incentive to war as a rich, undefended and helpless
country, which by its condition invites aggression. The grave ob-
jections to overwhelming and exhausting armaments are economic.
A general reduction of armaments is not only desirable but is some-
thing to be sought for with the utmost earnestness. But for one
nation to disarm and leave itself defenseless in an armed world is a
direct incentive and invitation to war. The danger to the peace
of the world then lies not in armament, which is a manifestation,
but in the purposes for which the armament was created. A knife
is frequently dangerous to human life, but there would be no sense
in abolishing knives because the danger depends solely on the pur-
pose or passion of the individual in whose hand the knife is and not
upon the fact that the knife exists. The peace of a nation depends
in the last resort, like domestic order, upon the force of the com-
munity and upon the ability of the community to maintain peace,
assuming that the nation lives up to its obligations, seeks no con-
210 The Annals of the American Academy
quest, and wishes only to be able to repel aggression and invasion.
If a nation fulfills strictly all its international obligations and seeks
no conquest and has no desire to wrong any other nation, great or
small, the danger of war can come only through the aggression of
others, and that aggression will not be made if it is known that the
peace-loving nation is able and ready to repel it. The first step then
toward the maintenance of peace is for each nation to maintain its
peace with the rest of the world by its own honorable and right con-
duct and by such organization and preparation as will enable it to
defend its peace.
This should be our policy. We should show the world that
democracy, government by the people, makes for peace, in contrast
to the government of a military autocracy which makes for war.
We should demonstrate this by our own conduct, by justice in our
dealings with other nations, by readiness to make any sacrifices for
the right and stern refusal to do wrong; by deeds, not words, and
finally by making the whole world understand that while we seek no
conquests we are able to repel any aggression or invasion from with-
out for the very reason that we love peace and mean to maintain it.
We should never forget that if democracy is not both able and ready
to defend itself it will go down in subjection before military autoc-
racy because the latter is then the more efficient. We must bear
constantly in mind that from the conflict which now convulses the
world there may possibly come events which would force us to fight
with all our strength to preserve our freedom, our democracy and
our national life. But this concerns ourselves and will only have
the slow moving influence of example. What can be done now?
What can we do in the larger sense toward securing and maintaining
the peace of the world? This is a much more difficult question,
but turn it back and forth as we may there is no escape from the
proposition that the peace of the world can only be maintained, as
the peace and order of a single community are maintained, as the
peace of a single nation is maintained, by the force which united
nations are willing to put behind the peace and order of the world.
Nations must unite as men unite in order to preserve peace and
order. The great nations must be so united as to be able to say to
any single country, you must not go to war, and they can only
say that effectively when the country desiring war knows that the
force which the united nations place behind peace is irresistible.
Force and Peace 211
We have done something in advancing the settlement by arbitra-
tion of many minor questions which in former times led to wars
and reprisals, although the points of difference were essentially
insignificant, but as human nature is at present constituted and the
world is at present managed there are certain questions which no
nation would submit voluntarily to the arbitration of any tribunal,
and the attempt to bring such questions within the jurisdiction of
an arbitral tribunal not only fails in its purpose but discredits ar-
bitration and the treaties by which the impossible is attempted.
In differences between individuals the decision of the court is final,
because in the last resort the entire force of the community is behind
the court decision. In differences between nations which go beyond
the limited range of arbitrable questions peace can only be main-
tained by putting behind it the force of united nations determined
to uphold it and to prevent war. No one is more conscious than I
of the enormous difficulties which beset such a solution or such a
scheme, but I am certain that it is in this direction alone that we can
find hope for the maintenance of the world's peace and the avoidance
of needless wars. Even if we could establish such a union of nations
there might be some wars which could not be avoided, but there are
certainly many which might be prevented.
It may be easily said that this idea, which is not a new one, is
impracticable, but it is better than the idea that war can be stopped
by language, by speechmaking, by vain agreements which no one
would carry out when the stress came, by denunciations of war and
laudations of peace, in which all men agree, for these methods are
not only impracticable but impossible and barren of all hope of real
result. It may seem Utopian at this moment to suggest a union of
civilized nations in order to put a controlling force behind the main-
tenance of peace and international order, but it is through the as-
piration for perfection, through the search for Utopias, that the
real advances have been made. At all events it is along this path
that we must travel if we are to attain in any measure to the end we
all desire of peace upon earth. It is at least a great, a humane,
purpose to which, in these days of death and suffering, of misery
and sorrow among so large a portion of mankind, we might well
dedicate ourselves. We must begin the work with the clear under-
standing that our efforts will fail if they are tainted with the thought
of personal or political profit or with any idea of self-interest or self-
212 The Annals of the American Academy
glorification. We may not now succeed, but I believe that in the
slow process of the years others who come after us will reach the
goal. The effort and the sacrifice which we make will not be in vain
when the end in sight is noble, when we are striving to help mankind
and lift the heaviest of burdens from suffering humanity.
UNARMED NEUTRALITY
By Albert Bushnell Hart,
Harvard University.
The administration at Washington in its policy of neutrality
is navigating a foggy sea strewn with rocks, along coasts where the
lighthouses have been put out and the buoys changed into floating
mines. President Wilson is still manfully trying to use the regular
charts of treaties and international law; and insists upon sailing
the good old compass courses. In a world full of roarings and
vaporings, the United States is the one great power in the world
which continues to base its policy upon permanent lines of good
will. Even Italy and China, the only other populous nations of the
earth which have not been drawn into the war, find their neutrality
strained to the utmost by the demands of neighboring powers.
Every belligerent has set up some new and strange doctrines of its
own in international affairs, put forward in the hope to realize some
small and temporary advantage over its military adversaries.
While it is not true that international law has for the time being
gone into ** innocuous desuetude," it is true that the three powers
with which we come closest into touch — Great Britain, Germany
and France — all make use of what we might call an eclectic interna-
tional law, choosing the principles that suit them, and filling in the
gaps with new ideas of their own.
Confusion Worse Confounded
One reason for the present confusion on this subject is that too
much stress has been laid upon documentary international law,
such as Hague Conferences, Declarations of London, treaties, and
the generalizations of the text writers; and too little attention has
been paid to the fundamental reasons why there should be neutrals,
neutral rights and neutral trade. Hence an international mix-up.
Germany notifies the world that the seizure of provision ships and
cargoes is so contrary to all principles of international law, that it
justifies the sinking of American merchantmen bound to English
ports, without even the opportunity for the crew to escape. Then
213
214 The Annals of the American Academy
in the Frye case, the Germans insist that the capture of the cargo
of the Frye was justified because it was consigned *'for orders" to
Liverpool, which is a fortified port; and the German presumption was
that it was intended for the British government. Germany then
turns round and politely promises reparation for the destruction of
the vessel because of a treaty of 1828 between Prussia and the
United States to which the United States had not alluded. This
treaty, by the way, like the Belgian neutrality treaties of 1831 and
1839, was made by Prussia but is recognized as valid by the Empire
of Germany; while many German writers have insisted that the
Belgian treaties ceased to have binding force when Prussia and
other states joined in a federal union.
England is equally illogical. In 1908 that power asked that
the question of maritime law in time of war be left out of the Hague
discussions, in order that they might be treated in a separate con-
ference in London. The resulting Declaration of London of 1911
was satisfactory to Great Britain and was signed by her representa-
tives, but appears to have been held up by a technicality in the
House of Lords. Nevertheless when the present war breaks out,
Great Britain announces that she will stand by the Declaration of
London; then modifies the list of contraband in that Declaration;
again alters that list to the extent of including rubber as contraband,
which by the Declaration is declared to be under no circumstances
contraband; then throws the whole theory of contraband to the
winds by claiming the right to capture any vessel bound to enemy's
ports, or cargoes ultimately destined to enemy's territory. This
is not so much a ''scrap of paper'* as a scrap heap of papers.
Disturbed Neutrality
The only way out of this mix-up is for the United States to in-
sist, yesterday, today, and every day to the end of the war, that
whatever mean or brutal thing the belligerents may do to each
other, the United States stands unmoved upon its right to be a
neutral and to act as a neutral. From that safe and sane position,
steady efforts have been made to drive the United States. Both
continental Eurus and insular Boreas have blown with all their
might to deflect the United States from its steady middle course.
Englishmen write with grief and disappointment of the unwilling-
Unarmed Neutrality 215
ness of the United States to realize that the Allies are fighting the
battles of America; and that we ought to come to their aid by land
and sea. Their treatment of our neutral ships, however, is not
prepossessing. It gives some color for the German charge that the
purpose of Great Britain is to get control of all the seas and make
the laws of trade for other nations. On the other side, the Germans,
officially, unofl&cially and German-Americanally insist that the
United States has made itself one of the allies by furnishing muni-
tions to the enemies of Germany. We are told that the blood of
German soldiers killed by shrapnel manufactured in America will
cry out against us. Just what would be the legal status of the
blood of British soldiers who were killed for the lack of our shrap-
nel does not distinctly appear! Nor is it plain how to classify the
blood of the Servians, killed by German shrapnel fired from Turkish
guns in 1912, and from Bulgarian guns in 1913.
Nevertheless, nothing is clearer than that there is a steady ac-
cumulation of anger and hostile feeling toward the United States.
The English are not altogether displeased that the United States
should remain neutral, because they are getting the goods. The
United States shows no moral objection to furnishing superior
shrapnel to shed the blood of soldiers in any uniform. The
English have driven all but one of the German commerce des-
troyers off the seas; they are feeding and supplying themselves,
notwithstanding the German submarine campaign; and they are
receiving supplies of food and ammunition from the United States
in any desired quantity. It is true that they have accomplished
this by their superior naval power, combined with a sublime in-
difference to their own principles of neutral trade.
The Germans, however, are in a very different case. Quite con-
trary to their expectations and to the probabilities as shown by
the experience of the Southern Confederacy in our Civil War, they
have been unable seriously to damage British merchant commerce.
Great Britain is relentlessly uprooting neutral commerce, which
means substantially the American commerce with Germany and
her allies. The English have hoped to starve out the Germans,
exactly as the Germans have hoped by battleships, aircraft or
submarines, to starve out the British Islands. The consequent
frame of mind among thoughtful Germans seems to be not unlike
that of thoughtful Northerners during our Civil War. We felt
216 The Annals of the American Academy
a sense of passionate resentment against the British people because
they were akin to us in civilization, and were supposed to be a lofty
and high-minded people who should sympathize with the aspira-
tions of a great nation. The Americans insisted that the British
government was bound to take precautions against commerce
destroyers, such as it had never taken before. The United States
rolled up, and once actually presented, a bill for a thousand million
dollars for the prolongation of the war. That fierce feeling, which
we now see to be not wholly reasonable, lasted for thirty-five years.
It was extinguished only by an apology from Great Britain followed
by a so-called arbitration in which Great Britain accepted a hand
upon which she must inevitably lose the game. Fifteen and a half
million dollars for the Alabama Claims were paid in cash. Still
it was not till the Spanish War of 1898 that John Bull again became
the favorite cousin.
It looks now as though there would be a similar experience
between Germany and the United States. From the first week of
the war to the present time the point of view of the most intelligent
German subjects in the United States has been that they were un-
warrantably deprived of the natural sympathy of the American
people. What they expect of the United States government is what
we expected of the British government — not a cold impartiality but
a decided leaning in their favor. Without insisting on a direct viola-
tion of neutrality as a mark of friendship, the Germans have ex-
pected that the United States would go to the extreme in their be-
half. They would like a prohibition of export of military munition,
or, failing that, an embargo like that of 1807 which cut off all ex-
ports. They want the American newspapers, universities and
chambers of commerce to think that the Germans are in the right;
and they feel that a failure so to think must have a malevolent
motive. This is a serious state of things for America — one of the
most troublesome results of the war; and it is likely to leave behind
it a legacy of international irritation.
Neutral Obligations
Nevertheless it is impossible for the United States to avoid this
distressing state of things. First because it is not only a bad moral
policy to rob Peter in order to pay Paul, but because Paul is likely
Unarmed Neutrality 217
to make himself heard on the subject in the future. Still more
because it is not the duty of the people of the United States to give
either physical or moral support to either side. The woe of Bel-
gium has led the Americans to join in one of the most magnificent
outbursts of practical charity ever known to mankind; but if the
United States felt itself bound to go to war to defend the neutrality
of every neutralized state and strait, it would be in the position of
the gendarme in the play written by the boys in a French lycee.
The culminating incident is the benevolent gendarme discovering a
poor woman on the curbstone.
" What is the matter, my unfortunate one? " he inquires. " Alas,
I am so wretched. I have lost my husband, my brothers and
sisters, my children. I am homeless, I am starving. I have
nowhere to go." "Poor woman, what can I do for you?" says
the gendarme. Thereupon a happy thought comes to him. He
draws his hanger and stabs himself — you understand, to show
his sympathy! A cooler-headed gendarme might have taken the
poor woman into the nearest restaurant and revived her with nour-
ishing food and drink, and then he could have rescued another un-
fortunate on some other day.
The United States has troubles of its own — present and impend-
ing— and may thank God that it is outside of the realm of trenches
and bombs and poisonous gases. It is the duty of this country to
stand solidly and continuously by the great principle that it has a
sovereign, national right to stay out of a war just as much as to go
into it. We cannot command the great belligerents to lay down
their arms, nor can they compel us to take up arms. The United
States has an unrivalled opportunity to show that personal sympa-
thies with either side cannot push the government from its consistent
duty of preventing military expeditions, or the building of warships
or the enlistment of troops, within our boundaries; that it will
allow no foreign ships of war to make the United States their base
of operation. When the war is over, — for that date also is written
in the books of the fates — the United States will have an honorable
record in this respect. The difficulties of the Washington govern-
ment during the Civil War, and its insistence at that time on more
than common neutrality on the part of other powers, are the best
examples for the present.
218 The Annals of the American Academy
Meaning of Contraband
In spite of all efforts to befog the issue the United States has
a body of neutral rights, to which it is the more entitled because of
its care to fulfill its obligations. Those neutral rights do not depend
upon treaties, or Hague conventions or the good nature of desperate
antagonists. It lies in the nature of human society and the organ-
ization of states. The bottom principle in the civilized world is
that peace and commercial intercourse are normal among nations;
and that no two powers are required to become enemies because
one of them is engaged in war. The seizure of the property of
belligerents at sea has been a factor in wars for many centuries. If
it is an undesirable part of war — which is far from being self-evi-
dent— nevertheless it does exist in the year 1915. No matter how
ferocious the belligerents have been between themselves, how regard-
less of the ordinary methods of making war; still their misbehavior
carries with it no right to interfere with the relations of the United
States to both sides. If my neighbors right and left are engaged in
a hullabaloo because the chickens of one stray into the backyard of
another, and the other's dog disposes of them; why shall not my
children continue to slide down the cellar door of both premises?
We seem to forget that the ships of the United States and other
neutrals have the same right to sail the seas and to enter the ports
of all the belligerents as though there were no war going on — subject
only to the principle that neutrals must not interfere with actual
military and naval operations. Mines are now the ordinary de-
fence of seacoasts and neutrals must take every precaution against
them when approaching a coast or entering a port, and an area
where a sea-fight is going on is not a suitable place for merchant
steamers of any kind. With those exceptions there are only two
substantial limitations on neutral trade. The first of these is
contraband — a term which every student of international law
thought he understood until the present war. The reason for seiz-
ing contraband is simply that it is a direct participation in land
and sea operations. Although by the custom of nations no gov-
ernment is bound to prevent the shipment of contraband, no
government will protect it, once outside its ports; or make any
reclamation for its capture, if it be truly contraband.
Partly through the attitude of the United States on that ques-
Unarmed Neutrality 219
tion in the Civil War, the world has adopted the principle of " con-
tinuous voyages," which is in effect that a contraband cargo des-
tined for a belligerent may be seized if on its way to a neutral port.
The crux with regard to contraband is the list of contraband
articles. And here the only question is whether the cargoes do
actually and directly aid the recipient to carry on hostilities. The
suggestion of the English that cotton ought to be contraband be-
cause a very small proportion of the cotton shipped might be trans-
formed into explosives is ridiculously far fetched. Copper seems
to be a necessity for making of munitions, and perhaps might be
added. Petrol is obviously likely under present conditions to be
used in the field; but what about steel, without which guns could
not be cast and automobiles could not be built? Upon this whole
question of the list of contraband the State Department has been
weak; for while manfully protesting against delays and exaspera-
tions in the proceedings on vessels seized on the basis of contraband,
it has never formally protested against the ever expanding British
list; it has never clearly applied the touchstone of actual military
use to the articles held up by the British; and it has once incau-
tiously admitted the "law of necessity" as a valid reason for altering
the ordinary practices of international law.
Meaning of Blockade
In the discussions of blockade, also, there has been a hesitancy
to base the position of the United States on the solid ground of the
real nature of blockade. It is a common practice of war to invest
a port by sea, partly to cut off its commerce, partly to prevent
supplies reaching the coast — always as a positive, active military
measure. The United States, during the Civil War, captured vessels
anywhere on the high seas bound to the ports of the Southern Con-
federacy, because outside each of those ports it had a competent
l)lockading squadron. Any vessel attempting to enter or to leave
that port was therefore directly interrupting the operations then
going on, and if captured was good prize.
That was the sort of blockade which it was supposed the im-
mense British fleet would institute against the German coast, and
the United States would never for a moment have questioned the
capture of ships bound to actually invested ports. For reasons
220 The Annals of the American Academy
best known to themselves the British have not thought it prudent
to establish such forces off the coast. They do not feel physically
able to keep up such a blockade. Having failed therefore in what
was supposed to be its obvious method of attack, Great Britain has
now declared a blockade which is not a blockade. The use of the
word in the British Orders in Council is delusive. And this bitter
pill is to be sugared by the declaration that neutral vessels and
cargoes which may be bound to belligerent ports shall be captured
and then paid for.
The American government has officially admitted to England
that "the methods of modern naval warfare .... may
make the former means of maintaining a blockade a physical im-
possibility." Then instead of drawing the logical deduction that
if a blockade is a physical impossibility it can neither be instituted
or respected, our government accepts the new kind of blockade,
which is practically the closing of the English Channel and the
water routes to the north of the British Islands, which had for un-
counted ages been the common property of mankind. A neutral
vessel entering the North Sea without the consent of Great Britain
in no way interferes with British warfare. The action of the British
and German governments in declaring areas on the high seas to be
"military areas" or "zones of war" has no more justification than
it would be to hold that the Straits of Belleisle or the channel between
Key West and Cuba were no longer open for American commerce.
Protection of Neutral Rights
To protect these rights which have been so wantonly violated
by two great powers is a hard matter. The United States has re-
monstrated in a manly and dignified tone, though at no time cover-
ing the whole ground of just complaint. In the days of the Orders
in Council and Decrees, more than a century ago, we learned the
stern lesson that appeals to humanity and common sense are of
little weight in the midst of such passions. It has been suggested
that the remaining neutral powers ought to organize as did Russia,
Holland and other European powers in the famous Armed Neutrality
of 1781; that they should lay down a program of their rights as
neutrals, and insist that the neutrals should respect them. Such
joint action would doubtless have some influence, and it would
Unarmed Neutrality 221
remain on record as a counsel of perfection. Both Great Britain
and Germany in this controversy have argued courteously for the
absolute necessity of their behavior as a special measure intended
to countervail the awful depravity of the other's action. And
Great Britain on the question of the procedure of seizing vessels
and prize courts promised amendment which has hardly been carried
out. On the essential point, however, of capturing or destroying
American merchantmen which have a right to an untroubled voyage,
they are alike stubborn. Perhaps sometime a bill for damages
may be presented to one or to the other offending power.
Certainly the United States could protest with vastly more
effect if it had a navy of the same kind as that of Great Britain and
Germany — that is, a navy including a number of fast and massive
dreadnoughts, and also including a large flotilla of destroyers and of
submarines, and a suitable aerial contingent. The friendship and
the trade and good will of the United States are worth having, but
not sufficiently so to protect our interests in a time of crisis. The
neutrality of the United States has to be maintained with a slender
military backing. The United States is standing up as the champion
of the neutral world, and is maintaining principles which would other-
wise go under. Nevertheless nine months of war have been a
sufficient proof that unarmed neutrality is a steam launch in a
cyclone. However sound or seaworthy, the most it can expect is to
live through the storm.
SIX ESSENTIALS TO PERMANENT PEACE
By August Schvan,
Stockholm, Sweden.
A year and a half ago The Lord Chancellor of England passed
through New York on his return from the meeting of the Ameri-
can Bar Association in Montreal. Before he embarked he said to
a reporter that as far as he could see America would fifty years
hence become the leading intellectual nation of the world. At
that time, I happened to be in Canada and in a Canadian paper
I observed the following comment upon Lord Haldane's
utterance. **His only excuse," it said, ''for not having seen
that the U. S. A. already is the leading intellectual nation is
that he only passed two days on American soil." The test whether
Lord Haldane or the Canadian editor was right will come at the
end of this war. It gives to the United States the greatest oppor-
tunity for service to humanity which ever was given to any nation.
If the United States seizes that opportunity, I believe, with the
Canadian newspaper, that the Lord Chancellor of England made
a false statement. The whole of his address to the huge meeting
of the prominent lawyers who assembled in Montreal centered in
the proposition that ''Sittlichkeit" ruled the world to a far greater
extent than mere law.
Through the events of the last eight months we have been able
to somewhat scrutinize the truth of this proposition. Culture
and " Sittlichkeit " have received some startling interpretations.
Let me at once add that this German word might very well be
translated into the very good English noun ''Righteousness" of
which Colonel Roosevelt speaks as often as he wants to impose his
own standards upon the rest of the world with the help of the
armed forces of this great country. He evidently forgets that
righteousness can no longer be an outcome of theological con-
ceptions. He overlooks the timely withering away for inspired
doctrines as they have been promulgated in the past either by priests
or by emperors.
With the birth of the concept of evolution, righteousness can
222
Permanent Peace 223
mean nothing else but adaptation to the environment, taken in its
largest meaning, that is to say, embracing not only the whole of
nature apart from man but also all those human beings who happen
to live on this little planet at the same time.
If this definition of righteousness be granted, as it needs must
be by all those who care for scientific truth, the real cause of the
awful calamity which at present ravages the earth is easily discerni-
ble. The disastrous effect of outlived traditions and sepulchred
shibboleths becomes apparent.
As far as war and peace are concerned, mankind is moved
by ethical, political and economic considerations. Whatever their
specific interrelation may be, they no longer correspond to the
actual conditions of life. They have one and all a more or less
national basis. They must clearly be out of date when the en-
vironment of every single individual is no longer a town, a province,
a state or a continent but the whole planet, from which every one
of us draws more or less in order to satisfy even the simplest material
and mental needs.
The ethical conceptions of the so-called civilized world go back
to a time when even the most advanced thinkers thought the
earth a pancake with a heaven above and a hell below. Its politi-
cal conceptions are the direct descendants of the doctrines of Im-
perial Rome confined to the shores of the Mediterranean and
surrounded by unknown hordes of savages. Our economic concep-
tions are still older. They have an almost prehistoric origin when
the secret of steam was hidden in every boiling kettle and the
greatest labor unions were innumerable isolated tribes.
Yet the nations of the earth have endeavored to regulate their
intercourse according to these time-honored and unborn concep-
tions. No wonder that they have failed ! No wonder that the very
men who have striven to replace war by peace have so ignomini-
ously drawn the ridicule of the rest of mankind upon themselves.
All the empty talk of the pacifists during the last three decades
has accomplished nothing but the ludicrous increase of armaments
which led to the European war. Their pious inadvertences made
the slumlx»ring military interests take to overstating their case, to
overemphasize their importance. Belonging to the circles that
had dose connections with the governments, sprung from those
vested interests which control the majority of the advertising
224 The Annals of the American Academy
organs which daily poison the public mind, the spokesmen of
armies and navies met the assault of the pacifist with a steadily in-
creasing offensive. The columns of the press were filled with a
more intense nationalism than ever before.
At such a time the modern pacifists are proposing to abolish
war by the formation of peace leagues, by laying down certain rules
for not using the armaments which they are too meek to do away
with. What would be thought of anybody who proposed to root
out crime by asking the criminals to form societies for not commit-
ting murder and burglary and establish certain rules for the use of
their implements? How does up-to-date criminal therapeutics
proceed? Don't we try to prevent crime by doing away with those
causes, with those social conditions as poverty and unwholesome sur-
roundings, which produce criminals?
If we want to see the last of war, we have to proceed in the
same manner. The only possible way of abolishing war is to root
out nationalism. As long as the pacifists refuse to tackle this
side of the question of peace and war, they will continue to "ac-
complish precisely and absolutely nothing." If we want to make
this war the last of all wars, we must preach not internationalism
which presupposes nationalism but cosmopolitanism or universal-
ism. We must at once drop all that insidious teaching in nurseries,
schools, colleges, universities and on the political platform which
arouses the patriotism of the people. We must put those dema-
gogues who want to wield the Big Stick out of commission and let
them keep company with those other politicasters who don the
shining armor and shake the mailed fist, who long to hold the tri-
dent and in the meantime carry on their bloody trade with the help
of God. Then and only then will we cease to act as slaves of the
past and become the gods of that present, which science has and
constantly is unveiling for us in all its limitless and matchless possi-
bilities.
The leading statesmen, or let us rather give them their true
name, the shouting politicians, have themselves in so many words
told us that statesmanship as it has been evolved out of the history
of the dim past has played out its nefarious r61e. In every country
they have cried out against the madness of armaments. But at
the same time they have taken pains to assure their patient hearers
that they could do nothing to stop this insane increase in unpro-
Permanent Peace 225
ductive expenditure which burdens every shoulder to destitution
and poverty before it bleeds it in ghastly misery and deadly suffer-
ing. They have declared the bankruptcy of modern statesmanship.
As a matter of fact, the old historical conception of govern-
ment has rapidly become obsolete. The state, the nation, have no
longer any reason to exist as separate entities, to focus men's
attention as they did but a generation ago. Today, for the first
time in human history, all national frontiers are practically coter-
minous. The earth harbors no longer any unknown territories
from which surprise attacks can be sprung on civilization. The
menace is far greater. It comes from within the very walls of
civilization. It springs from the fact that I have already men-
tioned, that our accepted and blindly obeyed ethical, political and
economic conceptions no longer correspond to the real conditions of
the planetary epoch.
In this, the most wonderful time that mankind has ever seen,
there is no need for national governments as hitherto conceived.
The need for their appearance and continuance, the desire for
knowledge of the unknown surroundings, the desire for expansion,
is no longer an absolute necessity. The conquest of the globe has
been accomplished. For the first time in its history, mankind knows
the ultimate sphere of its action. The whole of the earth is known
and this knowledge has been spread to all its parts. Unless we con-
stantly bear this salient message of our time in our minds, we shall
never use our magnificent and unique opportunities to their great-
est advantage.
This conquest of the globe by knowledge, by science, or what-
ever we choose to call it, brings with it the foundations for permanent
peace and disarmament, provided we draw all the consequences
which it implies. The most important is that the national govern-
ments no longer should be allowed to retain any functions of sov-
ereignty outside the borders of their respective nations. The
time has come when national governments should occupy the same
positions as our municipalities. They should simply become ad-
ministrative boards over such wide areas as the needs of nationality
demand.
Then public international law will become as superfluous as
it is fictitious. It can be replaced by a code of international behav-
ior so simple, so definite and so concise, as to be the intellectual in-
226 The Annals of the American Academy
heritance of all men and women in every clime while that fiction which
is commonly supposed to regulate the most momentous intercourse
between the nations is known only by a few hundred professors of
whom no two agree to the exact meaning of the different stipulations
of the international law.
In order to establish this code and thereby secure permanent
peace, I would suggest that the coming Peace Congress should
eliminate the functions of political government from the field of
international relations. Though somewhat hidden from the public,
this process has already begun. We are today all aware that prac-
tically no idea, no discovery, no invention can for any length of
time remain purely a national possession. But how many of you
realize that there already exist nearly one hundred and fifty inter-
national public unions like the postal union, the sugar commission,
the institute of agriculture and other similar institutions where
national sovereignty is more or less yielding to cosmopolitan ex-
perts.
In order to eliminate political influences from international
intercourse, in order to do away with that secret diplomacy which
has deluged the annals of mankind with oceans of blood, we have
but to proceed further on that road. National sovereignty must
at all times and in all circumstances stop at the national borders.
The state must cease to be an entity opposed to other states. To
reach this goal the general acceptance of six cardinal principles
should form the basis of the coming peace treaty.
These six are: the principles of nationality; of universal free
trade; of a world citizenship; of a planetary jurisdiction; of an
oceanic police; and of a standardization of the national police forces.
The principle of nationality I do not need to discuss. It
means that every people shall have the right to have that kind of
government that it wants to have or is willing to submit to. It is
of the essence of peace that all independent communities should
be internally so sympathetic that they are willing to grant to
others the same rights which they claim for themselves.
The principle of universal free trade is intimately associated
with the principle of nationality. The map of Europe cannot be
satisfactorily arranged so long as the policy of tariff walls necessitates
the violation of the principle of nationality in order to give land-
locked races access to the sea. It would be just as unjust to have
Permanent Peace 227
Poles and Bohemians rule over Germans as it is to see the latter
have dominance over the former or the Southern Slavs choke
under the yoke of Hungary. Universal free trade means the
greatest deterrent to war that it is possible to imagine. It means
such a specialization, such a diversifying of production, whether
industrial or agricultural, that no single area could afford to shut
itself off from unhampered intercourse with the rest of the world.
Protection has as itfe moral support the theory that the foreigner
should be exploited. Its practical results mean the exploitation
of the many by the few who manage to sell their produce at an
inflated price behind the Chinese walls which they have raised under
the cover of patriotism. It is such an expression of unabashed sel-
fishness that no protectionist should be allowed to talk of justice,
rightousness and humanity. On his lips they really are nothing but
the worst kind of hypocrisy. With universal free trade, a nation of
two million inhabitants will be just as well off as a people of hundred
millions because both get the same market, the biggest to be had,
the whole earth. Efficiency and industry will reach their proper
reward while there will be no reason for conquest in order to en-
large the market. Thus the fallacious cry for a place in the sun
will lose much of its driving power.
It will lose all meaning if the principle of a world citizenship is
carried out so that every individual, of whatever nationality he may
be born, gets the right to be treated everywhere as a full-fledged
citizen. The world citizenship means that from the moment any-
body is admitted into any country he should in all respects be
treated as a citizen of that country. It means that no single in-
dividual will put his native country in the absurd position of having
to sacrifice thousands and thousands of lives and hundreds of
millions of dollars to repair a wrong which if committed within its
own borders simply would have resulted in a lawsuit. In relation
to those parts of the earth which cannot yet govern themselves,
which constitute the white man's burden, the world citizenship should
imply the right of admission according to a certain percentage of
population. Only thus can the principle of the open door be fully
carried out.
If those three principles, of nationality, universal free trade,
and world citizenship, are firmly established, diplomacy will be-
come a lost art. Trickery and dishonesty will cease to filter through
228 The Annals of the American Academy
the body politic from above. Foreign offices, embassies, legations
and consulates can be shut up provided a jurisdiction is brought to
play which can adjust all those legal difficulties arising out of
planetary intercourse. But this supreme court of courts must
receive the same competence as the supreme court of this country
which unlike the present Hague Tribunal is open to appeals from
individuals. If national sovereignty stops at the national borders,
no government as such should logically be able to come before the
supreme court of courts.
The majesty of the law would everywhere gain by such a con-
ception. The state as a personality would be dead. There would
in fact be no public law. Everyone would see that the pretended
opposition between social and individual aims is a result of the
shallow thought of pre-evolutionary days.
The supreme court of courts should be composed of the necessary
number of judges allowing a world-wide distribution of its numerous
divisions. Those judges should in no sense represent the different
nations but the best judicial talents to be found all over the earth.
Elected according to the number of the population they should be
well paid out of a common fund and with a life appointment so as to
be perfectly independent of any national ties.
If national sovereignty is really to stop at the national borders,
the high seas should be put entirely under the authority of the
supreme court of courts. This would materially enhance its im-
portance and daily bring home to millions of people the entity of
humanity. To be able to control the highways of commerce, the
supreme court of courts must possess a fleet which would constitute
the oceanic police. It need not be very large. Some hundred
small cruisers manned by sailors from some small nationalities with-
out political, colonial or economic ambitions like Norway and
Denmark would suffice. If need be this force will be quite sufficient
to make any national government which should refuse to carry out
a judgment delivered by the supreme court of courts come to its
senses. With universal free trade, the mere possibility that the ships
and floating merchandize belonging to such a nation could be
seized by the oceanic police, would secure due respect for the
planetary jurisdiction.
Then the pretext for national armies and navies is forever gone.
No other armed forces than those necessary for keeping law and
Permanent Peace 229
order within every independent community should be allowed. In
order to prevent secret preparations for warlike action it is, how-
ever, advisable that the Peace Treaty should standardize the
strength of the national police forces. All armament works should
be destroyed. We only require an arsenal at Malta, for the oceanic
police, a rifle factory in the United States and an ammunition factory
in Australia supplying the police forces of al nations according to a
fixed schedule.
This may seem to be nothing but a Utopia. So it would be if
peace were a matter of prayer and hope. But fortunately per-
manent peace is a matter of will and intellect. Let the American
people who already represent more than one-eighteenth part of
mankind take the firm lead on the basis I have outlined and war
will soon be a thing of the past. It is so little inherent in human
nature that Europe has had to resort to conscription in order to
get enough men to fight the cause of the governments, because at
the bottom most men are reasonable human beings as soon as they
are freed from superstition and ignorance, prejudice and tradition.
AMERICA'S POSSIBLE CONTRIBUTION TO THE
WORLD'S PEACE
By Oscar S. Straus,
Former Ambassador and member of the Permanent Court of Arbitrat on at the
Hague.
Any discussion of America's possible contribution to the world's
peace must at this time, in the nature of things, be purely speculative
and hypothetical. Whether this war will end by the decided vic-
tory of the one side or the other, or whether it will be prolonged to a
state of exhaustion, or whether, before such a state is reached and in
recognition of the probability that such will be the result, the war-
ring nations may come together by their representatives in con-
ference to arrange for the conclusion of the war and for plans to
secure by negotiation what they may have failed to secure at the
cannon's mouth — these are questions surrounded with so much
uncertainty at the present time that no one is justified in forming a
definite conclusion.
President Wilson and his administration, animated by the high
and noble desire to conserve the moral influence of our country as a
mediator and peace-maker, have made and are making every effort
to maintain not only a strict attitude of neutrality, but also a spirit
of impartiality on the part of our people. To quote the President's
words from his recent address to the members of the Associated
Press:
Let us think of America before we think of Europe, in order that America
may be fit to be Europe's friend when the day of tested friendship comes. The
test of friendship is not now sympathy with the one side or the other, but
getting ready to help both sides when the struggle is over.
And yet with all this effort on the part of our government,
which has been consistently urged by the President and followed
since the beginning of the war and sometimes in the face of severe
provocation, our government's attitude has been misinterpreted, as
is evidenced by the press not only in Germany but likewise in Great
Britain and in the other belligerent countries. This misinterpreta-
tion, fault-finding and even reproof have been officially expressed in a
230
America and the World's Peace 231
statement authoritatively given out a short time ago by the German
ambassador, protesting against our not observing our neutral obli-
gations. Utterances in some of the leading British papers would
indicate that our attitude of neutrality likewise does not satisfy
public opinion in that country.
I refer to these facts because the attitude and the disposition
toward us of the belligerent nations will have a direct bearing upon
what contribution we may be invited or permitted to make in aiding
in the establishment of peace among the warring nations and in the
development of plans for securing the permanent peace of the
world.
There is yet another important consideration which we shall
have to determine for ourselves before it will be possible for us to
have a part or take a part in devising plans for the peace of the
world. The American traditional policy has been expressed in two
important state papers, in Washington's farewell address, and in
President Monroe's message to Congress, which state papers have a
prestige and authority second only to the Declaration of Indepen-
dence and the Constitution of the United States. Washington, in
his farewell address, stated that Europe had "a set of primary
interests which to us have none or very remote relations. " His
thought was, that it was the course of wisdom so far as possible to
disassociate America from the ordinary vicissitudes of European
politics.
Monroe, in his message, amplified the Washington policy as the
changed circumstances and the immediate necessities demanded,
by reminding the powers of the Holy Alliance of our policy in regard
to European nations, that we would not interfere in their internal
concern, and that we would not regard their interference in the
affairs of the government of the states on the American continent
with indifference. This American policy in its double form was
annexed to the signatures of the American delegates to the Hague
convention, and was spread on the minutes of the conference, and
as such recognized by the nations of the world.
The question, therefore, naturally arises: has America the
right to demand participation in the conferences of the belligerent
nations following the present war, for the purposes of arranging for
the future peace of the world? Another question presents itself:
^v^n if we should not have the right, and in the event that we should
232 The Annals of the American Academy
be invited by the belligerent nations as the leading neutral power to
participate in such a conference, can we do so without impliedly, if
not expressly, relinquishing our traditional attitude of exclusive
control over purely American questions?
This contingency will bring to the foreground the consideration,
if not the wisdom, of a further extension if not a reversing of the
American traditional policy as outlined by Washington when he
said:
The great rule of conduct for us in r^ard to foreign nations is in extend-
ing our commercial relations to have with them as little political connection as
possible. So far as we have already formed engagements, let them be fulfilled
with perfect good faith. Here let us stop.
The question that would present itself, have not the world
relations and the interdependent interests of nations since Wash-
ington's admonition was given, become so closely and intimately
related so that our duty to other nations as well as our own ''en-
lightened self-interests" make it imperative upon us not to "stop,"
but to unite with the nations of the world in such a policy, be it by
international agreement, by entering into a league with the leading
nations of the world, or by becoming a member of a world federa-
tion, or by uniting in such a joint arrangement, as in the wisdom of
nations may be determined upon as the most practical and effective
for the establishment and maintenance of the peace of the world?
From generation to generation we have been making radical
changes in our internal policies, and notably in the direction of the
enlargement of the powers of the central government. The Inter-
state Commerce Laws and the Federal Reserve Act are themselves
distinct evidences of those changes. A nation cannot remain sta-
tionary any more in its national than in its international relation-
ship and policy. "New occasions teach new duties."
It is not improbable that the outgrowth of this war will affect
the future policies not only of the belligerent nations but of neutral
nations as well. Norman Angell says that if we do not mix in
European affairs, Europe will mix in our affairs, and that the day
of isolation for us, whether we like it or not, is over. He may be
right. It is much easier for a country when it is small in population
and in interests to remain aloof, than when it becomes one of the
great powers of the world. Our country with its population of a
hundred million and its expanded world commerce is too large a
America and the World's Peace 233
factor to stand aloof from world questions. In the event of a
league or confederation of the leading nations, for us to separate
ourselves by refusing to assume our share of Vesponsibility might
conflict with our national interests and our international duties and
have the result of placing ourselves in opposition to the world
policies of the new world-state. In such an event, would it not be
better for such a world-state as well as for ourselves to form a
part of such a state and help to shape its policies as one of the im-
portant constituent members, than to conserve our traditional pol-
icies and stand aloof?
These are questions that not unlikely, I might say, very prob-
ably, will present themselves to the American government at the
outcome of the present war or even before, in contributing its
mediatory offices in bringing the war to a conclusion.
Our country has els deep a concern, not only morally, but
economically and industrially, in the peace of the world as any one
of the larger nations. A war such as this, or upon such a consider-
able scale, affects under the changed economic and commercial
conditions and relationships of modern times the neutral nations
only to a lesser degree than the nations actually at war. And,
therefore, have we not the right and is it not our duty to cooperate
to the fullest of our power in the perfection and the maintenance of
a plan for the preservation of peace?
It is to be hoped that the extreme suffering and sacrifice that
this war entails may have the compensation of developing supreme
wisdom on the part of the nations. The nations of the world, to
be at peace, must develop a broader patriotism as distinguished
from a national jingoism, a more enlightened sense of justice which
does not preach one gospel on one side of a national border and a
different or opposite gospel on the other side. In other words, so
long as the standards of national justice and international justice
are not in consonance but on different levels, and in many respects
directly opposed to one another, the security for peace must largely
depend upon the doctrine of might. Until the international con-
science is brought under the majesty of the law, there can be no
permanent security for international peace.
Perhaps the most guiding and impressive contribution that
America can make to the world's peace is the successful experiment
and example of its federated union of forty-eight separate common-
I
234 The Annals of the American Academy
wealths, which affords to the world a striking illustration that its
preservation is due to the fact that behind the right of each one of
these commonwealths, the smallest as well as the largest, stands the
united might of all. This greatest of all wars, involving directly
nearly two-thirds of the population of the world, is a glaring and
ghastly evidence that international relationship has to be recon-
structed, that the plans heretofore devised, of nations standing
alone or separating themselves into two or three great divisions
under dual or triple alliances and ententes, have lamentably broken
down, and instead of lessening the area and the horrors of war, have
had the opposite result and drawn nations into war that otherwise
would have remained at peace.
Therefore, the federation or league of all the states in the Amer-
ican union embodies the ideal, if not the plan, for a universal league
or federation of the nations as the surest and safest guarantee for
securing the permanent peace of the world. In such a federation
power will be needed, not for aggression but to prevent aggression.
Power will be needed, not to promote the selfish ends of individual
nations but to curb them. Power will be needed, not for making
war but for repressing war, for maintaining peace. Power will be
needed, not for breaking treaties but for maintaining them; and
this power must not be vested in one, but in all the nations.
BOOK DEPARTMENT
NOTES
Bland, A- E., Brown, P. A. and Tawnet, R. H. English Economic History.
Pp. XX, 730. Price, $2.00. New York: The Macraillan Company, 1914.
Documentary material touching every phase of the economic history of
England from the year 1000 to 1846 is presented in this volume. To students
and teachers of English history, political or economic, this work should prove
an invaluable aid. The material is well chosen and the explanatory notes at the
beginning of each chapter are good. An especially pleasing feature is the presen-
tation of a list of the leading authorities who have written on each topic con-
sidered.
BosANQUET, Helen. The Family. Pp. vii, 344. Price, $2.25. New York:
The Macmillan Company, 1915.
This very valuable treatise is simply a reprint of the edition of 1906 without
revision. It is fortunate for students of society that the publishers have not
allowed it to be out of print.
Brown, Harry G. International Trade and Exchange. Pp. xviii, 197. Price,
$1.50. New York: The Macmillan Company, 1914.
In part I, the author takes up the subject of foreign exchange. The first
two chapters are introductory; in them he develops briefly the principles gov-
erning the use of money, and describes the functions of a commercial bank.
The remaining four chapters are devoted exclusively to an analysis of the under-
lying principles influencing changes in the rates of foreign exchange. The sub-
ject is treated in such a way that the student can easily comprehend the theory
and practice of international exchange operations. Illustrations and hypotheti-
cal transactions serve to simphfy the subject.
Part II, the "Economic Advantages of Commerce," treats the question as
to how it is possible for gains to be made in trading and how such gains may
accrue to communities and nations as well as to individuals. He goes on to
show how tariff duties and protective tariffs affect a nation's wealth through rent,
interest, and wages. One of these chapters is devoted to answering protective
tariff arguments. In the last two chapters the author enters into a discussion
of the nature and effects of government bounties and of ship subsidies; and oon-
cludee that both of these aids are without economic justification.
The arrangement of the material is good and makes the work a satisfactory
text for a course on international commercial policies.
Bullock, Edna D. (compiled by). Single Tax. Pp. xxxviii, 199. Phblps,
Edith M. (compiled by). Federal Control of Interstate Corporatunu (2nd and
Enlarged Edition). Pp. xxx, 240. The Recall (2nd Edition, Revised and
Enlarged). Pp. xlviii, 273. Monroe Doctrine. Pp. xxviii, 263. Price,
$1.00 each. White Plains, N. Y.: The H. W. Wilson Company, 1916.
235
236 The Annals of the American Academy
Burgess, Thomas. Greek8 in America. Pp. xiv, 256. Price, $1.35. Boston:
Sherman, French and Company.
This is the second book deaUng with the Greeks in America, the first being
that of Professor Fairchild entitled Greek Immigration to the United States, pub-
lished in 1911. This volume is less comprehensive but more personal, and in-
cludes besides the general descriptive matter two chapters on Famous American
Greeks and an extended bibUography. Compared with Fairchild 's work which
the author characterizes as lacking in "fairness, care, and accuracy" one is
impressed by the fact that this work is a brief for the Greeks in the United States;
an attempt "to describe the Greeks picturesquely and as far as possible from the
Greek standpoint," rather than an unbiased description of all phases of the prob-
lem. It should supplement rather than replace Fairchild in library and classroom.
Cabot, Ella L., et al. A Course in Citizenship. Pp. xxiv, 386. Price, $1.25.
Boston: Houghton, Mifflin Company, 1914.
A text-book for the grades in which the pedagogical order, rather than the
formal, logical one, dominates. The book is a notable experiment illustrative
of new methods of approaching the teaching of civics.
Clouqh, John E. Social Christianity in the Orient. Pp. xiii, 409. Price, $1.50.
New York: The Macmillan Company, 1914.
This is the inner history of the famous Telegu Mission. It recounts the
life and labors of John E. Clough, D. D., a Baptist missionary, among the Telegus
in India. The story is told in the most direct manner, in his own vigorous words,
and is written by Emma Rauschenbusch Clough, Ph.D., his second wife.
A remarkable book has been achieved. The fire, enthusiasm, humor and
vivid personahty of Dr. Clough have been preserved, and yet it has been possible
— since the speaker is not the actual writer — to throw upon the man and the
scenes amid which he wrought, the light of critical observation and of discerning
appreciation, and thus to present to the world both Dr. Clough and great mis-
sionary triumphs in an exceptionally brilliant and impressive way.
It may be noted that the title of the book is in itself a recognition of the great
social work that is being done by Christian missions, and that the volume has
five points of intrinsic and permanent interest:
1. Just as a hve, fascinating story, it is the best kind of a book for growing
boys. 2. As a missionary document, it is an authentic and stirring account of
one of the largest missionary successes. 3. As a work in social science, it is full
of amazing social facts, and should be carefully studied by social workers. 4.
For governmental and colonial administrators it contains definitely helpful
thoughts. 5. As a theme in psychology, it is of incalculable value to any min-
ister, missionary, philanthropist or educator who is seeking to know how best to
plant any form of institution, or to impress his spiritual ideals upon a community.
FoTTCHfi, Leo (Ed. by). The Diary of Adam Tas {1706-1706). Pp. xlvii, 367.
Price, $3.75. New York: Longmans, Green and Company, 1914.
Printed in Dutch and in English on parallel pages, this diary, with the long
appendix, gives an account of colonial life and misgovernment of "the Cape"
Book Department 237
(South Africa) under the Dutch East India Ck)mpany during the opening years
of the eighteenth century.
Originally the free burghers had been settled there to furnish agricultural sup-
plies to the company's ships and garrison. At the start, the company also owned
and cultivated land. Later this was discontinued, but the colonists could sell
their produce to the company only. Willem Adriaan Van Der Stel, the governor,
and his subordinates decided to become farmers as well as oflficials, using the com-
pany's materials, slaves and men, and to crowd out the free farmer from this his
only market. They were so nearly succeeding by 1705 that the burghers, who
"foresaw the speedy disappearance of their whole means of subsistence," sent a
"memorial" to the directors, complaining of the scheming governor and of the
oppressive measures he was using to enrich himself and his henchmen.
Adam Tas was secretary and a leader in this "revolt" of the colonists. Van
Der Stel used intimidation and torture to wring from the leaders recantations
which would clear him before "the Seventeen." This book is significant for the
hght it throws upon this "Van Der Stel Question" in South African history and
for its picture of community life of the period. It shows also that this reaction
against the governor was the first fusing of Dutch and French settlers into a na-
tional consciousness.
Frazeb, J. G. Psyche's Task. 2nd Edition, Revised and Enlarged; to which
is added the Scope of Social Anthropology. Pp. xi, 186. Price, $1.25. New
York: The Macmillan Company.
Those who are loath to find the traditionally good aspects of social life founded
on crude and coarse superstitions will wisely avoid this treatise. Those who look
for the foundations of our culture in the conditions of contemporary savagery
will welcome it as a valuable contribution to genetic sociology. According to
Mr. Frazer, to less noble motives, to superstition and senseless fear must be at-
tributed the golden fruits of law and morality. "While the parent stem dwindled
slowly into the sour crabs and empty husks of popular superstition on which the
swine of modem society are still content to feed," the offshoot of rationalism and
superimposed ethical motives makes of these social habits noble institutions.
Such has been the case in regard to property rights, insured, first of all, by pro-
tective charms whose sole efficacy depended upon their ability to engender illu-
sions in would-be trespassers; so in regard to marriage, violation of the marital vows
being punishable, first, because of the malign magical effect of such violation upon
nature or upon the tribe of the offender, similar respect for human life was origin-
ally only superstitious fear of immediate or remote supernatural consequences
visited upon society.
Gerstenberq, Charles W. Materials of Corporation Finance. Pp. xxi, 1008.
Price, $4.00. New York: Prentice-Hall, Incorporated, 1915.
The teaching of applied economics has passed through the stage of fact enu-
meration regarding business phenomena. With the arrival of source-books on
general economics, business combinations and, lately, corporation finance, we
perceive an attempt to introduce research methods and individual thought. Ger-
stenberg's Materials of Corporation Finance is intended to encourage the inde-
238 The Annals of the American Academy
pendent collection of facts and the extraction of principles. This volume also
aims to sustain interest in the subject matter, but because of the inclusion in full
of much that might have been omitted without excessive loss it is not entirely
satisfactory in this respect.
Certain documents respecting the methods of the security market bear only
a very indirect relation to corporate finance. The inclusion of four annual reports,
some of them very voluminous, seems unnecessary. Finally, some arrangement
of the contents which would bring together related subjects or an outline of topics
with page references would appear desirable.
All of these points are, however, of minor importance in comparison with
the attainment of the general piu-pose — to bring together original documents in
a convenient form for class use. In the main, the author has exercised wise selec-
tion and his extracts will prove a valuable aid in many courses. Not the smallest
service of such a volume is the suggestion to students of sources of information
which they will avail themselves of in the future.
Gow, Wm. Sea Insurance According to British Statutes. Pp. xxxvii, 478.
Price, $4.25. New York: The Macmillan Company, 1914.
Those interested in marine insurance are familiar with the works of Gow,
his Marine Insurance having passed through four editions and being recognized
as authoritative. The legal principles explained in this earlier work were de-
rived from decisions of the English courts, although the last edition contained
a brief reference to the British Marine Insurance Act of 1906. This Act is an
attempt to reproduce as exactly, as possible, in statute form, the existing law
relating to marine insurance. Mr. Gow, in his usual able, concise manner, has
written a commentary on the Act whose clearness and illustrative material ex-
cellently describe the intent and scope of the law. In some cases he points out
the possibility of misconstruction of certain of its provisions. In addition he
has furnished alphabetical, chronological and subject lists of the leading cases
in English maritime law, as well as seventy-seven extracts from the same. While
this court law is not permitted to modify the provisions of the statute, it may be
referred to for purposes of interpretation. A general index of nine pages increases
the usefulness of the volume.
Hepburn, A. Barton. Artificial Waterways of the World. Pp. xi, 171. Price,
$1.25. New York: The Macmillan Company, 1914.
A revision of Artifixnal Waterways and Commerical Development, pubUshed
in 1909. The author has brought down to date the accounts of the New York
Barge Canal, the Panama Canal and other important American and European
waterways. The final section contains a forcible argument in favor of the crea-
tion of a Department of Internal Navigation imder the Secretary of Commerce.
Several appendices present valuable statistical material concerning waterways
and water-borne traffic of the United States.
Hooper, William E. Railroad Accounts and Accounting. Pp. xi, 461. Price,
$2.00. New York: D. Appleton and Company, 1915.
After a brief discussion of the general principles of accounting, the author
analyzes critically the accounting system prescribed by the Interstate Commerce
Book Department ^39
Commission for the railroads of the United States. He then describes the or-
ganization of the accounting department of a large railway and discusses the
work in its three leading divisions, passenger revenue, freight revenue and dis-
bursements. A chapter is devoted to the work of the treasurer's oflSce and a
final chapter to the question of allocating revenues and expenses as between
freight and passenger business; a problem that the Interstate Commerce Commis-
sion is now wrestling with. This work is distinctly the best that has appeared
on the subject. Illustrative material has been selected with discrimination, and
the criticism of existing conditions is sound.
Kahn, Joseph and Klein, Joseph J. Methods in Commercial Education. Pp.
xiv, 439. Price, $1.40. New York: The Macmillan Company, 1914.
This is a text-book for teachers, students and business men. It "is intended
to give the teacher in the commercial school the broad vocational outlook upon
his subject, to acquaint him with the pedagogical principles underlying it, and to
discuss the special methods in the different subjects included in the curriculum.
To the business man the book is intended to convey a knowledge of the value
and content of a business education, to give him a sympathetic view of the work
of the school, and a better understanding of the needs of it, so as to enable him to
cooperate with it in a direction which will be of benefit both to the school and to
the community at large."
Van Ornum, J. L. The Regulation of Rivers. Pp. x, 393. Price, $4.00. New
York: McGrqw-IIill Book Company, 1914.
A scientific treatise on the work of controlling and regulating the flow of
rivers. The first chapter discusses the commercial value of rivers, and the remaining
chapters set forth the general principles of regulation and the various methods
of carrying out the numerous engineering projects connected with river im-
provement. A wealth of illustrative material from work done in the United
States and foreign countries is presented, and numerous charts, illustrations and
diagrams are employed to illuminate the text.
REVIEWS
Carb, W. K. Cajnlalistic MoralUy. Pp. 298. Price, $1.50. Washington:
Woodward and Lothrop.
In the author's words, " the object of this fragmentary essay is to prove that
government, moraUty and law are simply instruments of class rule" (preface),
and that "the ideals of the dominant class are alone governmental factors, and
that these ideals are based exclusively upon the economic advantages which that
class enjoys" (p. 102). In other words, the author holds that the capitalist class
controls and exploits government, custom and education to promote its own
peculiar economic interests. The attempt is made to demonstrate the validity of
some of the principles of Marxian philosophy, but there is absent the usual social-
istic terminology.
k
240 The Annals of the American Academy
Two fundamental defects prevent the book from receiving serious consid-
eration. The first is its fragmentary character. The author's title, Some Odds
and Ends, is fully justified. The disconnected and unrelated material produces
confusion and leaves the feehng that no clear evidence has been adduced to support
the author's thesis. The second defect is the omission of references in regard
to quotations. This leaves the reader unable to determine the accuracy or com-
pleteness of interpretation. Quotations from newspapers, historical works, and
governmental publications are freely made, and the interpretation of many ques-
tions may easily be open to question. The omission of references prevents veri-
fication and destroys any scientific value the book might have.
As a protest against the exploitation that exists in the capitalistic system
the book will find a responsive chord in the feehngs of many who have suffered
from the defects of the present industrial order. Its only value will consist in its
protest. Its utter lack of scientific treatment will prevent its serious considera-
tion by students of class conflict and class relations.
J. G. Stevens.
University of the South.
CoiT, Stanton. The Soul of America. Pp. xi, 405. Price, $2.00. New York:
The Macmillan Company, 1914.
In this suggestive but Utopian book, the leader of the Ethical church out-
lines at length his religious program. Part I presents at once the main thesis
and identifies Religion and Nationality instancing the patriotism of America.
There is much uncritical idealism in the portrayal of American "cultural unity"
and our democracy that includes the poor and glorifies women. The difficulty
in so highly regarding "that state of mind which is America" is that, as the author
admits, one is "too far removed from the fact"; but he claims that the falsehood
"will be made true" by "the very ideals of our country." Any "subsidiary
patriotisms" are regarded as sins against America. Thus, the Jews are asked to
identify their aims with the national ideal; and other forms of "international
fanaticism," — "individualistic humanitarian ism, " the International Peace
Movement and its economic interests, the anti-nationaUsm of the church of Rome,
and anti-patriotic socialism, are all condemned as undermining the psychic integ-
rity of the nation.
As the plan is outlined for the new American church, there would be but
"one new center of pubhc worship in each state." An "Institute of Religious
Research" is to be founded for investigation in the psychology of religion; and
"the new synthesis will fink up religion with patriotism, and God with the Spirit
that quickens men into Moral Fellowship." Somehow, "argument will be
rendered superfluous," at last, and "liberty of intellectual interpretation" will
be assured. The new church is not to be a state church but a "voluntary and
national" one. The denominations, the differences and prejudices suddenly
abolished, are to exist as "parties" in the larger whole, devoting themselves to
"national idealism." The attempt is made, in explanation, to show the sociolog-
ical function of rehgion, and to prove that it springs from group rather than from
individual needs, "The social genesis of conversion" and "the saving power of
spiritual environment" are discussed as illustrations.
Book Department 241
Part II, Christianity to he Reinterpreted in the Light of Science and American
Idealism, shows the indebtedness of the author to the theories of natural religion
of his master, Sir John Seeley. Christianity must be stripped of miracles, guid-
ance from the dead, mediumship and demonism. The humanistic meaning of
theological language is analyzed at length; all of the old religious terms are re-
tained and the attempt is made to give them new content in keeping with the
new national needs. A long argument is presented for the humanistic significance
of prayer "to the God in man. " New grounds are sought for the millenial hope,
for a material and spiritual heaven, to be attained on the earth by the use of
wealth, science and eugenic knowledge. For in the new reUgious order the church
services are to eTcpr^ss the democratic faith, and reUgious cooperation is to become
the djTiamic of democracy.
In Part III, Christianity to he Expressed in SdentiJU Langtiage and Democratic
Symhol, Mr. Coit deals more minutely with the changes in church creed and
service that are to be embodied in A New Manual of National Worship. He shows
how doctrines and hymns have been readily adapted in the past and calls upon
the poets for aid in meetiug the present need for revision. The psychology of
pubhc worship is analyzed to show the effectiveness of reUgious form and ritual
and every aesthetic ethical and social means is to be used to vitalize and enhance
the power of democratic ceremony.
Aside from the casual criticism of the rhetorical, hazy, verbose terminology,
and the indefiniteness and haphazardness of arrangement of the book, the insuper-
able objection is to the Utopian impracticabiUty of the whole scheme. The
organization of a voluntary national reUgion is opposed by deep-seated traditional
prejudices that are firmly institutionalized and slow of change. In considering
the book from the theoretic viewpoint, however, it should be admitted that reli-
gion is significantly interpreted as comprising those values held by the group to
be supremely worth while. God, for instance, is conceived as "that real beiQg
which men ought to focus their steadfast and reverend attention upon in order to
derive from Him those benefits which are reaUy the greatest blessings to man-
kind. " Yet the fundamental criticism of Coit's reUgious philosophy is that the
identification of reUgion with national interests outside of the realm of idealism
might be dangerously irreUgious; for here the highest Christian sanctions are not
upheld and nationalism has ever found easy recourse to the use of the force in the
name of reUgion and patriotism. In any case, the world changes, economic and
social, which at last make possible the reaUzation of the Christian ideals in inter-
national relations, are ignored entirely.
Francis Tyson.
University of Pittsburgh.
CoRWiN, Edward S. The Doctrine of Judicial Review. Pp. vii, 177. Price,
$1.26. Princeton: Princeton University Press, 1914.
At a time when the American public is Ixiginning to show impatience with
a judicial assumption almost unknown in other constitutionally-governed coun-
tries, this exposition has especial interest. Judicial review is treated as a natural
and inevitable growth, very far from conscious usurpation. Thi« view should
tend to allay our impatience, if the courts wiU but learn to be moderate.
24^ The Annals of the American Academy
The purpose of the book is to answer the question, ''What is the exact legal
basis of the power of the supreme court to pass upon the constitutionahty of acts
of Congress?" Dr. Corwin is not satisfied with what were merely the hopes of
the framers, but seeks what they understood to be incorporated in the constitution
for the purpose of estabUshing judicial review. He is unable to find any clause
which was inserted for the specific purpose of conferring this power upon the
courts. Accordingly, he is driven to the conclusion that judicial review was
rested by the framers "upon certain general principles which in their estimation
made specific provision for it unnecessary."
In his search for these general principles, he criticizes a brilhant essayist who
found them in the three doctrines: (1) of the courts as interpreters of the law;
(2) of the judiciary as a coordinate branch of the government; and (3) of the
right of everybody, including judges, to refuse obedience to an unconstitutional
law. Dr. Corwin declares these principles to be mutually inconsistent, for the
second, so far as applicable to this question, was a Jeffersonian and Jacksonian
idea advanced in opposition to judicial review, and the third is quite untrue. He
agrees with President Grant that officers and other citizens are bound by acts of
Congress until such acts are declared unconstitutional by the courts. It is there-
fore in the expansion of the first of these doctrines that the desired general
principles are to be found. These principles are three and no more: (1) that the
constitution binds the organs of government; (2) that the constitution is law en-
forcible by the courts; and (3) that the function of interpretation of standing law
appertains to the courts alone.
It is in the constructive part of Dr. Corwin's argument that he is most con-
vincing, even though he omits significant points made by Dr. McLaughlin and
Justice Baldwin. Here Dr. Corwin traces the growth of these general principles
between the years 1761 and 1787, showing how rapidly the idea of judicial review
developed, though now retarded and now modified by the quick revulsions of a
revolutionary period.
The framers of the constitution were famihar with the idea from its progress
in the several states, and the debates show that they devised a government in
which judicial review was fundamental, though no more specifically expressed
than in the state constitutions. So far from concealing their hopes and expecta-
tions, they openly proclaimed in the ratifying conventions the doctrine as inher-
ent in the proposed system of federal government.
Opposition to judicial review, however, was sometimes violent in the states
and outspoken in the convention. After the new government was set up, the
doctrine made gains in both state and federal courts in spite of rising discontent.
Then the opponents of judicial review gained control of two branches of the
government, but Chief Justice Marshall at the head of the Federalist Supreme
Court struck back by a decision which, in the words of Dr. Corwin, "bears many
of the earmarks of a deliberate partisan coup. " This decision, however, became
an historic precedent that fastened the doctrine of judicial review upon the coun-
try. Therefore, the conclusion is: "The judges do not exercise a revolutionary
function in pronouncing acts of the legislature void, but an official function";
and, "So far as constitutional theory is concerned, there is small ground for the
complaints levelled by reformers at judicial review. "
Book Department 243
It may be conceded that the researches of such men as Messrs. Corwin,
McLaughlin, Beard, Melwin and Haynes have proved that the American doctrine
of judicial review is an evolutionary development, yet it must be answered that it
is none the less an anomaly, and now in this period of reform has become a bar to
social progress. The courts have made themselves the repository of public
policy and legislative discretion. They change laws and constitutions. A super-
stitious popular reverence has driven them to this improper assumption of power.
An enhghtened public opinion must drive them back to the exercise of their legiti-
mate functions.
Charles H. Maxson.
University of Pennsylvania.
Cramb, J. A. Germany and England. Preface to an American Edition by Moreby
Acklom. Pp. X, 152. Price, $1.00. New York: E. P. Dutton and Com-
pany, 1914.
The introduction given this little volume by the late Lord Roberts in Eng-
land and by Mr. Joseph H. Choate in America, and the assertions that the ques-
tions discussed should have an important bearing on the future foreign policy
of the United States add an interest to the book that it would not otherwise merit.
The four lectures that it contains were published very early in the present Euro-
pean war with the object of establishing the thesis that the war is not only a
supreme but a necessary conflict between two powers, Germany and England,
for dominance over the rest of the world. The neutral powers, in the opinions
set forth, carry even less weight in world affairs than the present alhes of Great
Britain and Germany. To question the sanity of a struggle for world empire
at this late day in history, and the value of such a thing even if attained by
either power, does not seem to have come within the author's view any more
than that the other nations of the globe might have a word to say on the subject.
With his premise assumed, it is easy enough in the way of the schoolmen, for the
author to draw his conclusions.
The lectures chiefly demonstrate the late Professor Cramb's acquaintance, un-
usual in its scope and interesting for an Englishman's, with a phase of the literature
and thought of modem Germany; but they are in no sense convincing as estab-
lishing the ultimate and true causes of the war, nor even in proving (unless mere
assertion be proof) that Nietzsche, Treitschke, and Bernhardi, that much-heralded
trinity, are the dominating or moving spiritual forces behind the thoughts and
actions of the German General Staff. Though this book, like Usher's republished
Pan Germanism, won a ready and deserved sale as a remarkable prophecy of the
coming struggle, it was a prophecy as unheeded when it was made as the warnings
of Lord Salisbury in 1900 and of Lord Roberts after the Boer War. If the lat«
great field-marshal's own estimate that "nowhere else are the forces which led
to the war so clearly set forth" as in this "Reply to Bernhardi," and to the
school of thought which von Treitschke, Delbruck, Schmoller and Maurenbrecher
are supposed to represent, if this estimate, I repeat, be a true one, if the notes
of warning by Mr. Choate and Mr. Acklom for American ears be'not misdirected,
and if the views expressed of Germany's mind and England's be correct, it is the
244 The Annals of the American Academy
saddest and most depressing book amongst the mass of so-called literature that
the war has brought forth.
Condemning Treitschke's doctrine of "force" and "Prussian Militarism,"
the author proceeds to scorn the "cry" of the Pacifists; of "Christ," "Tolstoi,"
and " Alberdi," etc., "this hubbub of talk, " as he calls it, "down all the centuries"
to the time of Sir Edward Grey, and "all the froth and loathsome sentiment and
empty vaporing around President Taft's Message." Yet he offers no substitute
but English militarism, more dreadnaughts, more aircraft, more war preparations,
etc., etc. He not only preaches war as a necessity, a thing "not only beyond
man's power, but contrary to man's will," but he glorifies the scourge of nations
as a thing inspiring and heroic in itself. He bows down to an idol of Greek con-
ception,
"Heroes in battle with Heroes
And above them the wrathful gods, "
imaging that wornout deity of Teutonic kindred looking "serenely down" from
the clouds "upon his favorite children, the English and the Germans locked in
a death struggle, smiling upon the heroism of that struggle, the heroism of the
children of Odin the war god. "
This is an illuminating reply to Bernhardi and militarism.
Were it not for the Kaiser's and von Hindenberg's bombastic speeches to
the German troops, which the charitable might perhaps ascribe to military
"necessity," and were it not for a struggle that has surprised as much as it
has shocked the world, whether it be for world empire or not, one might say
this English conception is a nightmare due to England's exasperated celebration
on the subject of her great rival's economic and political advance in world affairs.
Might it not have been wiser for the lecturer and author, and for those form-
ulating government policy, to have laid less stress on the talkers of modem
Germany and to have refreshed English memory as to the doers of Prussia;
Frederick William, the great elector, and his generosity to the exiled French;
King Frederick III, and his services to learning; Frederick the Great, and his
contributions toward the beyond-the-sea power of this same England that
abandoned him when her empire was securely wrested from the French; Stein,
Hardenberg, Fichte, and others of the days when England and Germany made
common cause against the imperial ideas of Napoleon? So perhaps, if even for
a moment, might men's minds have turned to Prussian accomplishments more
beneficial to humanity than those of militarism, and thought have been directed
to a policy of natural friendship and alliance rather than to a program of enmity
and a war of fear.
James C. Ballagh.
University of Pennsylvania.
Croly, Herbert. Progressive Democracy. Pp. 436. Price, $2.00. New
York: The Macmillan Company, 1914.
Reform movements are seldom accompanied by well-advisnd social or political
philosophy. They are usually uncritical. Mr, Croly's book outlines what he
conceives to be the historical origin and the social justification of the radical
Book Department 245
movement in American politics. The line of argument presented may be sum-
marized as follows: — Our federal constitution is essentially undemocratic. It
was accepted nevertheless by a society little disposed to suffer governmental
restraint because the powers of the central government which it created were
few and the occasions for their use infrequent. Free sway for individualistic
effort for the moment coincided with democratic ideals. Our national develop-
ment has now changed our attitude toward government. We have approached a
social ideal which now demands state action to insure our real rather than our
technical equahty before the law.
The position which the courts came to occupy under the constitution brought
a worship of legalism. The conservative classes came to look upon the courts as
an essential protection against popular vagaries. As a result, the rule of reason
as interpreted by the courts has become the standard of what democracy can
accomplish. Such a standard is unwelcome to a conscious rapidly-growing state.
To preserve the advantages of constitutional government it is at least necessary
that the constitution should be made more flexible. The amending article will
thus ultimately be an object of popular attack. The people will demand a right
to reshape their fundamental law with less effort than is now required.
In the states a similar condition of inability to express the popular will has
been brought about by constitutional limitations on the power of the legislature,
which, when it made mistakes, was punished by cutting down its powers, a
process which in fact amounts to treating symptoms, not causes. To insure that
the forward-looking forces in state government shall have an opportunity for ex-
pressing themselves, the government should be reorganized by removing the
swaddling clothes of constitutional Umitations, adopting direct legislation as a
supplement to legislative action, and increasing the powers of the executive so
that it may have greater power to initiate and carry through a legislative program.
To insure that its action shall conform to the popular will, the long-term officers
should be subject to popular recall.
Unlike most exponents of reform, Mr. Croly is not swept away by his argu-
ments. Reform must be constructive rather than revolutionary. He suggests
numerous queries as to whether the new expedients he discusses may not be
pushed too far or adopted in forms which will make perversion of the real popu-
lar will possible. His closing chapters dwell upon the necessity of a social edu-
cation for the attainment of a " live-and-help-live " attitude on the part of the
citizen, which is the fundamental principle of a progressive democracy.
Chester Lloyd Jones.
University of Wisconsin.
DowD, Jerome. The Negro Races: A Sociological Study: Vol. II. Pp. 310.
Price, $2.50. New York: The Neale Publishing Company, 1914.
The announcement of this volume stated that it would give an account of the
African slave trade but one does not find such a discussion in the contents. There
is given, however, a digest of considerable reading about the various African peoples.
The author divides the African continent into zones, via.: The goat zone, the
Northern and .Southern cattle, the Eleusine, the banana and manioc sonee. He
describes the various tribes and races in the several regions beginning with the
246 The Annals of the American Academy
Nubians who inhabit the goat zone, "lying between the Nile and the Red Sea and
extending from Assuan near the first cataract to Khartum, " and ending with the
Bantus of the Southern cattle zone, which zone "before the white man's appear-
ance included all of South Africa except the Kalahari desert." After a brief
description of the physical characteristics of each region a statement about the
economic life of the various tribes, about the family life, political, religious, "cere-
monial," aesthetic, and "psychological" Ufe of the same is given.
In Volume II the author frankly confesses his failure in the first volume to inter-
pret correctly the primitive characteristics as compared with those of civilized races
and points out a reason for the mistake. Yet in several instances in this volume
he takes ground which seems hardly more tenable than some of his former views.
For instance, he bases a conclusion as to the psychological superiority of Europeans
on the theory of differences in brain weight — a correlation not yet proven, to say
the least. Again, his view of the negro's possession of a greater gregarious in-
stinct than European races is hardly borne out by many of the facts given in his
own discussion. Further his conclusion that by archaeological and anthropolog-
ical evidence " the African negro seems to be a survival of the first human inhabit-
ants of the earth" needs only to be quoted to show its questionable quahty.
The absence of any maps further reduces the value of the book. The bibhog-
raphy, including some general works on sociology and anthropology, comprises
a "list of the principal books referred to in the text," about one hundred twenty-
nine titles.
George Edmund Hatnes.
Fisk University.
Emert, Lucilius a. Concerning Justice. Pp. 170. Price, $1.35. New
Haven: Yale University Press, 1914.
This essay attempts to state the philosophy of the reactionaries of the day»
by which it is hoped to establish that there is no need for any change in our con-
stitutional or judicial systems. It is of peculiar interest to note that this philos-
ophy is essentially the laissez-faire policy of the American Revolution, and is
indeed but a slight step removed from philosophic anarchy.
"Justice, " decides the author, "is the equilibrium between the full freedom of
the individual and the restrictions thereon necessary for the safety of society."
It is based essentially on the old conception of "the economic man" and leaves
out of the account various virtues — pity, sympathy, philanthropy, generosity
and the like. Though these make social life more agreeable and contribute much
to the sum of human happiness, they are not essential to the existence of the race
of society, says the author.
The author frankly admits that the justice which he defines is not the justice
of the golden rule, " that we should do to others as we would have them do to us, "
but is the justice of Confucianism "that we should not do to others what we would
not have them do to us. The golden rule is a precept of philanthropy, of
charity, not of justice. "
The spirit and argument of the volume is strangely out of accord with a twen-
tieth century conception of society. Society is possible only because the individual
is unrestrained save only when the safety of society so demands and is not a
Book Department 247
sentient organism that can move constructively and positively toward real
justice — industrial, religious, political. The basis of all such arguments by the
author is that society must not arouse the resentment of individuals. Nowhere
is there acceptance of an obligation to serve others or of a resp)onsibility individual
or social for current economic and industrial conditions. The philosophy of
the pessimist is restated in such language as the following: "It is not society,
however ill-organized, that has caused, or today causes, poverty. That is the
primitive condition of the human race."
Clyde Lyndon Kino.
University of Pennsylvania.
Faquet, £mil£. (Translation by Emily James Putnam.) The Dread of Re-
sponsibility. Pp. XV, 221. Price, $1.25. New York: G. P. Putnam's
Sons, 1914.
This work is a suggestive interpretation of French character and its social
causes and results. The dread of responsibility is held to be the fundamental
characteristic of the French people. "They want to be irresponsible. They
form their ideas of law in accordance with this design; they organize and practice"
their professions to this end; they have a family life governed by this thought;
they have a social life controlled by this principle" (Preface).
By a detailed description of the French legal system the author attempts to
show the irresponsibility of the judges, the irresponsibility of the jury, and the
irresponsibility of the criminal. These irresponsibilities enervate justice and
make France " a country where the most complete security .... is that of
criminal " (p. 102). In family life the dread of responsibility limits the numbers of
children and withholds from them vital knowledge in their adolescent years. In
professional life the French strive to enter the service of the state where risk and
responsibility are at a minimum. Pohtical customs and the constitution divide
responsibihty, subdivide it, disperse it, scatter it until it cannot be located any-
where. Such are the results of the dread of responsibility in French life, legal,
social, professional, and pohtical.
The reason for the existence of this irresponsibihty in pohtical life is the
democratic government of France, a government tending toward an absolute
democracy — the first principle of which is "absolute equahty and next that
responsibihty be lodged nowhere . ..." (p. 180). The remedy for this sit-
uation is a government by an aristocracy, under democratic forms — an aristocracy
with social capacity and social responsibihty, having a responsive and cooperative
appreciation by the people.
It is interesting to note the similarity between the author's account of the
pohtical problems of the B'rench and their remedies and our own American prob-
lems and remedies under different conditions. The failure of criminal law under
the French inquisitorial system is as striking as the failure of our own. The
scattered pohtical responsibihty described by the author is a vexing problem in
American pohtical hfe, as well as the French. The author holds that the solution
in France is government by an aristocracy under democratic forms. American
government is exhibiting a tendency to return to concentrated respoDsibility.
248 The Annals of the American Academy
City government by commission and the advocacy of the reduction of elective
officers in state government are notable examples.
To appreciate fully the value of the book a thorough knowledge of French
life would be necessary. But even to the ordinary reader it is full of stimulus
and suggestion in that it shows the way in which the intimate life and character of
a people lie at the basis of its pecuUar political and social problems.
James G. Stevens.
University of the South.
Flexner, Bernard and Baldwin, Roger N. Juoenile Courts and Probation.
Pp. xii, 308. Price, $1.25. New York: The Century Company, 1914.
Few matters of public policy have assumed so quickly a place of importance
in popular thinking as that of the juvenile court since its organization in Chicago
in July, 1899. The movement spread rapidly in this country and in Europe and
developed a great diversity both as to concepts and as to methods of administra-
tion. Efforts to standardize procedure have made slow progress. The reason
for this has been a diversity both of ideals and of conditions in different states and
countries. The literature which the movement has produced has been, in the
main, fragmentary and has dealt with specific aspects of the subject. In the
present volume, the authors have attempted for the first time a thoroughgoing
intensive study and statement of the whole subject in concise form and have
produced a text-book of the juvenile court and its necessary accompaniment,
probation. Beginning with Part I we have a short history of the juvenile court
movement together with a discussion of its underlying principles. Part II
deals with a detailed and analytical analysis of the organization and procedure of
the court throughout the United States. In addition we have the best concurrent
opinion of what an ideal procedure should be. Part III considers probation in the
same manner, giving valuable suggestions as to the best methods of organizing and
conducting probation. Part IV criticises methods and statistics, emphasizing the
value of both in securing adequate results. In Part V many pages of sample
forms are presented with criticisms and suggestions. The appendix contains
drafts of laws and rules representing the best examples of procedure so
far incorporated in the codes of the various states, and finally a lengthy selected
reference Ust of the most valuable sources of information. The volume is the
report of the special committee on Juvenile Courts and their Administration ap-
pointed by the National Probation Association, and is endorsed by the entire
committee consisting of Bernard Flexner, Roger Baldwin, Ben B. Lindsey,
Juhan W. Mack, Julia C. Lathrop, Homer Folks, Maud E. Miner, Edwin Mul-
ready and Arthur W. Towne.
The book should be accessible to every social student and social worker,
whose interest in any way touches this important subject.
J. P. Lichtenberqbr.
University of Pennsylvania.
Freeman, Arnold. Boy Life and Labour. Pp. xiii, 252. Price, 3s. 6p. Lon-
don: P. S. King and Son, 1914.
This volume is the result of a year of intensive investigation into the hves of
seventy-one working-class boys of the city of Birmingham, England. The
Book Department 249
author selected from the jRles of the local Juvenile Labor Exchange every boy in
his seventeenth year who had had four or more jobs since he left school. While
this method of selecting his cases for intensive study excluded the "superior" boy
who tends to remain in one job or changes but rarely, the author believes that the
large majority of the boys selected are typical of the mass of uneducated boy
labor in Birmingham. The boys studied divided themselves into three groups:
Class I, those who had emerged into positions where they were beginning to
leam skilled work or its equivalent, after drifting about and doing unskilled work
for three years (6 boys) ; Class II, those who were still doing unskilled work and of
whom the author assumes that they would continue to do unskilled work in adult
hfe (44 boys) ; Class III, those who were still doing unskilled work but appeared to
be destined for unemployableness in later Ufe (21 boys). The author gives a
sunmaary of the home background of each boy and reaches the conclusion that
the relative failure of them all is due mainly to such environing factors as home,
factory, picture palace, music halls and cheap literature.
The rdle assigned to heredity is dismissed in several pages of discussion, and
the author's case for it is not convincing. It is unfortunate that in presenting
this factor the author should have cited the shape of the skull as due solely to
heredity (see p. 80) thereby ignoring the results of the researches of Professor
Boas in this field, and should further argue that intelligence is almost synonymous
with shape and size of the brain. It is the opinion of the reviewer that whatever
the rAle of heredity, the miserable home conditions pictured, the amount of under-
nutrition and the degrading social conditions generally obtaining among many
of the families were alone sufficient to explain the high percentage of inefficiency
among the boys studied.
In seeking a remedy for this "manufacture of ineflBciency" the author looks
not to the errors of schooling but to the abrupt termination of education at the
age of fourteen and the entire neglect of society of the development of the boy
during the adolescent period which is that most fraught with weal or woe for the
future of the individual concerned. In the words of Mr. Freeman, "We have
to devote ourselves, therefore, to an examination of the social and industrial
environment through which the adolescent is condemned to pass. As we do so,
we shall discover why it is that the bright, promising school lad becomes the dull,
incapable adult" (p. 108). The author suggests the following remedies: first,
the statutory reduction of the hours of juvenile labor which he holds is the funda-
mental remedy on which all others depend; second, compulsory continued educa-
tion of such a sort as to fit the lad for the threefold rdle of efficient worker, efficient
citizen and efficient husband and father. Supplementary remedies include
increased co5peration between the boy and the employer and between the school
and the home. Mr. Freeman writes well and as one having a message. Hia
conclusions appeal so strongly to common sense and tally so accurately with
common observation that one wonders whether the author need have devoted
wo much space to the life histories of his seventy-one cases, especially in view of
the fact that the small number of cases studied invalidates their use for statistical
purpoMfl.
Frank D. Watbon.
Haverford College.
250 The Annals of the American Academy
Geijsbeek, John B. Ancient Dovble-Entry Bookkeeping. Pp. 182. Price, $5.00.
Denver: Published by Author, 830 Foster Bldg., 1914.
An exhaustive and comprehensive study of ancient bookkeeping and the
beginnings of modern accounting.
Lucas Pacioli, Manzoni, Pietra, Stevin, are to most of us unfamiliar names,
but they stand for those who sought to expound the crude ideas of bookkeeping
current in their times, and are known today as the pioneers of bookkeeping litera-
ture.
The most striking and unique feature of this treatise is the reproduction of
the works of these writers as they orignally appeared, together with translations by
the author.
Pacioli's contribution to Accounting literature is contained in his work en-
titled, Review on Arithmetic, Geometry and Proportions, pubhshed in 1494. The
section dealing with double-entry bookkeeping entitled, Particularis de computis et
Scripturis (Particulars of Reckonings and their Recording), contains a thorough
exposition of the subject from, one may say, Alpha to Omega, which varies but
little from modern practice. Incidentally also Pacioli gives some sound advice
to the merchant and business man of his day, which applies with equal force to
conditions of the present.
We are prone to think that Accountancy is of recent development and that
accounting systems are mainly the result of modem conditions. That this is
not so, is evidenced by the fact that Stevin's manuscript of 1607 describes a
system of Municipal Accounting; while in 1586, Pietra described an Economic
Ledger for Capitalists and Bankers; in 1632 Mainardi attempted to describe a
system of accounting for Trustees and Executors, and was the first one to advo-
cate the use of combination journal entries.
The real worth of this book is not in the curiosity it satisfies, nor yet in its
uniqueness and the interesting data it contains, but in the explanations of the
underlying principles expounded by these early writers themselves, and in the
preserving of old thoughts which to many today seem to be new.
Edward P. Moxey, Jr.
University of Pennsylvania.
Gu^RARD, Albert L6on. French Civilization in the Nineteenth Century. Pp.
312. Price, $3.00. New York: The Century Company, 1914.
At a time when France is so prominently before the world and when a large
portion of the American PubHc has been forced to change its evaluation of French
civilization and the French character, M. Gu^rard's book is of more than passing
interest. Originally intended as an introduction to the regular courses in French
Literature at Leland Stanford University, it retains some pedagogical features
in its make-up. This, as the author is careful to point out in the preface, involves
a certain amount of repetition, but the material and handling are adaptable t'^
the purposes of the general reading public.
M. Gu^rard starts out with a consideration of the physical situation and sur-
roundings of France. He avows that "there is no French race, properly so-
called," and assigns the existence of the Fronfl) nation "neither to homogeneity
jjor uniformity," but to "environment and history."
Book JDepartment ^5l
With this as a point of departure he briefly traces the history down to and
including the Revolution, pointing out its highly dramatic character. He fol-
lows this with chapters on Napoleon, the Constitutional Monarchies (including
both the Restoration and the July Regimes), Napoleon III and the Third Repub-
hc, devoting a part of each chapter to a discussion of the social and cultural char-
acter of the period. Then follow special chapters devoted to "The Social
Question," "Education," and "The Religious Question." In these chapters the
author takes up a chronological discussion of each of the topics, thus repeating
some things already given in the earher pages. To each chapter is appended a
short critical bibhography and a chronological table of events. In the case of
the chapters on sp>ecial topics, these chronological tables are devoted exclusively
to these subjects and are very helpful.
M. Gu^rard emphasizes the deep cleavage made in French society by the
Revolution, and by this means explains the many and quick pohtical changes in
France during the last century — a phenomenon which Americans are apt to explain
by assigning it to the innate fickleness in the French character. "The history of
France in the nineteenth century is the tragedy of a nation with a divided soul.
This is no immemorial curse, no taint in the blood of the people. For eight
hundred years the French, proud of their common heritage, had remained re-
markably loyal to their dynasty and to their faith." He says the terrible events
of the Revolution "created a chasm between the old world and the new. . . .
France hves in the dread of radical reaction or revolution, in an atmosphere of
latent civil war. In this atmosphere of conflict, every new problem gives rise to
passionate antagonism. " Thus we see the French are divided into irreconcilable
factions — factions which arise directly out of the fundamental cleavage of the
great Revolution or are engendered by the hatred and strife arising out of it.
The author considers incidentally the question of degeneracy. He confutes
the assertion that the average height of the French conscript is falUng oflf, and
explains it by saying that this seems to be so only because the number of con-
scripts has been so much increased. He cites the annual reports of the Con-
scription Committee as authority for the statement that the average height of
the French is actually on the increase. In the matter of the falling birth-rate,
M. Gu6rard calls attention to the fact that it is now recognized as a universal
phenomenon throughout the civilized world. The cry of decadence was raised
by "malevolent rivals," by "sensationalists," by "aesthetes," in quest of a
new pose, by "earnest patriots who had lost their star. " In the light of present-
day occurrences, it is safe to agree with him in exclaiming "When a belated echo
of this cry reaches us now, how faint and strange and silly it sounds!"
Paul Lambert White.
University of Pennsylvania.
Harris, George. A Century's Change in Religion. Pp. ix, 266. Price,
$1.25. Boston: Houghton, Mifflin Company, 1914.
Shotwell, James T. The Religious Revolution of Today. Pp. viii, 162. Price,
$1.10. Boston: Houghton, Mifflin Company, 1914.
These two volumes with somewhat similar titles approach the subject from
widely different points of view. The first is descriptive, the second analytical.
252 The Annals of the American Academy
President Harris has taken up the subject of religion and, in turn, the principal
doctrines, and shown the shifting of emphasis in their statement and even in the
content of beliefs concerning them, especially as they are disclosed in American
life and thought. The process is one of the simplification of beliefs and the har-
monizing of these beliefs with the developments of science. Religion has become
more rational but has lost none of its power. He maintains that while some
opinions have been discarded there is a deeper sense of awe, of reverence, and of
aspiration. Man remains essentially rehgious.
Professor Shotwell regards this change as more than a gradual modification
of old beliefs. It is a revolution. It is part of an intellectual process that con-
cerns not only theology but affects anthropology, psychology, sociology and his-
tory as well. Rehgion is not only changing, but its basis has shifted. All aspects
of hfe are undergoing a process of secularization. " Charity has become a business
and a social duty, a thing of the head rather than the heart, a cooperation in
social uphft rather than as a mere avenue to saintUness for the giver of alms."
The state is not a divine creation, but a human evolution. "Disease is no longer
a divine affliction, but a violation of natural law." Morality is no longer abso-
lute but relative. Even the truly religious man of today is "less interested in
heaven and hell than in unemployment and sanitation." The heart is being
disciplined by the head. Nevertheless, Professor Shotwell insists that "Religion
seems as constant a factor in humanity as gravitation in the material world,"
and this despite the fact that science continues to banish mystery, to destroy
taboos, and to construct a world of rational experience. The supreme mysteries
of "hfe" and of "matter" remain as the chief stimulus to both science and rehgion
and guarantee the permanence of both in the life of the race.
Both books arrive at very much the same conclusion though they pursue
very diverse paths.
J. P. LiCHTENBERQER.
University o1 Pennsylvania.
Hayes, Hammond V. Public Utilities: Their Cost New and Depreciation. Pp.
xii, 262. Price, $2.00. New York: Van Nostrand Company.
Books and magazine articles upon the subject of valuation of public utilities
are appearing at frequent intervals. There is great need for literature upon this
subject for the guidance and the assistance of railway commissioners, public serv-
ice companies and engineering firms, many of which are actively engaged in the
valuation of railroads and other public service properties. A successful book
upon this subject must be written by one who has an appreciation of both the
engineering and the economic questions connected with valuation.
Mr. Hayes has written an excellent book that deals ccJncisely, clearly and
comprehensively with the different aspects of the subject of valuation of public
utilities. The book is not too technical to be understood by the intelligent layman,
nor is it so voluminous as to discourage the layman. One seeking an introduction
to a detailed and specialized study of valuation may do well to begin with Mr.
Hayes' volume.
The purpose of the author was to set forth "the principles, as far as they
have been established, which must form the basis of a valuation of the property
Book Department 253
of a public utility undertaking." The author conceives the duty of the engineer
to be to investigate, ascertain and set forth the facts as to the original cost, re-
placement cost, depreciation, market value of stocks and bonds, and "going-
concern" value. It is not the function of the engineer to determine the fair pres-
ent value of public utility companies, Mr. Hayes' belief being that "the court
or commission, depending upon the nature of the case, is alone competent to
ascertain the true present value of the property of an undertaking." The func-
tion of the valuation engineer is to ascertain the cost and other data, by means
of which the commission or the court may determine the fair valuation of the
property.
The only portion of Mr. Hayes' volume that may be considered technical
is that which concerns the discussion of depreciation and reserves for deprecia-
tion. The author explains, with some detail, the results produced by the " straight
line" and "sinking fund" methods of providing reserves for depreciation. The
conclusion of the author upon the important question of the method of providing
for depreciation is that "when the property of a public utiUty consists of plant
alone, the loss in value must be determined by the straight line method, and when
the property consists of plant and depreciation reserves, the loss in value must be
ascertained by means of what has been called the sinking fund method."
Emory R. Johnson.
University of Pennsylvania.
HoLDswoRTH, JoHN T. Money and Banking. Pp. 439. Price, $2.00. New
York: D. Appleton and Company, 1914.
In reading the recent book by Professor John T. Holdsworth, of the Uni-
versity of Pittsburgh, one must bear in mind the purpose of the work and the many
subjects with which he deals. The book is so arranged as to make it suitable for
use as a textbook, covering the whole general subject of money and banking.
The scope necessarily involves a large number of economic subjects — history of
banking, principles of money, history and principles of credit and many others,
each one of which constitutes a specialized field to which many volumes might be
devoted.
The book is designed primarily to serve as a textbook for those just beginning
the study of money and banking, but it will also prove of value to those who have
entered the field before, for in a single volume the author has presented the whole
general subject in a concise way. •
The book is divided into two parts: the first, reviewing the essentials in the
history, theory and principles of money; and the second, discussing the principles
and practices of banking.
Part one, in addition to giving a thorough review of the money system of the
United States, contains an excellent chapter on the value of money and prices,
discussing the quantity theory of money, the multiple standard and the compen-
sated dollar. In chapter five, the use of the circulation statement is somewhat
confusing and it is believed that were the "Daily Statement of the United States
Treasury" used in its stead, a better understanding of the relation of the Treasury
Department to the money of the United States would be obtained.
Part two contains a large amount of general information on the subject of
^54 The Annals of the American Academy
banking. The chapter on Foreign Banking Systems is very brief, due no doubt
to lack of space for a more detailed discussion. It would seem that a more
thorough treatment of foreign banking systems, here, would be desirable, as es-
tablishing a foundation for the proper appreciation of the remaining chapters,
Defects of the National Bank System and The Federal Reserve System.
To one specializing in any particular phase of money, credit, or banking, the
book is of less value than many others. Its value lies in that it presents in con-
venient form the whole general subject of money and banking. It fills a long-
felt want of the student and young business man for text on this subject.
Earle H. Raudnitz.
New York City.
Jones, Eliot. The Anthracite CocU Combination in the United States. Pp. xiii,
261. Price, $1.50. Cambridge: Harvard University Press, 1914.
Here is a fearless fact portrayal of a complex combination movement in
America — the anthracite coal industry.
The author first presents the early history of coal, giving a brief description
of the three great fields — the Wyoming district, the Lehigh district and the Schuyl-
kill district. The development of the industry from the discovery of coal to the
present is divided for extensive study into four more or less well defined periods.
The first period, extending from the middle of the eighteenth century to 1843,
represents the earliest developments, and gives a clear description of the problems
and methods of transporting the coal by canals and navigable rivers. The second
period, from 1834 to 1873, portrays the entrance of the railroads into the coal
trade. It is in this period that the railroads made extensive purchases in coal
lands. The third period, 1873-1898, contains as its distinguishing features the
growing influence of the railroads, their domination over the independent oper-
ators, their pool formations, and the making of other arrangements to secure
monopolistic harmony in the trade. The fourth period, begiuning with 1898,
shows the formation of the coal combination which has since effectively con-
trolled the anthracite industry.
The author then gives a very careful and enlightening study of the effects of
the combination in its control of output, transportation, price and sale of coal,
and closes his work with an investigation into the efforts made by the government
to dissolve the combination.
This book is of exceedingly high value chiefly for its concrete facts, showing
how step by step a great combination has been formed and also because of the
clearness with which it develops the enormous power resulting from a natural re-
source coming under railroad control.
As regards regulative measures, Dr. Jones gives us little hope of immediate
solution. "Even if the present combination should be dissolved," claims the
author, "it would be difficult, in view of concentrated ownership of supply, to
prevent the establishment among the coal companies of an entente cordiale that
would effectively maintain prices and yet be less open to attack. . . . The
people of the United States have not as yet a fixed and definite policy, and until
a definite poUcy is adopted a permanent solution of the anthracite coal problem
is not to be expected."
Book Department 255
The power of a combination such as Dr. Jones portra}^ surely must have had
at least appreciable effects on the wage problem and the labor situation. Noth-
ing, however, can be found in this work which shows the relations of the combina-
tion with the wage-earners. Much trouble was experienced in 1902, and those who
have their ears to the ground report rumblings of trouble in 1916; therefore it
seems a pity that nothing has been given us on this side of the anthracite industry.
Just as in 1902 Dr. Montague gave us his valuable book on the rise of the
standard oil, so Dr. Jones has worked out the anthracite coal combination, but
in a far more detailed and scientific manner.
Charles E. Reitzel.
University of Pennsylvania.
Kennedy, Sinclair. The Pan-Angles; A Consideration of the Federation of the
Seven English-Speaking Nations. Pp. iv, 244. Price, $1.75. New York:
Longmans, Green and Company, 1914.
In the face of the great war now raging, this book, although in press when the
war began, attracts attention. It is a plea for governmental federation of Pan-
Angles, the "English-speaking, self-governing, white people of New Zealand,
Australia, South Africa, Newfoundland, Canada, the British Isles and the United
States." The "civilization" of this group is based upon the pohtical understand-
ing that "self-governing white men cannot be the possession of another" but they
may possess others. Originally of British blood, the population of these countries
has been enriched by Continental immigrants who have soon learned to speak
English and to understand the Pan- Angle "habits of mind and forms of govern-
ment."
With "individualism" as the basis of all his theories and practice, the Pan-
Angle is eager to act alone, yet knows how and is wiUing to combine with his follows
when necessary. When presentative government becomes impracticable, he
develops representative forms, final sovereignty resting with the voter. But from
this suffrage power, he would exclude all non-whites. Pan-Angles will be called
upon to preserve the wide territory they have wrested from those whom they
regard as the lesser breeds and to secure themselves in the rights of individualism.
For dangers to their "civilization" may rise. Civil strife may break out
within any of the seven groups or war may arise between any of them. Both of
these dangers have been experienced in the past.
The third danger comes from rival "civilizations" of others who "need land
for their children" and who "wish to see the world 'bettered' by their ideas."
The fate of one-time world rivals, Spain, Portugal, Holland and France, is a warn-
ing. Germany can be made an ally. Both Russia and the yellow peril of Japan
and China are future concerns. Pan-Angles the world over have anti-asiatic
feeling and they have large subject populations "to control and protect."
So to meet these dangers, there should be "a machinery of government tried
and tested before the crash comes." This "common government" should be a
closer union than now exists, and it should consist of a federation, with national
cxisU'nce intact and with local autonomy for local affairs. It should be an
Imperial union of not only Britannic nations, but of all Pan-Anglos. The author
l^lds that steps in this direction have already been made and that men ovcf the
256 The Annals of the American Academy
Pan-Angle world are working for closer union. The final accomplishment must
come by the force of popular opinion within each national group.
So much for a summary of the views of the book; what of their value? The
author's denial of jingoism is taken in good faith. Beyond doubt, a combination
of powerful national groups to preserve such a heritage as civilization is a "con-
summation devoutly to be wished." Some combination of English-speaking
peoples, because of common language, mutual understanding and world power,
would doubtless be very effective. But the present results of the entente of
England, France and Russia do not permit the author to claim that only Pan-
Angles will work and fight to preserve democratic civilization.
Furthermore, any Pan-Angle policy, which would exclude English-speaking
non-whites from the full enjoyment of pohtical, reUgious and personal hberty
would be as short-sighted as it is dangerous. When Senegalese, Turcos and Indians
are sending the best of their breed and abundance of their treasure to help Pan-
Angles save their children and preserve their ideas and possessions, self-interest
alone should tell EngUsh-speaking whites to accord these "lesser breeds" a full
share of the dearly bought freedom. Unless white Pan-Angles wish to build up
a flood of hate for the future, they should heed the "Recessional" of the great
hving prophet.
George Edmund Haynes.
Fisk University.
Lowell, A. Lawrence. Public Opinion and Popular Government. Pp. xiv, 415.
Price, $2.25. New York: Longmans, Green and Company.
President Lowell has given a considerable portion of the first part of his book
to a discussion of the nature of public opinion. "The essential to this motive
force of democracy," says President Lowell, "is not only that the opinion be shared
by a majority, though unanimity is not required, but that the minority ungrudg-
ingly give its acceptance to the conclusion held by others, usually referred to as
public opinion." This does not preclude the minority from attempting to restate
its opinion as the opinion of the majority, but it does mean that in countries where
public opinion can be really said to be the controlUng factor in government,
minorities cannot be irreconcilable, as, for instance, are the Monarchists in the
French Repubhc. To President Lowell, public opinion is only in part rational.
He does not recognize it as the mature judgment of a sentient community, cer-
tainly not within the meaning of such men as Cooley and Giddings who define
public opinion in terms of "an aroused, mature, organic social judgment."
Two agencies of public opinion only are discussed : political parties, and direct
legislation and the recall. The discussion of parties is along more or less tradi-
tional channels. The contribution of the volume is in its direct and illuminating
analysis of what public opinion is and the extent to which direct legislation and the
recall are acceptable agencies for the creation and expression of public opinion
on the social, economic and pohtical questions of the day. The votes cast and the
nature of the questions submitted under the initiative and referendum in Switzer-
land and in the states of this country are carefully analyzed and inclusively pre-
sented.
The author concludes that the referendum and initiative will not bring the
Book Department 257
millenmum they are expected to bring though they will and have proved to be
valuable when used in an appropriate way. The objection made by the suthor
that no attempt has been made to confine popular votes to that class of questions
upon which a public opinion can readily be formed, is not followed by any definite
suggestions as to just how that division, which all would admit would be advis-
able, could be made. A comparison of referendal measures with constitutional
amendments shows that the measures referred to the people under either the
initiative or referendum are more clearly questions upon which a public opinion
can be readily formed than have been the constitutional amendments submitted
to the electorates throughout our history. The history of the referendum reveals
a tendency to submit to popular vote questions of policy primarily. Custom and
usage are thus tending to develop just the line of demarcation which President
Lowell would have indicated by hard and fast rule.
Part IV of the book has to do with the regulation of matters to which public
opinion cannot directly apply. Attention is given to representation by sample,
rotation in office, committee and public hearings and the questions as to how
experts can be secured and retained in governmental problems. President
Lowell's discussion of the need for and value of experts is always suggestive and
valuable.
Clyde Lyndon King.
University oj Pennsylvania.
Mabie, Hamilton Wright. Japan Today and Tomorrow. Pp. ix, 291. Price,
12.00. New York: The Macmillan Company, 1914.
The plan of sending "a literary impressionist" as an apostle of peace and
good-wiU to the Japanese was adapted happily in itself to the temperament of that
impressionable people, and the selection of Mr. Mabie for the delicate mission
was equally happy. Mr. Mabie is much more than a pleasing painter in words
and phrases. The keen insight, quick sympathy, calm judgment, the ni^ty A7ai',
so characteristic of this writer and critic, must have appealed as forcibly to the
Orientals in his lectures on American ideals, character and life, as these quahties
in the book before us now appeal to us.
A man of this fairness of mind would naturally escape contamination in the
atmosphere of the smoking-room, generally surcharged with anti-Oriental and
anti-missionary prejudice, whether on board the American and British Pacific
steamers or in the foreign hotels and club of Yokohama; but an additional safe-
guard is to be noted in the names of the three Japanese, " wise counsellors and loyal
friends," to whom the book is inscribed. Among these is Professor Nitob6, whose
own book concxjming Japan (formerly reviewed in these columns) is a valuable
contribution from the inside. In the chapter entitled East and West, the judicial
calm of the author shows itself capable of properly discounting the biased claims
of both hemispheres. From Count Okuma, perhaps the broadest of living Jap-
anese public men, the author was able to gather first-hand information concerning
present political and social conditions in Japan, and its international attitude.
See the chapter entitled, A Japanese Prime Minister on Japan, being a conversa-
tion with the author, stenographically reported.
While the main purpose of the book is thus well carried out, the brief, yet
25S The Annals of the American Academy
adequate historical sketch, in the early chapters, should clear away much of the
fog that still envelops the early period in the minds of most. As to the descrip-
tive portions, whether relating to natural scenery or to the life of the people in city
and country, the sympathetic, yet accurate delineation must prove alluring to
readers who have never seen Japan, while to foreigners who have spent years there,
the old familiar scenes stand out in these pages touched with the charm of fond
recollection. In the fine chapter on The Japanese Hand, Mr. Mabie's apprecia-
tion of the quahties of Japanese art approaches an enthusiasm that would almost
satisfy Professor Morse of Salem, whose name, by the way, on page 283, erro-
neously appears as Mr. Edward M. Morse.
In the account of The Genius of Shinto and possibly in the absence of con-
sideration of missionary labors, some may think to detect an unfortunate in-
fluence exerted by the "wise counsellors and loyal friends," of the inscription.
The Japan of today could not be what Mr. Mabie finds, had those wise and de-
voted Americans, Doctors Verbeck, S. R. Brown, and Hepburn, true apostles of
the broadest national regeneration, not been on the scene during the period of
transformation, beginning as far back as 1860 their beneficent work, both reUg-
ious and secular.
The fact remains, however, that among the many books about Japan that
have appeared during the past fifty years, in Europe and America, the present
work must take high rank for accuracy; in fairness of estimate and in charm of
portrayal it is unsurpassed.
William Addison Houghton.
St. Petersburg, Fla.
Matthews, Nathan. Municipal Charters. Pp. vii, 210. Price, $2.00. Cam-
bridge: Harvard University Press, 1914.
This pubUcation is the first of the pubUcations of the Bureau for Research in
Municipal Government in Harvard University, the second being a bibhography
on municipal government by Prof. William Bennett Munro.
Mr. Matthews was mayor of Boston from 1891-1895, and chairman of the
Boston Finance Commission from 1907-1909, and sometime lecturer on municipal
government in Harvard University. The essentials of an American city charter
are discussed at length and in great detail, with special emphasis on the adminis-
trative provisions. But two brief chapters are devoted to the political features
of the charter and the city's relation to the state respectively, while eight longer
chapters are devoted to administrative provisions, relating particularly to the
city's quasi-pubhc service corporations, to officers and employees, to appropria-
tions, taxes and loans and to general rules for the conduct of business, to the assess-
ment of taxes, accounts and reports and to the management of municipal enter-
prises.
Part II is devoted to a model draft of a city charter, including primarily the
responsible executive type and only secondarily the commission type.
The author includes in his charter suggestions only those that have been well
tried and found "safe and sane" in practice. Many of his provisions may be
classed as reactionary. Thus he provides in section 2 of article 8 of his model
charter, in giving the general rules for the conduct of business, that "repairs and
Book Department 25d
work necessary for the maintenance of city property, including additions, altera-
tions and improvements to an amount not exceeding in any case one thousand
dollars, may be executed by day labor or by contract; but work of original con-
struction and additions, alterations and improvements costing in any case more
than one thousand doUars shall be let out by contract." The tendency in pro-
gressive American cities, as in progressive European cities, is decidedly toward
direct work by the city instead of indirect work through contract. The author
argues that there is greater danger in the city's doing public work directly than
in doing it under the contract method. But the experience of other cities and the
judgment of most progressive city workers is distinctly against this conclusion.
Again, Mr. Matthews provides that nominations to office may be made only by
a petition signed by 3 per cent of the total votes cast at the preceding city election,
a number that is much higher than is usually found in charters. The duties of
all the departments of the city are specified in six pages of the charter while twelve
pages are devoted to restricting in greatest minutia the powers of the city over
public ownership and operation of profitable enterprises.
Clyde Lyndon King.
University of Pennsylvania.
Mitchell, Wesley Claib. Business Cycles. Pp. xviii, 610. Price, $5.00.
Berkeley: University of California Press, 1913.
A monumental work of over six hundred pages, this book undertakes a
quantitative method of investigation into the causes of the rhythm of business
activity. If the statistical method as such is not new in this connection, it is at
least unique here in the extent of its application.
Following a brief review of former explanations of business cycles which
he finds to be only partial explanations or explanations of but one of a
number of complex factors, the author makes a detailed study of the annals of
business from 1890 to 1911. This period is chosen because of our greater knowl-
edge of recent business and financial history and because of the greater accuracy
of the statistical data of more recent years.
The plan of the book makes possible its use by the economic theorist, who
wishes to study it in great detail, or by the business man or general reader who is
interested only in conclusions. The gist of the conclusions on the causes of busi-
ness cycles is presented in the last of fourteen chapters. In fuller detail, the same
results are given in chapters ten to thirteen, while the statistical materials and
methods used are given in part two, including chapters four to nine.
The controlling factor in economic activity, according to the author, is the
quest of money profits. Through differences in cost prices and consumers' prices,
the business man is enabled to obtain a money profit. The business cycle com-
prises a swing from prosperity to crisis, from crisis to depression, and from de-
pression again to prosperity. Prosperity begins by a revival of business activity,
a rise in prices and an increase in profits either because costs rise slowly in com-
parison with the physical volume of business or because costs lag behind selling
prices. At the apex of prosperity the business man's endeavor lies not in imme-
diate profits, but in the maintenance of solvency. Through increasing coets and
tension on the money markets, proepective profits decline, business credit is
k
260 The Annals of the American Academy
undermined, and a period of liquidation begins. Business is reduced in volume*
prices fall, prices and costs are readjusted and depression prepares the way for
another period of prosperity.
Undoubtedly one of the valuable features of this book is the wealth of sta-
tistical materials upon which the author's analysis rests. As he himseK states
(p. 570): "The case for the present theory . . . and also the case against
it, is to be found, not in the summary . . . but in the difficult chapters which
precede (viz. the statistical data)." The data here presented furnish excellent
material for class purposes or for independent investigators in studying the fluc-
tuations of economic activity, and for testing quantitatively this or other theories.
Bruce D. Mudqett.
University of Pennsylvania.
MuNSTERBERG, HuGO. Psychology and Social Sanity. Pp. ix, 320. Price, $1.25.
New York: Doubleday, Page and Company, 1914.
This collection of essays is the latest product, save of course for The War and
America, of the tireless pen of the distinguished German American professor at
Harvard. It seems to him, as the preface states, "a particular duty of the psy-
chologist from time to time to leave his laboratory and with his little contribu-
tion to serve the outside interests of the community." Some "characteristic
topics of social discussion" are selected, to be "solved" by psychology; the suc-
ceeding chapter headings are : Sex Education, SociaUsm, The Intellectual Under-
world, Thought Transference, The Mind of the Juryman, Efficiency on the Farm,
Social Sins of Advertising, The Mind of the Investor, Society and the Dance, and
Naive Psychology.
With regard to the sex problem, the author, perversely enough, advocates
earnestly in the preface "the policy of silence," and forthwith proceeds to violate
that policy harshly in some sixty-eight pages. Discussion of the questions of
sex, taken up by the drama, treated in magazine literature, or involved in the
education of boys and girls, he feels is fraught with the gravest danger. More
thorough knowledge of sex will mean simply increased desire and calculated
sinning. Certainly it is just to say that such an obscurantist plea for the eflficacy
of total depravity doctrine and such a defense of mystical belief and ignorance,
is not far short of sheer indiscriminate reaction in this time of knowledge and
discussion. Moreover, the essay seems to reflect a wilful refusal to consider
objective facts impartially; this alone would negative any claim for its considera-
tion as a contribution to social science.
Nor does the long chapter on Sociahsm deserve comment except as reflecting
upon the author's hmitations as a sociologist. Here Professor Miinsterberg, the
platitudinous, dispenses ancient commonplaces about incentives and ideals and
happiness. Such writing can scarcely be very efifective in combating the claims of
Socialism. He seems not at all to understand the vital social and economic issues
presented. Indeed, it is rather futile to attempt to apply the ideas of individual-
istic psychology to group relations, where the broader critical analysis of social
psychology is needed. Again, to take another instance. The Mind of the Jury-
man is of interest as reveaUng the possible scientific catastrophe which may follow
upon this utilization of the laboratory method of introspective psychology to
Book Department 261
settle social questions. In a little Harvard experiment to determine the efficacy
of the jury system, which involved a process of discussion and persuasion with
regard to the number of dots on pieces of cardboard, — with male students, 52 per
cent of the first votes were ascertained to be correct, and 78 per cent of the final
votes. But, alas, with the poor female students only 45 per cent of the first
votes were right, and the proportion of correct votes remained unchanged to the
last. Upon this slender thread of evidence the following remarkable and naively
impartial social conclusion is reached at the end of the essay: "The psychologist
has every reason to be satisfied with the jury system as long as the women are
kept out of it." The impulse to quote along with this statement these delightful
words from the preface is irresistible: "If some may blame me for overlooking
the problem of sufifrage, I can at least refer to the chapter on the jury, which comes
quite near to this miUtant question."
In Efficiency on the Farm the author makes out a case for the much-abused
farmer, and shows the need of applying tests of scientific efficiency to farmers and
agricultural life, similar to those now used with workingmen in industry. Social
Sins of Advertising points out convincingly, with clever and justifiable use of
laboratory experiment, the psychological mistake that commerciahsm has made
in mixing advertising material with the written word in our magazines. The
Mind of the Investor, while not a startlingly original contribution, is a worth-
while study of certain mass phenomena. Society and the Dance is one of the
best of the essays. The author shows a very considerable knowledge of the dance,
and as well a discriminating appreciation of its social influence and aesthetic
possibilities.
In the remaining chapters, Thought Transference, The Intellectual Under-
world, and Naive Psychology, Professor Munsterberg is quite at home in his
chosen and reputed field of popularizing the fascinating material of abnormal
psychology and of shattering popular misunderstandings and superstitions.
Like all of the professor's many books, this volume holds the reader's interest by
the very nature of its appeal; it will be widely read. The ingenious experiments
of the professor and his deductions are most attractive; but it would be a mistake,
of course, to take too seriously the rather extravagant claim of the preface with
regard to the solution of complex social problems.
Francis Tyson.
UnwersUy oj Pittsburgh.
Phillips, Wai/ter Alison. The Confederation of Europe. Pp. xv, 315. Price,
$2.50. New York: Longmans, Green and Company, 1914.
The confederation of Europe is of particular interest at a time when the world
is beginning to ask itself what guarantees of peace are possible after the outcome
of the present struggle. One or other of the great aUiances of European powers
will find itself in a position somewhat analogous to that of the allies after the down-
fall of Napoleon. Mr. Phillips' book traces in some detail the efforts made at that
time to erect the alliance into some sort of permanent European confederation.
He points out that all such efforts failed because there were such widely different
and sharply conflicting systems of government represented within the several
states that composed the union, and he adopts the attitude that even today the
262 The Annals of the American Academy
same disparity between the political institutions and ideas of different nations
would effectually frustrate any general confederation. He recognizes, however,
that without such an attempt the Hague Conference would have been impossible,
and he also credits it with having given added sanction to international law.
In an introductory chapter, the author traces the chief efforts at European con-
federation from the Grand Design of Henry IV of France onward, establishing
the fact that each in turn grew out of a former effort and that none would have
been attempted without the preceding steps. In this way he views the whole
history of such movements as an entity, the last step in which was the establish-
ment of the Hague tribunal.
Mr. Phillips gives special prominence to Castlereagh, and goes far towards
correcting the shallow judgment of that statesman, which has persisted to our
own time. The discussion of the genesis of the Monroe Doctrine is particularly
interesting to Americans. The author calls attention to the apparent incon-
sistency that this famous instrument, formulated for the express purpose of
frustrating the altruistic and idealistic conception of a world confederation to
regulate the family of nations, has become one by which we ourselves claim the
right of intervention.
The fascinating and unfortunate Alexander I is depicted more sympathetic-
ally than is usual at the hands of an English author. While clearly demonstrating
that the English attitude of opposition to the confederation was the only sound
and practical one, Mr. Phillips insists that Alexander was both sincere and persist-
ent in his effort to bring about a successful confederation at first of Europe and
later of the whole world.
It is unfortunate that Mr. Phillips has at times not drawn a clear distinction
between the Holy AlUance and the Quadruple and Triple Alliances. The effec-
tiveness of the book is also marred by long quotations, but the theme is interest-
ing, and the lessons to be learned from the facts pointed out ought certainly to
be well considered before we attempt to deal with the problem of world peace.
Paul Lambert White.
UnwersUy oj Pennsylvania.
Stockton, Charles H. Outlines of International Law. Pp. xvii, 615. Price,
$2.50. New York: Charles Scribner's Sons, 1914.
The author of this volume has long been recognized as an authority on inter-
national law, and this is not the first book which he has given to the pubhc. He
was one of the two American delegates to the London Naval Conference in 1909.
His knowledge of the laws and usages governing maritime warfare is especially
full and accurate. The entire volume is written with a clearness, conciseness,
and directness of style well befitting a textbook for the average beginner of the
subject.
As regards arrangement and method of treatment, the volume presents noth-
ing striking or new. It is a textbook rather than a treatise, and the statement of
rules occupies more space than the discussion of principles. There are five
appendices, containing, among other documents, the Declaration of London,
together with the general report presented to the conference on behalf of its
drafting committee, and the proclamation of neutrality issued by President Wil-
son at the beginning of the present war.
Book Department 263
Following the practice of Oppenheim, Wilson, and other recent writers on
international law, Admiral Stockton has embodied in the text extensive quotations
from the various Hague conventions and a large part of the Declaration of London.
In view of the indefinite status of the Hague conventions and of the Declaration
of London, the embodiment of their rules in a textbook appears to be unfortunate.
As to the status of the Hague conventions during the present war even govern-
ment officials seem to be hopelessly at sea, while it has been conceded by all parties
that the Declaration of London as such is not now in force. It is true, of course,
that the Declaration represents an attempt on the part of a conference of experts
of wide reputation and unquestioned ability to codify the existing rules of inter-
national law relating to maritime warfare, but on some points where English and
American practice was widely at variance with that of the continental Powers,
the framers of the Declaration undertook to lay down definite rules, and the rules
so laid down have not been agreed to by all the powers. The Declaration, there-
fore, carries with it merely the authority of the delegates who participated in the
conference, and not necessarily the sanction of the powers they represented.
In view of the wholly unexpected developments of the present war, it seems likely
that the rules of maritime warfare wiU have to be again thoroughly revised. The
present volume, as well as several other recent textbooks which are made up so
largely of concrete statements of rules, will in all probability be rendered entirely
obsolete, whereas many of the older treatises dealing more largely with the dis-
cussion of fundamental principles and cases will always possess a certain value.
John H. LatanA.
Johns Hopkins University.
Tout, T. F. The Place of the Reign of Edward II in English History. Pp. x vi, 42 1 .
Price, $3.50. New York: Longmans, Green and Company, 1914.
The traditional conception of Edward II, Professor Tout leaves unaltered.
"There is," he says, "little fresh to be said as to the personal deficiencies of the
unlucky Edward II" (p. 9); but the commonly accepted dictum of Stubbs
concerning the reign, that "outside of the dramatic crisis it may be described as
exceedingly dreary " (Chronicles of the Reigns of Edward I and Edward 1 1, II, Ixxv),
Professor Tout refutes once for all. The opinion of the bishop of Oxford reflects
accurately enough the impression created by the narrative and documentary
sources which had been printed when his opinion was formed, if they be studied
from the standpoint that by far the most important institutional development
of the period was that of parliament. Professor Tout has gone far behind these
sources and has dug deeply into the mass of unpublished manuscripts written by
clerks of Edward's chancery, exchequer, and wardrobe. He looks at the reign
through the medium of these records and concludes that it was a turning-point of
fundamental significance in the administrative history of the latter middle ages.
To the establishment of this point of view he devotes the major portion of his book.
As a preliminary to the administrative history of Edward IPs reign, Professor
Tout describes the system which Edward II inherited from his father. His
chapter on this subject is intended only as a sketch; nevertheless it contains the
best survey known to me of the administrative machinery of the chancery, ex-
chequer, and wardrobe as it existed at the close of the thirteenth century and the
264 The Annals of the American Academy
only clear statement of the relations of the wardrobe to the other two departments.
The wardrobe was a well organized department of the household which duplicated
in part the functions of the chancery and the exchequer, the two great depart-
ments of state. The existence of the wardrobe may be explained partly by the
customary lack of organization common in mediaeval administrative systems.
But there was another reason. By the time of Edward I the exchequer and the
chancery practically were independent of the household and consequently subject
more easily to influence from the barons when they might attempt to check the
royal power. The officials of the wardrobe, on the other hand, were still in close
personal contact with the king and more likely to be amenable to his will. The
significance of this distinction becomes apparent at once when Professor Tout
deals with the baronial activities of the reign of Edward II. This he does at some
length, largely from the viewpoint of the personal changes wrought in the offices
of state and household. Old evidence is weighed in this new balance and com-
bined with much new material to yield a story of these struggles more intelligible
and more interesting than any previously told. It appears obvious that the
ordainers understood the necessity of controlling the household as well as the
offices of state, if any progress were to be made with reform. They had little
success, however, and it was only after Pembroke's middle party had gained
power in 1318 that any extensive changes were made in the personnel of the
household. With the triumph of the middle party there began also an attempt
to reorganize the household on an extensive scale. This effort was continued
despite the reaction of 1322 and was accompanied thereafter by a reform of the
exchequer. "The result .... was to establish the royal household as it
existed for the rest of the middle ages, and in most respects as it continued until
Burke's economical reforms in 1782" (p. 157).
The chief reforms accomplished, as Professor Tout describes them, were in the
direction of delimitation and differentiation of functions. Because the ordainers
objected to the control of the privy seal by the controller of the wardrobe, Edward
somewhat unwillingly allowed the appointment of a keeper. The office of the
privy seal thus created became a sub-department of the household separate from
the wardrobe, and so was begun the development which ultimately removed the
privy seal from the household entirely and made it like the great seal, a seal of
state. Before this evolution had been accomplished, however, a new personal
seal had made its appearance. For the purpose of eluding the baronial attempt
to secure control of the finances for the exchequer, Edward II revived the chamber
which had long been dormant. It became virtually a royal privy purse inde-
pendent of the exchequer and a secretarial department of the household in pos-
session of a secret seal distinct from the privy seal. The wardrobe, on the other
hand, had its activities limited. The revival of the chamber and the separation
of the privy seal deprived it of many powers and the household ordinances of
1318 and 1323 ended its supervision of several outlying offices (e.g., the great
wardrobe and the butlery) by making them accountable directly to the ex-
chequer. This was the beginning of a decline which before the end of the
century had made the wardrobe actually the "wardrobe of the king's house-
hold." In the chancery Professor Tout finds fewer changes than elsewhere.
The innovations in the exchequer which occupy his attention chiefly were in
Book Department 265
the methods of transacting business and keeping accounts. Here as in the
household he sees an important turning-point.
There is little doubt that Professor Tout has established his main thesis. It
may be true that he has stressed too much the importance of some administrative
changes of Edward II's reign. The reforms of the exchequer of Edward I, for
example, were probably more important relatively in comparison with those of
Edward II than may be gathered from Professor Tout's statement. Final judg-
ment must be withheld until we have a fuller knowledge of the administrative
s>'8tem as it existed both before and after the reign of Edward II than the chrono-
logical limits of Professor Tout's present work permit him to furnish us. Doubt-
less his promised study on the history of the wardrobe, chamber, and small seals
will supply the essential detailed evidence. But though further research may
alter the emphasis placed on some aspects of the subject, it is not likely to affect
materially the conclusion that the reign of Edward II is "the point in which the
marked differentiation of what may roughly be called 'court administration' and
'national administration' first became accentuated" (p. vii).
Professor Tout maintains further that the reign of Edward II is of prime sig-
nificance in several other fields of development. His beh'ef that "the ineffective-
ness of Edward II's reign made permanent the constitutional machinery of the
reign of Edward I, and so began that differentiation between English and French
history which certainly did not exist under Edward I, but was clearly evident
under Edward HI" (p. 33) receives illustration in the chapters devoted primarily
to administrative history. Two final chapters are concerned with external and
ecclesiastical policies; warfare, and social and economic conditions. These sub-
jects are passed over summarily mainly by way of suggestion, although room
is found to give to the staple and to the relations of Clement V to Gascony the
most complete treatment they have yet received. The conclusions stated here
are for the most part more tentative in character. In a field such as the relations
between England and Scotland the main facts are perhaps sufficiently well known
to render unnecessary the production of new evidence before making deductions,
but such a topic as the nature of the relations between England and the papacy
cannot be settled till we have much more evidence than Professor Tout offers.
These chapters, however, were written rather with the hope of stimulating others
to enter profitable neglected fields of investigation than with the intention of at-
tempting a thorough survey (p. 205), and for this purpose they are well adapted.
The book is supplied with two long appendices which contain a reliable text
of the household ordinances of 1318 and 1323 and an invaluable list of the holders
of administrative and judicial offices during the reign. There is also an ample
index.
The extent of Professor Tout's contribution cannot be measured solely by the
number of new facts he has presented, great as that number is. His is a pioneer
work of exceptionally high quality. He has not only blazed a broad trail into a
nearly virgin forest; but he has also indicated numerous bypaths which may be
followed by others to fertile but uncultivated fields, and he has harvested a bounti-
ful crop in the large clearing which he has made for himself. He has made it
impossible longer to ignore the great part played by the udminiBtrative organs in
the development of the English constitution of the later middle agea. And not
266 The Annals of the American Academy
the least of his accomphshments is to rescue the reign of Edward II from the
undeserved position of comparative insignificance which it has hitherto occupied.
W. E. LUNT.
Cornell University.
Vedder, Henry C. The Gospel of Jesus and the Problems of Democracy. Pp.
ix, 410. Price, $1.50. New York: The Macmillan Ck)mpany, 1914.
This is an interpretation of the message of Jesus to the twentieth
century. The author discusses in the light of a "reconstructed theology" the
problem of social justice, the woman problem, the problem of the child and the
problems of the slum, vice, crime, disease, poverty and lawlessness. The treat-
ment of each topic, though necessarily brief, is brought down to date. The style
is vigorous and popular. There is no uncertainty in Dr. Vedder's mind as to
what the attitude of Jesus would be toward any of the above problems nor is
the reader left in doubt as to what the author considers that attitude to be.
There is so much that is splendid about the broad social spirit that pervades
the book and so much that reveals a sincere and dauntless effort on the part of
Dr. Vedder to give us a new glimpse of a vitalized Christianity that one regrets
to detract from the merits of the undertaking. One wishes that certain passages
of which the following is illustrative showed a firmer grasp of the science of
economics: ". . . when all forms of profit, and especially rent, dividends
and interest, will be recognized as profoundly immoral, since all alike violate the
law 'Thou shalt not steal.' " A httle more clear thinking and a little less dogma-
tism on such an economic question as the justification of interest which is at
least debatable, would have given Dr. Vedder's main message greater weight
with many people equally interested with him in the common welfare.
Again to no advantage the author alienates another group of readers by so
sweeping a statement as that "It is estimated that $1,500,000,000 is spent by
the business world every year in advertising, of which every cent is economic
waste. . . . " The waste of advertising is so enormous that there is no excuse
for stating that the waste amounts to 100 per cent when most students of the
subject agree that advertising which is educational serves a triily social purpose.
Despite the above shortcomings which have arisen from a blind adherence to
the economics of Karl Marx, the book is well worth reading. It has the merit
of challenging thought.
Frank D. Watson.
Haverford College.
Wallas, Graham. The Great Society. Pp. xii, 383. Price, $2.00. New
York: The Macmillan Company, 1914.
This book is a companion, and in some particulars, a sequel to the author's
Human Nature in Politics published in 1908. In this volume the broader scope
of social organization is reviewed on its psychological side. It is an attempt to
analyze collective human behavior within the tremendously complex conditions
of The Great Society — a term used to describe our interrelated and interdependent
social life created by the industrial revolution as contrasted with the simpler
Book Department 267
forms of society prior to the nineteenth century. Social psychology so far,
the author feels, has dealt merely with collective social phenomena. It must go
farther and apprehend a complexity never before reahzed. With less acute brains
and less retentive memories than the Greeks, we must attack a problem "ten-
thousand-fold" more complex. Modem social development has "drifted" long
enough. It is now creating forces that must be "controlled," and the first ele-
ment of control is an adequate comprehension of the problem. It is not a httle
disconcerting, however, to learn that " the influence of the professed psychologists
upon either sociological writers or the practical politicians has been curiously
smaU."
In the earher chapters the author discusses the function of social psychology
as the analysis of "dispositions," as the inherited type facts of social conscious-
ness and their relation to instincts and intelligence. "Human nature" is the
sum total of human dispositions. Every individual through organic heredity
begins with innumerable psychological tendencies which from the moment of
birth are modified by acquired experiences. If this concept brings us perilously
near determinism we are reminded that "throughout the history of mankind and
in every branch of science, those who have really advanced our knowledge of causes
and effects have felt their energy, and even their sense of 'freedom,' to be increased
rather than paralyzed by what they have learnt. " This fearless pursuit of the
laws of social action seems hardly to accord with the proposition that "The pur-
pose of social psychology is to guide human action." One may ask whether it is
the business of any science to guide or control the phenomena it describes. We are
inclined to agree with Pearson in his Grammar of Science that the business of
science is accurate description. As a matter of fact, the value of the present vol-
ume is in proportion to the accuracy with which it describes the psychic processes
which mould, rather than control, the great society.
In tracing out the psychical processes in the social complexity of the great
society due to habit, to motives of fear, to pleasure and pain, to love and hatred,
to thought and suggestibility, the author has exhibited a great deal of keen pene-
tration that will help to make clear the wider value of psychology both for the
sociologist and practical politician. In fact, the last three chapters on the organi-
zation of thought, of will and of happiness are devoted to the task of discovering
how far the existing forms of social organization may be improved by the appli-
cation of the laws of social psychology. This is the task of the constructive
statesman rather than the professional psychologist. It is not always the case
that the two functions of scientist and statesman are so happily blended as they
are in the author of this book.
J. P. LlCHTENBEHQER.
University of Pennsylvania.
Walls, Paul. (Translated by Bernard Miall.) Bolivia: Its People and Itt
Resources; Its Railways, Mines, and Rubber-Forests. Pp. 407. Price, $3.00.
New York: Charles Scribner's Sons, 1914.
This book presenta the most complete account and the Xxasi interpretation of
Bolivia that has been written. The author, sent to Bolivia in 1911-12 by the
French Ministry of Commerce to report on the economic and commercial possi-
268 The Annals of the American Academy
bilities of the land, visited practically all sections of the country and has given an
account of present-day Bolivia that is vivid, original and interpretive as well as
informing. Since the chief cause for the tardy development of Bolivia has been
the lack of communications, not only with the outside world but between the
sections of the country itself, the author appropriately opens the book with chap-
ters on how to reach BoUvia, describing the various present and proposed routes.
He also gives later in the book chapters on BoUvian transportation, summarizing
the present status of railroad construction and describing the waterway facilities.
Following the opening chapters is a very brief historical and geographical
sketch, then five chapters descriptive of political and social conditions, the army,
finances and banks, and the characteristics and customs of the people. Four
succeeding chapters give detailed descriptions of the provinces and their economic
resources. The mining industry occupies four most informing chapters, particu-
larly those concerning gold, silver and tin. Here are not only accounts of the
resources, but also of actual mines and mining conditions, mining laws, problems
of development, costs of installation, etc. Industry, agriculture and stock raising
are disposed of in one chapter and the book ends with an account of immigration
and colonization. Industries, agriculture and stock raising "are as yet unborn,"
but have much promise. In regard to immigration, the author shows that, for
the present, the need is small and the opportimities few for any except artisans.
Large concessions of land can be obtained cheaply, but they are in remote regions
and would require large capital for their development. The first great need is
the development of means of transportation, the author repeatedly emphasizes.
"The populations of the different centers are as yet without common hopes and
aims, and know nothing of that cohesion which spells strength. Each region lives
and depends upon itself, in isolation, conserving all its peculiarities and especially
its susceptibilities." But, the author optimistically continues, "the nation is most
certainly entering upon a period of intellectual and economic transformation. Its
industries are being developed, and its wealth, hitherto almost unexploited, is
daily attracting the attention and cooperation of external capital."
The book is fully illustrated and contains several sketch maps and diagrams.
It is printed in uniform style with the other volumes of the Scribner South Ameri-
can Series.
G. B. ROORBACH.
University of Pennsylvania.
Whitten, Robert H. Valuation of Public Service Corporations. (Supplement.)
Pp. xxvii, 644. Price, $5.50. New York: Banks Publishing Company, 1914.
The appearance within two years of the publication of Whitten's Valuation
of Public Service Corporations, of a supplementary volume is a concrete illustration
of the rapid development of the subject of, and of the literature on, the valuation
of public utilities. National and state railroad commissions and numerous public
service companies are actively engaged in making valuations; and commissioners,
attorneys and publicists are endeavoring to formulate scientific principles and
to apply them with "well informed judgment."
Dr. Whitten states that "the present supplement contains the numerous
court and conmaission decisions since the spring of 1912, and also a further devel-
Book Department 269
opment of the author's statement of the legal and economic principles of valua-
tion." The method of presenting the subject that was followed in volume one
has been continued in volume two. "The court and commission decisions are
arranged, discussed, and fully quoted or abstracted according to the method that
has proved convenient and practicable in the original volume." As those who
have used Dr. Whitten's volumes are aware, the chief purpose of the author is to
present briefly the substance of federal and state commission opinions and the
decisions of the courts. This makes the volumes primarily a work of reference
rather than a text or treatise in the ordinary sense. However, in considering two
important subjects in the second volume, "fair value for rate purposes," chapter
two, and "cost-new versus cost-less-depreciation," chapter eighteen, the author
presents his own views and gives an exposition of the questions at some length
before reviewing the commission and court decisions. More of this plan of pres-
entation would add to the readability and educational value of the book; but
every man must do his own work in his own way. Dr. Whitten has done a great
work and has published two volumes that every serious student of valuation must
needs consult.
Emory R. Johnson .
University of Pennsylvania.
Williams, Charles R. Rutherford Birchard Hayes. (2 vols.) Pp. xxxiii, 1028.
Price, $7.50. Boston: Houghton Mifflin Company, 1914.
This elaborate bibliography, comprising two substantial volumes of some five
hundred pages each, presents a dignified, substantial and reliable record of the
life of the man who was the nineteenth president of the United States. The first
volume covers Hayes' life to his inauguration as President. Some one hundred
pages deal with his youth and student days, and his experience as a lawyer in Cin-
cinnati. The remainder of the volume is about equally divided between an ac-
count of his military services during the Civil War, his public career as congress-
man and governor of Ohio and an account of the presidential campaign of 1876.
The second volume is devoted chiefly to the history of his presidential adminis-
tration with a few concluding chapters dealing with the interests of his later years
and a discriminating chapter presenting his personal characteristics.
The biography is distinguished by honesty, straightforwardness and eminent
fairness, as was the typical American character which is its subject. The author
has given with a wealth of detail an accurate, lucid and sympathetic account of
all the matters of moment in both Hayes' private life and pubUc career. Mr.
WilUams has had access to all of the Hayes' papers. He has drawn extensively
from such original material as his diary, his correspondence and that of his con-
temporaries, his messages and speeches and other state papers while governor and
president, as well as from the files of leading newspapers. This biography,
therefore, so largely based upon the sources, will unquestionably be recognised
as final and authoritative. It is especially through the copious extracts from the
diary and correspondence, now first published, that the author has made his
chief contribution. From these quotations we gain a very real appreciation of
the man, an insight into his traits of character and an intimate knowledge of his
thoughts and reflections, for these latter he was wont to commit to the se<^recy
270 The Annals of the American Academy
of his diary, which he systematically kept from his college days to the end of his
life. Like the diary of President Polk, published a few years since, the pages of
President Hayes' diary will aid in reconstructing the history of his administra-
tion; moreover they reveal the real character and fibre of the man and his opinion
of many of his contemporaries.
The following extract from his diary, while a senior at Kenyon College, reveals
his earl^ ambition for an honorable career "My lofty aspirations I cannot conceal
even from myself; .... As far back as memory can carry me the de-
sire of fame was uppermost in my thoughts, but I never desired other than hon-
orable distinction, and before I would be damned to eternal fame I would descend
to my grave unknown. The reputation which I desire is not that momentary
eminence which is gained without merit and lost without regret; give me the
popularity which runs after, not that which is sought for. For honest merit to suc-
ceed amid the tricks and intrigues which are now so lamentably common, I know
is difficult, but the honor of success is increased by the obstacles which are to be
surmounted. Let me triumph as a man or not at all" (1, 22). Extracts from
the diary dui'ing the next few years show his marked tendency to introspection
and self examination, as well as the high ideals he set before himself as his goal.
Hayes as a young man was a Whig. Although deeply interested in the for-
tunes of that party, he took no active part in politics until 1851. In view of the
banishment of wine during his administration from the White House entertain-
ments, it is interesting to note that the first pubhc speech which Hayes made was
a temperance address in 1850, and that his first political address, made in 1851,
was in opposition to the plan to form a separate temperance party. Hayes was
aroused by the Kansas-Nebraska movement and in 1855 was a delegate to the
state Republican convention. In the presidential campaign of the next year he
worked with great ardor for the new RepubUcan party. On the eve of the elec-
tion he writes "However fares the cause, I am enlisted for the War." These words
were indeed prophetic, for in 1861 he enlisted for military service, refusing a colo-
nelcy offered to him, but accepting a major's commission, preferring to earn his
promotion. He served throughout the war, participating in more than fifty
engagements, being wounded six times, always displaying personal daring, self
possession and efficiency. Although he never sought promotion, he was in time
advanced to a brigadier-generalship and was mustered out as a Brevet major-
general.
Later in his campaigns for Congress and for governor, Hayes was conspicuous
for his championship of sound money and civil service reform. His success in
thrice being elected governor of Ohio, as well as his honorable record in that office,
led to his nomination by the Republican convention of 1876 as a compromise
candidate, when it proved impossible to nominate one of the more brilliant leaders
of the opposing factions within the party. The story of the campaign and of the
disputed election is presented by his biographer chiefly from the point of view
of Hayes' personal relation to the same. His attitude was dignified throughout
these critical days and contrasted favorably with the course pursued by Mr.
Tilden. In view of Mr. Williams' Democratic affihations, it is of interest to
note his conclusion as to the findings of the Electoral Commission. He writes:
"Asa result of his prolonged study of the conditions and contentions of the
6ooK Department ^71
time, he is thoroughly convinced that in the final arbitrament essential justice
and right prevailed, and that the best interests of the country in all its parts were
served. He ventures the prediction that more and more this will come to be the
judgment of impartial historians" (I, 491).
Mr. Williams shows in detail how President Hayes met and dealt with the
several critical situations and difficult problems that confronted him in his admin-
istration. How, in spite of opposition both within and without his party, he suc-
ceeded in the restoration of peace and home rule in the South, in substantially ad-
vancing civil service reform and in the resumption of specie payments. He
emerged from a prolonged contest with Congress successful, alike in maintaining
unimpaired the prerogatives of the Executive and in vindicating the rights of the
federal government. The nomination and triumphant election of Garfield may
be regarded as a correct index of the success of President Hayes' administration,
the former as a decisive victory for the better elements in the Republican party,
the latter as a practical approval of the country at large of the policies for which
Mr. Hayes had stood.
Judging from the extracts given, it is to be regretted that Mr. Hayes' diary
for the years covering his administration has not been published in extenso.
There is space only to quote one or two of his estimates of leading men in his party.
Near the close of his term he wrote: "If there are any two men in the country
whose opposition and hatred are a certificate of good character and soimd states-
manship, they are Conkling and Butler" (II, 429). In 1884 he says of Mr. Blaine,
"He is of the Butler and Douglas type — more like Douglas in character and posi-
tion than any other of the great leaders of the past. Clay would rather be right
than be President, Blaine would gladly be wrong to be President." After Blaine's
nomination he wrote he "is not an admirable person, he is a scheming demagogue,
selfish and reckless, but he is a man of abiUty and will, if elected, be a better
President than he has been politician" (II, 367).
The reviewer rises from the reading of these volumes with a profound respect
for the character of Mr. Hayes and the strong conviction that while he may not
be accounted a statesman of the highest rank, the more one studies his career the
clearer he stands revealed as an able, honest, unselfish and high-minded citizen,
patriot and servant of the nation.
Herman V. Ames.
University of Pennsylvania.
INDEX
Africa, the effect of European war on,
13^14.
America: As an exporter of manufac-
tures, 25; factors affecting commerce
of, 11.
America, The Financial Menace to,
OP THE European War. Simon N.
Patten, 123-129.
American Business, The Effect of
THE European War on. A. B.
Leach, 143-144.
American capital, foreign investments
of, 66.
goods, India as a buyer of, 22-26.
industry, danger faced by, as a
consequence of the war, 125-129.
investments, in Mexico and Cen-
tral America, 62.
American Merchant Marine, The
Importance of an. Bernard N.
Baker, 52-57.
American Money Market, The
Probable Condition of the, After
THE War is Over. Joseph French
Johnson, 130-137.
American neutral rights and obliga-
tions, definition of, 166.
people : Effect of European war on,
201-202; feeling of, toward sister
republics, 159.
American Policies, Germany and.
Bemhard Demburg, 195-196.
American policy: Logical application
of, 163; new application of, 164.
ports, average price of coal at, 52.
American Republics, Neutral
Rights and Obligations of. Paul
Fuller, 155-167.
American securities, value of, held
abroad, 114.
traditional pohcy, expression of
the, 23 L
America's Financial Position as
Affected by the War. Alexander
J. HemphiU, 119-122.
America's Financial Position, The
Effect of the War on. Thomas
W.Lamont, 106-112.
America's Financial Position, The
Results of the European War on.
W. P. G.Harding, 113-118.
America's Foreign Trade, The Fu-
ture of. Theodore H. Price, 17-21.
America's International Trade as
Affected by the European War.
William C. Redfield, 1-16.
America's Possible Contribution to
THE World's Peace. Oscar S.
Straus, 230-234.
America's Trade with India, The
Effect of the European War on.
Daniel Folkmar, 22-34.
Arbitration, value of, 211.
Argentina: Advance in business of
banks in, 90; commercial failures in,
77; consumption of coal annually in,
52; decrease of principal exports of,
at outbreak of war, 79; disastrous
effects of war on, 78; increased vol-
ume of trade in, in last few months,
89; sound financial basis of, 90.
Armament, a symbol of force, 209.
Arms, An Argument Against the
Exportation of. Edmund von
Mach, 192-194.
Arms and munitions of war, exporta-
tion of, 151.
Arms and Munitions of War, The
Right of Citizens of Neutral
Countries to Sell and Export, to
Belligerents. William Cullen
Dennis, 168-182.
Asia, effect of European war on, 14.
Austria, Trade Possibilities in
Germany and. Isaac Wolf, Jr.,
35-38.
272
Index
273
Baker, Bernard N. The Importance
of an American Merchant Marine,
52-57.
Belligerent nations: Attitude of, toward
United States, 231; effect of war on
policies of, 232-233.
warships, in Brazilian ports,
151-153.
Belligerents: Captures made by, 153;
effect of forbidding exportation of
arms by neutrals to, 187-188; policy
of rule regarding exportation of arms
by neutrals to, 186-187; rights of
neutrals to sell munitions of war to,
183; rights of neutral nations to en-
gage in contraband trade with, 171;
view of our government on right of
neutrals to export arms to, 188-189.
Belugerents, The Right of Citi-
zens OF Neutral Countries to
Sell and Export Arms and Muni-
tions OF War to. William Cullen
Dennis, 168-182.
Belligerents, The Sale of Muni-
tions OF War by Neutrals to.
Charles Noble Gregory, 183-191.
Berhn, conditions in, today, 36-37.
Blockade, meaning of, 219-220.
Bond prices, effect of war on, 131.
Brazil: Decline of exports of, following
outbreak of war, 81; decline of im-
ports of, following outbreak of war,
82; immediate results of war on, 81;
principal exports from, 74, 82; trade
between United States and, following
outbreak of the war, 81; unsound
financial position of government of,
83.
Brazil, The Neutrality Rules
Adopted by. Senhor Dom Domi-
cio Da Gama, 147-154.
Brazilian ports, warships of bellig-
erents in, 151-153.
British consols, range in prices of, 132-
133.
inveetments, influence of, in
Latin America, 61.
Buenos Ajtcs: Average price of coal
in, 52; decrease of customs receipts
in, at outbreak of war, 80.
Business, factors fundamental to fu-
ture of, 17.
Capital: Effect of decrease in, 124;
need of, in United States, 133; wasted
in previous wars, 132.
Central and South America, Exist-
ing Obstacles to the Extension
OF Our Trade With. Maurice
Coster, 98-103.
Chile: Emergency measures taken by,
85-86; exports of nitrate from, in
1913, 84; lack of stable currency in,
85; unemployment in, due to the
war, 85.
Civilization, unfailing mark in, 206.
Commerce: Of Germany, 1; of Great
Britain, 1-2; of United States, 2-3.
Commercial failures, in Argentina, 77.
future, possibilities of our, 50-51.
life, change in, of America, 9.
position, of the United States, 10.
relations, effect of war on, 138.
supremacy of United States,
means necessary to establish, 16.
Competition: Among members of ex-
port corporation, 46-47; basis of,
3-4; disadvantages of, in foreign mar-
kets, 43-44, 49-50; elements entering
into, 5; in manufacturing as a result
of the war, 143-144.
Contraband: Additions to, 155; mean-
ing of, 218-219.
trade, right of neutral nation to
engage in, with belligerent, 171.
Cooperation, need of, in foreign trade,
42-13.
C60PERA1I0N IN Export Trade. Wil-
liam S. Kies, 39-^51.
Coster, Maurice. Existing Obsta-
cles to the Extension of our Trade
with Central and South America,
98-103.
Courts, opinion of, on exportation of
274
Index
arms by neutrals to belligerents,
185-186.
Credit: Extension of, in England, 134;
extension of, in France, 134; exten-
sion of, in Germany, 134.
Credits, excessive versus adequate, 67-
68.
Da Gama, Senhor Dom Domicio.
The Neutrality Rules Adopted by
Brazil, 147-154.
Da VIES, Joseph E. The Function of
Government in its Relation to In-
dustry, 58-59.
Dennis, William Cullen. The Right
of Citizens of Neutral Countries to
Sell and Export Arms and Muni-
tions of War to Belligerents, 168-182.
Dernburg, Bernhard. Germany and
American Policies, 195-196.
Dollar exchange, possibility for crea-
tion of, 120.
Economic cycles, law of, 124.
England : Accomplishments of, in pres-
ent war, 215; extension of credit in,
134.
EngUsh ports, average price of coal at,
52.
Europe: Comparison of Central and
South American commerce with
United States and, 75-76; depend-
ence of Central and South America
upon, for financial assistance, 69;
reasons for strong ties between
Latin America and, 73.
European financial centres, our in-
debtedness to, at outbreak of war,
119.
investments, in Latin America,
61.
war: A troublesome result of the,
216; cost of, for a year, 104; de-
velopment of American acceptance
business by, 113; disastrous effects
of, on Argentina, 78; effect of, on
Africa, 13-14; effect of, on American
foreign trade, 8-9; effect of, on Amer-
ican international trade, 15; effect
of, on American people, 201-202
effect of, on Asia, 14; effect of, on
conditions in Latin America, 63
effect of, on India's trade with Ger-
many, 27; effect of, on Russia, 14
effect of, on shipping, 30-31; effect
of, on taxes, 12-13; effect of, on our
commercial relations with Latin
America, 64; estimated cost of, 130;
estimated cost of, for one year, 127;
estimated destruction of capital occa-
sioned by, 133; first effect of the, 106;
immediate effects of, on Latin Ameri-
can countries, 72, 74r-89; immediate
effects of, on Peru, 86; means taken
by United States to remedy serious
situation caused by, 106-107; oppor-
tunity presented to United States
by, 222; reasons for disastrous effect
of, on Latin America, 73.
European War, America's Inter-
national Trade as Affected by
THE. WilUam C. Redfield, 1-16.
European War, Central and South
American Trade as Affected by
THE. James A. FarreU, 60-68.
European War, The Effect of the,
ON American Business. A. B.
Leach, 143-144.
European War, The Effect of the,
ON America's Trade with India.
Daniel Folkmar, 22-34.
European War, The Financial
Menace to America of the. Si-
mon N. Patten, 123-129.
European War, The Results of the,
ON America's Financial Position.
W. P. G. Harding, 113-118.
European War, Trade Conditions
IN Latin America as Affected by
THE. Edward Ewing Pratt, 72-97.
Export business, credit an obstacle in
growth of, 49.
corporation: Advantages result-
ing from an, 47-48; competition
Index
275
among members of, 46-47; some
disadvantages of an, 50.
organization, necessity for devel-
opment of an efficient, 121-122.
societies: Method of operating
an oi^anization of, 45-46; plan for
organization of, 44-47.
trade: Balance of, in the United
States, 108; importance of merchant
marine to, 99; laws needed to insure
increase in our, 98-100; relation
of investment to, 67.
Export Trade, Cooperation in.
Williams. Kies, 39-51.
Exports: Excess of our, over imports,
114; reasons for decrease in our, 65.
Farrell, James A. Central and
South American Trade as Affected
by the European War, 60-68.
Federal Trade Commission, powers of,
42.
Finance, effect of war on, 112.
Financial America, demands on, at
conclusion of European war, 122.
crises, result of, in the past, 127.
position: Elements entering our,
at close of war, 115; of United States,
prior to 1914, 120; reversal of our,
121.
Financial Situation, the Present.
Frank A. Vanderlip, 104-105.
FoLKMAR, Daniel. The Effect of
the European War on America's
Trade with India, 22-34.
Food, relation between population and,
124.
Foodstuffs: Prices of, in Germany,
37 ; rise in price of, in South American
countries, 88.
Force: Accomplishments of unchained,
205; effectiveness of a symbol of,
207-208.
Force and Peace. H. C. Lodge,
197-212.
Foreign branch banks, establishment
of, 113-114.
business, opportunity presented
to American merchants to increase
their, 143.
investments, of American capital,
66.
loans, made by the United States,
108.
markets, disadvantages of com-
petition in, 43-44; 49-50.
pohcy, necessity of, to future
development of Umted States, 141.
representives, our need of, 100.
trade: A means of drawing us
into the conflict, 140; advantages
resulting from, 39; attitude of Ger-
many and Great Britain towards, 2;
educational power of, 60-61; eco-
nomic basis of, 3 ; effect of European
war on American, 8-9; how Germany
built up her, 39-40; interest of
American press in our, 102-103;
necessity of combinations in build-
ing up a, 43; need of a policy favor-
ing, 100; need of cooperation in, 42-
43; requisite of, 35.
Foreign Trade, The Future of
America's. Theodore H. Price, 17-
21.
Foreign undertakings, necessity of our
financing, 101.
France, extension of credit in, 134.
Free trade, principle of universal, 226-
227.
Freight rates: Reasons for increase
in, 31; reduction in, 99-100.
Fuller, Paul. Neutral Rights and
Obligations of American Republics,
155-167.
German investments, influence of, in
Latin America, 61.
Germany: Accomplishments of, in
present war, 215-216; attitude of,
toward foreign trade, 2; attitude of,
toward trade between United
States and South America, 195-196;
commerce of, 1; conditions govern-
276
Index
ing American trade with, 38; exten-
sion of credit in, 134; goods finding
a ready market in, 35-36; how she
built up her foreign trade, 39-40;
imports from, into Great Britain,
190-191; industrial situation in,
37; prices of foodstuffs in, 37.
Germany and American Policies.
Bemhard Demburg, 195-196.
Germany and Austria, Trade Pos-
sibilities IN. Isaac Wolf, Jr., 35-
38.
Government, historical conception of,
225.
Government, The Function of, in
ITS Relation to Industry. Joseph
E. Davies, 58-59.
Government guaranty of industrial
securities, 134-135.
Governmental attitude, types of,
toward industry, 59.
Great Britain: Attitude of, towards
foreign trade, 2; commerce of, 1-2;
imports from Germany into, 190-
191.
Gregory, Charles Noble. The
Sale of Munitions of War by Neutrals
to Belligerents, 183-191.
Hamilton, Alexander, attitude of,
toward rights of neutral powers, 169,
184.
Hammond, John Hays. Trade Rela-
tions with Central and South Amer-
ica as Affected by the War, 69-71.
Harding, W. P. G. The Results of
the European War on America's
Financial Position, 113-118.
Hart, Albert Bushnell. Unarmed
Neutrality, 213-221.
Hemphill, Alexander J. America's
Financial Position as Affected by
the War, 119-122.
Human nature: Leading elements in,
200; selfishness as an attribute of,
200.
Ideas, incapacity for production of
new, 199.
India: As a buyer of American goods,
22-26; desirabiUty of trade with,
25-26; opportunity for trade with,
34; position of, in trade of world,
23-24; value of exports of Austria-
Hungary to, 28; value of exports of
France to, 28; value of imports
of, 1913-14, 26; value of Japan's
exports to, 28.
India, The Effect of the European
War on America's Trade with.
Daniel Folkmar, 22-34.
Indian imports, value of, from Ger-
many and Austria in 1913-14, 28-
30.
trade, opportunities resulting
from Germany's loss of, 28.
Industrial and commercial Ufe of
neutrals, consideration of, 156.
depression, as a result of the war,
126.
securities, government guaranty
of, 134^135.
situation, in Germany, 37.
Industries: Extinction of the indebted-
ness of our, to Europe, 143; necessity
of capital in development of. 111;
position of research in, 10.
Industry: Apphcation of science to,
6-7; effect of war on, 12; govern-
ment control of, 110; increased wages
in leading branches of, 21; principles
of, 11; relation between capital and,
124; types of governmental attitude
toward, 59.
Industry, The Function of Govern-
ment IN iTfe Relation to. Joseph
E. Davies, 58-59.
Interest: Result of a high rate of, 127;
result of a low rate of, 127.
Internal policies, changes in our, 232.
International finance: Means of our
obtaining a prominent place in,
117-118; new epoch in, 119,
Index
277
law: Action of belligerents result-
ing from change in present rule of,
173 ; arguments in favor of change in
present rule of, 174; desirability of
changing the present rule of, 172-
182; fairness of proposed change in,
at this time, 176; necessity of, 140;
objections to changing present rule
of, 173-174; present illogicalness of,
213-214; present rule of, 168-172;
results of proposed changes in, 173-
175.
public unions, number of, in
existence, 226.
relationship, necessity for recon-
struction of, 234.
trade: Change in volume and
character of American, 7; competi-
tors for, 1 ; eflfect of European war on
American, 15.
International Trade, America's,
AS Affected by the European
War. Wilham C. Redfield, 1-16.
Investment, relation of, to export
trade, 67.
Jefferson, Thomas, attitude of, on
exportation of arms to belligerents
by neutral powers, 169, 183-184.
Johnson, Joseph French. The Prob-
able Condition of the American
Money Market after the War is
over, 130-137.
KiES, WiLUAM S. Cooperation in
Export Trade, 39-61.
I.«abor, effect of war on, 139.
Lamont, Thomas W. * The Effect
of the War on America's Financial
Position, 106-112.
Latin America: Curtailment of pur-
chasing power of, 63 ; effect of Euro-
pean war on conditions in, 63; effect
of European war on our commercial
relations with, 64; European invest-
ments in, 61; necessity of capitalists
in United States rendering financial
assistance to, 69; reasons for disas-
trous effect of European war on,
73; reasons for strong ties between
Europe and, 73; recovery effected
in, from effect of European war,
72, 89-97; value of our exports to,
65; value of our imports from, 65.
Latin America, Trade Conditions
IN, AS Affected by the European
War. Edward Ewing Pratt, 72-
97.
Latin American countries: Economic
situation of the, 72-74; immediate
effects of European war on, 72,
74-89.
Leach, A. B. The Effect of the Euro-
pean War on American Business,
143-144.
Lodge, H. C. Force and Peace, 197-
212.
Mach, Edmund von. An Argument
Against the Exportation of Arms,
192-194.
Manufacturers, results of combining
resources of, 50.
Mead, Edward S. The Situation of
the United States at the Close of
the War as a Question of National
Defense, 138-142.
Merchant marine: Importance of, to
export trade, 99; necessity for gov-
ernment assistance in building up a,
56; reasons for failure of, in United
States, 54; steps taken to build up
our, 54-55.
Monroe Doctrine, attitude of German
professors toward, 162.
Moore, John Bassett. The Mean-
ing of Neutrality, 145-146.
Munitions of war: Arguments in favor
of forbidding traffic in, 194; rights of
neutrals to sell, to belligerents, 183.
Munitions of War, The Salb or,
BY Neutrals to Bbluqbbbntb.
Charles Noble Gregory, 18d-101.
278
Index
National banks, increases in the loans
of our, 117.
wealth, percentage of, given to
state, 123.
Nationality, principle of, 226.
Neutral obligations, 216-217.
Neutral Countries, The Right of
Citizens of, to Sell and Export
Arms and Munitions of War
TO Belligerents. William CuUen
Dennis, 168-182.
Neutral nations: Effect of war on poli-
cies of, 232-233; justification for rule
regarding exportation of arms and
ammunition by, 171-172; right of,
to engage in contraband trade with
belligerents, 171.
rights, protection of, 220-221.
Neutral Rights and Obligations op
American Republics. Paul Fuller,
155-167.
Neutral zones, liberty of coaling in,
157.
Neutrality: As a policy of the United
States, 145; definition of, 145-146;
difficulty of pursuing policy of, at
Washington, 213; disturbed, 214-
216; feeling of belligerents toward,
149; reasons for rules of, 148; rules of,
adopted by Brazil, 150.
Neutrality, Unarmed. Albert Bush-
nell Hart, 213-221.
Neutrality, The Meaning of. John
Bassett Moore, 145-146.
Neutrality Rules, The, Adopted
BY Brazil. Senhor Dom Domicio
Da Gama, 147-154.
Neutrals: Consideration of industrial
and commercial life of, 156; coopera-
tion of all, 156; effect of forbidding
exportation of arms to, by belliger-
ents, 187-188; policy of rule re-
garding exportation of arms to
belligerents by, 186-187; protection
of, 155-156; rights of, to sell mu-
nitions of war to belligerents, 183;
view of our government on right of,
to export arms to belligerents,
188-189.
Neutrals, The Sale of Munitions
OP War by, to Belligerents.
Charles Noble Gregory, 183-191.
New York, possibility of, as financial
centre of world, 108-109.
North American states, necessity of
cooperation between South American
republics and, 160.
Oceanic police, establishment of, 228.
Organized society, important fact
marking development of, 206.
Pan-American Union, committee
formed by the, 156.
Patten, Simon N. The Financial
Menace to America of the European
War, 123-129.
Peace: First step toward maintenance
of, 210; how it shall be established,
203-204; of a nation, on what it
depends, 209-210; of world, concern
of United States in, 233; treaty,
principles forming basis of, 226.
Peace, Force and. H. C. Lodge,
197-212.
Permanent Peace, Six Essentials
TO. August Schvan, 222-229.
Peru: Decrease in customs receipts at,
86; favorable conditions existing in,
94-95; immediate effect of European
war on, 86; increase in copper prices
in, 95.
Power, need of, 234.
Pratt, Edward Ewing. Trade Con-
ditions in Latin America as Affected
by the European War, 72-97.
President Wilson, views of, on relation
of United States to Latin America,
164-166.
Price, Theodore H. The Future of
America's Foreign Trade, 17-21.
Prices: Effect of European war on, in
Europe, 19; of foodstuffs in Ger-
many, 37.
Index
279
Production, American costs of, 5-6.
Redfield, William C. America's In-
ternational Trade as Affected by the
European War, 1-16.
Republic, evolution of a, 206.
Research, position of, in industries, 10.
Righteousness, meaning of, 222-223.
Russia, effect of European war on,
14.
Savings, decrease in world's, 131.
ScHVAN, August. Six Essentials to
Permanent Peace, 222-229.
Science, application of, to industry, 6-7.
Shipping, reasons for crisis in, in far
east, 31-32.
South America: Decrease in our ex-
ports to, 34; divisions of, 74; increase
in our imports from, 34; total ex-
port trade of, 77; total import trade
of, for 1912, 74, 77.
American countries, principal
exports of various, 74.
Steamship lines, profitableness of oper-
ating, 53-54.
Straus, Oscar S. America's Possi-
ble Contribution to the World's
Peace, 230-234.
Tariff, need of a protective, after war
is over, 139.
Taxes, effect of European war, on,
12-13.
Trade: And financial supremacy, fac-
tors determining, 109-110; effect of
European inflation on, 19; factors
fundamental to future of, 17; in-
creases in, 32-33; of the world, posi-
tion of India in, 23-24.
Trade Conditions in Latin America
AS Afkected by the European
War. Edward Ewing Pratt, 72-97.
Trade Possibilities in Germany and
Austria. Isaac Wolf, Jr., 35-38.
Trade Relations with Central
and South America as Affected
BY THE War. John Hays Ham-
mond, 69-71.
Treaty agreements, value of, 204.
Unemployment, in Chile, due to the
war, 85.
United States: Ability of, to control
imports into South America, 196;
advantages of, to become manufac-
turing nation, 40^1; attitude of
belligerent nations toward, 231 ; atti-
tude of Germany toward trade be-
tween South America and, 195-196;
attitude of South American men to
policy of, 161; calculated indebted-
ness of, 18; Central America and, ex-
tent of trade between, 62; Central
and South America and, factors
affecting relations between, 58; com-
merce of, 2-S; commercial position
of the, 10; development of arms in-
dustry in, 177; Europe and, com-
parison of Central and South Ameri-
can commerce with, 75-76; export
trade balance of the, 108; financial
conditions in, today, 107; financial
destiny of, a question of national
defense, 142; financial position of,
prior to 1914, 120; foreign loans made
by the, 108; hostile feelings existing
towards, 215; inability of, to control
exports from, 196; Latin America
and, advantages of cooperation be-
tween, 166; means necessary to es-
tablish commercial supremacy of,
16; necessity of, to finance herself,
143; necessity of foreign policy to
future development of, 141; need of
capital in, 133; neutrality as a policy
of the, 145; new banking system of
the, 136-137; opportunity of, to in-
crease foreign trade, 41; opportunity
presented to, by European war, 222;
policy followed by, regarding the
making of loans by neutrals to bellig-
erents, 192; potential power of the,
158-159; relation of the government
280
Index
to its citizens, 193; rights and duties
of, with regard to the war, 168;
South America and, reasons for de-
velopment of trade between, 59;
trade between Brazil and, following
outbreak of the war, 81 ; work accom-
plished by, in Latin democracies,
159-160.
United States, The Situation of
THE, AT THE ClOSE OF THE WaR AS
A Question of National Defense.
Edward S. Mead, 138-142.
Uruguay: Customs receipts in, 91; re-
covery of, from depression caused by
European war, 91.
Value, relation of wealth to, 126-127.
Vanderlip, Frank A. The Present
Financial Situation, 104-105.
Wages, increase of, in leading branches
of industry, 21.
War: Blockade as a common practice
of, 219; effect of, on industry, 12;
horrors of, 202-203; means of abol-
ishing, 224; means taken by modem
pacifists to abolish, 224.
bonds, amount of, issued, 104.
material, exportation of, to bel-
ligerents, 151.
Wars, results of various, in the history
of the world, 116-117.
Washington, George, character of,
197-198.
Wealth: Decrease in factors pro-
ducing, 134-135; relation of, to
value, 126.
Wolf, Isaac, Jr. Trade Possibilities
in Germany and Austria, 35-38.
World citizenship, principle of a,
227.
World's Peace, America's Possible
Contribution to the. Oscar S.
Straus. 230-234.
CUMULATIVE TOPICAL INDEX
Below is a list of references to the articles in previous issues of The
Annals which also treat of the special subjects discussed in this volume. A
cumulative index will appear in each succeeding issue of The Annals.
Through these cumulative indexes, the vast amount of valuable material that
the Academy has published during the twenty-five years of its existence can
be efficiently correlated and effectively used. — The Editor.
Ck>NTRABAND
Articles in other volumes:
Are Foodstuffs Contraband of War,
Harley W. Nehf, Vol LVI, Novem-
ber, 1914, p. 161.
Development of Foreign Trade
Previous volumes:
Tariff Problems — American and Brit-
ish, Vol. XXIII, January, 1904;
Tariffs, Reciprocity and Foreign
Trade, Vol. XXIX, May, 1907;
Tariff Revision, Vol XXXII, Sep-
tember, 1908.
Articles in other volumes:
Some Agencies for the Extension of
our Domestic and Foreign Trade,
George Bruce Cortelyou, Vol XXIV,
July, 1904, V- 1; Present Condition of
International Trade, John J. Mac-
farlane, Vol XXXIV, November,
1909, p. 7; South America: Our
Manufacturers' Greatest Opportu-
nity, John Barrett, Ibid., p. 82; Gov-
ernment Assistance to Export Trade,
C. 8. Donaldson, Ihid., p. 117;
Financing our Foreign Trade, Fred-
erick I. Kent, Vol. XXXVI, No-
ember, 1910, p. 14; The Extension of
American Banking in Foreign Coun-
tries, Samuel McRoberts, Ibid., p.
24; Current Misconceptions of Trade
with Latin America, H. MacNair
Kahler, Vol XXXVII, May, 1911,
p. 60; Investment of American Capi-
tal in Latin American Countries,
W. H. Schoff, Ibid., p. 60; Competi-
tion as a Safeguard to National Wel-
fare, Talcott Williams, Vol XLII,
July, 1912, p. 74; Unregulated Com-
petition is Destructive of National
Welfare, Allen Ripley Foote, Ihid.,
p. 108; Contribution of Industrial
Combination to National Welfare,
Magnus W. Alexander, Ibid., p. 134;
Historical Development of Steam-
ship Agreements and Conferences in
the American Foreign Trade, Paul
Gottheil, Vol LV, September, 1914,
p. 48; Rate Agreements between
Carriers in the Foreign Trade, P. A.
S. Franklin, Ibid., p. 165; Advantages
and Disadvantages of Shipping Con-
ferences and Agreements in the
American Foreign Trade, Ibid., p.
243; Bill to regulate Carriers by
Water engaged in the Foreign and
Interstate Commerce of the United
States, Ibid., p. 263.
Federal Reserve Bank
Articles in other volumes:
Utilization of Bank Reserves in the
United States and Foreign Countries,
George E. Roberts, Vd. XXXVI,
November, 1910, p. 46.
281
i
282
Cumulative Topical Index
International Relations
Previous volumes:
Government of Dependencies, Vol.
XIX, May, 1902; The United States
and Latin America, Vol. XXII, July,
1903; The United States as a World
Power, Vol. XXVI, July, 1905;
Chinese and Japanese in America,
Vol. XXXIV, September, 1909; Ca-
nadian National Problems, Vol. XLV,
Januxiry, 1913; International Rela-
tions of the United States, Vol. LIV,
July, 1914-
Articles in other volumes:
International Liabihty for Mob In-
juries, E. W. Hufifcut, Vol. II, July,
1891, p. 69; International Arbitra-
tion, Eleanor L. Lord, Vol. II, Janu-
ary, 1892, p. 39; Recognition of
Cuban Belligerency, A. S. Hershey,
Vol. VII, May, 1896, p. 74; The
Doctrine and Practice of Interven-
tion in Europe, W. E. Lingelbach,
Vol. XVI, July, 1900, p. U The
Supreme Court and the Insular
Cases, L. S. Rowe, Vol. XVIII,
September, 1901, p. 38; Industrial
Conciliation and Arbitration, Mar-
cus A. Hanna, Oscar S. Straus, Sam-
uel Gompers, W. H. Pfahler, Alex.
Purves, Vol. XX, July, 1902,
p. 17.
Latin American Relations
Previous volumes:
The United States and Latin Amer-
ica, Vol. XXII, July, 1903; The Pan-
American Conferences and their
Significance, Supplement, Vol.
XXVII, May, 1906; Pohtical and
Social Progress in Latin America,
Vol. XXXVII, May, 1911.
Articles in other volumes:
Intervention and the Recognition of
Cuban Independence, A. S. Hershey,
Vol. XI, May, 1898, p. 63; South
America: Our Manufacturers' Great-
est Opportimity, John Barrett, Vol.
XXXIV, November, 1909, p. 82; A
Pan-American Policy: The Monroe
Doctrine Modernized, John Barrett,
Vol. LIV, July, 1914, V- 1; The Latin
View of the Monroe Doctrine,
Leopold Grahame, Ibid., p. 67; The
South American View as to the
Monroe Doctrine, Paxton Hibben,
Ibid., p. 63; The Monroe Doctrine
and Latin America, Joseph Wheless,
Ibid., p. 66.
Merchant Marine
Articles in other volumes:
Recommendations of the Committee
on the Merchant Marine and Fish-
eries, Vol. LV, September, 1914, V-
266.
AMERICA'S INTERESTS AFTER
THE EUROPEAN WAR
Cf)e annate
Volume LXI
September, 1915
Editoh: CLYDE LYNDON KING
Assistant Editor: T. W. VAN METRE
Editor Book Dept.: ROSWELL C. McCREA
Editorial Ck)UNCiL: J. C BALLAGH. THOMAS CONWAY, Jr., S. S. HUEBNER, CARL
KELSEY. CLYDE LYNDON KING, J. P. LICHTENBERGER, ROSWELL C.
McCREA, SCOTT NEARING, E. M. PATTERSON, L. S. ROWE,
ELLERY C. STOWELL, T. W. VAN METRE,
F. D. WATSON
(yv»
y
The American Academy op Political and SoaAL Sciencb
36th and Woodland Avbnui
Philadelphia
1915
Copyright, 1915, by
Amemcan Academy of Political and Social Science
All rights reserved
EUROPEAN AGENTS
England: P. S. King & Son, Ltd., 2 Great Smith St., Westminster, London, S. W.
France: L. Larose, Rue Soufl9ot, 22, Paris.
Germany: Mayer & Miiller, 2 Prinz Louis Ferdinandstrasse, Berlin, N. W.
Italy: Giomale Degli Economisti, via Monte Savello, Palazzo Orsini, Rome.
Spain: E. Dossat, 9 Plaza de Santa Ana, Madrid.
I»
CONTENTS
Page
FOREWORD ix
The Editor.
PART I— AMERICA'S INDUSTRIES AS AFFECTED BY THE
EUROPEAN WAR
AMERICA'S INDUSTRIES AS AFFECTED BY THE EUROPEAN
WAR 1
Alba B. Johnson, President, Baldwin Locomotive Works, Philadelphia.
EUROPEAN WAR INFLUENCES UPON AMERICAN INDUSTRY
AND LABOR 4
Samuel Compere, President, American Federation of Labor.
AMERICA'S UNEMPLOYMENT PROBLEM 11
Henry Bni^e, Chamberlain, New York City.
SOME RECENT SURVEYS OF UNEMPLOYMENT 24
Royal Meeker, United States Commissioner of Labor Statistics.
THE WAR AND IMMIGRATION 30
Frank Juhan Wame, Ph.D., Washington, D. C.
UNEMPLOYMENT AND IMMIGRATION 40
Frances A. Kellor, Vice-Chairman, Committee for Immigrants in Amer-
ica, New York.
SOME INDUSTRIAL LESSONS OF THE EUROPEAN WAR 45
John Price Jackson, Commissioner of Labor and Industry, Harrisburg,
Pa.
PART II— STABILITY AND DEVELOPMENT IN AMERICA'S
INTERNATIONAL TRADE
AMERICAN EXPORT POLICIES 51
Frankhn Johnston, Co-Pubhsher, Americxin Exporter.
COMMERCIAL ISOLATION VERSUS INTERNATIONAL TRADE . . 60
Moritz J. Bonn, Professor of Political Economy, Univereity of Munich,
Germany.
THE RELATIONS OF CENTRAL AND SOUTH AMERICA WITH THE
UNITED STATES AS AFFECTED BY THE EUROPEAN WAR .... 66
Luis F. Corea, Former Minister of Nicaragua to the United States.
WHAT CAN THE UNITED STATES AND LATIN AMERICA DO
FOR EACH OTHER? 71
Charles M. Muchnic, Vice-President, American Locomotive Sales Cor-
poration.
iii
iv Contents
TRANSPORTATION FACILITIES NEEDED FOR LATIN AMER-
ICAN TRADE 81
Welding Ring, New York.
PART III— AMERICAN INDUSTRIAL SUPREMACY THROUGH
EFFICIENCY IN BUSINESS ORGANIZATION
A. Through Permanency in Employment and Skilled Employees
THE EFFECT OF IDLE PLANT ON COSTS AND PROFITS 86
H. L. Gantt, New York City.
THE EFFECT OF UNEMPLOYMENT ON THE WAGE SCALE 90
Mary Van Kleeck, The Committee on Women's Work of the Russell
Sage Foundation, New York City.
SCIENTIFIC MANAGEMENT APPLIED TO THE STEADYING OF
EMPLOYMENT, AND ITS EFFECT IN AN INDUSTRIAL
ESTABLISHMENT 103
Richard A. Feiss, General Manager, The Clothcraft Shops of The Joseph
& Feiss Company, Cleveland, Ohio.
AFUNCTIONALIZED EMPLOYMENT DEPARTMENT AS A FAC-
TOR IN INDUSTRIAL EFFICIENCY 112
Emest Martin Hopkins, Manager, Employment Department, The
Curtis Publishing Company, Philadelphia.
THE NEW PROFESSION OF HANDLING MEN 121
Meyer Bloomfield, Director, The Vocational Bureau, Boston, Massa-
chusetts.
THE LABOR TURN-OVER AND THE HUMANIZING OF IN-
DUSTRY 127
Joseph H. Willits, Instructor in Industry, Wharton School, Univer-
sity of Pennsylvania.
A NATIONAL SYSTEM OF LABOR EXCHANGES IN ITS RELA-
TION TO INDUSTRIAL EFFICIENCY 138
John B. Andrews, Secretary, American Association for Labor Legisla-
tion.
SCIENTIFIC MANAGEMENT AS A SOLUTION OF THE UNEM-
PLOYMENT PROBLEM 146
Morris Llewellyn Cooke, Director, Department of Public Works, Phil-
adelphia.
B. Through Efficiency in Industrial Organization
SIMPLIFIED COST ACCOUNTING FOR MANUFACTURERS 165
Walter B. Palmer, Special Agent, United States Bureau of Foreign and
Domestic Commerce.
Contents v
WORKING CONDITIONS NECESSARY FOR MAXIMUM OUT-
PUT 174
Norris A. Brisco, Author of Economics of Efficiency.
THE PRINCIPLES OF INDUSTRIAL EFFICIENCY APPLIED TO
THE FORM OF CORPORATE ORGANIZATION 183
Henry S. Dennison, Treasurer, Dennison Manufacturing Company.
GREATER AGRICULTURAL EFFICIENCY FOR THE BLACK BELT
OF ALABAMA 187
C. E. Allen, Austin College, Sherman, Texas.
DEVELOPMENT OF STANDARDS IN MUNICIPAL GOVERNMENT 199
Henry Bru^, Chamberlain, New York City.
WHAT SCIENTIFIC MANAGEMENT MEANS TO AMERICA'S
INDUSTRIAL POSITION 208
Frank B. Gilbreth and Lillian Moller Gilbreth, Ph.D., Providence,
R. L
PART IV— INDUSTRIAL CONSERVATION THROUGH WORLD
PEACE
THE BASIS OF CONSTRUCTIVE INTERNATIONALISM 217
W. G. S. Adams, All Souls CoUege, Oxford, England.
HOW AMERICA MAY CONTRIBUTE TO THE PERMANENT
PEACE OF THE WORLD 230
George W. Kirchwey, Ph.D., Professor of Law, Columbia University.
HOW CAN AMERICA BEST CONTRIBUTE TO THE MAINTE-
NANCE OF THE WORLD'S PEACE? 235
G. Lowes Dickinson, Fellow, Kings College, Cambridge, England.
AMERICA'S POSSIBLE CONTRIBUTION TO A CONSTRUCTIVE
PEACE 239
Morris Hillquit, New York.
HOW CAN AMERICA BEST CONTRIBUTE TOWARD CON-
STRUCTIVE AND DURABLE PEACE? 243
Charles W. Eliot, Cambridge, Massachusetts.
ACQUISITIVE STATESMANSHIP 246
W. Morgan Shuster, Washington, D. C.
WAR— OR SCIENTIFIC TAXATION 262
C. H. Ingersoll, New York Qty.
THE CONSTRUCTIVE WORK OF THE AMERICAN ARMY 267
Leonard Wood, Major-General, United States Army.
SOME PROBLEMS OF DEFENSE 263
Amos S. Hershey, Professor of Political Science and International Law,
Indiana University.
vi Contents
ECONOMIC PRESSURE AS A MEANS TOWARD CONSERVING
PEACE 270
Herbert S. Houston, Vice-President, Doubleday, Page & Company.
AN INTERNATIONAL COURT, AN INTERNATIONAL SHERIFF
AND WORLD PEACE 274
Talcott Williams, Director of the School of Journalism, Columbia
University.
WORLD COURT AND LEAGUE OF PEACE 276
Theodore Marburg, M.A., LL.D., Former Minister of the United States
to Belgium.
BOOK DEPARTMENT 284
INDEX 308
CUMULATIVE INDEX 321
BOOK DEPARTMENT
GENERAL WORKS IN ECONOMICS
Clark — The Cost of Living 285
Crowell — TriLsts and Competition 286
Ely — Property and Contract in their Relation to the Distrihviion of Wealth 284
Taussig — Principles of Economics 286
COMMERCE AND TRANSPORTATION
Hough — Ocean Traffic and Trade 288
Ripley — Railroads: Finance and Organization 286
LABOR PROBLEMS
Allison — The Public Schools and Women in Office Service 289
BoswoRTH — The Living Wage of Women Workers 289
Hedges — Wage Worth of School Training 289
Hewes — Industrial Home Work in Massachusetts 289
Kellor — Out of Work: a Study of Unemployment 289
Martin — Vocations for the Trained Woman 289
Persons — Labor Laws and their Enforcement, with special reference to Massa-
chusetts 289
Price — The Modern Factory 288
Suffern — Conciliation and Arbitration in the Coal Industry of America .... 290
money, banking and finance
Chen — The System of Taxation in China in the Tsing Dynasty, 1644-^911 . . 291
Lyon — Principles of Taxation 290
Secrist — An Economic Analysis of the Constitutional Restrictions upon
Public Indebtedness in the United States 291
Smith— The United States Federal Internal Tax History from 1861 to 1871 . . 292
Contents vii
SOCIOLOGY AND SOCIAL PROBLEMS
AfiTis—They Who Knock at Our Gales 295
Bernheimer and Cohen — Boys' Clubs 295
BowEN — Safeguards for City Youth at Work and at Play 292
BowLEY — The Measurement of Social Phenomena 295
Boyhood and Lawlessness; with The Neglected Girl 295
Briogs — History of Social Legislation in Iowa 296
Capen — Sociological Progress in Mission Lands 296
Cartwright and Anthony — The Middle West Side; with Mothers Who
Must Earn 295
Devisb— The Normal Life 297
Ellis — Negro Culture in West Africa 297
GiLLiN — History of Poor Relief Legislation in Iowa 296
Healy — The Individual Ddinquent 293
Kellogg — The Pittsburgh District — Civic Frontage 297
Kellogg — Wage-Earning Pittsburgh 297
Mayo — The Mental Capacity of the American Negro 297
Melvin — Socialism as the Sociological Ideal 294
MooREHEAD — The American Indian in the United States 298
Morgan — The Backward Child: a study of the Psychology and Treatment of
Backvxirdness 294
Redfield — Dynamic Evolution 298
Reeves — Care and Education of Crippled Children in the United States 298
Roman — The Industrial and Commercial Schools of the United States and
Germany 299
Sumner — The Challenge of Facts and Other Essays 299
POLITICAL AND GOVERNMENTAL PROBLEMS
DeWitt — Progressive Movement 299
Hunt — The Department of State of the United States : Its History and Function 303
McLaughlin and Hart — Cyclopedia of American Government 300
Moses — The Civil Service of Great Britain 301
T AFT— The Anti-Trust Act and the Supreme Court 301
Van HisE — Concentration and Control 302
international problems
Angell — Arms and Industry 305
Fullerton — Problems of Power 303
Hodges — The Doctrine of Intervention 304
Longford — The Evolution of New Japan 306
Masaoka — Japan to America 306
Russell — America to Japan 306
miscellaneous
Bolton — Athanase De MiHhres and the Louisiana-Texas Frontier, 1 768-t 780 307
FOREWORD
Deprived of our national markets (see page 1), our industries para-
lyzed, and with labor and capital both unemployed (page 4), we
Americans a few months ago began as never before to examine
our own industrial organization to ascertain whether our industries
could, through more efficient organization, be so stabilized as to
be at once more productive and less amenable to at least the chance
fluctuations in the industrial life of the nation or of the world.
The first symptom of our industrial distress was widespread
unemployment. Organized labor (page 6) set in motion their own
means for alleviating their situation. Leaders of thought ad-
dressed themselves seriously for the first time in America to the
unemployment problem. This analysis led to a study of the dif-
ferent classes of unemployed (page 11) with a constructive program
for each class (page 16) that would tend to stabilize opportunities
for gaining a livelihood. Scientific surveys of the extent and
nature of unemployment were undertaken (page 24) for the first time
in this country in order that facts might shape the policies that
might be adopted toward unemployment. The relation of our
immigration policies toward our national employment problem —
that is the problem of stabilizing American industries — naturally
attracted increasing attention, particularly as to the effect of the
war on immigration present and future (page 30) and the effect of
free immigration upon steadiness of employment (page 40) ; for our
welfare necessitates that our industries be upheld by the skilled and
perfected by the permanently employed. In addition to teaching us
the need for conserving and the ways to conserve our enormous labor
waste, the war has taught us the necessity for better management in
our industries (page 45). In fine, the war has given new meaning to
the old lesson that obligations to others must be shared by all alike,
not on the "enlightened selfishness" basis of the nineteenth century
but on the social inter-dependence basis of the twentieth.
Domestic stability and national growth are dependent upon a
stable increasing foreign trade. Our existing export trade has
been won essentially by the manufacturers of highly specialized
lines (page 51). Americans are beginning to do what the Germans
X Foreword
have long done — manufacture the amenities of civihzation, for
frontier regions are suppHed with essentials from the mother coun-
try. To international trade ''free seas" are imperative (page 60)
though whether through the submarine or new standards of inter-
nationalism remains to be seen. Prerequisite to foreign trade, par-
ticularly our trade with Latin America, are international and com-
mercial relations shot through with mutual confidence (page 66),
adequate facilities for credit exchanges (page 71), all assisted by
well adapted transportation facilities (page 81).
But the foreign and industrial policies of our government will
avail naught unless the selling and management policies of our in-
dustrial establishments be the equal or superior to those of com-
peting nations. The American tradition has been to protect our
''infant" industries with no query as to whether we might also be
protecting careless and inefficient management at the expense of
the consumer. Happily of late there has been an increasing and
wholesome inquiry as to just what the costs are and should be in
American industrial establishments and our business men — many
of them — have been keen to learn not only just what their unit
costs are but also how their selling, manufacturing and employing
policies can be improved. Industrial wholesomeness — the prerequi-
site to industrial supremacy — must wait upon industrial stability.
And industrial stability will wait first of all upon exact knowledge
as to the effect of idle plant on costs and profits (page 86). Scien-
tific inquiry as to the effect of unemployment on the wage scale
(page 90) and the results to the employer of steadying employ-
ment (page 103) are prerequisites to steady and maximum output and
to an industrial justice that is just. A functionahzed employment
bureau (page 112) is a means to extensive savings to the employer,
and to the employee it means higher skill and satisfaction through
an adequate dependable annual income. For it was in developing
the new profession of handling men (page 121) that employers
learned what a heavy financial burden their large labor turnover
has been to them as well as to their employees (page 127). Each
management having assumed responsibility for steading its own
employment, a national system of labor exchanges (page 138) will
help to conserve our vast human resources. Efficiency in industries
does not mean exploitation for there can be no efficiency where work-
ers are exploited. It augurs well for our industrial well-being to find
Foreword xi
the intellectual leader of the scientific management school placing
as great emphasis on democracy in industry as on efficiency and
economy (page 146).
Of equal importance to the management policies of our indus-
tries are their manufacturing and selling policies. The first step
toward sound manufacturing and selling policies is accurate knowl-
edge of unit costs through cost accounting (page 165) and knowledge
of the working conditions prerequisite to maximum output (page
174). Then must follow some plan that closely relates responsibility
to ability and reward to service (page 183), though no one plan will
attain these ends in all establishments. Indeed the principles of
management can be applied as well to agriculture (page 187) as to
manufacturing. And certain it is that in both public and private
work both mobility and maximum output wait upon standardiza-
tion (page 199). Scientific management — that is management
based on facts rather than on tradition and supposition — will make
the best in human happiness and comfort out of our titanic human
and natural resources (page 208).
But industrial development and civilization are bootless indeed
if they are to be ruthlessly destroyed by war. Hence the vital
concern to all of a more constructive basis for internationaHsm
(page 217) without necessarily neglecting defense problems (page 263)
or underestimating the effectiveness of economic pressure as a means
of conserving peace (page 270). Certainly prolific causes of inter-
national discontent have been land acquisition (page 245) and the
desire to extend free land (page 252). Nothing is now dearer to the
heart desires of American people than the contributions America can
make not only toward the settlement of the present war but toward
a permanent peace (pages 230, 235, 239, and 243). Our national
well-being, the conservation of our efforts, social, political and
industrial, hang in the balance. For the cable, the aeroplane, and
the submarine have made nations as dependent upon each other
under twentieth century conditions as are individuals. A *' social
point of view" must now be supplemented with the nationalism of
a world citizen.
Clyde Lyndon Kino.
AMERICA'S INDUSTRIES AS AFFECTED BY THE EURO-
PEAN WAR
By Alba B. Johnson,^
President, Baldwin Locomotive Works, Philadelphia.
The usefulness of the American Academy of Political and Social
Science consists not only in the discussions of important topics in
its annual meetings, but in the wide distribution of the opinions
expressed in the papers which are presented at these meetings.
In the nature of the case it is impossible for the great body of those
throughout America and other countries, interested in the subject
dealt with, to be present at these meetings. Nevertheless, the
opinions expressed by the learned thinkers, who are specialists in
their particular fields of activities, go forth to all interested in these
subjects, not only in Pennsylvania and the United States, but to
thinkers throughout the world.
During the twenty-five years of the existence of the American
Academy of Political and Social Science there has been issued a
series of timely publications, each expressing the latest thought
upon the particular subject dealt with. In these publications are
recorded the contributions of the American Academy of Political
and Social Science to the progress of the world's thought.
When the war broke out at the beginning of Isist August, the
first result was the sudden and complete paralysis of the financial
fabric of all the nations of the world. In this financial cataclysm
their only safety was found in the establishment of moratoria of
sufficient length to give time for consideration of the new conditions
and for study of the methods to be adopted for safeguarding the
interests of each. Not only in our own country, but everywhere,
the cessation of financial operations, including the closing of the
stock exchanges, occasioned a discontinuance of everything looking
to new business, deprived the industries of their markets and left
the manufacturers with nothing to do but to carry out so much of
'Remarks as presiding officer at the first session of the Nineteenth Annual
Meeting of the American Arademy, held in Philadelphia on April 30 and May
1, 1916.
1
2 The Annals of the American Academy
their existing contracts as were not affected by the outbreak of
war. Prior to the war a condition of business prostration had al-
ready existed. It does not seem necessary to go into the various
causes which created this depression, and if we were to undertake to
quote them, each would be regarded as debatable. Amongst them
may be counted the change of administration, the various measures
which were carried through as part of the program of the new
party in power, the fear of unwise legislation and the uncertainty
as to what the future policies of the government might be. All of
these had already exercised their influence in retarding the business
of the country. Then came the declaration of war, which put all
large business to an end. We discovered not only that financial
operations had stopped, but our merchants, manufacturers and
shippers found that, because of our dependence upon the vessels
of other nations, the means of continuing our foreign commerce
was withdrawn. With superabundant crops, it was impossible
for us to send them to market.
Little by little we have been emerging from that condition.
The necessities of the various countries of Europe have compelled
the resumption of shipments of our grains, cotton and other mate-
rials. The belligerents have placed with us contracts for vast
sums of war material. This has established an activity which in
certain lines of business is almost feverish, but it has not created
general prosperity. Many lines of business, not stimulated by
the war, have not yet been aroused from their lethargy. Particu-
larly is this true of the enormous industries dependent for their
prosperity upon that of the railroads. The railroads have
not yet begun to purchase. Next to agriculture they constitute
the largest single interest in the United States and their purchases
constitute the most potent factor in the creation of business pros-
perity. The growth of our exports, combined with the practical
cessation of imports, due both to the demoralized condition of our
own business and the cessation of manufacturing in Europe, has
created a balance of trade in our favor which is unprecedented in
the history of the country. According to the most conservative
estimate this will amount to at least one billion dollars a year, and
many place it as high as a billion and a half, which the world will
owe us for our shipments over and above the anaounts which we
liave purchased abroad,
America's Industries and the European War 3
The creation of the system of federal reserve banks has given
new confidence to business, which is an encouraging sign. It holds
out the hope that the severity of business depressions in the future
will be modified. It has released a large amount of capital hitherto
maintained in reserve and, therefore, in idleness. We are looking
forward to a repetition of the abundant crops of last year, and
furthermore we are growing accustomed to the fact that the great
war in Europe is proceeding and will proceed until a rational peace
is arrived at. We have, therefore, come to regard the belligerent
conditions in Europe as in a sense normal, and we are adjusting
ourselves to create the maximum prosperity consistent therewith.
We can now turn our attention to our problems as they will exist
after the European war, in the light of what that war has taught
us.
I
EUROPEAN WAR INFLUENCES UPON AMERICAN
INDUSTRY AND LABOR
By Samuel Gompers,
President, American Federation of Labor.
When men were thinking of international peace, secure in the
conviction that there could never be another great war, suddenly-
all of the countries of western Europe were plunged into the most
stupendous conflict the world has ever seen. The spirit of civiliza-
tion had been brooding over the things of the common life, breathing
into them an appreciation of the sacredness of human life. Civiliza-
tion had been laying wise and skillful hands upon the forces of
Nature to make them serve men to promote their well-being and
development.
Infinite patience, thought, skill, energy had been busy in the
task of finding some new thing to conserve and to glorify humanity.
There were minds rich in culture, characters of infinite courage, and
hearts tender with love of human beings that counted all gain that
brought opportunity into the lives of men — opportunity for physical,
mental and moral health and development.
In the midst of all this came the fearful war cry. We of Amer-
ica, far removed from the sound of drums and the march of mobiliza-
tion, looked at one another and murmured, ''It can't be true."
Grim realization came as we felt the shock of the revolutionary-
changes that paralyzed industry.
The stupendous conflict shook to its foundations the structure
of organized society. Industry and commerce are organized on a
world basis. Markets have international sources of supply and they
meet the demands of international buyers. The monetary medium
for international exchange is responsive to international influences.
The intricate structure of credit extends its gossamer threads about
all the markets and ports and bourses of the world. Supply and
demand are estimated from a world viewpoint. Communication was
organized to meet the needs of world commerce and industry.
When the disrupting forces of war hit the world structure of
civilization, then did we in the United States realize the war was a
4
American Industry and Labor 6
reality. Though far away from the bloodshed, from the horror of the
maimed and the dead and dying, yet something of the brutalizing
spirit of war extended even to our isolated continent.
Through no fault or act of theirs the working people of the
United States have been made to feel the consequences of a war
caused by the spirit of greed and aggrandizement on the part of
irresponsible governmental agents. Autocracy, secret diplomacy,
militarism, forced a war which brings grievous wrongs, losses and
misery upon the wage workers of Europe — aye, which robs them of
life itself — and which indirectly carries suffering and misery to the
wage-earners of all the world.
The European war ruthlessly reversed the purposes and ideals
of civilization. War is always revolutionary and destructive of life
and civilization. The outbreak of this war dislocated American
markets and trade.
The first stage following the cataclysmic struggle was one of
stagnation. Business men, government officials, scientists, commer-
cial and industrial associations considered carefully the conditions
confronting them and estimated their needs and resources. The
way problems have been solved and new opportunities utilized
proves that Americans have qualities of adaptability and resource-
fulness assuring continuous progress.
Necessity forces invention. American ingenuity and enter-
prise have not failed in this time of need. American industries find
they can supply many of their needs and have found uses for what
was formerly industrial waste. The war has opened up tremendous
economic opportunities — some temporary, others permanent. After
the first reaction came an industrial impetus. Business reached
after new opportunities. American financial genius protected our
interests and made this the world's money center.
What has been done to meet industrial and financial emergencies
and needs has been due chiefly to private initiative and private
enterprise. It is the American characteristic — ability to do things —
that has served us in this time of need. That American spirit of
self-reliance and initiative is the most precious possession of the
nation. It is the spirit that can dream and dare and achieve. It is
invincible.
Now turn to the human side of adjustment to war conditions.
Have the men and women employed in industry and commerce l)een
6 The Annals of the American Academy
as carefully and wisely provided for as material interests have
been?
The first shock of the war which brought stagnation to industry
resulted in the closing of shops, mills and docks, and meant unem-
ployment for wage-earners. All along the Atlantic coast industry
and commerce were dislocated; shipping was tied up; men found
that the war had taken away their work, their source of livelihood.
Their number was increased by the sailors from interned foreign
vessels. Factories dependent upon European trade or products
began to run part time and then stopped. During the period of read-
justment many workers were without the means of earning their
daily bread and they had but little laid aside. At the same time
they were threatened with the menace of war prices. Six cent
bread meant tragedy to east side New York and similar localities
where wage-earners live. The brutalizing spirit of war laid hands on
American industry — workers were deprived of employment and
were exploited by war prices which meant unwarrantable and ex-
clusive advantages to the profit mongers.
As the weeks went by the amount and extent of unemploy-
ment increased throughout the country. Unemployment means to
most of you here an industrial and social problem — to the wage-
earner it is a personal experience. It means hunger, misery and
despair. Bread lines have been very long during the past winter.
Women as well as men have been in these bread lines. A bread line
leaves an indelible scar on the hearts of those who have undergone
the humilation. It means that a human soul has been beaten in the
struggle for decent self-respect.
Constructive efforts to meet this human need came from the
workers. Wage-earners are so close to the raw stuff of the experiences
of the common struggle for a livelihood that they appreciate more
keenly the meaning of unemployment and they know that their
own well-being is very intimately involved. Unemployment in some
callings means increasing the supply of available workers for many
others. Organized workers are a power which can and does say to
heartless greed for profits — Stop your brutality. Those wage-earners
who were organized were able to take care of themselves and to main-
tain American standards of living. Again as in the last financial
crisis they raised the slogan, "No wage reductions," and warded off
the policy whose cumulative effect would have shaken the whole
American Industry and Labor 7
economic structure. A policy of wage reductions would have de-
stroyed confidence and hence would have undermined credit.
Through their economic organization organized workers had the
means by which they could make adjustments necessary to protect
human interests from impending perils. Those who are unable to
defend themselves are always made to bear the brunt of hardships.
Organization is the method by which the workers can protect them-
selves from being made the burden bearers in all calamities and can
secure an equitable participation in prosperity. In all cases it is
power for self-protection that is their safeguard. The constructive
efforts made to help the workers during this emergency were made
by the labor organizations. As I said before, they stood solidly for
maintenance of wages which meant maintenance of American stand-
ards of living and checking the diminution of purchasing power.
The constructive power that protects the workers in war time
is the same power that protects them in peace. The economic organ-
izations were the agencies that enabled them to cope with unem-
ployment and to relieve in some measure the distress caused by the
war. Through trade organizations the workers are cooperating with
responsible national, state and municipal authorities to meet emer-
gencies while at the same time safeguarding the workers from exploi-
tation which naturally results from the ruthless, brutal spirit which
war engenders.
The labor movement of the world is the one agency whose
members have been loyal to fatherlands in the time of peril and yet
have with insistent emphasis and appeal upheld the sacredness of
human life and opportunity and the brotherhood of man. While
bearing burdens of the war they are still maintaining standards that
dignify human life and are creating and directing influences that
will have an important part in establishing peace and the construc-
tive work which shall make for greater justice in international rela-
tions.
The United States as well as the whole world has suffered
through the disrupting influence of the war. In the United States
the organized labor movement has dealt constructively with the
needs and the emergencies created by the war.
Where production was decreased, wherever possible they pro-
vided that work should be equally shared, that those of their trade
should not be added to the number of the unemployed. Through
8 The Annals of the American Academy
their trade benefits they helped fellow workers who were out of
work, while the trade organization assisted them in finding em-
ployment. The trade union movement acted as a steadying force
to all industry by steadily and determinedly opposing irrational,
erratic changes.
Organized labor furthermore made demands upon munici-
palities and all government authorities that public construction
work should be continued where contracts had been let and that
beneficent new work should at once be undertaken wherever possible.
The organized workers were alert to opportunities, aware of
their own interests, able to protect themselves and those dependent
upon them. They manifest the American characteristics, resource-
fulness and adaptability that enabled us all to weather the difficulties
resulting from the war. We have fostered and developed the spirit
of self-reliance and initiative necessary to national life.
The workers upon whom war burdens have fallen most heavily
have been the unorganized. Their suffering has been inarticulate,
helpless misery. They were without the means of expressing their
misery or their needs. They have benefited indirectly from the
efforts of organized labor but that did not relieve them of the heavy
weight of the burdens of the industrial crisis.
The army of the unemployed has been made up largely from the
ranks of the unskilled workers. It is a well known policy of large
corporations employing unskilled workers to have available a
greater number of workers than they regularly employ. This con-
dition is a menace to steady employment. It is intended not only
to discourage efforts of workers to secure higher wages or better
conditions of work, but is also used as an instrument to enforce lower
standards. Where there are two or three waiting for a job it takes
more than human courage to make a stand for rights — the workers
have to think each day of daily bread for the next day. To stop
work means to go without food.
This condition is largely the result of superinduced immigra-
tion. Shipping companies and big employers of unskilled workers
have stood for a policy of unrestricted immigration. For many
years that policy did little harm, but now the frontier opportunity
has ceased to exist and the number and the character of the immi-
grants are such that they can no longer be assimilated by the Ameri-
can nation, Some restrictive policy must be adopted.
American Industry and Labor 9
In addition to a situation already grave, our nation must face
after-war consequences. There is no doubt but that the war will
be followed by a tide of emigration of unparalleled proportions.
The countries that are now engaged in the bloody struggle will seek
some way to escape caring for derelicts of war, the mental and
physical wrecks and those who have been ruined financially. The
incompetent and those who probably may become a burden upon
the community will be encouraged and perhaps assisted to emigrate.
You have only to turn to our southern border line for verifica-
tion of this assertion. Responsible authority informs me that
Mexican military authorities have been furnishing free transporta-
tion and otherwise encouraging the emigration of dependent women
and children, and the men who are unfit for service in the army or
unable to work.
What is taking place on the southern] border is a very insig-
nificant reminder of what will happen at the close of the European
war. Now is the time to make provisions against that impending
disaster.
The end of the war will bring to our country another economic
reaction. Those industries that have been stimulated because of a
demand created by the war will come upon a period of idleness. New
industries that have been developed to supply articles which Eiu-ope
furnished us before the war will have to meet competition. There
will follow in our country a period of readjustment. Again the bur-
dens of that transition will fall most heavily upon the workers, par-
ticularly the unorganized workers. Organized workers in the maiii
will be in a position to protect themselves through agreements with
employers. The unorganized will be without the means of meeting
the difficulties.
The power of the workers to protect themselves is of tremen-
dous importance to the nation — it means to protect the bone and
sinews of the nation; to conserve the men and women who do the
work necessary to the nation's life; to maintain unimpaired the
standards and ideals of American free men.
The lesson of the European war as it afifects the American
wage-earners demonstrates again the value of the labor movement
to a democratic people. It is the way by which the great masses of
the nation can think out their industrial problems and order their
own lives.
10 The Annals op the American Academy
The labor movement has also its social and political influence
that will aid in establishing justice at the end of the war. It will
be the greatest force opposing reaction that always results from the
brutalizing influences of war. It will be the most potent force to
compel relations that shall subordinate all else to human welfare.
When the wage-earners refuse to bear the consequences of deeds
and policies for which they are in no way responsible then will those
in authority consider more carefully, before they start into activity,
forces whose evil consequences will bring hardships and suffering.
The working people are more clearly conscious of the extent and the
nature of their power than ever before, hence they are in a position
to secure for themselves increasing recognition in determining the
affairs of industry and of international relations. The wage-
earners will, I am sure, make their power felt.
In addition to the industrial and commercial issues that the
war has raised, the working people of the world are concerned as to
what shall be determined with regard to the evil forces that are
largely responsible for the war — autocracy and militarism. Through
their organized economic power the wage-earners exert a tremendous
power in political affairs as well as in industrial and commercial,
and they propose to see to it, through their international economic
organizations, that democracy shall be assured control in interna-
tional affairs.
Democracy must be established and endowed with power and
authority. That can be done without militarism. Militarism must
fall through gradual disarmament.
Democracy will be maintained by able, free citizens alert to dis-
cern their own rights and to distinguish the right, able and willing
to maintain justice for all.
When democracy shall^have established justice in international
relations, then shall the wage-earners of every land have greater
opportunities to give their ideals reality in everyday life and dream
and plan greater things for all mankind. They will no longer be
unresisting pawns for war slaughter or the less spectacular slaughter
of industry and commerce. In every relation of life organized labor
will establish the principle of the sacredness of human life and will
not only oppose the brutalities and the waste of war, but also of
peace.
AMERICA'S UNEMPLOYMENT PROBLEM
By Henry BRufeRE,
Chamberlain, New York City.
It is fallacious, of course, to assume that unemployment con-
ditions in 1914-1915 were solely due to the European war. There
prevailed in cities of the United States in 1913-1914, prior to the
war, conditions of unemployment which were adjudged abnormal
by such comparative information as was available. In 1915,
conditions were aggravated due, in general, to the prolonged and in-
creased stoppage of industry partly occasioned by the war. But
it would prevent sincere thinking and vigorous constructive effort
in regard to the unemployment problem to start with the premise
that all unemployment is one of the consequences of war distur-
bance. The fact is that involuntary unemployment of large num-
bers of workers is a normal condition of our industrial life, varying,
of course, with fluctuations in general industrial conditions. The
further fact is that the chronic prevalence of involuntary unemploy-
ment has been one of increasing development for a period of years
until now it regularly manifests itself in acute form in industrial
centers during the winter months.
Dealing with the continuing problem of unemployment has,
up-to-date, been generally ineffective and local, and unproductive
of permanent results. This has been due to a variety of causes, the
principal among them being the assumption that hard times are the
sole occasion for unemployment and that temporary expedients,
therefore, were all that the situation demanded. The item of en-
couragement in recent experience is the widespread attention that
has been given to unemployment not as a problem of philanthropy,
charity, or relief, but as one of industrial disarrangement. This
attention has been given by committees of citizens appointed by
mayors or governors or by wholly unofficial bodies in practically
all of the industrial cities in the United States reaching from the
Pacific coast to New England. Apart from the provision of tem-
porary relief, the chief product of the efforts of these bodies has been,
up-to-date, a series of reports framing more or less tentative con-
11
12 The Annals of the American Academy
elusions upon generally inadequate data with regard to the scope,
character and treatment of unemployment. These reports are bene-
ficial and represent the thought on the matter which must inevitably
precede constructive measures.
The committees on unemployment have necessarily given
first thought to emergency relief of those who are distressed as a
result of continued unemployment. In seeking to formulate pre-
ventive measures they have suggested the following steps, which I
list in the order of the frequency of their occurrence in the recom-
mendations of the committees whose reports I have analyzed:
1. Organization of state and municipal employment bureaus on an efficient
2. Study of labor conditions and undertaking of municipal improvements
and other public works during periods of industrial depression, to act as an im-
petus to the labor market and an incentive to business conditions generally;
3. Employment of citizens and residents as against outsiders, particularly
on public contracts;
4. Adoption by employers generally of a policy of part time work in slack
periods as against horizontal cuts in working forces;
5. Establishment of vocational training and trade schools;
6. Adoption of ordinances regulating private employment agencies, in order
to eliminate the grave misrepresentation, extortion, and dishonest practices
frequently complained of and foimd to prevail;
7. Making the peddling business financially easier so that industrial workers
during times of unemployment in their regular activities would be enabled to
eamahving;
8. Provision of insurance against unemployment;
9. Appointment of emergency advisory conmaittees, consisting of repre-
sentatives of railway, manufacturing, mercantile, banking, contracting and
organized labor interests, to stimulate employment in private trade and industry;
10. Establishment of rural credits along the lines of European experience,
to make farming more attractive and profitable; and the creation of rural organi-
zation after the type of the German Landwirtshaf tsrat.
Partly as a by-product of the recent public discussion of unem-
ployment and partly in response to a more general recognition of
the inadequacy of private agencies, there has been in the past
several years a notable extension of public employment oflSces.
Within two years five states and two cities have established public
employment offices along approved lines, the most notable examples
being the city and state ofJ-New JYork. These agencies, together
with the federal plan of employment registration recently instituted
America's Unemployment Problem 13
by the department of labor through the post-office department,
are the only concrete evidences of government interest in unemploy-
ment to date.
The regrettable fact is that there has been a conspicuous lack
of attention to the fundamental questions involved in unemploy-
ment by either state or national governments. The Federal Com-
mission on Industrial Relations and minority members of Congress
have respectively proposed legislation for a federal system of em-
ployment bureaus, though the former failed to present its bill
this year. But both state and national governments have as yet
evidenced no adequate concern or made effective effort with respect
to this great question which cannot be dealt with by cities or pri-
vate organizations, but must be met by vigorous constructive ac-
tion either by the state governments or by the federal government
itself.
New York City's experience in the field of unemployment parallels
the general experience of other industrial communities. In 1914,
the city received an index of employment conditions through the
rapidly increasing number of applicants in the municipal lodging
house.
From attention to this condition there developed a community
concern for the homeless man. This led to the discussion of the
"jobless man" and this in turn gave rise to the consideration of
general unemployment conditions. Conferences of various kinds
were conducted in the city, but with the exception of voluminous
discussion nothing was achieved but the establishment of a Munici-
pal Employment Bureau by which the city itself, for the first time,
gave evidence of community responsibility for dealing affirmatively
with problems of unemployment. 1 need not go into the details of
the establishment of this bureau, for the lines followed were those
demonstrated as generally expedient and successful in other cities.
In 1914-1915, partly because of a considerable amount of agi-
tation by the so-called radical element of the city. New York was
generally prepared to give serious thought to unemployment.
The organized charitable agencies were the first to attempt to meet
the conditions resulting from unemployment. They were con-
fronted with a rapid increase in demands for relief made by persons
forced into destitution by prolonged unemployment. The city
government was concerned with the problem fjjom three angles:
14 The Annals of the American Academy
1. The care of the homeless man;
2. The increase in applications for admission to public institutions of the
dependent members of the community, — children and the aged and infirm;
3. The interest of the police in the prevention of disorderly assemblages and
a repetition of acts of violence perpetrated in 1914, occasioned by the prevalence
of large numbers of persons desperate or emotionally susceptible because of
inability to find work.
Back of all of these factors there existed in the minds of the
mayor and other officials of the city government a conviction that
no haphazard treatment of the problem would lead to any conse-
quential relief of distress or to the framing of any measurably effec-
tive plan either for the resumption of employment or the preven-
tion of future unnecessary unemployment.
It was immediately apparent that adjustment could not be
obtained by any of the parties chiefly concerned in the conditions
leading to unemployment acting independently: (1) by the unem-
ployed, because of their lack of organization, resources and means
of obtaining employment; (2) by the charitable organizations be-
cause of the inadequacy of funds available for charitable relief;
(3) by the city government because of the limitations of public
funds and the impossibihty of providing public employment for any
appreciable number of the unemployed; (4) by the employers be-
cause of the absence of a policy, provision or method among em-
ployers, as such, for dealing with the general reserve of employables
cast out of work by the stoppage of business or seasonal or other
fluctuations in employment demands. In short, there was appar-
ently a need for correlating by some means the resources and interest
of all the parties immediately affected by unemployment conditions.
To meet this situation it was determined to establish a clearing
house and a common instrument of cooperation through a committee
representing not only the generally good and interested citizenship,
but the different elements of the community who were affected by
or had direct contact with unemployment conditions. Primarily,
the large employers of labor and leaders in industry whose institu-
tional policies might be presumed to have some effect upon the
general business conditions were brought into the committee, under
the chairmanship of ex-Judge Elbert H. Gary of the United States
Steel Corporation. This committee was asked to deal with two
problems: (1) The immediate emergent problem of providing
relief or employment for those in distress; and (2) the formulation
America's Unemployment Problem 15
of some plan to deal successfully with the causes of unemployment
where they are remediable, with a view to subsequent diminution
or prevention of unemployment.
Information regarding the efforts made by this committee
during the past winter is available in the reports of the committee.
Relief provided consisted principally in publicly supporting the
efforts of private philanthropies to obtain funds, and in providing
emergency employment through temporary workshops organized
through volunteers in various parts of the city. These temporary
workshops employed daily a maximum of 5,000 people and were
maintained for three months from funds provided by private sub-
scription. To stimulate employment numerous expedients were
attempted. Employers were generally appealed to by circular,
public meeting and conferences, to make special effort to furnish
employment either by dividing work between a larger number of
employees on part time as against a horizontal reduction of the
working force, by manufacturing goods in anticipation of prospec-
tive demands, or by giving preference in employment to married
employees. These appeals bore some fruit, but running as they did
generally against the business interests or financial ability of the
employer, they did not materially affect employment conditions.
Similarly, the city, state and national governments were asked to
expedite work already planned. In the case of the city department
heads advanced contemplated work so that it might be performed
during the period of greatest stress.
The first task in dealing constructively with unemployment,
of course, is to obtain information of the number of unemployed.
This was done in New York through a statistical canvass of repre-
sentative industries, comparing employment conditions of 1913
with those of 1914, made by officers of the telephone company serving
on the mayor's committee, and by means of an inquiry made by one
of the large industrial insurance companies among their 800,000
New York City policyholders. The computations thus made based
upon the nearly two and one-half million industrial workers in the
city led to the conclusion that the unemployed totalled somewhere
between 350,000 and 400,000* or approximately 16 per cent of the
'A check censuB made under the direction of the United States Bureau of
Labor Statistics codperating with the Mayor's Unemployment Committee in
February, 1915, showed that this figure was approximately correct. The labor
bureau estimated 398,000 as the number of workers other than casual workers
unemployed.
16 The Annals of the American Academy
total workers. This estimate, however, gives us no indication of
the average number of the unemployed in so-called normal years,
nor what proportion of this total is seasonably unemployed or
intermittently unemployed. Nor. was this total divided between
male and female workers, or minors and adults. All such informa-
tion should regularly be obtained by federal agencies with non-
partisanship and zealous regard for accuracy.
For the purpose of this discussion the aggregate number of
unemployed is irrelevant except as it bears upon the adequacy of
relief measures adopted, and serves to stimulate community interest
not easily aroused with respect to small questions. There are those
who assume a fatalistic attitude towards this problem, and, reason-
ing from the general adventitious character of all classes of employ-
ment, conclude that unemployment can only be dealt with by the
operation of the little understood and complex processes of industry,
business and trade. These are, however, decidedly in the minority.
It is clear, I think, that the prevailing public opinion of America is
ready to support a constructive program for such alleviative, pro-
tective and preventive effort as may be instituted to minimize the
wide fluctuations in opportunities for gaining a livelihood which
occur in our industrial communities.
Obviously, clear thinking demands that we separate the problem
into its various elements. This the New York committee has done,
and is seeking to develop a program with respect to each one of these
elements, which are substantially as follows:
1. Juvenile employees, involving industrial and vocational training and voca-
tional guidance;
2. Seasonal occupation;
3. Itinerant workers, vagrants and the considerable group of casual workers
classed as hoboes and described as homeless men;
4. Unemployable defectives who are unable to sustain prolonged periods of
unemployment and who are unfitted for continuous productivity;
5. Immigrants whose energies and particular abilities the community at any
particular moment is unable to absorb.
6. Unskilled workers thrown out of employment by more vigorous and lower
paid immigrants;
7. Clerical and oflSce employees whose number is generally in excess of em-
ployment opportunities and who are indiscriminately developed by schools;
8. The general class of casual workers including dock laborers, railroad con-
struction employees and assistants in building operations, etc.;
9. The unemployed reserve of workers developed in the process of adjustment,
migration, coming to working age, etc.
America's Unemployment Problem 17
For each of these groups special methods of preventive or
alleviatory action must be devised. In practically every case the
relief will come only through constructive measures and persis-
tent education. In this work effective leadership must be supplied
either by the state or federal governments. Individual employers
and groups of employers may take steps to regularize industry
through the reduction of seasonal employment. Illustrations in this
field are furnished by several industries in which beginnings at least
have been made, such as the Dennison Manufacturing Company,
the Plimpton Press, and here and there an employer in the garment
trades. But regularization is still prospective rather than achieved.
New York and Boston have made beginnings in the systematic
consideration by employers of employment questions, by the organ-
ization of employment managers associations looking to the devel-
opment of a policy of employment, especially with reference to
minors. Involved in this policy is the cooperation of employers
with the public education authorities looking to cutting down on
one side the heedless manufacture of unemployables by the schools,
and on the other side to checking the ruthless discharge of employees
for varieties of preventable causes.
I have space and time only for the most casual reference to
other often discussed and needed measures for intelligent treatment
of unemployment. Very adequate programs have been prepared by
Dr. John B. Andrews, secretary of the American Association for
Labor Legislation, and by Miss Frances A. Kellor in her recent book
Out of Work. We are not so much in need of programs as we are of
authoritative leadership and resulting effective action.
There has been much discussion of the possibility of timing pub-
lic works so that they may fill the gaps of customary industrial
inactivity. This can be done if ever political bodies come, as they
should, to feel themselves a part of our general industrial system.
I am not hopeful of great benefit flowing from attempts to
divert large numbers of the industrial population to the land. Here
and there state departments of agriculture have made effective
beginnings in supplying workers from cities to farmers, but this will
not prove successful until attention is given to conditions of rural
employment and to farm life such as has been from time to time
suggested, but has not yet been achieved.
Of all the constructive plans yet suggested susceptible of im-
18 The Annals of the American Academy
mediate adoption the one that has met the most general approval
relates to the provision of a federal system of public employment
offices. It is proposed to coordinate this national plan with state
and local officers. This plan is looked on askance by certain groups
and leaders of organized labor on the very proper ground of its
possible perversion into an immigrant distribution agency. This
danger can, however, be avoided if proper supervision is exercised
over the administration of the agencies. Clearly they should not be
used to break down wage standards through the arbitrary importa-
tion of competitive workers. They must be utilized to supplement
a national policy for promoting the welfare of the American laborer
as expressed in the recent establishment of a separate department of
labor in the federal government. America is pretty generally con-
vinced at all events that the time has come to supplant organization
for confusion in the methods of bringing workers and work together.
This conviction has spread so far that it has been crystallized in a
phrase now commonplace, the linking of the ''jobless man with the
manless job." The next Congress will undoubtedly be called to
give very earnest attention to the passage of a bill putting into effect
plans for a national system of employment offices formulated by the
Industrial Relations Commission or some other branch of the govern-
ment.
Unquestionably we shall accept as the next step the results of
European experience and establish unemployment insurance as a
part of the general scheme of social insurance. We cannot assume
that any regularization in the periods of employment and in the
timing of public works will offset the forces which now operate to
produce unemployment at certain periods in the year. Unem-
ployment will continue in the building trades and other operations
which are affected by climatic conditions. Unemployment will
occur individually in every other line of occupation because of busi-
ness reverses, the operation of competition now placed on a pedestal
of beneficence, and other forces whose interplay make up the com-
plexity of our industrial life. Against these conditions there are
available only savings, charity, neighborly or family help, or in-
surance. My own conviction is that the principle of insurance will
be applied to this casual but reasonably to be expected element in
our national life as it has been to industrial injuries. There awaits
merely sufficient public discussion, agitation and leadership to put
America's Unemployment Problem 19
into effect in the American commonwealth a program similar to the
Liberal program of the British government.
The other measures to which I have briefly referred must con-
tinue to play their part in the general betterment of employment
conditions, but their Effect will be slowly realized and, though cumu-
lative, they cannot be counted on immediately to diminish employ-
ment disorganization.
America in common with every industrial nation must look
upon employment, namely the resumption of business activity, as
the chief means of preventing unemployment. The problem con-
fronting business and statesmanship is first, the maintenance of
industrial activity, second, the protection of workers against fluc-
tuations in employment and, finally, the better organization of the
available working forces. America must more consciously plan for
the welfare of its workers, for after all, prosperity and national expan-
sion are not genuine benefits unless they include a general better-
ment of employment conditions. The causes of industrial depression
are inevitably involved in political policies and must inevitably be
dealt with in political discussion, but underlying the general in-
fluence of governmental policies are these various factors of employ-
ment policies and conditions which must be dealt with primarily
by intelligent employers, organized employees and finally by inter-
ested communities through their schools and other public agencies.
It is time for us in America to recognize that we are substan-
tially an industrial nation, that prosperity is not perpetual, and,
under our present industrial system there is always, even in times
of prosperity, a considerable number of individuals who are cast
out of employment or who are unable for one reason or another to
find employment. For all workers, industrial education, vocational
guidance and just employment policies must be provided and devel-
oped; for workers seeking work when work is available, employ-
ment exchanges; for workers periodically out of work, unemploy-
ment insurance; for workers cast out of work due to exceptional
conditions in industry, a further remedy must be provided, namely,
some form of relief. The best form of relief is temporary employ-
ment. New York's experience in 1915 indicates the desirability of
providing emergency work of some productive character organized
cooperatively or on the basis of relief from which the unemployed
may derive means of support during prolonged periods of idleness.
20 The Annals of the American Academy
This work must be of such a character that it will not tend to depress
wages, demoralize the workers, or lead to any form of exploitation.
This temporary employment may properly be provided by state,
national and municipal governments and through private contribu-
tions. For certain classes of employees, those who represent the
stable working forces of the community, this relief employment
should be supported by employers of the community, collectively,
on the theory that it is to their interest to maintain an efficient
labor community, and that the tiding over of the unemployed dur-
ing periods of prolonged idleness is a proper charge on industry to
the extent that those unemployed are normally and regularly par-
ticipants in the established industrial activities of the community.
I reahze, however, that in all probability as a practical mat-
ter funds for this purpose must be provided either by governments
or by voluntary subscription of the charitable public.
Insurance against unemployment must be a matter of authori-
tative governmental arrangment. Details of its administration will
have to be carefully worked out to apply to American conditions.
It is of crucial importance that the nation should be prepared to
deal with unemployment along some substantial lines before the
next crisis appears. There is now wanting a common practice among
neighboring cities in regard to such problems as vagrancy and home-
less men. States and cities have no definite policy with regard to
timing public works to assist in periods of distress and there is no
systematic interchange of information between state departments
of agriculture respecting' farm work opportunities. An industrial
nation, we are dealing with this industrial problem within state
lines and hence are dealing with it ineffectively and without adequate
comprehension.
My suggestion is that the situation is one which would warrant
the President of the United States in calling together governors and
mayors of the principal industrial states and cities and discussing
with them a national program, first, of immediate, and second, of
far-reaching action. This can be done without creating uneasiness
in the minds of the business community regarding the business out-
look. Unless some authoritative consideration is given to this ques-
tion now, we shall pass through another period of floundering, vain
effort and wrangling discussion.
America's Unemployment Problem 21
To summarize, the principal points that I have attempted to
make in this discussion are:
1. Unemployment is now generally regarded by the press, by
economists, and by the leaders of public opinion who are conven-
iently classed as publicists, as an industrial and social problem and
not as a phase of the poverty or charity problem.
2. Unemployment, though exaggerated in times of industrial
depression, is known to be continuous with respect to large numbers
of workers and recurrent with respect to so-called seasonal occupa-
tions.
3. Temporary expedients and makeshift remedies have con-
clusively shown themselves to be inadequate.
4. Statesmanship has not yet included unemployment among
the objects of its concern, and state and national governments have
for the most part failed to consider or to equip themselves to con-
sider constructive measures in respect to preventing or remedjdng
unemployment.
5. Industry as such, and labor as such, are now beginning to
give thought to developing and putting into effect measures not
only to mitigate unemployment but measurably to prevent its
regular recurrence. But without aggressive leadership on the part
of government, effective measures are not likely to be adopted.
6. Enough is known regarding the causes and nature of un-
employment, and enough experience has been gained and experi-
ments tried to furnish the basis for courageous, positive effort on
the part of national and state governments.
7. Although effects of unemployment manifest themselves
chiefly in cities, cities as such are not equipped with resources,
influence, or contact to take leadership in the removal of causes and
the provision of remedies. But city governments here and there
are recognizing their relation to the industrial life of their com-
munities, and are endeavoring to provide means for promoting
industrial welfare, including the relief of unemployment and the
better organization of the labor market through the establishment
of employment bureaus. It is not to the credit of state and federal
governments that the cities have to date furnished leadership which
those better equipped and more authoritative governmental agen-
cies have failed to supply.
8. No single plan or suggestion will be adequate to cure unem-
22 The Annals of the American Academy
ployment. What can be done is to regularize work, to time public
works to fit into industrial gaps, to deal separately with the unem-
ployed and the unemployable, to formulate and put into effect a
policy with regard to employment, education, social insurance and
other measures that will put the nation on the offensive instead of
keeping it continuously on the defensive in regard to this most
dangerous of all its enemies, the worklessness of willing and able
workers.
9. Unemployment is inextricably involved in the general in-
dustrial conditions of the country which are affected by war, radical
changes in the economic policy of the country, disorganization of
industry and the inevitable conflicts resulting from the development
of an economic policy, just to workers as well as to employers and
acceptable to the general public. But there is only delusion in the
belief that all unemployment will disappear with the return of those
conditions which we habitually sum up in the word prosperity, for
these reasons:
a. In normal times the labor market is continuously being disorganized
through the lack of a national policy with regard to immigration;
6. The workers of America are kept in ignorance of work opportunities at
points distant from their places of abode due to the lack of an adequate system of
intelligence regarding employment opportunities throughout their immediate
localities and in more remote parts of the country;
c. The labor market is still regarded as an inexhaustible reservoir to be treated
much as we have traditionally treated other great national resources. Isolated
seasonal trades, lack of training in industrial and manual activities, lack of voca-
tional guidance, and incomplete provision of public employment bureaus, are some
of the continuing causes of unemployment which it is possible to remedy and which
prosperity waves do not obliterate.
New York City, the states of New York, Massachusetts and
Wisconsin, and here and there other states, have established a
modern system of employment bureaus. In New York some em-
ployers are turning their attention to the continuing problems of un-
employment with the cooperation of workers and social scientists.
In New York, through the Gary committee on unemployment
appointed by the mayor, facts are being obtained to furnish a basis
for intelligent thinking about a problem easily shrouded with false
impressions and vague generalizations.
What is now needed is the entrance into the field of a vigorous
America's Unemployment Problem 23
national agency to provide facts, suggestions and leadership, making
available to all America the experience of the world, or any com-
munity or industrial enterprise in America, in combating this most
iniquitous of all social evils, the economic ostracism we call unem-
ployment.
SOME RECENT SURVEYS OF UNEMPLOYMENT
By Royal Meeker,
United States Commissioner of Labor Statistics.
The fact is that in this country we have a very complete fund
of ignorance on the question of unemployment. We have no, or
practically no, authentic information as to what the normal amount
of unemployment is in this country, even at the best of times. We
know that it is immensely great, much greater than there is any
excuse for. In foreign countries, the need of accurate information
as to the quantity of unemployment is recognized; in this country
this is not the case.
A fairly accurate survey was made to determine the extent
of unemployment in New York during the winter of 1914-1915,
but we haven't anything in previous years to compare with the
figures obtained in that survey. We do not know what the unem-
ployment situation was one year ago; we do not know what it was
in 1908; we do not know what it was in 1900; we do not know what
it was in 1894; we do not know anything accurately about the
seasonal fluctuations in employment. We know that unemploy-
ment is great in this country, much greater than it should be.
Further than that, we cannot go.
I may say that when I took charge of the Bureau of Labor
Statistics, I very speedily discovered that so far as the Federal
Bureau was concerned, no information existed as to the amount of
unemployment or where unemployment existed. Now I conceive
that it is the first job of the Federal Commissioner of Labor Statistics
to know that very thing. I have been racking my brain trying to
devise ways and means by which I can get some line upon the
amount of unemployment from month to month in every important
city and locality in the United States. As yet I am still racking.
I was not able to give the authorities of New York City any informa-
tion as to the number of the unemployed or the industries that were
hardest hit by the depression of last winter, in the early days of the
winter when such information would have been most valuable.
The Mayor's committee on unemployment in New York made a
very accurate estimate of the amount of unemployment in 1914
24
The Extent of Unemployment 25
as compared with 1913, through the medium of sending out letters
of inquiry to employers in the city. I must say that the figures
obtained were staggering to me because they seemed to indicate
that about 200,000 fewer people were employed in 1914 than in
1913 in the industries in New York City. This is a perfectly stag-
gering amount of unemployment when we consider that 1913 was
an abnormal year. That was the year when for the first time un-
employment was invented in this country. Up to that time the
people of the United States did not recognize that any such thing
as imemployment existed. In 1913, for the first time, a meeting,
devoted to the subject of unemployment, was held under the aus-
pices of the American Association for Labor Legislation, the first
meeting of its kind ever held in this country — the first recognition,
even by scientific men, that unemployment does exist, at least at
times in this country, and for that reason I say that unemployment
was invented in 1913.
Now frankly I did not believe that 200,000 fewer people were
employed in New York City in the week ending December 13, 1914,
than for the corresponding week one year earlier. The Metropoli-
tan Life Insurance Company took hold of the matter. They con-
ducted an investigation, through their agents, of the holders of
industrial life insurance policies in New York City. Their figures
seemed, as they came in, to corroborate the figures obtained by the
Mayor's committee on unemployment. This seemed to be rather
convincing evidence, but it was not convincing enough. No one
knows whether the Metropolitan Life Insurance Company, through
their industrial policies, give a fair picture of the laboring population
of the city of New York; nobody knows whether by taking the
industrial policyholders of that city one would get a fair cross section
of the city. Only one method of ascertaining unemployment re-
mained untried, namely, the census method. It seemed advisable
to employ this means to check up the results ol)taincd by the
Mayor's committee and the Metropolitan Life Insurance Company.
A complete census of the city was practically impossible. The
police were thought of for a while as a medium of making such a
census of unemployment, but that scheme was speedily given up.
At first it seemed wholly impracticable for the Bureau of Labor
Statistics to make a census of the unemployed in the city of New
York, because of the large number of agents necessary to make a
canvass sufliciently extensive to represent at all adequately the
26 The Annals of the American Academy
working population of the city. A census of the unemployed by
the method of sampling was made possible by the courtesy and
cooperation of the Bureau of Immigration and the New York City
officials who generously loaned some of their employees to the Bu-
reau of Labor Statistics to make the study. I was thus enabled to
relieve some of the unemployment. The Immigration Bureau was
suffering from the effects of the European war. More than half of
the inspectors at Ellis Island were unemployed, and the other half
did not have enough to do. I gave them jobs taking the census
of the unemployed. The Bureau of Immigration kindly turned
over more than fifty of the employees stationed at Ellis Island to
me, and I used them in making a census of the city of New York.
We did not make a haphazard census; we used brains and the best
experience available in mapping out the census. We selected one
hundred and four representative city blocks; blocks representing,
first of all, the sections inhabited by laboring people. We selected
blocks with a view to representing fairly the different industrial
elements and the different population elements in the city. In
addition to the intensive study carried on by means of the employees
of the Immigration Bureau, I used more than one hundred city
employees of the tenement department, which the city of New York
was kind enough to turn over to me. I set these men at work
making a more extensive and intensive investigation. Two dwelling
houses — whether tenement houses or private houses, it mattered
not — were selected in each of more than 1,700 blocks throughout
the whole of Greater New York where laboring people live. In
that way we got returns from more than 3,700 houses. The returns
from the block census showed a higher percentage of unemployment
than was shown in the investigation of selected houses. When we
got out into the more suburban and rural districts of New York,
we found a smaller percentage of unemployment. We found in
some of the crowded downtown blocks of Manhattan Island an
appalling percentage of unemployment; in some blocks as high as
40 per cent of the wage-earners were totally unemployed. Farther
up the Island we found a smaller nercentage of unemployment. I
think you will agree with me that it was a perfectly fair census and
a perfectly representative cross section of the working classes of
New York City.
The investigation proved that about 16.2 per cent of the wage-
earning population was unemployed. Now nobody knows what
The Extent of Unemployment 27
percentage of the wage-earning population was unemployed in 1913,
in 1908, in 1903, in 1900, or in any other year that you may select.
We cannot find this out. No one knows how many people were
unemployed in 1908, but I suspect about as large a proportion of
the working population was idle in that year as during the winter
of 1914-15. We do not know — this is simply a supposition.
1^* With our well-nigh inexhaustible resources there should cer-
tainly be in this country a lower percentage of unemployment than
in any other country in the world. That this is not the case is
because we have allowed the industrial development of our country
to proceed in a haphazard, unintelligent manner. We have not
yet recognized the fact that unemployment exists as a regular con-
dition in carrying on many of our industries. It is absolutely in-
excusable that, in this country, with practically untouched resources,
where the population is relatively scant, we should have a larger
percentage of unemployment, in all probability, than exists in Great
Britain, Germany, or France, countries with a relatively redundant
population, whose resources are either exhausted or on the way to
exhaustion. In this country unemployment should be reduced to
the irreducible minimum.
The Bureau of Labor Statistics has published elaborate statis-
tics concerning rates of wages and hours of work, but it has published
almost nothing regarding the amount of unemployment in the coun-
try. Information as to rates of wages and hours of work is very
interesting and important, but the fact that bricklayers in New
York City are being paid from five dollars to six dollars a day does
not pay the grocery bills of those men who do not have employment
as bricklayers. The most useful information for the Bureau of
Labor Statistics to furnish is how many jobs there are in the United
States, or in any particular locality of the United States; how many
people there are available for these jobs. Information as to un-
employment is of first importance — the rate of wages, the hours and
conditions of employment are of next importance.
The Metropolitan Life Insurance Company found from the
census of its industrial policyholders that about 18 per cent of the
laboring population of New York City was out of work. The result
of the study I made showed that there was 1G.2 per cent unemployed,
not a great discrepancy. This slight difTcrcncc may be explained
in two ways. First, our study was made about one month after
the census of the Metropolitan Life Insurance Company. Things
28 The Annals of the American Academy
at that time were on the upward trend, so it was to be expected that
our study would show a smaller percentage of unemployment.
Second, the population included in the Metropolitan's survey was
a somewhat different population from that included in our census.
Most of the Metropolitan's policyholders are in the middle class of
the laboring population. The Company probably does not insure
as large a proportion of highly skilled workers who receive extra-
ordinarily high wages as of workers who receive moderate wages,
and it does not include at all those below a certain wage level, those
who have no surplus to invest even in industrial insurance. This
might account in part for the slight difference of 1.8 points in un-
employment. The figures corresponded so closely that I was willing
to ask the Metropolitan Life Insurance Company to make investiga-
tions in other places. It has undertaken a census of unemployment
in fifteen other cities of the country. If we can get reliable data
as to unemployment in several cities, we can make comparisons in
space, even if we cannot make comparisons in time. This should
give us valuable information as to the distribution of unemployment
by cities. The figures have been gathered and are being tabu-
lated, and as soon as ready will be given out.^ The complete figures
will probably not be published until after July 1, the beginning of
the next fiscal year, as no funds are available for printing more
bulletins.
This is merely the beginning of a work that has never been
undertaken before. The only way to handle it properly is for
factory owners to cooperate with state departments and commis-
sions of labor and municipal authorities in getting at the amount of
unemployment. The problem of unemployment has never been
seriously studied in this country. We must study it before we can
hope to solve it. We Americans are too prone to solve problems
before we really know what we are solving. We do not even have
the problem stated in terms of unknown quantities before we begin
working at the solution. We shall never come near to a solution of
unemployment by this procedure. We must know, with some de-
^ Since the above address was delivered the data below on unemployment in
fifteen cities of the United States have been given to the press by the U. S. Bureau
of Labor Statistics. A canvass was made during March and the first part of
April, 1915, which followed the same Unes as the Metropolitan's study of unem-
ployment in New York City and vicinity. The families holding industrial policies
in the Metropolitan Life Insurance Company were visited by agents of that Com-
pany, and the number of partly and wholly unemployed was ascertained. The
information thus collected is to appear shortly as a bulletin of the Bureau of
The Extent of Unemployment
29
gree of accuracy, how many people are unemployed in the United
States and at what occupations they are unemployed, so to say.
Otherwise, how are we to know what the demand is for, let us say,
carpenters, and the available supply of unemployed carpenters to
meet that demand? This kind of information is known to the labor
exchanges of Great Britain and Germany, and that is one reason
why, with all their handicaps, these countries have much less marked
ups and downs in employment than we do. They handle unem-
ployment with intelligence, while we still shut our eyes to facts and
go blithely forward to relieve unemployment in each recurring crisis
by handing out bread and soup, old clothes and free lodgings. The
people must be brought to realize that work is the only sure cure
for unemployment.
Labor Statistics. In the following table are given the leading facts thus far
tabulated :
Cities
Number of
families
canvassed
Number of
wage-
earners
in families
Unemployed
Number Per cent
Part-time
wage-earners
Number Per cent
Boston
Bridgeport. . . .
Chicago
Cleveland
Duluth
Kansas City . . .
Milwaukee . . . .
Minneapolis. . .
Philadelphia . . .
Pittsburgh
St. Louis
Springfield, Mo
St. Paul
Toledo
Wilke»-Barre..
Total
46.649
8,144
96,579
16,851
1,383
14,890
8,813
2,206
79,058
36,544
65,979
1,584
2,515
7,233
11,453
77.419
12,533
157,616
24,934
2,089
22,512
13,112
3,449
137,244
53,336
104,499
2,284
4,135
10,312
18.884
7.863
537
20,952
2,348
425
2,815
1.030
476
14,147
5,942
14,219
162
582
1,102
1.200
10.2
4.3
13.3
9.4
20.3
12.5
7.9
13.8
10.3
11.1
13.6
7.1
14.1
10.7
6.4
13,426
2,493
16,575
3,060
371
1.979
3,788
183
26,907
15,474
14,317
32
142
1,801
6,104
390.881
644.358
73,800
11.6
106.652
17.3
19.9
10.5
12.3
17.8
8.8
28.9
5.3
19.6
29.0
13.7
1.4
3.4
17.5
32.3
16.6
This table relates to part-time workers as well as to the wholly unemployed,
The survey covered 15 cities and included a census of 399,881 families in which
were found 644,358 wage-earners. Of this number, 73,800, or 11.5 per cent, of all
wage-earners in the families visited were wholly unemployed, and in addition
thereto 106,662, or 16.6 per cent, were reported as part-time workers. The
highest percentage of unemployment was found in Duluth, Minnesota, where
20.3 per cent of the wage-earners were out of work and 17.8 per cent were working
part-time only. The lowest percentage of unemployment was found in Bridge-
port, Connecticut, where only 4.3 per cent were unemployed, but 19.9 per cent of
all wage-workers were reported as working only part-time.
The cities showing the largest percentages of part-time worksra were: Wilkes-
Barre, 32.3 per cent; Pittsburgh, 29 per cent; Milwaukee, 28.9 per cent; Bridge-
port, 19.9 per cent; Philadelphia, 19.6 per cent; Duluth, 17.8 per cent; Toledo,
17.5 per cent; and Boston, 17.3 per cent. The percentage for all 15 cities com-
bined was 16.6 per cent.
THE WAR AND IMMIGRATION
By Frank Julian Warne, Ph.D.,
Washington, D. C.
Those innumerable streams of population which have been
flowing from the vast reservoirs of peoples in Europe and which
have been draining to the United States during the past decade
more than 1,000,000 immigrants annually, are today temporarily
shut off by the great European war. Of the sources of the largest
part of our recent immigration, all, including Italy, are now in-
volved in the war.
Immigration from Europe in 1914 slightly exceeded 1,058,000.
As much as four-fifths — more than 800,000 — came from the three
countries, Italy, Austria-Hungary and Russia. Naturally one con-
clusion is that comparatively little immigration now comes from
the United Kingdom, Germany, France, all of which are involved
in the war, and the Scandinavian countries. This corresponds
with the facts. Since 1880 there has taken place a most remarkable
transformation in the racial composition of our immigration stream
by which western European nationalities of Teutonic and Celtic
stock gave place to those from southeastern Europe of Slavonic,
Lettic, Italic, Finnic and Chaldean descent — from the peoples of
Germany, Ireland, England, Scotland, Wales, and the Scandinavian
countries to those from Russia, Austria-Hungary, and Italy.
Of the total arrivals from among those groups giving to us the
greater part of our immigration in 1914, Italians were the most
numerous. Their proportion was more than one-third, their num-
ber exceeded 296,000. Hebrews came next with a porportion of
16 per cent — 138,000. Polish immigrants were nearly fifteen out
of every one hundred — a total of nearly 123,000. Russians and
Magyars came to 5 per cent each — to about 45,000. These five
groups account for more than four-fifths of our last yearly immi-
gration from Europe. Croatians and Slovenians, Ruthenians,
Slovaks, Roumanians, Lithuanians, Finns, and Bohemians and
Moravians were numerically in the order given.
A characteristic feature of most of this immigration, and espe-
30
The War and Immigration 31
cially that from Austria-Hungary and Russia, is the fact that only
a very small proportion is of the race politically dominant in the
countries from which it comes. Virtually all our immigration from
Russia, for instance, — as much as ninety-seven out of every one
hundred — is non-Russian ; it is Jewish, Polish, Lithuanian, German,
Finnish and Lettish. The last census enumeration of our foreign
born from Russia shows that more than one-half — nearly fifty-two
out of every one hundred — have Yiddish and Hebrew for their
mother tongue. More than one-fourth speak Polish. Lithuanian
and German come next in order as the mother tongue of our foreign
born from Russia. Those speaking Russian amount to 3 per cent
only of all those here reporting Russia as their country of birth.
The correct interpretation of these facts flows naturally from
their mere presentation. Economic distress accompanies govern-
mental oppression, with its usual political, religious and social per-
secution based upon racial antipathies, especially where one race
becomes entrenched in power over subject races. This explains
and will continue as the explanation of much of our immigration.
Racial animosities expressed through governmental acts are often
cruel and insufferable and result in emigration wherever such escape
is possible. This rule by a dominant and different race nearly
always brings about harsh economic conditions to the subject races.
Somewhat the same situation as exists in Russia is found also
in Austria-Hungary. In Austria where the German and in Hun-
gary where the Magyar is politically dominant over the Slav and
other races, intolerable economic conditions are the lot of the sub-
ject races. The Pole is oppressed as much by the Austrian as by
the Russian and German; the Slovenian and Servian suffer also
from the Austrian; the Slovak from the Magyar; the Jew is per-
secuted by all. Among our foreign born from Austria, at the taking
of the last census, more than one-fourth reported Polish as their
mother tongue, while others spoke Bohemian, German, Yiddish,
and Slovenian. The Poles occupy a prominent place among those
contributing to our foreign born, the number here now exceeding
938,000. The largest number — nearly one-half of the total — came
from Russia, and the next largest from Austria.
In the states of the Balkan Peninsula and in both FAiropean
ind Asiatic Turkey somewhat similar conditions are responsible for
• migration. In the Balkan States we only recently witnessed th^
32 The Annals of the American Academy
population rebelling against Turkish misrule. The immigration
to the United States from Turkey in Europe includes principally
Greeks, Bulgarians, Servians, Montenegrins, Hebrews, Turks and
Armenians. The coming of the Armenians dates from the Kurdish
atrocities, which were marked by horrible butcheries and massacres.
Our immigration from Turkey in Asia is comprised most largely of
Greeks, with a sprinkling of Turks and Hebrews.
All this being true it is not difficult to answer the question as to
the effect of the present war upon future European immigration
to the United States. Changes in sovereignty and in geographical
boundaries will be followed by repressive and oppressive measures
designed among other things to wipe out national memories, racial
traditions, and even to prevent the use of mother tongues. Not
to expect these things would be to assume a sudden and remarkable
transformation in the fundamentals of race domination. Nor can
we expect a discontinuance of those racial factors which have given
us so much of our past immigration.
The effect then of the present war will be to continue immigra-
tion to our shores. I know there are those who believe that the
effect of the war will be to diminish the immigration flood. But
such an opinion is contrary to the facts of history, and when we
try to raise the curtain separating the present from the future
and to peer into that future, I submit that history is a much better
guide than personal opinion.
Every European war during the past one hundred years has been
followed by increased immigration to the United States. The
struggles of the Napoleonic period were the first of these, and fol-
lowing their termination there swept onto our shores the first large
volume of immigration. Next came the wars of the European
revolutionary period when the oppressed populations, freed by the
corporal-emperor from the age-long superstition of the divine
right of kings, attempted to throw off the yoke of monarchy. Being
mostly unsuccessful these also resulted in increased immigration to
the United States. Among these were the Polish revolution against
Russia, that of the Bohemians against Germany, the Hungarian
revolution, the Belgian insurrection, the wars of Italy, and the
revolutionary outbreaks in Germany. The great wars of Prussia
in the sixties and seventies against the Danes, then the Austrians,
and later the French, also increased our immigration.
The War and Immigration 33
When the present great war is at an end — when the popula-
tions of Europe are released from fighting and freed from the mana-
cles of militarism — when they are at liberty to take up again their
peaceful occupations — Europe will not be what it was before the
war began. Economic maladjustment will have set in, burden-
some taxes with which to meet the cost of the struggle will be levied
by all the governments; capital will have been destroyed, even
anticipated income will have been spent, and harsh economic condi-
tions will ensue among the people. Economic distress will be
inevitable. All this is no prophecy. It is merely the teaching of
past wars.
But it is not so much the situation in Europe following this
war as the conditions in the United States that must be regarded
as the determining factor in considering the probabilities as to future
immigration.
There are many disputed points about immigration but it can-
not be disputed that present-day immigration moves and is governed
by economic conditions in and the facilities for reaching the country
to which the alien migrates more than by adverse conditions in his
home country. Both the statistics of emigration of any particular
country and those of immigration and emigration of the United
States government prove this conclusively. Nearly every report
upon emigration from Europe made by United States consuls
substantiates this statement.
The extremely close relation which the development of ocean
transportation has brought about between European countries and
the United States has made the masses of Europe peculiarly sensi-
tive to the economic and especially the industrial conditions in this
country. It has in particular affected, and continues to affect even
more strikingly than formerly, the volume of our immigration. At
the present time immigration reflects, with the accuracy of a tide
gauge, the rise and fall in our industrial prosperity. If one knew
nothing at all about our panics and periods of business revival, he
would be able to tell the years of their occurrence and the length of
time their effects continued merely by studying closely the statistics
of immigration. This is much more true today than in years past.
It is to be expected that at the close of the war the great trans-
Atlantic steamships, which have become mere ferry boats plying
between the two sides of the Atlantic, in that the immigrant can
34 The Annals of the American Academy
now reach the United States within at most ten days or two weeks,
will resume their trade.
And when they do they will be confronted by one of the most
remarkable industrial revivals this country has ever experienced.
It would take too long and try your patience too much to attempt
to introduce here the evidence on this point. All we have to do,
however, to be convinced, is to remember that this is not the Mil-
lennium; that the United States has hardly begun the development
of its material resources; that these are in such abundance as to
give to us wealth beyond human comprehension; that there is a
Tomorrow when the enormous amount of capital now being de-
stroyed will be replaced; that this country even under the stress
of European war conditions is accumulating a surplus of capital
unprecedented in its history and that this capital, when released
from the fetters of fear, will start industry and business on an era
of development and expansion which will more than make up for
the present period of retardation.
When this time comes — and it is just around the corner —
accompanied by adverse economic conditions among the workers
in European countries, the possibilities and opportunities the United
States will have to offer to the unskilled worker will be much better
than those that are to prevail in any of the countries from which
we have been drawing the largest part of our immigration.
But, say some, you must take into consideration the fact that
the large number of soldiers being killed in the war will result in
decreasing the population there is to draw upon and this in itself
will result in a diminished immigration. Whether a fact is im-
portant depends upon the other fact by which you measure it.
When we are told that ten, fifteen, or twenty thousand men in the
very prime of life have been killed in a bloody battle we shudder
with horror and magnify the importance of the number. But con-
sidered only numerically all the thousands that have been and are
still to be destroyed by the war are insignificant when compared
with the fact that the great reservoirs of peoples from which we
have been drawing most of our immigrants — such countries as
Russia, Austria-Hungary, Italy, Greece, Roumania, Servia, Bul-
garia, and Turkey — that these reservoirs have a combined popula-
tion in excess of 291,000,000. This is about two and one-fourth
times the entire population of England, Ireland^ Scotland^ Wales^
The War and Immigration 35
Germany, Norway, Sweden, Denmark, Holland, Belgium, and
Switzerland — the western European sources of our earlier immigra-
tion. These vast reservoirs of peoples have so far barely been even
tapped by the large immigration streams that in recent years have
been flowing from some of them into the United States.
Russia, for instance, has an enormous annual increase in the
number of its inhabitants. It is true the government has erected
barriers against Slavic emigration. But the experience of that
country is very likely to repeat that of other European countries
which have attempted by governmental regulation to keep their
people at home when stronger economic forces are at work among
them drawing them to the United States. At present we receive
comparatively few Slavs from Russia. As to our total Russian
foreign born of 1,732,000 by far the greater part came during the
ten years of the last census period. In view of the possibility that
the sluices now retaining the vast multitude of Slavs within the
empire are to be raised, we must be prepared to meet the pouring
forth of a flood of emigrants the like of which the world has never
seen and which will make our recent large immigration appear insig-
nificant.
Again, Austria-Hungary has a population of about 47,000,000,
some 5,000,000 more than England, Ireland, Scotland and Wales.
Today it already holds third place among the countries of the world
contributing to our foreign born population. And immigration
from that country had only just begun before the war opened. Of
the total of more than 3,000,000 arrivals from Austria-Hungary
since 1860 more than 2,000,000 came during the ten years only
preceding 1910. All indications point to a continuance of this large
immigration from Austria-Hungary at the close of the war. Some-
what similar statements are true of Italian immigration to this
country.
Conjecturing in The American Commonwealth as to the future
of immigration Mr. James Bryce says:
It may, therefore, Ije expected that the natives of these parts of Europe,
such as Russia, Poland, and South Italy, where wages arc lowest and conditions
least promising, will continue their movement to the United States until there
is a nearer approach to an equilibrium Ijetween the general attractiveDess of life
for the poorer classes in the Old World and in the New.
36 The Annals of the American Academy
European and Asiatic Turkey have a population of 24,000,000,
Persia of nearly 8,000,000, Roumania of 6,000,000, Bulgaria of not
quite 4,000,000, and Servia of about 3,000,000. These countries
also show recent increases in their immigration to the United States.
The foreign born here from Roumania, for instance, increased more
than fourfold the last census period — from about 15,000 to nearly
66,000. Bulgaria, Servia, Montenegro, and Turkey not specified,
had a combined population in this country in 1910 in excess of
26,000, whereas ten years before it was not of sufficient importance
to be enumerated separately by the census. The immigration
from Bulgaria, Servia, and Montenegro in a single year rose to more
than 27,000. During the ten years preceding 1910 our foreign born
from Turkey in Europe increased from less than 10,000 to nearly
29,000. Turkey in Asia gave us a foreign born population in 1910
of almost 60,000, whereas ten years before there was none enumer-
ated by the census.
There is the possibiHty, yes, even the probability, that within the
coming years these races, now comparatively strangers among our
foreign born population, may become as numerous in the United
States as have those from Russia, Austria-Hungary and Italy in
the decade just closed.
Thus in southern and eastern Europe and western Asia great
reservoirs of races and peoples were recently beginning to be tapped
by the ocean steamship lines. No one can conceive for these racial
groups any possible betterment in their economic condition grow-
ing out of the present war. If anything it will be worse, not better,
and such as to increase their emigration.
In consequence immigration to the United States for the com-
ing years promises to be in even greater volume than that of the
past decade and more. The larger part of it — virtually all of it —
will come from countries where the standard of living of the masses
is very little if any above the mere cost of the coarsest subsistence.
Unrestricted, this immigration will continue indefinitely until more
of an equilibrium is established between the low economic rewards
of toilers in those countries and the higher compensation to the
workers in our own democratic society. This result can come about
only through a slow and gradual process of economic adjustment.
It will mean to our citizen-workers a low wage and a low standard
The War and Immigration 37
of living that are not in conformity with the proper development of
a democratic society and republican institutions.
It means even more. It means that at this critical period it
is imperative for us "as a people whose earlier hopes have been
shocked by the hard blows of experience," to pause and take invoice
"of the heterogeneous stocks of humanity that we have admitted
to the management of our great political enterprise." Not only to
pause and take invoice but also to examine carefully what it is that
this immigration is doing to our democratic institutions. Do not
the pitifully low wages paid in many of our industries and the
physically injurious low standard of living of the workers in many
of our industrial centers mean anything to you? Does not unem-
ployment, such as was so shockingly in evidence in all our large
cities the past winter, indicate to you that there is something wrong
somewhere? Do not child-labor, the industrial labor of women,
the congestion of population, long hours of work, the rising death-toll
from preventable accidents and occupational diseases, the start-
ling increase in poverty among our industrial classes, the discard-
ing by our industries of men in their forties for the labor of the much
younger immigrants — do not these raise up in your mind any rela-
tion to immigration? The fact is there is a relation, a very close
relation, between these social horrors and immigration.
There is one possible event that alone will stop this threaten-
ing inundation. This is restrictive legislation by the Congress
approved by the President of the United States. These represen-
tatives of the American people can control the effects of those
economic forces that otherwise are to give to us this increasing immi-
gration of the future. Is not the present a most opportune time
for such action? Should not we as a people stop at least a moment
in our mad rush after mere wealth and take the time and exercise
the forethought necessary to put our house in order so far as it is
being disordered by immigration?
With the tremendous interests at stake in the present great
European war, with the upheaval in the social and economic life of
the European populations, and with the interruption to ocean travel,
immigration is now at its lowest ebb tide. During the ten months
following the declaration of war — from July to May — 373,000 im-
migrant aliens arrived in this country. Of this total, those com-
ing in July and August alone, and who had started on their
38 The Annals of the American Academy
way before the war began, amounted to as much as 33 per cent.
These 373,000 immigrants comprise the smallest number arriving
in any like period of which we have a record. They are 818,000
fewer than for the same months of the preceding year and 691,000
fewer than in 1913. They are 107,000 fewer than one-half their
number would have been but for the war if measured by the aver-
age of the period for the past seven years. It is clear from these
statistics that the temporary effect of the war has been to diminish
the number of incoming aliens.
The war has also had an effect upon emigration, and this effect
has been to give us an increase in the number of aliens. It has
reduced the number of outgoing aliens to less than they would have
been under ordinary circumstances; that is, it has had the effect
of keeping in the United States many immigrants who otherwise
would have returned to Europe. Every one of the ten months
to May, with the single exception of August, shows less emigra-
tion than in the same months of the preceding year and, excepting
July and August, less than in 1913. Since July the number of de-
parting aliens has been about 345,000, which is 248,000 fewer than
during the same period in 1908 and less than that of the same months
in any of the last four years. It is about 152,000 less than the
average for the same ten months for the past seven years. This
explains in part the unusual seriousness of the unemployed problem
which was so acute in our large eastern cities the past winter, many
of the aliens who but for the war would have returned to their
European homes being compelled to remain here.
Immigration has steadily declined since the outbreak of the
war until in April it was not one-fourth what it was in April, 1914,
the decrease being from more than 142,000 to about 32,000 monthly
arrivals. Emigration also has decreased — from about 50,000 in
April, 1914, to about 18,000 in April, 1915. For the months of
August, November, December and January, emigration exceeded
immigration by more than 34,000 — that is, this many more de-
parted than arrived.
We should take advantage of today's temporary cessation in
immigration to erect proper means of defense against the probable
inundation of tomorrow. And as a part of these measures of de-
fense there should be created by federal legislation such govern-
mental machinery as will, in cooperation with state and private
The War and Immigration 39
employment bureaus, give us in the future a more or less accurate
measurement of the anticipated needs of American industries for
this rough, unskilled immigrant labor at the standard or American
rate of wages. The demand being thus ascertained the supply can
be regulated to this measurement by legislative enactment through
already existing administrative machinery. In this way the present
haphazard system, which now invariably operates to produce an
over-supply of this labor in all our industrial centers, can be coordi-
nated and made to work for our common good instead of to our
social injury. Already we have the nucleus around which this
machinery can be built. This is the Division of Information of the
Bureau of Immigration of the Department of Labor of the United
States government. In addition to its reorganization along the lines
indicated, it should be given supervision over all private employ-
ment agencies and so-called labor exchanges engaged in interstate
commerce.
In the face of the facts should we not subordinate sympathy
for the immigrant to that humanitarianism which holds that Amer-
ica's highest duty to mankind is to make the great experiment of
an educated democracy the most triumphant success that can pos-
sibly be attained? Shall we permit sympathy for the immigrant to
determine our decision as to the proper course 'we should take in
our policy towards future immigration? By all means this great
movement of peoples should be restricted by legislation within the
narrow channel of the legitimate demand of our industries for un-
skilled labor. It should not be permitted any longer to rush in
helter-skelter to flood our American industries with its cheap labor
and our industrial centers with its low standard of living.
UNEMPLOYMENT AND IMMIGRATION
By Frances A. Kellor,
Vice-Chairman, Committee for Immigrants in America, New York.
We knew in the winter of 1914 before the war that one out of
every eight wage-earners in some of our cities had become unem-
ployed; we know in 1915 that one out of every five wage-earners
can become unemployed when a great international crisis disturbs
our foreign markets. These are not paupers, vagrants and unem-
ployables. They are men and women willing and able to work,
idle through no fault of their own.
How much more do we need to know to do something more
fundamental than start bread lines, temporary work shops, or ask-
ing full time men to work half time or to receive less pay? How
much longer will we rely upon charitable societies and relief funds
collected by personal appeals, fetes, dinners, balls and other enter-
tainments to feed and clothe the unemployed? Is it not ironical
that we depend so largely upon entertainments to keep people from
freezing and starving to death? The proceeds of a circus are today
paying the wages of helpless women in New York City, and this is
typical of the country.
A national administration reluctant to face a situation which
may turn out to have political significance answers the appeals of
American citizens by throttling the bills providing relief, by order-
ing a census to interpret the suffering in terms of statistical tables,
and by indirectly establishing federal employment bureaus, after
the crisis was over.
The states have done little better. They, too, are in the grip
of a reaction which sees political danger in recognizing the evil, and
political success in doing nothing about it.
We should be chiefly concerned not with our meager accom-
plishments but with what we shall do next year. Even with a
sudden increase in prosperity, unemployment is a continuing prob-
lem, and I venture to make some suggestions that we can think
about putting into a real program of action before the relief demands
absorb our energies again.
40
Unemployment and Immigration 41
1. Separate politics and unemployment in action as well as
in theory. Deal with unemployment as an industrial problem
fearlessly, regardless of its effect upon political fortunes. Nation-
ally we did not do this in either 1913 or 1914.
2. Organize the labor market by establishing government bureaus
and regulating private agencies. This is only a small part of the
work. Employers will use them only when convinced of their eflS-
ciency and impartiality. Their cooperation is vital. How vital, the
Detroit Chamber of Commerce illustrated in its employment bureau
conducted this winter. In the one month for which the complete
record is available, it placed 17 per cent of its applicants when other
bureaus were averaging less than 5 per cent, and it showed that the
number retained in jobs on the strength of its appeal equalled the num-
ber of applicants for the month, over 15,000.
3. Apportion the field of effort — do not have the government
doing the work of philanthropy, or philanthropy running the busi-
ness of government, and do not have either of them take up the
load belonging to industry. The charities know their task and
have resources for dealing with the unemployable. Keep the worker
in the job line and out of the bread line as long as it can be done.
4. Get industry to consider unemployment as a risk of business
to be prevented or remedied at the earliest possible minute. Let
each business man ascertain for himself what is the actual cost of
changing employees, maintenance of reserve labor supply, constant
employment of green men, irregularity of output, etc. Do you
know what one investigator found who had enough curiosity to
inquire?
A typical number of industries studied^in 1912 showed 38,668
employees at the beginning and 46,796 at the end of the year, an
increase of 8,128 people, but during the year 44,365 people were
engaged indicating that 36,237 had dropped out of employment.
Allowing 21 per cent for death, illness, withdrawals and fluctua-
tions, or 13,022 and the 8,128 increase — the reserve supply num-
bered 22,225, or 59 per cent of the number employed at the beginning.
By interviewing a number of industrial managers the investigator
found that the cost of training a new employee averaged about $35,
involving an economic loss of $774,139 in these changes.
It is time business and the government got together. Why not
plan work together — business to lessen seasonal periods of employ-
I
42 Thb^ Annals of the American Academy
ment, irregularity of employment, reduction in annual changes of
men and in reserve supply; government to carry on its public works,
road building, reclamation work, rivers and harbors improvements
in dull seasons. Let the unemployed be heard — not in parades,
not in I. W. W. speeches, not in riots, not in bread lines, not in hear-
ings wherein the basis of selection of witnesses is unknown and
politics .play a part; but let them be heard in an honest, fearless
statement of conditions, neither better nor worse than they are, and
then let us courageously meet the conclusions with remedies.
Unemployment cannot be solved along one main line. There
are subsidiary lines which will require consideration. I have time
to consider but one of these — immigration.
Can we solve it by restricting immigration or do we need some-
thing less negative and more constructive? We know as yet prac-
tically nothing of the causes of unemployment in this country when
they are not created by war, or seasonal occupations, or casual
labor, which, great as they are, do not constitute the most serious
elements in the unemployment problem today.
We have the beginnings of a national domestic immigration
policy admirably begun by the Department of Labor at Washing-
ton. A series of federal employment exchanges has been estab-
lished, utilizing machinery which, however, may be needed at any
time for immigration, and Secretary Wilson has already announced
the necessity for the regulation of private employment agencies
that conduct an interstate business and has called a national con-
ference to consider unemployment. There is the Bureau of Natu-
ralization and the admirable work begun by Commissioner Claxton
for the education of the alien to meet these requirements, thereby
eliminating unemployment due to legal bars. There is the new
Ellis Island and the development of educational work and informa-
tion which Commissioner Howe has much at heart, which will better
distribute the alien.
But the causes of unemployment go far afield and are difficult to
eliminate. There remains to be done, the safeguarding of aliens*
savings through private banks and steamship ticket agencies, by
interstate regulations; of investment in land and in colonization
projects, by the registry of all such lands in the Department of
Agriculture and the investigation of colonization projects and a
survey of distribution methods and analysis of their failure. There
Unemployment and Immigration 43
remains the transference of labor discriminations from petty state
laws and obscure ordinances to the immigration law dealing with
admission and in accordance with our treaty obligations; there
remains the establishment of a minimum standard of living con-
ditions below which no employer should be willing to have his
employees live; there is the padrone to be abolished; there remain
to be established adequate educational facilities, and equality before
the law in such matters as interpreter service and benefits under
social insurance laws. These and many other aspects of the
alien's life in America have a vital relation to his unemployment.
When we shall have established such a policy it is contended
it will increase immigration. No man can produce the evidence
which will prove or disprove this contention. It lies in the realm
of opinion. Not so long ago the minimum wage was recommended
by no less an authority than Paul Kellogg as a means of restriction.
It is as reasonable to believe that the conservation of men will steady
the supply and lessen the necessity for reserve and decrease the
number of public charges as that it will displace American work-
men who can find no other foothold. Some employers have found
that the teaching of English lessens the percentage of accidents and
not only saves damages, but eliminates the cost of breaking in new
men. One reason our control of our immigration supply is so unin-
telligent is that we know so little of what goes on in our own country
with reference to it.
This war should carry one lesson home. There are in this
country thousands of immigrant colonies and communities where
little or no English is spoken, where American ideals of justice,
freedom of women, right of children to an education and a child-
hood, and democratic institutions are unknown. There are in this
country thousands of foreign born aliens and some citizens whose
first allegiance is not to America. There are other thousands of
foreign language newspapers (several hundred of which were swung
into public print the other day against exportation of ammunition)
about whose preaching and teaching America knows little. It may
be for or against America; we as a nation do not know — and the
lesson is this:
We do know that we should be one nation and one people, we
who dwell together in this land of peacejand prosperity, and there
is no greater concern of this country today than to develop a wise
44 The Annals of the American Academy
policy of Americanization which shall mean both unity and har-
mony. It is the policy of "let the immigrant alone'* which makes
him willing to listen to the I. W. W. and makes him a menace in
time of war and a blight in time of peace. It is both the privilege
and the opportunity of the American and his government with all
the odds now in his favor to realize the ideal of one nation and
one people, and when we do, we shall solve a little thing like unem-
ployment as easily as we have bridged distance by means of elec-
tricity and • mastered production by means of machinery. . The
chief reason we have the problem today is because men whose gift
it is to master space and nature's resources have not applied them-
selves to the task in the "do or die" spirit of American enterprise.
Where shall the responsibility for a program of scientific in-
quiry into the causes of unemployment and their remedy center?
Not in the government with a 1916 campaign imminent; not in
charitable organizations, which have work enough of their own to do
with unemployables; not in any legislative association, for it is a
mistake to approach this problem with the idea that it can be solved
by laws; not by any new organization, which it will cost money to
establish — may some wise Providence save us from another organ-
ization to deal with this subject.
Why not a special committee of the national Chamber of Com-
merce which commands funds and widespread organization with
some labor men and women serving on it, to whose report organized
business which holds the key to the situation will listen?
I have before me the record of how some hundreds of industries
prevented unemployment in 1914. All industrial America could
use this information to advantage and is eager for it. We shall
have no solution until business takes up the task, and it is worthy
of the best efforts of its leaders.
SOME INDUSTRIAL LESSONS OF THE EUROPEAN WAR
By John Price Jackson,
Commissioner of Labor and Industry, Harrisburg, Pa.
When the war broke out, this country felt keenly a resultant
increase of stagnation in industry. One of the most serious results
of this was the loss of employment by great nunbers of workers, and
the placing of enormous armies of others upon short hours. The
commonwealth of Pennsylvania, through the Department of Labor
and Industry, made a careful canvass, and found that during the fall
and winter the loss to individuals and the commonwealth as a unit,
through this lack of employment and short hours, was of such an
extent as to demand immediate attention and action on the part of
the state and city officials and employers.* It was found that the
governmental and industrial organization of the state was so con-
stituted that immediate measures of relief, which would be to any
great extent effective, were largely impossible. Individual manu-
facturers, in a very large measure, endeavored to relieve the sit-
uation by manufacturing materials for stock, to making repairs to their
plants, and distributing the available work to as large a number as
possible through the medium of reduced hours to each worker.
Persons in every walk of life, to some extent, assumed responsibility
for procuring work in homes or places of business for as many per-
sons as could be arranged for. A number of towns and cities took
up the project of municipal improvements, etc., with the same ob-
ject in view.
However, the effect of all these activities was not sufficient to
prevent serious suffering to the individual worker and enormous
loss to the people of the commonwealth. The people of the state,
however, were sufficiently impressed by the unusual conditions to
have their legislature pass laws at the present session giving the
Department of Labor and Industry authority to work out plans for
more effectively dealing with conditions of unemployment in the
future. These laws properly refer, not only to unemployment
^Report of Pennsylvania Commissioner of Labor and Industry^ Part /, /P/5-
1914'
46
46 The Annals of the American Academy
caused by unusual conditions of depression, but also to the very
serious losses occurring through seasonal industries and through
time lost by employees when changing positions. Even when times
are good in this country, the ratio between the days in which an
employee who wishes to work is actually employed to the total days
of the year — or, in other words, the man-year-power factor — is
rather surprisingly low. This represents, therefore, an enormous
loss of productiveness, which is as much a waste for present and
future generations as the waste of natural resources.
Apparently, there is an inflexibility in business and financial
organization in the country similar to that which thwarted the most
effective endeavors to improve the labor conditions and cause the
wheels of industry to turn. It must be admitted, of course, that the
unsatisfactory business and industrial conditions existing before the
war began were in some measure responsible for the exceptionally
difficult situation later. However, that in no way interferes with
the discussion of this problem, but rather makes it more distinctive.
The same tendency existed in Germany to an even larger ex-
tent, through the stagnation of industry and business and lack of
employment, by reason of the war. (The author was in that coun-
try during the early months of the conflict.) Under the military
power, however, and the autocratic form of government, Germany
handled these conditions as concrete problems, and adapted both
her governmental and business machinery to meet the conditions
in the most effective manner. In our own country these problems
were looked upon, to a very large extent, as being of an immaterial
character and impossible to touch. Germany's banks continued
to do business without cessation; I cashed travelers' checks payable
in London nearly every day during the six weeks I was in the country,
and observed no difficulty whatsoever in doing business. Imme-
diately upon the declaration of war, the government, in consul-
tation with the banks, took such steps as would relieve the situation.
Germany was equally effective on the project of employment and
industry. The industrial leaders were called together into con-
ferences to determine what action each one should continue
to (pursue, and what workmen he should employ; then with the
aid of similar conferences of bankers, the necessary funds were
arranged for to enable him to proceed. Of course, the government
was directly behind all of these movements, and did not hesitate
Industrial Lessons of the War 4?
to diverge as far as was necessary from ordinary governmental
activity to accomplish the desired purposes.
Not only did the German government call the manufacturers
and bankers together, but also the labor leaders, the merchants,
and all other classes who could join with it in effecting the most
efficient solution of the enormous problem facing the nation. Such
form of government is not conventional, but it has a flexibility nec-
essary to handle unusual conditions as they arise. It seems that
this illustration of what another government has been able to do
might well impress upon the American people the need of not per-
mitting the governmental joints to become ossified, but to endeavor
at all times to make both business and governmental conditions
so flexible that unforseen conditions can be dealt with to advantage.
The new banking system of the country seems to be a move in the
proper direction. It seems also possible to arrange municipal, state
and national appropriations for material projects and the organiza-
tions having to do with them in such a manner that public works can
be quickly started when business conditions of the country demand.
It seems possible to build up a tradition among our corporations
and people that it is not only a duty, but eventually profitable, to
make unusual efforts to keep their money working, their wheels
turning, and their people employed when hard times appear. In
general, the German illustration shows that we as a people should
be able to work out many lines of procedure, through the various
avenues at our disposal, for controlling unsatisfactory industrial and
business conditions, at least to a certain extent, which heretofore
have been left largely to take their own course, each individual, as
he saw fit, tying his money in the stocking, and in other ways doing
his little to promote his own and the general conditions of distress.
It is, of course, not intended by this statement to assume for a
moment that hard times will not come, or that we can have condi-
tions where we will have a hundred per cent year-man-power factor.
When a people is overly extravagant, or when it goes into reckless
speculation, or commits other follies, it must, of course, suffer the
consequences, as surely as does the man who overeats. But as the
good doctor may relieve the pain or even save the life of the latter,
so can we as a people, if we properly study our conditions, tend to
relieve much of the distress and loss which has been flowed to
appear unchecked in the past.
48 The Annals of the American Academy
One of the distinct lessons of the war to Americans is with
reference to our dependence upon other countries for many prepared
materials, which we might make for ourselves to as good, or even
better, advantage. One of the most striking and most advertised
of these was our lack of dye-stuffs. The handicap to American
industry through lack of many materials at this time was not due
to the fact that Americans are short in brains. It was rather a lack
of systematic study of American needs. Here again Germany offers
an excellent illustration of the proper way to proceed. She had
with great detail and care arranged so that scientists would not
only be developed in her fine technical schools and universities,
but that they would find it to their material advantage to investi-
gate the needs of German industry and work out, by scientific ex-
periment, processes necessary to their advancement. She had also
taught her youths, through the medium of practical part-time or
continuation schools, a quality of skill and intelligence of an excep-
tionally desirable character. In the United States much valuable
experimental work has been carried on, particularly by corporations,
for their private benefit, and by individuals. But the development
of scientists for the purpose of supplying the needs of our industries
has not been dealt with in a broad-minded, logical manner.
When the United States government created agricultural ex-
periment stations, one in each state, it took a step of much impor-
tance in improving the efficiency and prosperity of our people
through the great advance in agricultural knowledge. One great
mistake, however, was made. Had Congress, when estabhshing
these agricultural experiment stations, which have already done so
much to enrich our land, added to their duties that of carrying on
scientific, practical, and technical investigations for increasing the
prosperity of all industries, instead of only one, this country would
today stand in a far more desirable industrial position than is now
the case. The government should not delay in making such addi-
tions to the scope of these magnificent experimental centers. They
are at present, as a rule, well equipped, and manned by men who
have learned the art of scientific investigation, ajid have developed
organizations and methods of procedure suitable to the purposes
intended. It would be very easy to add the necessary functions
to these stations, or, if thought more desirable, to erect coordinate
divisions therewith. It is not meant, of course, that a locomotive-
Industrial Lessons of the War 49
builder, for instance,'^should 'find \out, for his own personal use,
through the medium of such stations, the best material to use in
a connecting-rod; but rather that the whole industry or country
should be given information whereby the products of manufacture
could be improved, and whereby economies could be obtained.
The government has given this kind of help, not only to agricult-
ure, but to mining, and though the latter work has been begun
within a comparatively [few years, material improvements have
been accomplished thereby. If in both agriculture and mining this
kind of systematic, nation-wide search for scientific knowledge has
been productive of such valuable results, can there be any doubt
of the advisability of its extension to the numerous other fields of
industry, which are just as necessary and important to our pros-
perity and welfare?
It is probable that in the near future the purchase of materials
by the countries at war may bring us a temporary prosperity. I say
temporary, because prosperity founded upon passing conditions
cannot be otherwise. Further, we cannot count upon continued pros-
perity through the opening up of vast new natural resources, for we
have already reached the point where it is necessary to make the most
careful calculations in our business and adopt methods of the utmost
economy. The old profligate waste occasioned by our early mu-
nificence of natural advantages has largely passed away. It is
necessary that both materials and labor be used more carefully in
order that waste be eliminated, and that by-products be utilized.
Particularly, however, we must cut out the greatest waste now exist-
ing in our industrial organization, namely, that of human labor.
This must be done by the development of machines and processes
which will produce economy in that field, and by handling labor in a
way which will not uselessly waste itself through lack of opportu-
nity for its application. Such a condition as this must not continue:
Here is a man who wants to work, can work, and should work. He
does not work today. Why? The manufacturer did not need the
man today, so he doesn't lose anything. Such a sentiment may be
satisfactory to the manufacturer in question; but nevertheless the
people of the United States have lost a one-day-man-power. This
man's day, when multiplied by a billion or so, represents a material
item of wealth. Not only can more flexible methods of government
and business tend to reduce this loss, but also a study of scientific and
50 The Annals of the American AcademV
m
natural problems as I have indicated. By the latter means not only can
methods be produced whereby the man will be employed more regu-
larly, but the loss of his labor will be required to obtain a given result.
The war has shown the weaknesses of the nation as a business
unit of the world to a marked degree. Our lack of ships to carry our
produce to other countries has been impressed upon all who take any
interest in public affairs. This lack is undoubtedly due to our ina-
bility or unwillingness as a government to deal with new problems
as they arise, irrespective of past practices and traditions. Here
again we have hurt ourselves through the same inflexibility of our
ways and practices as in the cases spoken of above. Our lack of
organization for doing business economically and suitably with
our neighbors is becoming equally apparent. Our consular and
similar service in the various countries of the world has not been
such as would be established by a successful business man who desir-
ed to obtain a maximum of profitable trade throughout the world.
As a matter of fact, our industrial interests have also not gone into
the project of tying up our business with that of other countries
with the same thoroughness and to the same extent as have many
of our individual manufacturers organized to deal with their clients
at home. Here again Germany has surpassed us and has taken hold
of the project of dealing with her neighbors as a good, practical,
systematic business man should do. As a result, we who have
neglected this field, and have depended upon the initiative of an
individual or corporation to build up his foreign connections alone,
have relatively suffered.
In fine, the war has taught us, among other lessons: (1) that the
nation should have a more systematic and effective means of devel-
oping scientific, technical knowledge for our industries; (2) a better
direction for the study and proper application of methods of pre-
venting our present enormous labor waste; (3) the necessity for de-
veloping new methods of increasing the efficiency and economy of
labor and materials; (4) the need for a more business-like national
organization for doing business with our neighbor nations; (5) the
necessity for creating transportation systems for carrying our own
wares; and (6) the need of avoiding governmental ruts and ossi-
fication, in order that we may maintain our governmental, business,
and industrial fabric sufficiently flexible to meet conditions effect-
ively as they arise.
AMERICAN EXPORT POLICIES
By Franklin Johnston,
Co-Publisher, American Exporter.
American success in exporting, too often depreciated and ig-
nored, has been won largely by manufacturers of highly specialized
lines — individual, distinctive merchandise, or machinery sold under
brands. I speak advisedly for daily I am in close touch with the
export work of over six hundred manufacturers of such lines doing a
substantial foreign business, many of whom have been doing so for
years.
A recent census of these manufacturers, for whom and with
whom we are working, showed that the average rating is $298,000,
as listed in one of the mercantile agency books. Of these 18 per cent
are rated up to and over $1,000,000 each; 50 per cent at less than
$100,000 and 20 per cent at less than $35,000. This is of interest as
showing that the small manufacturer of distinctive articles is under
no insurmountable difficulties in export trade.
In South America, the three chief export competitors meet on
more nearly equal terms than anywhere else in the world. There
has been a greatly exaggerated idea in this country of the extent
to which Germany dominated the markets of South America,
before the war. That she had a very large and important share of
that trade cannot be denied, but it was no larger than our own, and
not as large as Great Britain^s. The United States exports more
merchandise to Latin America than does any other nation. Here
in the briefest possible form is the record of Latin American trade
in 1913:
Export* to Latin America from the United States, $325,837,345.
Exports to Latin America from Great Britain and Ireland, $322,228,073.
Exports to Latin America from Germany, $217,967,202.
The margin over Great Britain is somewhat slight to be sure,
but over Germany, of whose export prowess we hear so much more
than of Great Britain's, it is in round figures $100,000,000. Our ex-
ports to the Argentine have grown from less than $10,000,000 in the
year 1902 to over $50,000,000 in 1913, while those to Brazil grew
51
52 The Annals of the American Academy
from $10,000,000 to $42,000,000, and those to Uruguay from
$1,500,000 to $7,500,000.
Instead of having a negligible share of the trade to those
countries as many would have us believe, we supply Argentina with
15 per cent of all she buys, while Great Britain furnishes her with
30 per cent, and Germany supplies 16 per cent. Of Great Britain's
exports to Argentina one-fifth is coal alone. In the case of Brazil
we sell her 15 per cent of her total imports as against 25 per cent
from England and 17 per cent from Germany, Germany's export
trade with Brazil being $4,000,000 larger than our own.
Our trade with these countries has grown hand in hand with
that of Germany and Great Britain. If a chart is drawn showing
the growth of the export trade of the three great rivals in either
Argentina or Brazil for the past ten or fifteen years the general
curve upward of the English lines will be paralleled, somewhat below
to be sure, by the American and German, and the German and
American lines will touch and even cross each other, at times, so
close has been the rivalry.
Under normal conditions we have, therefore, as large an export
trade with Argentina and Brazil as Germany, and that trade has
grown just as fast, indeed at times faster, than that of either Ger-
many or Great Britain. It must be said, however, that Germany's
trade is more diverse than either Great Britain's or our own.
What, then, is the reason for the persistent popular impression
that our trade with South America is negligible?
That impression is founded on the fallacy that American ships
and foreign branches of American banks are a necessary preliminary
to extending American trade. American manufacturers are under
no handicap as regards shipping and banking in developing their
trade with Latin America. When American manufacturers find
themselves unable to sell abroad the fault usually lies not with the
ships and banks but with the goods, the costs of production, or
ineflScient selling methods.
British export trade is won chiefly by quality; German, by
cheapness; American, by inventive and mechanical genius plus
large-scale production, which makes for moderate prices. Each of
the three competitors has strong points, and each has weak points.
British quality usually means high cost, and, when durability is
aimed at, often means a solidity that is carried to an absurd degree.
American Export Policies 53
The competing American article is lighter, more graceful and cheaper.
The competing German article is too often an imitation of the
British or American sold at a much cheaper price, and on terms
which an Argentine gentleman spoke of some time ago as "insane
credits/' Price is the poorest sales argument, and people have
almost forgotten that many German lines had far better claims to
distinction. German export success has been marvelous but it has
not been altogether a healthy growth. "Made in Germany" has
come to convey the sense of cheap, shoddy goods, and even of imi-
tations.
This has been recognized nowhere more than in Germany. In
1913, a "German Export Association of High Quality Manufac-
turers" was formed to combat the cheap price reputation of Ger-
many abroad and its ideal at home. Its president said :
The systems of the English, French, but principally of the American and
Swedish trade, have been based from the very start on the prestige and standing
of the manufacturer, who must always take the responsibility for quality and rea-
sonable prices of his products. Against the strong organizations of foreign
manufacturers, small industries prevail in Germany which do not strive so much
for quality &s for cheap prices German manufacturers apparently
know of only one argument, and that is low prices. But when prices decrease,
quality also becomes inferior.
Another serious fault in German export methods has been an
unwise over-extension of credits.
The "long" credits of South America have been greatly exag-
gerated in American discussions. So has the alleged refusal of
American manufacturers and merchants to extend credits. As
aptly phrased by the president of the United States Steel Corpora-
tion, Mr. James A. Farrell, who for many years was at the head of
that corporation's export subsidiary:
Wherever there is a substantial basis for credit, American manufacturers
will not be found lacking in devising means to grant reasonable and proper accom-
modations. It will be invariably found that where extended credits are given,
the seller charges an increased price, and the buyer does not benefit to the extent
to which prompt payment entitles him.
Not only does he pay an increased price, either visible or in-
visible (by decreased quality), but the whole structure of commerce
in any given market is shaken when credits are given unwisely, for
sooner or later such over-extension brings about a smash. This
occurred in South America, notably in Argentina and Brazil, and
54 The Annals of the American Academy
those countries which were just recovering from the effects of whole-
sale liquidation and bankruptcies, similar to some of our own finan-
cial depressions, when the war broke out. Commercial failures in the
Argentine in 1913 were twice as large as in 1912, three times as
large as 1911, four times as large as 1910. The opening months of
1914 showed a still greater commercial mortality, and the total
liabilities for the year were more than double those of 1913. This
financial disturbance came as a result of easy credits at a time when
land speculation had become almost a mania, the bubble being
pricked by a series of bad crops. American conservatism in granting
credits has beeti justified in part at least by such events, and German
eagerness to extend unwise credits has proved disastrous alike to
her and her debtors.
To a large extent, the financial crisis before the war and the
rapid changes brought about by the war have brought a new com-
mercial generation in the Argentine. Old houses have liquidated,
partners retired, old connections been severed, new ones formed,
new houses opened. This new generation cannot buy German goods,
nor even the allotted amount of British or French, and will necessarily
buy American goods. Germany's unwise credits have fallen like
a house of cards and in the reconstruction of the commercial struc-
ture she will have no part for some time to come. When Germany
again competes for South American business it will be on a far
healthier basis, with less talk of cheapness and more of quality, and
with far more conservatism in extending credits. Meanwhile the
virtues of slightly more expensive competing American goods will
be established. This change in Germany's export policy was in-
evitable sooner or later but it has been hastened by the war, and the
war has enormously intensified the lesson of over-extension.
Mention has been made of the application of the Sherman law to
export trade. As we know, combinations to control output and fix
prices in many staple lines sold on a close competitive margin of
price, and not capable of being exploited along the lines that highly
specialized lines are, are permitted and even encouraged in Europe.
Such lines as manufactures for further use in manufacturing, and
crude materials — steel, copper, wire nails, cement, cheap paper,
cordage, etc. — might be mentioned. It would seem as though our
manufacturers in such lines ought not to be forced to act under legal
American Export Policies 55
restrictions to which their foreign competitors are not liable, pro-
vided unfair practices were not employed.
The Clayton Act as originally drawn would have made illegal
nearly every customary method of developing export trade. These
methods are not peculiar to this country, but are world-wide. Their
morality is, it seems to me, not to be questioned. They comprise
ordinary agreements under which patented articles may be sold,
and both maker and dealer, or agent, protected. A vigorous nation-
wide protest from small manufacturers as well as large ones,
resulted in export trade being specifically exempted from the
provisions of the Clayton Act.
Recently the federal courts have found for the defendants in a
number of actions brought by the government under the Sherman
law. Among such decisions was that in the case of a number of
steamship lines operating to Brazil. Freight is a commodity, no
less than steel rails or copper. To allow steamship owners to com-
bine to fix freight rates on steel products, and to forbid steel products
manufacturers to combine to fix prices on their products is, on the
face of it, absurd and unjust. Its absurdity is hardly diminished by
the fact that most of the steamship lines are owned abroad, so that
American manufacturers, ''trusts" or "independents," are encour-
aged to practice cut-throat competition, while the steamship lines
maintain profitable freights, and share the benefits with foreign
buyers and foreign manufacturers who are allowed to take joint
action as they see fit.
Disappointment has been expressed because small manufac-
turers show such a lack of interest in the arguments urging the bene-
fits of combination for export trade. This may be attributed to the
fact that small manufacturers of highly specialized lines, of articles
sold under brands or trade marks, such as engines, machinery,
typewriters, shoes, sewing machines, haberdashery, automobiles,
bicycles and scores of other lines have never felt the need of such
combinations for themselves, although they may be in favor of them
in principle. In short, the small manufacturer may recognize the
force of the arguments, but the subject has an academic interest
chiefly. He has succeeded in export business by individual effort.
The difficulties of forming a cooperative export organization in
certain lines would be almost insurmountable, with no guarantee
that the results would be satisfactory. A poorly managed combina-
56 The Annals of the American Academy
tion would break down under its own weight, as many "trusts,"
department stores and chain-store organizations have, while their
more efficient, though smaller, rivals have prospered. Hence, it
may be doubted whether express governmental permission to com-
bine for export trade would meet with any immediately marked
response from small manufacturers of specialized lines. This is not
to deny that the instinct of avoiding ruinous competition is not
growing in strength.
Inadvertently, much of the discussion on this topic has given
an entirely eri'oneous impression as to the difficulties "small'*
manufacturers have to contend with in establishing an export
business. It will be found that ample facilities for export distribu-
tion are available for the manufacturer of specialized lines. For
such lines, large initial expense to develop foreign trade is rarely
necessary, or even advisable. Elaborate foreign selling organiza-
tions for the average manufacturer would not only be unnecessary,
generally speaking, but positively detrimental, because the impor-
tant distributing factors would be antagonized at the start, and
would be in a well intrenched position to retaliate.
In England, Germany and the United States there are numerous
facilities to help manufacturers in their export distribution, where
the manufacturers are not in a position to do — as, of course, they
very rarely are in a position to do — all the distributing. Large
importers act as local distributors. The average manufacturer
receives more or less of his export orders from the importers, not
direct but through the export commission houses, although he
works up the business direct by some form of solicitation.
Even when a manufacturer employs one or more foreign travelers
many of the orders are passed through the hands of the export com-
mission houses, and paid for by them, and in some cases manufac-
turers insist on all orders being so handled. Where export orders
are paid for by the export commission merchant, for the account
of foreign importers, it becomes as nearly cash business as the
American manufacturer can secure at home or abroad. Although
the tendency to do a direct business is constantly increasing — and in
some markets, such as certain European ones, is the rule rather than
the exception — very many importers, as well as manufacturers,
prefer this method of business and probably always will.
The proportion of export business passed through these houses
American Export Policies 57
as brokers, so to speak, depends on the character of goods, character
and location of market and various other circumstances. No set
rule can be made to apply. In London there are 1,596 export mer-
chants; in Hamburg, 1,189, while in New York there are 605 export
commission merchants, 180 buying offices for foreign merchants or
industrial concerns and 128 manufacturers' export agents or mana-
gers. Export agents perform many of the functions of the commis-
sion houses, but are paid by the pianufacturer instead of by the
foreign merchant. In recent years there has been a marked ten-
dency for the commission houses to take up special agencies. It will
be seen, therefore, that in all three countries the export merchant
is a distinct factor and that he is no less in evidence in England and
Germany than here. Yet the very existence of the export commis-
sion houses is all but ignored by the American government officials
in discussing foreign trade, and this has caused a good deal of mis-
understanding.
• The establishment of branch offices or warehouses abroad on the
part of manufacturers is the exception, not the rule, in export
trade. A theory that manufacturers must open branch houses in all
the world's markets, in order to do business, would lead even the
more than average sized manufacturer to bankruptcy. American
export trade in manufactured goods is shared by thousands of
manufacturers, big as well eis little, little as well as big, and of those
thousands it is doubtful whether more than twenty have their own
local branches, carrying stocks, in Buenos Aires, for instance. With
rare exceptions, the manufacturer, British, German and American,
whatever his size, finds it more economical and more profitable to
let others perform some of the functions necessary to get the goods
from factory to foreign consumer. No manufacturing corporation,
however large, has its own sales organization in all markets, although
two or three come very close to it, including one American oil com-
pany and one American sewing machine company.
In Buenos Aires, for instance, there are just forty-four American
business houses other than industrial plants. These forty-four
comprise'all the American dealers, the American importers and ex-
porters, as well as the local branch offices of American manufac-
turers. There are one hundred and sixty-three British^ business
houses in Buenos Aires and two hundred and ninety-nine^German,
and in view of the large number of merchant importers of those
58 The Annals of the American Academy
nationalities domiciled in Buenos Aires, it is evident that few
manufacturers of those countries can have branches in Buenos
Aires, or the total number of business houses credited to them
would be very much larger. This may be better appreciated when
it is realized that there are 29,690 business houses in Buenos Aires
exclusive of industrial or manufacturing plants, and of this number,
which included the retail establishments, 12,383 are Italian, 7,822
Spanish and 4,358 Argentine. These figures are from a recent in-
dustrial census taken of Buenos Aires, as reported in Commerce
Reports pubUshed by the Department of Commerce.
The number of American manufacturers having their own
salaried exclusive representatives permanently in Buenos Aires
carrying no stock, and selling to larger houses, wholesalers chiefly,
is only a trifle larger than those having their own branches. It is
impossible to fix the exact number, but a liberal estimate would be
seventy-five. The number of British or German exclusive repre-
sentatives may be estimated as proportionately the same. If
Argentina has so few branch establishments and exclusive repre-
sentatives, what must be the case in smaller markets such as Chile,
Peru, the Amazon district of Brazil, or even Rio de Janeiro? There
are not a dozen American, British or German manufacturers who
maintain their own branches with stocks in all Brazil, and less in
Chile or Peru. Moreover, while in certain trades one or two manu-
facturers have their own foreign branches, their competitors also do
a large export business. For instance, one American typewriter
company has its own retail branch in Buenos Aires. Other Ameri-
can typewriters are equally as well-known in the Argentine market,
although their distribution is done by local dealers. A famous
sewing machine company has its own retail branches not only in
Buenos Aires, but, seemingly, in every town of even slight importance
throughout Latin America. Yet, other American sewing machine
companies do a large business in the same markets.
Cooperative foreign selling agencies in non-competing lines
are by no means a new thing in export, although comparatively
rare. Five large hardware manufacturers in Philadelphia have such
an organization. Some twenty manufacturers of printers' supplies,
paper, etc., have one. That particular line is one which seemingly
offers an especially good field for such a plan. There can be, of
gourse, no legal objections to such export combinations as that.
American £]xport Policies 5d
Nor can there be any economic objection, for in theory such
organizations are sound. But in practice the difficulties of securing
the right personnel, overcoming the opposition of local importers,
and satisfying all the constituent manufacturers, some of whom are
bound to feel that their share of the sales is less than their share of
the expense, are so great as to make its general success not perhaps
impossible, but certainly difficult.
On the other hand, there are numerous business houses all
over the world which perform practically all the functions which
such an organization could, at a minimum of cost and risk to the
manufacturers. These houses are firmly established, and their
experience, personnel, capital and intimate knowledge of local con-
ditions, make them by far the best channel, in most cases, for local
distribution of merchandise. The Clayton Act, as has been pointed
out, exempts from its provisions, arrangements between manufac-
turers and agents or dealers as regards export trade, and that exemp-
tion was wisely made.
COMMERCIAL ISOLATION VERSUS
INTERNATIONAL TRADE
By Moritz J. Bonn,
Professor of Political Economy, University of Munich, Germany.
The future trade of the United States and of the world at large
will not depend so much on the changes between the different
nations brought about by the war, as upon the principle of trade
organization which will be adopted at its close.
For more than a century the world has discarded the principle
of self-sufficiency which was the trade ideal of days gone by and
moved deliberately to a state of international interdependency,
though the danger of war was never absent from the minds of
European nations. They and their foreign customers had become
dependent on each other not only for luxuries but for the necessities
of life. Germany, for example, is dependent on foreign supplies
for about 8 per cent of her grain foodstuffs; she is dependent for
the proper working of her estates on the yearly immigration of
foreign laborers; foreign countries are dependent on her for dye-
stuffs, sugar, and to a certain degree for credit. The degree and
the nature of international dependency vary in different countries.
It is probably the smallest in the United States and greatest in
England. It has been the basic principle of modern trade devel-
opment.
Will that principle be affected by the experience of the war?
I am not discussing the changes of a temporary nature brought
about by re-arrangements between the belligerents and the neutrals
and between the neutrals themselves. I am alluding to the per-
manent change in the principle of international trade. It seems to
me that such a change is unavoidable if certain conditions are
not fulfilled.
I. International trade evolved an international clearing house
of which London was the seat. Though England's share of the
world's trade is only about 18 per cent, she is by far the biggest
importer of bulky goods and the greatest carrier between nations.
A very great share of international obligations was cleared in Lon-
60
Commercial Isolation versus International Trade 61
don by means of drafts on London. There always was a demand
for those drafts, based on the firm belief that drafts on London, and
drafts on London alone, were as good as gold. That belief has been
shattered. London drafts were not as good as gold. In fact,
England opened the list of countries proclaiming a moratorium;
postponing of payment did not come to an end before the beginning
of December. This fact has not found due attention in the United
States, since at the date of the proclamation of the moratorium
they were heavily indebted to England. The rest of the world
has realized it well enough. As far as international payments
are concerned, English credit has broken down completely. It can-
not resume its former place, for the belief that England is safe from
war cannot any longer be maintained. It is doubtful whether any
other market can take England's place, which depended on neutral-
ity and security in European wars and on the absence of unwise
home legislation. If New York could take London's place, well
and good, if not, a permanent serious damage to the international
trade machinery will have been done.
The amount of capital invested by the leading countries in
foreign lands has been considerable. England's foreign invest-
ments were valued at about $14,000,000,000, France's investments
at $6,000,000,000, German investments at $5,000,000,000. The
indebtedness of the United States is calculated at $6,000,000,000.
It has always been assumed that those international credits formed
a great asset to the creditor nations in time of war, inasmuch as
sales would facilitate borrowing for war purposes. The closing of
the neutral stock exchanges has greatly hampered the disposal of
those securities. They could, of course, be loaned and thus yield
something, but they have not proved the mainstay of war finance
they were expected to be. The center for those international
securities was London. The probable decline in international
security dealing would affect London most severely, even if no other
forces were at work.
As London was the great center of international trade and inter-
national finance many securities were dealt in London exclusively.
Many of them belonged to foreign countries. Many foreigners,
among them many citizens of the belligerent countries, invested
money by means of the I/ondon stock exchange and deposited
the securities in London. Falling back on an old law, which
62 The Annals of the American Academy
forbids trading with the enemy, the British government took over all
property belonging to private citizens of belligerent countries.
Though it may be possible to pay an enemy for goods bought from
him, it is forbidden to let him have the dividends on his stocks, the
share of his business, the control of his securities. British statis-
tics show that property to the value of $425,000,000 is kept from
its rightful owners by the action of that government. German
patents in England were confiscated. In fact, all income rightfully
due to private citizens was withheld. Russia and France quickly
followed suit and after a few months' interval the German and
Austrian government had to retaliate. It is but right to assume that
those business men who have gone through the experience of seeing
their income withheld from them and who are deprived of the control
of their capital will avoid future investments of any sort in England
or France. It is very doubtful whether another credit market
having the same facilities, but giving them real security, can be
found. Capital will be far more nationalized than before. Inter-
national credit relations will have received a severe blow.
II. Up to now international theory assumed that private
property was practically free from seizure, provided it was not used
directly for the support of armies. It was assumed on all sides that
there might be some difficulty in getting raw materials and pro-
visions for the civil population in ships of the belligerents. But* it
was always maintained that neutrals would be free :
A. To send non-contraband goods to any of the belligerents without serious
molestation;
B. To trade with other neutrals even if there was some assumption of the
goods ultimately reaching the enemy.
This belief has been shattered. Early in the war many neutral
countries bordering on Germany were dependent on importation
from abroad for all sorts of supplies. They were not allowed to get
them without promising to lay an embargo on exports to Germany.
Thus the transit trade was interfered with. Later on the importa-
tion of food destined for the civil population of Germany was pro-
hibited, even if carried in neutral ships. This development showed
plainly enough that dependency on foreign supplies might endanger
a nation in time of war. Not only could the supply of armies be
prevented — everybody had always reckoned with that possibility
— but a policy of starvation might be directed against the civil
Commercial Isolation versus International Trade 63
population including women and children. Neutral states depend-
ing on importation themselves had no power of protesting as their
supply might be injured. The only country which, as the supplier
of all sorts of goods, foodstuffs as well as armaments, is indispen-
sable to the Allies whose fleet prevent trade, the United States,
has chosen to tolerate that practice, though it disapproves of its
principle.
This fact will dominate the future of international trade, for
the effective protest of neutral powers has always been considered
the one security in time of war on which trade could rely. That
security has failed.
It is not very likely that the policy of starvation tried against
Germany will succeed. It is sufficient that it has been tried. It
might succeed at other times and against other countries in other
circumstances. No nation has the right to run a risk twice, after
having escaped by the skin of its teeth, as it is not likely that wars
will never occur in the future.
Two policies and two possibilities only exist with regard to the
future of foreign trade:
1. The easiest way of preventing danger of starvation will be
a return to the policy of self-sufficiency. Such a policy is only
possible to big countries like Germany. Even she would have to
pay a big price for it. She might achieve it by confederation with
neighboring countries; for example a customs-union with Austria-
Hungary, and by relying more and more on international trade by
land via the Balkans and Asia Minor than by over-sea trade, sub-
ject to the control of foreign powers. It would not make her entirely
independent of foreign supplies, but by combining a policy of
self-sufficiency with one of government storehouses for cotton,
coffee, etc., she might be fairly secure. Her chemical industries
might discover new supplies; for example, at present the import of
nitrate from Chile is entirely supplanted by artificial nitrate made
in Germany. It would be a costly process to her, but it could
be achieved, though the trade interests of other countries, amongst
them the United States, would suffer greatly. There is no doubt
that countries like Chile or Argentine could not look to the American
market for the diminished exports in raw material. Their pur-
chasing power would suffer, and like most suffering countries they
would be obliged to take up a policy of seclusion and artificial indus-
64 The Annals of the American Academy
trialization. The smaller European countries could not follow
such a policy. They might be compelled by their economic inter-
ests to enter into commercial unions with bigger neighbors as they
scarcely could afford to stand alone.
2. A policy of self-sufficiency cannot be adopted by England.
Even if we include Ireland (and England's connection with Ireland
depends on the control of the sea) she could not hope to find food
and work for her people within her confines; she will have to rely
on over-sea supplies. She will have to take them more and more
from her possessions. She will have to change her system of free
trade, as her fiscal system will be unable to bear the strain of war
finance, and she will have to try to compensate her dependencies
for continued support. But her connection with the dominions
depends on the same control of the sea, as does the over-sea trade of
other nations.
Her policy has always been to insure her over-sea supply by
the overwhelming strength of her navy. Her navy has been the
means of cutting off the supplies of other nations and of guaran-
teeing her own supply. As long as she is able to maintain that
attitude, international trade cannot be free and nations depending
on international trade are depending on England. If England
ever went to war with Russia, a contingency by no means impossible,
she might stop non-contraband trade at San Francisco and Seattle.
She might try to stop Germany's supply of copper from the United
States, for fear of its transportation to Russia. And there is only
one remedy against that, it seems: the possession of a navy big
enough to protect one's trading rights, those of the neutrals as well
as those of belligerents. The big countries will have to face the
question of which will be the better policy for them: an expensive
navy and increasing international dependency; or a system of store-
houses, a smaller navy and self-sufficiency. If they choose the
latter, the small countries will be at England's mercy. If they
choose the first, the small countries may profit by the fleets of their
big neighbors. It seems to me that the future prospects of inter-
national trade are very dark, whatever be chosen, if the world goes
on tolerating the claims of a single state to regulate international
commerce according to her own insular wants. There can be no
free international trade without the free sea. And if there is no
such commerce, the permanent growth of the trade of the United
Commercial Isolation versus International Trade 65
States will be quite as unsafe as that of other countries. Protests,
experience has shown that plainly enough, are of no avail, even when
issued by a neutral who could easily retaliate. The future of
international trade mostly depends on the question of whether
there is a hope of inducing England to change her attitude. Such
a hope exists as soon as England will realize that she cannot main-
tain the supremacy of the sea, which alone safeguards her against
starvation at the present time. As long as that supremacy de-
pended on expensive battleships, her freedom from military burdens
gave her a great financial advantage. If it could be shown that
the submarine, which is comparatively cheap, can stop trade as
effectively as battleships, that advantage has gone. Moreover,
experience has shown that England's superiority at sea is much
smaller than was ever believed, even when she is allied to three
powerful nations. That alliance will not be permanent.
Lastly, England is bound morally as well as by her interests to
drive Germany from Belgium. It might be a cheap price for her to
accept the principle of the free sea in theory and practice, which
she alone of all nations objects to. It might be the only method
of getting her way.
The support of the neutrals, whose interests she has greatly
violated, might make such policy more acceptable to her. If the
principle of the free sea is acknowledged and safe-guarded with
efficient safe-guards, there will be a great and beneficient devel-
opment of international trade. If not, the world — and America
with the rest of the nations — will have to choose between commercial
isolation or interdependence defended by costly armaments.
THE RELATIONS OF CENTRAL AND SOUTH AMERICA
WITH THE UNITED STATES AS AFFECTED BY
THE EUROPEAN WAR
By Luis F. Corea,
Former Minister of Nicaragua to the United States.
The relations of Central and South America with the United
States may be reduced, for the purpose of our discussion, into:
political relations, commercial relations and intellectual relations.
Political Relations
The political relations of the United States with the countries
of Central and South America have undoubtedly been modified by
reason of the European war. This appears from the expression of
opinions formed by the people of Latin America, with relation to the
civilized countries of Europe, now at war, which only yesterday
were criticising the political turmoils of some of the countries of this
hemisphere and clamoring in the name of civilization and humanity
for the intervention of some of the stronger republics in the affairs of
their weaker sisters. It suffices to say that the spirit of solidarity
and good will among the Latin American nations is markedly
stronger and a growing intimacy between these countries and the
United States is now apparent.
Meanwhile, everything seems to tend to the formation of a
more complete union for the defense of the common interest of the
nations of this continent. We may say confidently that if tomorrow
the United States were to be involved in a foreign conflict, the
United States would not be alone for its Latin American sisters
would, in my opinion, demonstrate that the territory of this con-
tinent cannot be attacked with impunity, and would manifest in
no uncertain fashion their interpretation of the Monroe Doctrine,
— "America, the continent, for the Americans of the continent."
Nevertheless, it must ever be borne in mind that in order to foster
the growing confidence of the Latin American republics, it is neces-
sary that this great nation should take no backward step, but
66
The United States and Central and South America 67
should increasingly put in practice the theories and principles so
ably advocated by its leading statesmen.
Commercial Relations
The commercial relations between the United States and the
countries of Latin America have been affected both favorably and
unfavorably by the European war. The German trade, which was
one of the main sources of supply for Latin America and one of the
best markets for the products of those countries, has been prac-
tically paralyzed. The manufacturing and financial powers of
England and France have been considerably decreased. In view
of these circumstances, the opportunity has been presented to the
United States to supply to Central and South America, at least,
part of the products which these markets imported from Europe
before the war. The result will be that the Latin American con-
sumers will accustom themselves to the products of the United
States, and will finally adopt them for their needs in the future. So
also, the products of Latin America will be imported in greater
quantities than heretofore by the United States and reciprocal
trade relations established, that cannot help but result to mutual
advantage. To this extent, therefore, it may be said that the
commercial relations have been favorably affected. But they have
also been unfavorably influenced, — first, due to the fact that this
country does not possess a merchant marine, and, since the foreign
vessels which at present ply between this country and other parts
of the American continent are so scarce, the freight rates have
materially increased. Moreover, the American manufacturer,
accustomed to sell his goods on a cash basis, or at short terms, finds
it diflficult or impossible under the unfavorable conditions now
existing to grant the liberal terms of credit which the Latin American
merchants have formerly received from European countries. And
finally, the absence of adequate banking connections between the
United States and the Latin American republics has resulted in
difficulties which the recent efforts of an important United States
banking institution have thus far been able only slightly to amelio-
rate.
For the purpose of overcoming the unfavorable conditions
existing today, numerous remedies have been and are yet being
offered by authorities on the subject. Therefore, I shall only refer
68 The Annals of the American Academy
to a question which, although very important, I have not heard
discussed so far, and that is the influence exerted in the commercial
relations by the acts of the government in its intercourse with the
countries of Latin America.
In this regard it may be said that the commercial and manu-
facturing organizations of this country, which attend with such
scrupulous care to all things that might affect their interests, have
not endeavored to discover to what extent the policy of the govern-
ment of this nation with relation to the Latin American countries
influences the development of the commercial intercourse between
the United States and those countries. In fact, they have not
thought, apparently, that a lofty and far-seeing policy such as that
of Secretary Blaine, that a policy of cordiality and cooperation such
as that of Secretary Hay, and that a policy of mutual understanding
and political harmony such as that of Secretary Root, are the solid
foundations on which the commercial relations with those countries
must be based to be successful. Contrariwise, it would appear that
they have not considered that the policy of "Dollar Diplomacy '*
or an attitude so vague and shifting as not to be recognized, as a
policy of any kind, can only result in distrust and resentment among
the people of the southern countries, and create conditions which
can only be prejudicial to the formation and development of trade
relations.
Therefore, I venture to propose that the chambers of commerce
and the manufacturing associations, wishing to develop their trade
with the markets of Central and South America, appoint committees
composed of men well versed in the laws, and thoroughly familiar
with the customs, tastes, tendencies and ideals of those countries, so
that they may study the problems which frequently arise in con-
nection with the foreign policies of successive administrations in
this country and direct attention towards anything which might
in any way affect unfavorably the trade intercourse and develop-
ment between this nation and its sisters to the South. All the
endeavors of these committees will tend to aid the government, and
when their activities are published in due course, the people of
Latin America will realize that this nation, that the people of the
United States as a whole, and specifically the group of manufacturers
or merchants with whom they deal, are not responsible for any
reprehensible policy of a particular administration, but that the
The United States and Central and South America 69
responsibility lies with some unfaithful public servant incapable of
understanding his duties, or with a political group which misrepre-
sents the sentiments of the people of this great nation.
Intellectual Relations
In regard to the intellectual relations we may say that these
are seemingly the ones which have been affected the least. There
is noticeable, notwithstanding, a strong tendency toward the de-
velopment of such relations. The merchants and manufacturers of
this country are studying with genuine enthusiasm everything
concerning Central and South America, and, on the other hand, the
men of these countries are showing greater interest and a more
thorough appreciation of all things relating to the United States.
This condition of affairs will certainly result in a more rapid and
positive development of intellectual intercourse, which is an in-
dispensable factor if we would have more profitable and lasting
commercial and political relationship.
It has been thus understood by some learned Americans, real
leaders of thought, who have been laboring for many years with
tenacity, conveying to Latin America the manifestations of the
wonderful progress of this country in literature, art, etc., and bring-
ing in turn from there to be spread in due course in this land all
their observations concerning the intellectual and material advance-
ment of the Latin American republics and the richness of their
natural resources. Among the most distinguished leaders who have
undertaken this worthy task is our own Dr. Rowe, whose name we
are proud to mention as well as those of Professors Shepherd, Bing-
ham and Moses, who, like Dr. Rowe, have largely been instrumental
in the initiation of intellectual intercourse between this country and
the Latin American states. Results not less important have been
accomplished in this direction by the continuous efforts and the
propaganda carried on at all times by the most popular of the
directors of the Pan American Union, Mr. Barrett. All these
gentlemen may well feel satisfied with their labors which have been
suitably recognized by universities and governments in Latin
America. They may be truly called American citizens in the sense
of being citizens of the whole American continent.
Here I cannot refrain from calling attention to Harvard Uni-
versity for taking the first step in the right direction with a view to
70 The Annals of the American Academy
closer intellectual intercourse with Latin America, by inviting the
well known diplomat and writer, Senor Oliveira Lima, to give lec-
tures concerning the history and literature of those countries. Let
us hope that other universities here will follow the example set by
Harvard and that there may be other public spirited men willing
and able to continue the work so admirably commenced by Messrs.
Rowe, Shepherd, Bingham and Moses.
Summarizing them, we may say that up to the present moment,
the European war has resulted in a very considerable advantage
to the United States in its relations with Central and South America
and that undoubtedly such advantage will continue on an ever in-
creasing scale providing this country shall properly direct its ener-
gies:
1. In actually practicing the broad minded theories and noble principles
which have from time to time been expounded by the representatives of this
government in their discussion of Latin American affairs;
2. In the creation of a merchant marine;
3. In procuring an adequate increase of banking facilities and arranging for
more liberal credits in commercial transactions;
4. In sending competent representatives for the detailed study of the people
of those countries and their resources; and
5. In arranging, wherever it may be practical, for the interchange of pro-
fessors in the universities and the study of at least the Spanish language in these
universities and schools.
If the course indicated should be followed during the next ten
or fifteen years, in no part of the world will there be witnessed a
greater commercial development and a more intimate political, and
intellectual relationship than will exist between the United States
and the republics of Central and South America.
WHAT CAN THE UNITED STATES AND LATIN AMERICA
DO FOR EACH OTHER?
By Charles M. Muchnic,
Vice President, American Locomotive Sales Corporation.
Trade between two or more countries can be successfully es-
tablished and maintained only when such trade is based upon a more
or less equal exchange of their products. Political consideration or
sentiment alone never has and never will create to any appreciable
extent trade between foreign countries.
The people of the United States have always shown a great
deal of interest in the political development of the South and Cen-
tral American Republics. The pronouncement of the Monroe
Doctrine nearly a century ago is without doubt the most convincing
proof of the bond of political solidarity that has existed and still
exists between the republics in the North and South American
continents.
It is true that the ABC powers and some of their neighbors
have long since reached the stage of maturity when they can hold
their own against European aggression, and many South American
statesmen have resented in recent years any reference to the present
recognition of the Monroe Doctrine, demanding its official with-
drawal, and yet the events of the last year or two have demonstrated
its potentiality for the prevention of foreign aggression upon Latin
America with the same effectiveness that it has exercised from the
date of its declaration.
If we had displayed the same interest and helpfulness towards
the economic development of the countries south of us as in their
political independence, the subject under discussion today would
have been of a different character. Latin American trade has been
a very popular subject of late; much has been written about it and
it has been widely discussed, and I believe no other section of our
foreign trade arouses to any greater extent the imagination and
interest of our manufacturers and merchants than that with our
southern republics. Sporadic efforts, in times of extreme industrial
depression, such as we are enjoying at present, are made that usually
71
72 The Annals of the American Academy
meet with disappointment and when good times come along the
South American markets are forgotten. If we are to secure a
permanent foothold in South America we must first thoroughly
understand all the phases surrounding foreign and international
commerce and then organize all the component forces essential
for the successful inauguration and development of our trade with
the countries south of us. The manufacturer alone, without the
assistance of our bankers and investing institutions, cannot, in
spite of Herculean efforts, make much headway in Latin America.
It is generally assumed that the South American markets are
open markets. As a matter of fact they are not, and it is the first
disillusion with which the pioneer meets on his South Americap
trip. There are, to be sure, no tariffs discriminating against the
American manufacturer as compared with his European rival, but
he finds that the markets are entirely closed to him by arrangements
and orders issued from London, Berlin and Paris over which the
South American governments have no control. If the pioneer is a
merchant and not a manufacturer, he finds that the large wholesale
commission houses and distributors are in the hands of Europeans,
with their banks always ready to discount their bills and to offer
them every facility possible through the local branches of the home
banking institutions.
In the matter of exchange and shipping facilities our pioneer
finds that he is equally at a disadvantage as compared with the
European rivals on account of the more equitable interchange of
traffic of commodities, existing under normal conditions, between
South American countries and Europe. We must grasp and under-
stand the full significance of these facts if we are to occupy an equal
position with the European countries in our trade with South
America.
Credits and Investments
South American business has been built up and developed
on the basis of long credits. These are extended to purchasers by
local commission houses, usually of European origin, and for the
accommodation of which the South American purchasers pay 10
per cent, 20 per cent and, in many instances, a much greater in-
terest. The American manufacturer who would welcome an oppor-
tunity to do business direct with the South American purchaser can-
The United States and Latin America 73
not grant unlimited credits, both as to time and amount; nor does
he find it desirable, for obvious reasons, to deal through European
commission houses; and he can turn to no bank of his own country
that would be willing to discount his bills or advise him as to the
credit of the purchaser. This handicap will, however, be partially-
remedied when the branches of the National City Bank, recently
established in Rio and Buenos Aires, are fully organized and have
acquired a thorough knowledge of the local business conditions.
Some manufacturers, not a few, who have for years past extended
large credits on open account to South American purchasers, have
found it extremely vexatious and difficult to collect what was due
them.
Last September the secretary of state called together for an
informal conference South American diplomats for the discussion
of the very same subject we have today under consideration. In
his address he asked the diplomatic representatives from South
America to state freely what in their opinion could be done to
alleviate the commercial and financial disorganization between
this country and South America brought about by the European
war. Practically all of our South American friends who participated
in the discussion referred to the fact that the greatest drawback for
the extension of our trade with Latin America was, in their opinion,
the unwillingness on the part of American manufacturers to extend
credits customarily obtained from Europe and that we always in-
sisted upon cash payments against shipping documents in New
York or other ports of shipment. I was privileged to participate in
this discussion and took occasion to state to those present that large
credits have in recent years been granted by American manufac-
turers to South American purchasers but on account of the laxity
of the latter in meeting their obligations at maturity greater cau-
tion was now being exercised in granting such accommodation.
I desire to repeat what I said then, that the official representatives
of the South American republics in the United States could render
great assistance towards the future promotion of our trade with
their countries by impressing forcibly upon their own governments
and their peoples the desirability of meeting their debts on the dates
promised. I am not referring to delays in meeting obligations due
to the moratoria declared in many countries since the beginning of
the war. I am referring to cases of my own experience and those
74 The Annals of the American Academy
of my friends long before the war which were with individual
merchants as well as with government purchasers. If the South
American purchaser, whether government or private, would es-
tablish the reputation in the United States for promptly meeting his
obligations, reasonably long credits would be granted to him freely.
The railways, mines, municipal and public utilities in South
America are financed almost entirely by European capital and the
bankers in furnishing the funds have invariably stipulated as a
condition to the loans, and where it was not implicity stated it was
clearly understood, that the materials to be purchased by the pro-
ceeds of the loans as well as the nationality of the management,
engineers, etc., should come from or be of the country which fur-
nished the capital. As a result of this, fully 90 per cent of the
railways in the Argentine comprising some 20,000 miles of railways
are managed entirely by European engineers and all the railway
materials and general supplies are purchased from Great Britain,
Belgium, France and Germany, depending on the nationality of the
management, and in which American manufacturers are not allowed
to compete except in emergencies. In cases where the law stipulates
that materials are to be purchased in open competition the specifi-
cations are drawn up in such a way by the European consulting
engineers that American manufacturers are not in a position to
compete on an equal basis with their European rivals.
In the few instances of state ownership of railways or public
utilities which are not under the direct domination of European
financial or industrial groups, American manufacturers are permitted
to bid on apparently equal terms with European competitors but
the specifications and standards adopted are necessarily similar
to those adopted by the European engineers or similar private enter-
prises, thereby placing us in this instance also at a disadvantage with
our European rivals.
There is closer cooperation between European bankers and the
leading industries of Europe than there is in the United States
and on account of this financial influence and cooperation, South
American companies frequently pay more for materials purchased
in the country which furnishes the capital than could be obtained
in this country. We have no such cooperation in the United
States and of the very few American companies interested in South
American industrial development some have purchased materials
The United States and Latin America 75
in Europe if they could obtain however slight an advantage either
in price or terms of payment. For instance, an American copper
company operating in Chile last year placed in Germany a contract
for electrical equipment amounting to some $3,000,000 because the
German manufacturers underbid American manufacturers. You
cannot find a single example of a German operating company in
any foreign country or in a colony placing a contract in the United
States for materials irrespective of the fact whether the American
manufacturer bid lower than the German or not.
If we are to remedy this condition we must insist upon our
bankers taking a more active part in the development of South
American railways and similar enterprises and to have such rail-
ways operated by Americans who would be able to do for the
American manufacturer what the British and German railway
managers have done for British and German industry. The
embargo placed by Great Britain on its capital going into South
America will offer an opportunity to American bankers to supply
the necessary funds for the development of the rich territory south
of us. The opportunity is an excellent one and the question is, will
the American banker take full advantage of it?
Representation in South America
We must have better representation in South America than
we have had in the past. We cannot rely upon commission houses
whether of European or American origin to introduce effectively
our manufactured products in the countries south of us. Our
representatives must be specialists in their business, thoroughly
conversant with the product they have to offer and familiar with
the language and conditions of the country to which they are
accredited. They must be salaried and not commission men.
Such representation can only be developed at great cost and con-
siderable time. Very few manufacturers are large enough to be
capable of maintaining independently such representation and for
this reason the National Foreign Trade Council, at its meeting in
Washington last May, urged upon Congress to exempt combina-
tions of American manufacturers for foreign trade from the juris-
diction of the Sherman Law and passed the following resolution,
copies of which were sent to the President and Members of both
Houses of Congress:
76 The Annals of the American Academy
Cooperation for the Development of Foreign Trade
Whereas, Throughout the markets of the world combinations of our com-
petitors are encouraged by their governments; and
Whereas, In consequence, American exporters are confronted by combina-
tions of foreign rivals equipped to resist American competition and are often
obliged to sell to combinations of foreign buyers; and
Whereas, Our anti-trust laws, though powerless to forbid foreign combi-
nations against us, nevertheless, purport to regulate foreign commerce and ap-
parently forbid American exporters to cooperate in the development of our
foreign trade; now, therefore, be it
Resolved, by the National Foreign Trade Convention, a non-political, non-
partisan gathering, representing in the aggregate millions of Americans, both
employers and workmen, throughout the United States, whose welfare depends
upon the successful competition of American exporters abroad.
That we urge Congress to take such action as will facilitate the development
of American export trade by removing such disadvantages as may be now im-
posed by our anti-trust laws, to the end that American exporters, while selling
the products of American workmen and American enterprise abroad, and in com-
petition with other nations, in the markets of the world, may be free to utilize all
the advantages of cooperative action in coping with combinations of foreign
rivaJs, united to resist American competition, and combinations of foreign buyers
equipped to depress the prices of American goods.
Since the European war has begun, examples have come to my
personal attention of a ruthless competition between American
manufacturers for European war contracts that were far more crimi-
nal in their character and manifestly unfair both to the stockholders
of such companies and the laboring men engaged in the execution
of such contracts than the most iniquitous combination of Ameri-
can manufacturers for export trade that could possibly be devised.
The government has recently sent commercial attaches to
various parts of South America, who I am sure will be very helpful
in acquainting both the government and manufacturers with the
business conditions and needs of the countries south of us. But
manufacturers desiring to extend their export trade should not
count too much upon the government representatives blazing the
way for new channels of trade.
Shipping Facilities between North and South America
The after-dinner speakers and political spellbinders of all
parties have told us time and again that the non-existence of an
American merchant marine for foreign trade is due to the fact that
we have no subsidy for steamers engaged in foreign trade in one
The United States and Latin America 77
form or another. They fortify themselves with the argument that
just so much as our industries required protection for their develop-
ment so an American merchant marine can only be built up and de-
veloped through a heavy subsidy. Almost in the same breath they
tell us that up to the time of the Civil War 98 per cent of the entire
foreign commerce of the United States was carried to every part of
the world in American bottoms and in addition a great deal of the
commerce of European and South American nations. It is not,
therefore, a question of developing an infant industry through
protection because the American merchant marine during the first
half of the nineteenth century flourished, prospered and maintained
its preeminent position without governmental assistance. There
must, therefore, be other causes for the disappearance of the
American flag from the high seas. Let us examine some of these
causes.
It is my belief that the gradual replacement of American
ships engaged in foreign commerce by British ships since the Civil
War is due very largely to the introduction of the iron steamboat.
The manufacture of iron in those days reached a comparatively high
state of development in England while it was in its infancy in this
country. It was, therefore, possible for British steamship owners to
purchase ships in Great Britain made of iron of much larger capacity
than the wooden ships built in the United States and which could,
therefore, be operated much more economically and which grad-
ually replaced the old American wooden clipper.
If the various administrations since that time had looked at
the subject from a common sense business point of view they would
have permitted the free importation of iron ships into the United
States and to American registry irrespective as to where the steamer
was built. Had this been done we would today have had a much
larger American merchant marine engaged in foreign commerce.
Our navigation laws were devised, wisely or not, to suit our
coastwise and internal traffic and were applied with equal force to
the steamers engaged in foreign trade. The conditions imposed
upon the American ship-owner are much more exacting and costly
than those imposed on British or other European maritime countries.
Under these laws the cost of American ships under the American
flag engaged in foreign commerce, is variously estimated between
10 per cent and 50 per cent more than operating the same steamer
78 The Annals of the American Academy
in the same service under any other flag than our own, and has
resulted in driving the American flag from international trade
routes.
Allusion is frequently made to the fact that we do not have as
frequent sailings and as many steamship lines plying between the
United States and South America as compared with South American
and European countries, and we are told that this is due to the fact
that European companies and their governments control the steam-
ship lines and dictate to them as to the amount and character of
cargo to be taken to and from the United States and South America
and the routes to follow. I defy anyone to substantiate this argu-
ment by fact in normal times.
The reason why our sailings are not as frequent between the
ports of South and North America is because of a lack, up to recently,
of an equal interchange of cargo. No steamer can operate success-
fully between two given ports if the flow of traflftc is only one way.
The reason for the numerous routes and large number of steamers
plying between South American and European ports is the fact that
Europe takes the raw and semi-manufactured products of the South
American countries and ships in return the manufactured products.
There is in existence, therefore, an equitable interchange or balance
of traffic.
We have until recently been in competition with the Argentine
and Brazil in the exportation of the products of the soil and mines to
Europe and, therefore, when an American manufacturer had to
send his manufactured products to South America he had to pay
not only the freight from here to its destination but also the cost
of the return passage of the steamer practically in ballast. The
enactment of the recent tariff law will to a large extent help us when
normal conditions are again reinstated, in overcoming this serious
drawback and result in the reduction of freight rates to South
American countries. The removal of the duty on hides, wool,
lumber, iron, meat and grain, will stimulate in the course of time
their importation from South America into this country to such an
extent that the American manufacturer will experience no difficulty
in finding steamship accommodations at reasonable rates. There
will be tonnage waiting in the principal ports of the United States
to take his manufactured products to South America; it would be
much more desirable that this increased traffic which is bound to
l^E United States and Latin America 79
come be carried in ships flying the Stars and Stripes, but failing such,
the merchandise will be carried by steamers of foreign flags.
The Republican party has always (if I am not mistaken)
advocated a subsidy for an American merchant marine but never
succeeded in carrying out this preelection promise made by every
successive administration. The Democratic party has always
opposed a subsidy of whatever character and now out of a clear
sky it comes forth with a proposition of government ownership of
vessels which it admits would operate at a loss and which represents
a ship subsidy in its most offensive form.
I need not tell you after what I have just stated that I do not
believe in subsidies and certainly not in government owned steam-
ship lines. What I would like to see would be an administration
which would have the courage of its convictions, the daring and
audacity to emancipate American shippers from the antiquated
navigation laws which, more than any other factor, are responsible
for the reduction of the American merchant marine engaged in
foreign commerce to the present absurd proportion. The naviga-
tion laws, which have been in force for more than a century with
amendment upon amendment tacked on to them to a point where
they represent so intricate a document that it is impossible for the
average person to comprehend it, should be replaced by a new set
of navigation laws that would place the American ship-owner
engaged in foreign trade on an equal basis with that of his European
competitor. Our laws should permit bonafide purchases by Ameri-
can citizens or American controlled steamship companies of steam-
ers wherever built and admit them to American registry. Not
until such reforms have been enacted into law can a subsidy ^t
government ownership help develop an American merchant marine
so essential to the development of our commerce with South
America.
Our general commerce with South America at the present time
is languishing, not because of any lack of steamship facilities, but
because of the economic setback all South American countries have
received just prior to and since the beginning of the European
war. I believe our prospects for the increase of trade with the
countries south of us arc very bright. At the close of the war the
European countries will for some years to come be busily engaged
in the rehabilitation of their own industries and the repairing of the
80 The Annals of the American Academy
damage that has been done and unfortunately will still be done so
long as this conflict lasts. It will devolve, therefore, upon the
United States to supply the large demand for manufactured prod-
ucts which will come from all South American countries as soon
as their economic conditions have been reestablished to a normal
basis and their purchasing power has increased above what it is at
the present time. Our opportunity, therefore, is at hand for the
laying of firm foundations for the acquisition of a just share of the
trade that will be within our reach at an early date.
TRANSPORTATION FACILITIES NEEDED FOR LATIN
AMERICAN TRADE
By Welding Ring,
New York.
Our trade with South America has been carried largely by Eng-
land, Germany, France and Italy.' This trade has been controlled
so largely by the fact that Europe has done the financing, that it
has been extremely difficult to divert any large portion of it to this
country. Our merchants, accustomed to do business on a cash
basis, have not felt inclined to meet the financial facilities offered
particularly by England and Germany.
The war, however, must of necessity change these conditions
very materially, for the expenditures of capital in carrying it on will
involve large debts for all European countries and there will not be
the same overflow of capital to invest in foreign ventures and busi-
ness. They will have their own conditions to overcome after the
war ceases and it will, at least for a considerable period, require all
their resources to finance home enterprises.
When war was declared last August, statements were spread
broadcast that this was the ''golden opportunity" for the United
States to acquire the bulk of trade with our southern friends.
Coupled with this was the statement that all we were required to do
would be to have the goods to furnish at fairly reasonable prices,
and then give ample terms of credit, such as they had been accus-
tomed to when purchasing from Europe. The goods we have in
abundance, and of the best, and the facilities for shipping them; but
to extend large credit for long periods has not yet appealed to our
bankers and merchants. It will require a fairly long period of
education, before such methods of financing will be acceptable to
those doing business in this country with the southern people. It
is a vital question that will have to be determined very largely by
our bankers, who will decide whether they are inclined to supply
large capital for various industries, and also extend credits to n^er-
chants, farmers and dealers who, having always had financial facil-
81
S2 The Annals of the American Academy
ities from Europe, cannot change their methods hastily and provide
cash or short term credits.
Placing the matter of finance as the first fundamental necessary
for southern trade, we would follow it with this second fundamental :
our manufacturers and suppliers must furnish what is required and
has been used heretofore for any trade with those countries. This
condition, no doubt, the people of the United States are prepared to
meet.
The third fundamental naturally would be transportation,
which enters so largely into all foreign trade, and either assists or
retards its development. A wrong impression has been spread
throughout the United States, that we do not have sufficient com-
munication with all the various countries throughout South America
and Central America. To those in the shipping trade, it is hardly
necessary to state that since the war commenced there has scarcely
been a period when there was not ample tonnage loading for all the
requirements of shippers. A complaint recently was received from
Montevideo, that but few opportunities were offered for transport
of our merchandise to that city, and the state of Uruguay. This
complaint came from a reliable source, but on investigation care-
fully made it was learned that during the period complained of
sixteen steamers were dispatched for South American ports, of which
eight called at Montevideo. This would seem to be an ample ton-
nage to supply the regular requirements for that market. It was
also learned that quite a number of these steamers went out with
only part cargo even after unusual delays on the loading berth.
There were a number of causes contributing to this falling off in
shipments, the principal of which was the impossibility of securing
further money or credits from Europe, and consequently southern
merchants were unable to place their orders on such a basis with
manufacturers and commission merchants in the United States
that they would be willing to accept them. Other causes were a
severe drought in the Argentine, causing a large falling off in their
usual exports of grain and meat, and the very low prices ruling for
coffee and rubber in Brazil. It was a combination of circumstances,
probably never before felt and, it is to be hoped, never to be re-
peated. As a result, cessation of business to a very large degree
took place, and trade has not yet resumed its full normal volume.
To the west coast of South America, there has been a corres-
Transportaion Facilities 83
ponding excess of tonnage, and some of the steamers regularly in
the trade have had to be withdrawn and diverted to other business.
This is owing largely to the decrease in orders coming forward
for shipments from here, and the very greatly reduced volume of
nitrates, which constitute the largest portion of exports from the
west coast states.
In Central America, business has not been so seriously inter-
rupted, and there has been constant communication with the various
ports, and the usual volume of trade has remained almost normal.
It is pleasing to know that, during the past two months, there has
been a decided change for the better, very largely as a matter of
sentiment and opinion, but also in the actual volume of business,
so that orders and fairly large orders are coming forward with more
frequency. To keep up with this trade, the different lines operating
from the United States to southern ports are ready and willing to
supply all the tonnage required. So far they have kept loading
rather an excess beyond requirements. As to freight rates, while
these have been advanced somewhat, yet in view of the very general
advance throughout the world, there can be no cause for a fair com-
plaint against the lines operating to the South. Contracts have been
carried out with a good degree of regularity and, as a rule, lived up
to even at large cost to those engaged in the trade. The outlook at
present is encouraging, for a large increase in trade, particularly in
staples and also in miscellaneous articles heretofore furnished by
European countries and hereafter to be supplied by the United
States.
In connection with freighting matters, it is very greatly to be
regretted that while ample facilities are opening to shippers and on a
fairly reasonable basis, yet nearly all of the tonnage engaged in
this trade is under foreign flags, and the United States only carries
a small percentage of it. The old idea that ''Trade follows the
flag" is obsolete and does not cover modern conditions. It is the
goods and the price and the ability of the salesman that secure the
orders. It is, however, humiliating to think that the United States,
probably the most advanced country in the world in the manufac-
ture and value of its articles, must depend upon foreign tonnage
to carry its products throughout the world. When the change will
come is extremely difficult to predict, but it is certain that but
little progress will be made in building up a merchant marine under
84 The Annals of the American Academy
the "Stars and Stripes" until we get more intelligent and broader
legislation at Washington than has been served to us during recent
years. Very many plans have been suggested, numerous bills
have been introduced in Congress, and debates have been long and
arduous, but without an> , or at least very little, result and benefit.
The nearest approach to anything beneficial was the act passed
last August by Congress, which for a brief period permits the pur-
chase of foreign built vessels and their transfer to the United States
flag, and their operations also for a limited period, without many of
the existing drawbacks of our navigation laws. Under this act,
up to the present time, 137 steamers have been transferred from
foreign to the United States flag. Unfortunately, just as Congress
closed, it passed a bill generally known as the ''Seamen's Bill,''
which contained numerous conditions that add to the already too
heavily burdened American shipping. The effect of this bill was
almost immediately felt. Since it was passed only three steamers
have been purchased as against 134 steamers previously. It is
not necessary to enter upon the various clauses of this bill that make
it so unsatisfactory and burdensome to ship-owners, for they are
generally known, particularly to those in the shipping trade. It has
caused a hesitation, in fact almost a cessation of the desire to invest
capital in tonnage for the foreign trade. For if capital is to be sub-
jected to all the conditions of this bill, as well as to others of our
navigation laws, the handicap of very greatly increased expenses,
as compared with English and German shipping, will deter invest-
ments in American steamers. How this difficulty is to be overcome
is a problem very difficult to solve, but it is certain to be one that
must come to the front very largely in the immediate future.
If the building and owning of American steamships can be
placed on a basis at all comparable with that of England, which is
next highest in its cost of construction, then there can be no doubt
about ample capital being supplied by American investors, and we
shall again become a ship owning nation. The one great diflficulty
to overcome will be the question of labor, which enters so very
largely, first into the constructions of a steamer, and said to be fully
80 per cent of its cost, and then in the operation of a steamer in
competition with those of other nations. How this handicap of
higher cost in construction and operation is to be overcome, is what
will have to be determined by our business men and legislators.
Transportaion FACiLrriEs 85
In the development of a larger trade with South and Central
America, we cannot in the near future count upon American ton-
nage being of very great service as there will be so little of it. But
it is hoped that gradually the "Stars and Stripes'* will be seen in
all our southern ports, and that both freight and passenger steamers,
or a combination of both, will do a fair share of the transportation
that will be required in the future. The genius of the people of the
United States has never yet failed when the necessity or exigency
arises and there is every reason to believe that it will meet the
question of buying or building steamers and operating them under
the United States flag. Let us hope that these days are not in the
distant future, and that we may advance as rapidly on the sea as
we do upon the land.
THE EFFECT OF IDLE PLANT ON COSTS AND PROFITS
By H. L. Gantt,
New York City.
The theory which has been so long and tenaciously held by
cost accountants, that all the expenses of operating a factory must
be included in the cost of the output produced, has the effect of
showing low costs when the factory is running at its full or normal
capacity, and of showing high costs when the output is small. The
small output is due usually to diminution in demand, which can,
as a rule, be stimulated only by reduction in seUing price, which
the selling department invariably recognizes.
Under this theory of cost-keeping, the selUng department and
the cost department are, during times of depression, continually at
odds, with the result that the selling department is often prohibited
from selling goods because the cost department states that there
is no profit in such goods; and more than one manufacturing industry
has suffered severely from this policy. The fallacy involved in this
method of cost-keeping is so subtle that for a long time it was not
recognized that there was a fallacy, although the hard common
sense of many manufacturers realized that there was something
wrong about their cost accounting methods and oftentimes ignored
the results obtained by them.
During the last few years many leading manufacturers and
accountants have recognized the existence of the fallacy, and some
have actually pointed out what the fallacy is. The financier justly
claims that if the plant is to be prosperous the output must be sold
at a sufficient price to pay for the operation of the plant and to
leave a reasonable profit. In order to do this the selling price
when the product is small must naturally be greater per unit of
product than if the product were larger, but in such times it is
usually impossible to get a larger unit seUing price.
A few years ago many financiers and industrial leaders thought
they had solved the problem when they had adopted a fixed seUing
price, which they maintained during times of prosperity and times
of depression. An illustration of this is the price of steel rails
Effect of Idle Plant on Costs and Profits S7
fixed by the United States Steel Corporation, but the slow business
recovery from the depression of 1907 and 1908 does not indicate
that this pohcy has been entirely successful. When a plant is oper-
ating at less than its full capacity, it is quite evident that the expense
of maintaining a certain portion of that plant in idleness must be
borne somehow. The old theory that it must be borne as a part of
the cost of the articles produced is rapidly giving way to the theory
that it is a business expense and not chargeable to the articles pro-
duced.
Under this theory of expense distribution a plant which was
running at only a small fraction of its capacity might make a good
profit on the articles it produced and yet lose money, because of
the necessity of deducting from the profits the expense of main-
taining a large unused plant and the permanent organization needed
to operate it. Another way of expressing the newer idea is that the
output of a plant should be charged with only that expense needed
to produce it, and that all other expense must be carried as a busi-
ness expense and put in the profit and loss column. Under this
theory it is readily seen that costs will remain constant whether the
plant is operating as a whole or only in part unless there is a change
in price of material, rate of wages, or method of manufacture; and
the salesman will have a definite cost on which to base his selling
price.
Idle plant is just as much a source of expense under the new
theory as under the old, but under the new it is charged to the
business, whereas under the old it is charged into the cost of the
product. It is easily seen that a manufacturing concern which
bases its policy on the newer theory will very soon get the better of
those rivals, which adhere to the old method of cost accounting.
The above discussion leads directly to the consideration of
another very important subject, namely, is it ever profitable to
manufacture at a loss? This sounds like a flat contradiction, but
it is really a subject of great importance. For instance, let us
assume that it would cost us $100,000 per year to maintain our
plant in idleness but in condition to run, and to maintain the skele-
ton organization of officers needed to put the plant in operation
again. Would it not be better for us to operate that plant during
the year and maintain our whole organization, if the loss incurred
thereby would not exceed $100,000? If at the end of the year,
88 The Annals of the American Academy
business should be offered two plants, one of which had followed
the first policy, and the other had followed the second policy, the
one which had followed the second policy would certainly be in far
better position to take advantage of new business than the other,
for it would not only be spared the expense of hiring and training
a new set of operatives, which is always very great, but it would be
in a position to execute the orders promptly. It is clear that, al-
though each plant had actually lost the same amount of money
during the year, the one that had its organization intact and ready
to fill orders would be ahead of the other from a financial standpoint
by the cost of hiring and training operatives, and from a business
standpoint of being ready to fill orders promptly.
It would therefore seem that to shut a plant down, from what-
ever cause, is a very risky proceeding unless it is not intended to
open up again. Mr. Carnegie recognized this fact and his action
in accordance with it was one of the most potent factors in enab-
ling him to get the better of his competitors.
At the meeting of the American Society of Mechanical En-
gineers at Buffalo on June 25, 1915, one of those who discussed my
paper on "The Relation between Production and Cost" made the
statement that it was the duty of an industry to take care, during
times of depression, of those who had served that industry in times
of prosperity. It is not my intention to emphasize the morality of
this subject, but I believe it is possible to demonstrate that a proper
industrial policy will show that it is to the advantage of a manu-
facturer to do as far as possible just what has been contended.
It is an economic principle that the consumption of articles
increases rapidly with the reduction in cost to the consumer. If,
therefore, during times of depression manufacturing companies will
recognize that they cannot expect to make profits when nobody else
is making profits, and are willing to accept their portion of the loss
which is incident to the depression, by selling at a lower price, they
can many times give their employees constant employment, and at
the end of the period of depression find themselves in good condition
to take advantage of returning prosperity and make up the losses
incurred, while their more conservative competitors, who shut down
their plants, are preparing to manufacture. Moreover, such a
policy as this would, during times of depression, continue the pro-
duction of wealth on a much larger scale than has heretofore been
Effect of Idle Plant on Costs and Profits 89
customary, and even though the wealth thus produced would not
accumulate in the hands of those who are accustomed to receive it,
it would nevertheless be an asset to the country and make possible
the more rapid return of prosperity.
The policy of holding up seUing prices to a point at which few
can afford to buy is, the writer believes, not only detrimental to
the country at large but in the long run to the individual concerns
doing it. It is a form of protection designed to offset or counteract
the natural law of the survival of the fittest, and whether applied
to individuals, industries or nations this law is inexorable, and any
economic or financial policy founded on the theory that it can be
done away with must ultimately fail.
The conclusion, therefore, from the above is that continued
employment and hence the continued production of wealth is more
important to the country at large, and hence to individuals in that
country, than large profits which necessarily go to a comparatively
small number.
THE EFFECT OF UNEMPLOYMENT ON THE WAGE
SCALE
By Mary Van Kleeck,
The Committee on Women's Work of the Russell Sage Foundation,
New York City.
The subject suggests a combination of the obvious and the
unknown. In modern industry, the man out of work is also out
of wages. The effect of unemployment on individual income is
clear. But the mass effect of recurrent irregularities in the size of
the force, the frequent hiring and firing of individual workers, lock-
outs and strikes, seasonal fluctuations in demand for labor, weeks or
even months when men and machines ready for work are given no
work, is unknown and, at present, indeterminate. Unemployment
is so characteristic of the present industrial order that a discusgion
of its effect on wage standards, involving, as it should, a consideration
of what wages would be if work were regular, seems a task rather of
prophecy than investigation or interpretation of known facts.
Nevertheless, discussion may serve a useful end if no other purpose
be accomplished than to suggest a fruitful field for exploration and
discovery.
At the outset it is well to recognize that unemployment is not in
itself a cause, but the resultant of many causes, an infinitely com-
plex condition about which we cannot think clearly or act wisely
without analysis and discrimination. Differences must be recog-
nized in different localities, and in different industries. A discus-
sion of the effect of unemployment is really a discussion of the diverse
effects of each of the manifold causes of unemployment. The man
on strike, and the man in the hospital, the Wall Street stenographers
laid off when the war caused the closing of the Stock Exchange, the
Fifth Avenue milliner who makes no hats in June because the spring
season is over and no one knows what the autumn styles will be,
the makers of skirt braids who have no work because skirts are
short and the once universal bindings no longer worn, the employees
of John Smith, manufacturer of jewelry boxes, who met with re-
verses and went into bankruptcy, the bookbinders formerly em-
90
Unemployment and the Wage Scale 91
ployed by the firm which has just moved into the country, the long-
shoreman who hangs around the docks idly waiting for the ship to
come in, and then is not hired because too many others are ahead of
him, the Italian subway digger out of work because the trade union-
ists have demanded the enforcement of the provisions of the law re-
garding the employment of alien labor, the man on line at the door
of the municipal lodging house, who lost his job because of drink,
his fellow-guest who lost his because he was getting old, the man next
to him who had steady work as a waiter until hard times came and
the restaurant cut its force in half, the carpenters, the stone-masons,
the tailors, the plumbers, the straw hat makers, the department
store clerks, the cloak and suit makers and the coal miners, out of
work at different times in the year when the slack season comes in
their industries, these are all unemployed, but no one formula can
describe them all, no one remedy can meet their needs, no single
measure remove at once all the causes of their industrial misfortune.
This much, at least, has been accomplished by recent experiences in
dealing with unemployment in many cities. Familiarity is banish-
ing, forever, the vague generalizations which make a problem seem
so simple when in reality it is infinitely complex.
What light do recent experiences and investigations throw on
the effects of the recurrent condition of unemployment on the wage
scale? Is it true, as it is sometimes asserted, that wage rates tend
to be higher in industries in which seasons are shorter? Do we have
already a kind of unemployment insurance in the form of a larger
income in short season industries, so that all that is required is the
teaching of thrift to enable the worker to save a surplus for use when
he is out of work? Is loss of income through unemployment a com-
mon experience or is it rather an incident in the individual career and
not necessarily characteristic of industry? For the sake of clear-
ness, let us consider first certain data about industries rather than
the facts about the workers and their income.
In the United States Census of Manufactures in 1905, data
regarding weekly earnings were gathered from a large number of
representative establishments and presented for different industries
by states.* At the same time information was secured showing
the greatest and the least number of wage-earners employed at
»U. 8. CenBua, Manufactures, 1905. Bulletin 93. Earnings of Wage-
Earners.
92 The Annals of the American Academy
any one time during the year. It is obvious, of course, that since
so many factors enter into the determination of wages, caution is
needed in attempting to detect the presence or absence of any one
of them or to measure its influence. Local differences, varying pro-
portions of men and women employed, the methods of production,
the use of immigrant labor, and many other conditions must be
studied before conclusions can be put forward with any definiteness.
Nevertheless, if wages tend^ to be higher in trades which have the
greatest seasonal fluctuations, it would be fair to expect that the
census figures just mentioned would reveal higher median wages in
those industries in which the fluctuations from maximum to mini-
mum in the number of wage-earners are greatest. The following
table shows the facts for the eight industries employing an average of
20,000 or more wage-earners in which the seasonal fluctuations
are the most marked and the eight in which the variations between
minimum and maximum are least.
In all manufacturing industries combined, the maximum num-
ber were at work in October and the minimum in January, and the
minimum force was 65.4 per cent of the maximum. The median
wage was between $10 and $12 for men and between $6 and $7 for
women. Of the eight industries having the least marked fluctuation
from maximum to minimum force, four paid to men workers wages
above the average for all industries, and four below it. Two paid
women wages above the average and six below it. Of the eight
industries having the greatest variations in the numbers employed,
five paid men wages above the average and three below it, while in
only three of these markedly seasonal industries were women's wages
above the average, and in five below.
If wages are on the whole highest in the industries in which the
fluctuations of employment are greatest, the fact is not reflected in
the best statistical information available on the subject. On the
2 "The natural tendency is for the fact of seasonal fluctuation to be recog-
nized as a normal incident of the industry and to be allowed for in the standard
both of expenditure and of wages." Beveridge, W. H., Unemployment, a Problem
of Industry, 1912, p. 36.
"A trade that has a natural tendency toward irregularity of employment is
generally found with higher rates of wages given to compensate for this irregu-
larity and thus enable the worker to keep his standard of living up to that of
workers of corresponding position and ability in trades not so affected." Dearie,
N. B., Problems of Unemployment in the London Building Trades, 1908, pp. 133-4.
Unemployment and the Wage Scale
93
Maximum and Minimum Number op Wage-earners Employed at anyone
Time during Calendar Year 1904,' and Median and Average Weekly
Earnings,' in Eight Industries Showing Least, and Eight Indus-
tries Showing Greatest Fluctuation op All Manufacturing In-
dustries Employing 20,000 or more Wage-earners in the United
States, 1905.
Industry
Greatest
No. of wage-
earners
Least No.
of wage-
earners
Percent
min-
imum
is of
max-
imum
Median wage
group
Average weekly
earnings
Men
Women
Men
Women
Bread and baken*
producta ....
90,937
351,415
24.345
111,480
54,787
36,472
116,869
36,612
76,657
285,302
19,692
89,785
43,481
28,875
92,537
27,743
84.3
81.2
80.9
80.5
79.4
79.2
79.2
77.9
$12-$15
7- 8
12- 15
12- 15
15- 20
9- 10
8- 9
9- 10
$5-$6
6- 7
7- 8
5- 6
5- 6
7- 8
6- 7
5- 6
$11.77
7.71
13.27
13.13
14.37
9.93
8.90
10.37
$5 46
Cotton goods
Felt hats
6.03
7 31
Printing and publish-
ing, newspapers and
periodicals
Liquors, malt
Carpets and rugs
other than rag
Hosiery and knit
5.95
6.60
7.31
6 01
Hardware
5 35
All Industries
7,017,138
4,599,091
65.4
$10-$12
$fr-$7
$11.16
$6.17
Cars, steam railroad,
not including oper-
ations of railroad
companies
Coppersmithing and
sheet iron working .
Canning and preserv-
ing, fruits and vege-
Ubles
55,167
30,808
172,026
54,157
62,979
37,280
115,090
148,603
15,843
15,609
71,388
25,015
29,513
17,573
56.940
78.362
28.7
41.2
41.5
46.2
46.9
47.1
49.5
52.8
$10-$12
9- 10
9- 10
12- 15
10- 12
10- 12
9- 10
12- 16
$7-$8
5- 6
4- 5
4- 5
6- 6
6- 7
6- 6
6- 7
$11.21
12.96
9.14
13.21
10.97
12.45
9.82
13.62
$7.24
5.78
6.40
Marble and stone
work
4.04
Agricultural imple-
ments ........
5 76
Millinery and lace
7 26
Brick and tile
Women's clothing . . .
5.66
6.86
> United States Census. Manufactures, 1905. Part I, pp. 27-54.
I United SUtes Cenmu, Manufaotares, 1006. Bulletin 93. Eaming$ of Wao0-Samtr». pp.
OSetiT.
contrary the census statistics seem to indicate that there is no con-
sistent or significant difference in wages between the industries in
which unemployment is least and those in which it is most prevalent.
d4 The Annals of the American Academy
Certain industries afford interesting contrasts. The census
points out that watch-making is one of the industries paying the
highest average weekly wages to both men and women. It shows
decidedly less than the average fluctuation in force. The making
of tobacco for chewing and smoking was rated as one of those re-
porting the lowest earnings. It shows greater fluctuations than
the better paid branch of the tobacco industry. Canning and
preserving is quoted in the census as an example of violent seasonal
changes in demand for labor. Its showing in the wage columns is
not enviable. The makers of women's clothing are more liable to
unemployment than the makers of men's clothing and are also com-
pensated at a slightly higher rate, apparently in conformity with
the orthodox opinion, but it is not by any means clear that the
comparative degree of unemployment has been a factor in determin-
ing the difference in wage rates. Millinery pays women more but
men less than the slightly less seasonal trade of women's clothing.
Paper box making pays men less and women more than the less
fluctuating industry of confectionery.
If the risk of seasonal fluctuations is a factor in the wage bar-
gain, it is certainly not sufficiently potent to counteract other
tendencies which produce variations in standards in different in-
dustries. From the point of view of the workers, therefore, the
degree of the influence exerted by the risk of unemployment on the
comparative standards of wages becomes a matter of academic
interest, since comparisons between industries reveal no invariable
economic law of comparative compensation. Of course, this does
not mean that no seasonal industry has a high enough wage standard
to mitigate or even to eliminate distress in slack season. The
straw hat worker in New York may have but six months' work in
the year, but her earnings not infrequently amount to $25 a week,
and the problem for her is one of distribution of an irregular income
over regularly recurring expenses, rather than one of making income
equal outgo when the receipts in busy season are no more than
sufficient for each week's expenditures. Distress is produced by
the combination of unemployment and low wage rates, and this
does not seem to be a combination to which economic laws are
opposing effective obstacles. Indeed, the reverse seems to be true
since the causes which are commonly accepted as most important
in producing unemployment, industrial crises, irregular demand for
Unemployment and the Wage Scale 95
goods and oversupply of workers are the very causes which place
the worker at a disadvantage in the wage bargain. More searching
inquiry may bring evidence of a compensating tendency in industry,
which may well be utilized and organized to produce unemploy-
ment insurance, but that at present it is not powerful enough to
prevent distress is self-evident.
In discussing the effect of unemployment on the wage scale
within an industry, we are on more certain ground because of the re-
sults of some recent investigations, all of which reveal the fact that
the industries studied fall short of utilizing continuously the labor
force which they buy at the height of the season. Their total wage
scale is depressed far below its own capacity by the drag of irregular
employment.
In the dress and waist industry in New York City, for example,
after an exceptionally careful inquiry,' based on a payroll study,
this conclusion was reached: "Taking the wages paid out in the
industry during the busiest week of the year, and expressing this
as 100, the investigation has shown that the average weekly wage
earned by all the workers during 1912 was equal to 73 per cent of
that of the busiest week of the year. " This statement applies to
total wages, which represent, of course, the most accurate measure
of the total labor force. Considering the cloak, suit and skirt
industry, the Bureau of Labor Statistics reports* that the seventy-
five association shops investigated had a combined average weekly
payroll of $94,375 with a maximum of $155,148 and a minimum of
$40,741. That is to say, the average weekly payroll was equal
to only 61 per cent of the total paid out for wages in the busiest
week of the year. The Factory Investigating Commission of New
York State* found that the average payroll in the millinery trade
in New York City was but 63 per cent of the maximum in wholesale
shops, 71 per cent in the smaller retail shops, and 79 per cent in the
larger retail shops having also a wholesale trade. In an unpublished
manuscript of the Committee on Women's Work of the Russell
' U. S. Bureau of Labor Statistics, Wages and Regularity of Emjyloymenl and
Slandardizatum of Piece Rates in the Dress and Waist Industry, 1914, Bulletin No.
146, pp. 18-19.
* U. S. Bureau of Labor Statistics, Wages and Regularity of Employment in the
Cloak, Suit and Skirt Imlustry, 1915, p. 17. ,
* New York State Factory Investigating Commission. Proof of forthcoming
fourth report. Appendix: Wages in the Millinery Trade, p. 60.
96 The Annals of the American Academy
Sage Foundation outlining the results of a study of the millinery
industry of which the inquiry into wages made for the Factory
Investigating Commission is a part, the waste in labor force through
irregular employment in millinery is estimated in another way.
The total wages paid by the shops investigated in their maximum
week was ascertained to be $24,000, so that the total wages which
would have been paid in a year of fifty-two maximum weeks would
amount to more than a million and a quarter. The wages actually
paid amounted to a little less than three-quarters of a million, or 57
per cent of the total estimated on the assumption that the maximum
demand was continuous. In other words, the trade lost 43 per
cent of the labor force which it would have utilized had it been able
to hold throughout the year the level attained in its busiest week.
Similar statistics are available regarding other industries described
in the report of the Factory Investigating Commission just men-
tioned. Nor is it only private enterprises which are characterized by
fluctuations in labor force. In Portland, Oregon, the number of la-
borers employed on street construction work by contractors for the
city varied in twelve months from 885 on the last day of August,
1913, to 122 in March, 1914, with an average of 569, of which the
minimum force was only 21 per cent.^ On sewer work for the city
the men employed by contractors in seven months numbered 125 in
January and 190 in June, with an average of 159, of which the min-
imum was 79 per cent. Data on wages paid were not reported.
Even these data, however, do not give the full measure of
stability or instability in employment since they take no account
of changes in personnel. On this point, also, recent investigations
are eloquent, especially those made in New York State by the Fac-
tory Investigating Commission.'^ In the millinery shops investi-
gated," the maximum force employed was 2,550 but the number
recorded on the payrolls during the year was 3,983. Concerning
department stores, the Commission reported: "In eleven large New
York City stores with an average total force of 27,264, there were
added during the course of a year 44,308 persons and 41,859 left or
were dropped. In other words, more than once and a half as many
" O'Hara, Frank. Unemployment in Oregon, a Report to the Oregon Committee on
Seasonal Unemployment, 1914, p. 19.
^ New York State Factory Investigating Commission. Proof of forthcoming
fourth report.
Unemployment and the Wage Scale 97
people flowed through the stores as are usually employed in them
at one time."* In nine paper box factories ordinarily employing
about 792 hands, 2,295 persons were on the payrolls in a year.'
Although these figures do not relate directly to wages, it is obvious
that such instability has its effect upon earnings. As the Factory
Investigating Commission pointed out,^® ''This shifting about
naturally causes loss of time and wages between jobs." It seems
probable that it causes also some loss of productivity through the
waste involved in the adjustment of a new worker to the conditions
of the shop.
Violent fluctuations in the labor force and the still more marked
changes in personnel, implying as they do, short terms of employ-
ment and frequent hunts for new jobs, must obviously result in
decreased income for the workers. It is these inroads upon income
which give a profound social significance to the facts which we have
hitherto discussed as phases of industry rather than as individual
misfortunes. Enough has been said, perhaps, to show that to avoid
individual misfortune when the risk of unemployment is so charac-
teristic a phase of industry requires something more than individual
efficiency, thrift or character. We have been accustomed, perhaps,
to observe first the unemployed when their distress forces them upon
public attention, and then to think about the industrial causes. If
we reverse the process and observe first the tendencies in industry,
we may, perhaps, think more clearly about the unemployed. That
loss of time, and consequent loss of income, is a common experience,
has already been demonstrated in many careful investigations.
Consider, for example, the iron and steel industry in 1910, as
it was described in the report of the United States government."
Of 90,757 employees in all the steel plants covered in the investiga-
tion, only 37.6 per cent were employed forty-eight weeks and over
in the course of the year, while 12.5 per cent were on the payrolls
less than thirty-six weeks. ^^ j^ the same report figures^' are given
to show the possible full time annual earnings for steel workers, if
•Ibid., p. 140.
•Ibid., p. 261.
'»/Wd., p. 143.
" Report on Conditions of Employment in the Iron and Steel Industry in the
United States. Senate Document No. 110, Washington, 1913.
w/Wd., Vol. Ill, p. 213.
"/Wd.,Vol. III,p. 220.
^ The Annals of' the American Academy
they had been employed during the entire time their plants
were in operation in 1910. These figures show an average of approxi-
mately $700 for full time work throughout the year. The maximum
annual earnings of 63.4 per cent of the 86,590 workers reporting,
however, were less than this amount.
In another report by the United States Government, containing
the results of the investigation of the condition of woman and child
wage-earners," detailed information is given about the number of
days worked in the year by women and girls in the four industries
of cotton, silk, glass and men's ready-made clothing. Moreover,
in the discussion of living conditions, similar data are given for other
wage-earners in these households. The average number of days
worked in the year by women in the clothing trade was 24 1,^^ in
cotton manufacture in New England mills, 254, and in the South,
244,^* in glass-making, 231,^^ in silk mills in New Jersey, 262, and
in Pennsylvania, 238.^® The proportion of working days in the
year among women in these four large industries varied then from
76 per cent to 83 per cent of the working year of 305 days, not
counting Sundays or holidays. As to the unemployment of the
fathers in the families of these women workers, the figures for the
silk industry may be taken as illustrative. The average days idle for
the silk weavers among them amounted to 65 in the year, for other
skilled workers, 81, and for the unskilled 91.^* The average loss
for all of the fathers at work totalled 74 days in the year, or 24 per
cent of the normal working period. The investigators summed
up the situation in this way: "If all the fathers had worked the
time they were idle they would have earned enough to largely make
up the deficit that would have been caused if the children under 16
had not worked, "^o
After a careful analysis of existing data on the relation of irreg-
ular employments^ to the living wage for women, the conclusion is
^* Report on Condition of Woman and Child Wage-Earners in the United States,
Senate Document No. 645, Washington, 1910.
» Ibid., Vol. II, p. 388.
"/6id., Vol. I, p. 469.
" Ibid., Vol. Ill, p. 546.
"/fcid., Vol. IV, p. 280.
»/?>id., Vol. IV, p. 269.
"/Wd., Vol. IV, p. 295.
'^ Andrews, Irene Osgood. "Irregular Employment and the Living Wage,"
American Labor Legislation Review, June 1915, p. 311.
Unemployment and the Wage Scale 99
put forward that "all facts agree that actual earnings fall far short
of possible earnings based upon rate of pay. At least for the work-
ers here considered, the average girl or woman loses in wages an
amount equal to no less than 15 per cent of her possible earnings.
The younger, more irregular worker, loses an even greater amount. "
No such careful estimate of losses by men wage-earners can be
made without more data than are available at present, but certain
illustrative material is significant. Facts regarding steel workers
have already been cited. In Chicago, the Mayor's Commission on
Unemployment reported in March, 1914, concerning its investigation
of trade unions, that ''None of the members of these unions would
receive less than $700 a year at their trades if they worked full time;
but, actually, the average member in 40.9 per cent of those reporting
received less than $700 from his trade" (p. 15). In a forthcoming
report, to be published by the Russell Sage Foundation, on Industrial
Conditions in Springfield, part of the series resulting from the survey
of Springfield, Illinois, in 1914, facts bearing on irregularity of
employment among miners in that district are given which show
an average number of days in operation ranging from 10 to 20 each
month in the year and an average for the entire year of 174 days or
only 57 per cent of the possible 305 days of a full working year.
Thus the miner whose rate of pay is $2.84 per day ''could scarcely
make $500 a year provided he had full time work every single day
of the year that his mine was in operation. " His annual earnings
on the basis of a full time 305-day year would be at least $850. In
a study of 100 families of wage-earners in various occupations in-
cluded in this same report, it was found that two out of every five
bread-winners had an irregular income.
Unemployment and irregular employment is a social problem
obviously, because in affecting income, it affects at once the stand-
ards of living of the community. Its effect upon income is twofold :
it reduces earnings below the real capacity of the worker as measured
by the rate of his wages, and it makes his receipts uncertain, varying
from week to week in such a way as to render thrifty management
almost impossible. Recently the Committee on Women's Work
of the Russell Sage Foundation made a study of Italian girls in in-
dustry, one section of which was an inquiry into actual earnings in
48 families, based on monthly visits extending over the period of a
year, to secure the facts about the weekly wages of every worker.
100 The Annals of the American Academy
The results are as yet unpublished, but the manuscript report con-
tains some conclusions which are pertinent in a discussion of unem-
ployment. The conclusions have added value for the reason that
the investigator^ had been resident in the neighborhood for several
years and knew the majority of these families as neighbors before
she began the investigation. Moreover, the facts were secured not
in one interview, but in several at frequent enough intervals so that
as little as possible reliance need be placed on the memory of those
who gave the information. Quotations from the report may serve
to summarize the facts.
The only conclusion which we feel justified in putting forward is that the
standard of hving is not to be measured by the total income received in a year,
but by its regularity. That management is an important factor in producing a
wholesome standard is obvious. To be able to count in advance on a fixed amount
of money is almost an essential prerequisite of eflficient management.
When the investigator was asked to select the famiUes which she would place
in a group having the highest standard of Hving, she did not choose those having
the largest income, or even the largest per capita receipts. She selected first, the
one in which the income had been most regular throughout the year, although the
total was only $1,175 for six persons. How fluctuating was the income in some of
the households is shown in a series of charts, one for each family. The first
pictures weekly receipts which varied from $6.50 to $52.50 with a total for the
year of $1200.24 and an average of $23.08 a week.
Unfortunately, very little information showing weekly income
is to be found even in the comparatively few budget studies which
have been made in this country. If more were available, we should
probably find that the curves showing fluctuations in the labor force
in industry are matched by curves revealing variations in family
income, and that these relate themselves to the standard of living
as causes of waste and friction precisely as irregularity in industry
produces waste and friction tending to lower the capacity of plant
and workman alike.
If it be true that variations in income are undesirable in their
effect upon family standards, the fact deserves consideration when
proposals are put forward to establish variations in wage rates as
one remedy for unemployment. Wage rates do tend to vary now
in some industries,^^ especially the unorganized, going down in slack
^ Miss Elisabeth Roemer of Richmond Hill House, a settlement in an Itahan
neighborhood in New York.
«»Cf. Pigou, A. C, Unemployment^ pp. 76-93.
Unemployment and the Wage Scale 101
season, and not always returning to their normal level in busy times.
The proposal, involving as it does, a measure of bargaining between
groups of workers and employers, would doubtless be an advantage
in substituting a controlled effect of unemployment on the wage
scale for the present uncontrolled effect. It should be clear, how-
ever, that this would demand not only equality of bargaining power
between worker and employer, but a much more scientific knowledge
than we now possess as to the relation of fluctuations in demand to
wage rates, and more publicity about the proportion which wages
form of the total cost. Otherwise the proposal to reduce wages for
the same hours of labor in slack season involves the possibility of
exploitation. No measure which endangers wage standards can cure
the distress due to unemployment, for unemployment itself is but a
phase of the wage problem.
Meagre then as is the available information about the total
effect of unemployment on wage standards, the illustrative facts
which have been cited are convincing on three points:
1. They indicate a general industrial tendency toward fluc-
tuations in the labor force as it is measured in the total payroll.
2. They give evidence of a waste of productive power, both of
industries and of men.
3. They show that wage rates, whether established by unions,
by minimum wage boards, or by individual agreement, are no
guarantee of an adequate income unless assurance be given also of
some degree of continuity of employment.
Many measures are now being advocated to prevent unemploy-
ment by reducing the number of those who are most likely to become
unemployed, by preventing child labor, by providing for the aged,
by increasing individual efficiency, by developing and strengthening
character, by inculcating thrift. All of these are important, and
their accomplishment would undoubtedly lessen the distress which
now prevails because wage-earners are out of work. Nevertheless
a consideration of the relation of unemployment to the wage scale
emphasizes primarily unemployment as a wage problem, and,
therefore, a problem of industrial organization. As such we cannot
hope to achieve results by any more rapid method than attacking
it in each industry, in each locality and in each establishment. In
some way the faith must be made general that unemployment and
seasonal variations are not inevitable. Somehow men must be set
102 The Annals of the American Academy
to thinking about it in the coal mines, in the steel mills, in the cotton
mills, in the clothing factories and on the docks. The research
work which is needed now is investigation through experiment.
Perhaps the best result of unemployment insurance would be to
make men think, and to place a premium upon regularity. The
next step in industrial organization should be to demonstrate through
actual experience what may be accomplished in getting rid of the
present variations and irregularities in the payroll week by week.
SCIENTIFIC MANAGEMENT APPLIED TO THE STEADY-
ING OF EMPLOYMENT, AND ITS EFFECT IN AN
INDUSTRIAL ESTABLISHMENT
By Richard A. Feiss,
General Manager, The Clothcraft Shops of The Joseph & Feiss Company,
Cleveland, Ohio.
The effect of steadying employment in an industrial estab-
lishment is of such great and growing importance that it is well to
say a few words in regard to the term ''employment." The term
employment is used so generally as to have various and more or less
vague meanings, varying according to its use and its user. It is
more commonl}^ used to refer to the actual act of emplojdng and
means simply the hiring or putting of people on the payroll.
Practically every large industrial establishment today has an
employment department whose business it is to hire the employees
who are asked for by some foreman or other department head.
While there can be no employment which does not begin with hiring,
the kind of employment that this paper deals with contemplates
hiring as only a part, and not the largest part, of the real employment
problem. The real employment problem begins after the act of
hiring has taken place and is a continuous function which does not
cease until employment is ended. From this point of view employ-
ment is one of the most important functions of management in an
industrial establishment.
As real or scientific management deals with the development
and coordination of the welfare of each and every individual in the
organization, the importance of scientific employment can readily
be seen. This is being realized more and more by both managers
and the public.
The object of an industrial organization is to coordinate effort
for the continuous and permanent accomplishment of a definite
purpose. Therefore, the steadying of employment is the most
important problem of employment. For general purposes there
are two kinds of problems which have to be considered in connection
with the employment function as well as with other functions:
103
104 The Annals of the American Academy
first, the problems of the function itself, and, second, the prob-
lems of all other functions in their relationship to the function un-
der consideration.
It is the real problem of the employment function to keep every
position necessary to carry on the business of the organization
steadily and permanently filled with men and women best fitted
for the purpose. For this purpose every industrial organization
should have some one person or department whose sole business is
the studying and handling of this problem. This is a function that
cannot be administered by some head or underling in an operating
department. The immediate interests of anyone responsible to
any degree for operating are bound to be in constant conflict with
the ultimate objects and policies of the employment department.
From time to time questions arise between employees and heads of
operating departments and no one who is a party to these questions
is in a position fairly to decide and solve them. The solution of
such questions is a function of the employment department and
they would be impossible of fair and satisfactory solution if the
function of employment were administered by one who might be
an interested party. Where, moreover, enough people are em-
ployed to make employment a real problem, it is a problem as im-
portant and requiring as much, if not more, ability than operating
itself and there is no reason why it should not be administered by
one who is just as capable and has as much ability in his line as
a head of an operating department.
Scientifically speaking, the employment problem really starts
after the act of hiring has taken place, and, while the hiring of new
people should be a constantly decreasing problem, after they are
employed, the employment problem in connection with a new em-
ployee is of importance second to none. A new employee, at the
best, is undeveloped for the position which he is called upon to fill
in any organization, and, as he has been employed in order steadily
and permanently to fill a position necessary for the objects of the
organization, he needs and is entitled to especial attention in order
that he can be developed to fill that position fittingly. For this pur-
pose the greatest possible care must be exercised when new men and
women are employed in selecting such as seem not only best fitted
for the particular position in question, but, above all, fitted for the
organization.
Scientific Management — Steadying of Employment 105
The question of fitness for the organization is the more impor-
tant and, generally speaking, is the one that can be better determined
at the time of employment. It is more important because no mat-
ter how skilled or well-fitted a man or woman may be for the given
position, if he is not fitted for and in harmony with th& organization
and its objects, he will not only be inefficient in his surroundings,
but will be continuously a detriment to himself and others in the
organization. As this is a matter of spirit and inherent attitude of
mind, it is a matter that is the more readily detected in the course
of a personal interview by anyone with any reasonable amount of
training and experience, who makes a specialty of the function of
employment.
The determination of the fitness of a new employee for the given
position is generally more difficult except, of course, under conditions
where the position is one that has been scientifically standardized
and the employee has proven his fitness in the same kind of a posi-
tion under similar conditions of the same degree of standardization
elsewhere. As yet, at least, this is of very exceptional occurrence
and only the normal case can be considered.
The employee's general physical and mental fitness is an im-
portant factor. His physical fitness is of prime consideration and
is, as a rule, readily determined. The important thing in this con-
nection is not only to have adequate service to determine physical
fitness at the time of employment, but to have a systematic follow-
up. The determination of physical fitness in a scientific employ-
ment department must not be made with a purpose of eUminating
those who are at the time of employment physically unfit, but for
the purpose of eliminating only those who are permanently unfit.
Many cases, seemingly unfit, are capable of attaining physical fit-
ness and normal health under scientific employment. Such cases
should not be eliminated, but should be saved to the industry.
We hear a great deal of late about psychological tests for fitness
and there is no doubt that this is a field subject to a great deal of
useful and practical development. It will, however, never aid
materially in the solution of this problem, except in special instances
where definite and special aptitudes are required and can be made
subject to practical tests, e.g., it will be conceded that it would be a
mistake to employ a railway engineer who could not distinguish
red from green readily. Tests of this nature are undoubtedly use-
106 The Annals of the American Academy
ful and will figure in a more important way in the future. Practical
tests of this kind are being developed by progressive companies.
For general purposes, however, these tests will only be useful for a
few specific purposes and will, perhaps, be of less importance in an
ordinary industrial establishment than in other fields.
In an industrial establishment the character of an employee and
his fitness for the organization are the most important things. His
fitness for a given position is secondary and depends less upon his
mental qualifications at the time of employment than it does upon
his development by and in the organization. No matter what the
manual skill of an employee might be, if he is out of harmony with
the surroundings, he is more of a detriment than a help to the organ-
ization and himself. Every organization has definitely perceivable
characteristics. We often hear of the "tone" of an organization.
When the personaUty of the employee is out of harmony with this
tone, the resultant harm to the organization will be much greater
than if he were unfit for the position but in harmony with the or-
ganization. This is chiefly a question of character. Unfortunately,
as a rule, the importance of character is only recognized in extreme
instances. If a man's character were such that he would resort to
personal violence or dishonesty, his unfitness would be recognized
no matter how fit he might be for the position. If, however, his
character were such that he was inherently uncooperative and re-
sorted to underhandedness, the importance of his character and fit-
ness for the organization would be overlooked in many instances if
he showed particular fitness for his position.
Fitness for a given position in the operating departments con-
sists chiefly in the acquirement of skill in the performance of cer-
tain manual tasks. Given character and fitness for the organiza-
tion, the acquirement of skill in the performance of a given duty is
generally a matter of proper training being provided by the admin-
istrative side of the organization. It must always be remembered
that skilled and fit men are not born, but made, and it is an essential
function of any industrial organization to train men and make them
fit for specific positions necessary to the objects of the organization.
There is no broader admission on the part of a manager of his own
inefficiency and his own lack of comprehension of his duties and
problems than the oft heard complaint on his part of the lack of
skilled men.
Scientific Management — Steadying of Employment 107
Under scientific management the management assumes as a
definite part of its function the development and training of em-
ployees, and the employment function is carried on scientifically
in recognition of the above conditions. At the Clothcraft Shops
of the Joseph & Feiss Company, all applicants are interviewed by
one of the heads of the service and employment department. In-
formation concerning applicants is put down in detail, together
with other notes as to various qualifications, upon a form pro-
vided for the purpose. During the course of the interview careful
note is made of apparent qualification or lack of it. Applications
are carefully filed and when a position is to be filled the most
promising applicants are sent for. When the applicant is hired,
one of the heads of the employment and service department takes
him in hand and goes over again in detail such other ground as
relates to the condition of employment, which is covered in a
more general way at the time of application. This interview is
of great importance and covers concisely conditions of his em-
ployment both as to the responsibility towards himself and the
organization and the responsibility of the organization to him.
As an industrial organization is based on cooperation for con-
tinuous mutual benefit, it is very important not only to explain this,
but also to explain in detail where the mutuality of interests lies and
how. necessary cooperation is to obtain continuous mutual benefits.
One of the most important responsibilities of the employee is to fill
his position steadily and continuously in order that the interests of
all concerned will not be jeopardized. In this connection matters
very personal and conditions outside the establishment often become
very important and must be studied and dealt with as part of the
employment problem wherever employment is to be scientifically
considered. Volumes could be written on this subject. This
phase of the problem alone occupies the larger part of the time and
attention of the service and employment department at the Cloth-
craft Shops of the Joseph & Feiss Company.
This company has given particular attention to this side of the
problem and in this connection has made a special study of sanitary
conditions and other conditions that affect the health, comfort and
contentment of its workers. Medical examinations are compulsory
and have been developed to a high state of usefulness. Medical
service not only includes a regular practicing physician, but also a
108 The Annals of the American Academy
dentist, oculist and a trained nurse. The trained nurse and others of
the employment and service department make home visits daily to
all absentees, new employees and others. In connection with this
side of the employment problem the use of the English language is
considered most important and attendance at the English classes at
the factory is made compulsory to those who cannot make themselves
readily understood in English. Among other things this company
has established, for the purpose of dealing with mental and physical
fitness of its employees, shower baths, locker rooms, lunch rooms,
recreation rooms and recreation grounds, a branch library and a
penny bank. The limits of this article do not permit the author to
go into detail as to the application of these things to the problem
of employment. They all are for the purpose of keeping men and
women of the organization in all respects fit to steadily fill their
positions as efficiently as possible.
For all purposes of employment there must be a continuous and
systematic following up of the individual and there must be es-
tablished both in spirit and fact an absolutely free contact unham-
pered and uncontrolled in any respect by any function excepting
only the employment function itself.
So far we have considered only the employment problems of the
employment function alone. We shall now consider some of the prob-
lems of the employment function in its relation to other functions
and to extraneous conditions. As to the relation of other functions
of the organization to the employment function, there must exist
in the first place heartiest cooperation in their administration. The
success of other functions greatly depends upon employment and
upon this cooperation. Many employment questions arise in the
performance of duties connected with these other functions. Al-
though these and many other facts are brought to the attention of
the employment department by the development of free contact
and the general relationship that must be developed between the
employees and the employment heads, it is necessary that all func-
tions are so administered that all such matters are systematically
and immediately brought to the attention of the employment de-
partment.
While employment is a condition precedent to the performance
of naany other functions, all such other functions must be adminis-
tered with a constant view toward the solution of the problems of
Scientific Management — Steadying of Employment 109
employment. All employees, especially new employees, must be
given constant and systematic instruction. They must be fairly
dealt with in the distribution of work and other matters of functional
administration pertaining to them. No functional foreman should
be permitted to allow anyone to work who is in the slightest degree
dissatisfied, or has the simplest kind of injury, or who is not feeling
perfectly well, or who is or is likely to be in any degree physically or
mentally unfit, without calling it to the immediate attention of the
employment department.
It is the duty of the management under scientific management
to standardize all work and working conditions in order that as
nearly as possible an even flow of work is maintained throughout
the establishment and that all workers have a steady and equal
opportunity for continuous employment and earnings. At times of
industrial depression the working force should not be cut down
except only under such extraordinary conditions as may be forced
upon the industry, which are absolutely beyond its control. When
there is not enough work to keep the entire working force steadily
employed, the number of hours of employment should be reduced
equally throughout the whole organization. If all managers real-
ized their duty in this respect, both to their organization and to the
community, there would be very little, if any, aggravation of the
problem of unemployment during periods of industrial depression.
As far as employment is concerned, there are two problems that
daily occupy the attention of the operating departments which
materially affect its steadiness. One of these is the balance of
materials; the other the balance of personnel. The balance of ma-
terials for the purpose of steadiness of operation is recognized
to be one of the main responsibilities that the management
must assume. Scientific management provides for this by proper
planning and routing. Balance of personnel is just as important.
Where an employee is missing because of tardiness, absence or other
reason, it interferes and seriously affects the steadiness of employ-
ment of the whole organization. To meet emergencies of this kind
employees should be instructed to perform more than one operation.
The most important thing in this connection, however, is that tar-
diness and absences are cut down and employees are kept as steadily
as possible on the job. At the Clothcraft Shops of the Joseph &
Feiss Company employees are constantly being instructed to per-
form new operations and by means mentioned above the service
110 The Annals op the American Academy
and employment department has cut down absentees and tardies
to such an extent that there are many days when there are no tar-
dies and when the absentees amount to less than one per cent of
the working force.
Without going into unnecessary detail, it must be remembered
that all interruptions of work and all other delays in the steady flow
of work are matters which affect the problem of steadying employ-
ment. Before leaving the operative functions and their connection
with this problem, it is essential that we remind ourselves that
steadiness of employment depends upon personal relationship as
much as upon anything else. For this purpose it is not only im-
portant to consider personality in the selection of the ordinary
employee for a position, but it is still more important to consider
the proper personality or the possibility of its development in the
selection of functional heads who have constant contact with any
part of the organization. Such heads are very often chosen merely
for their mechanical ability and are generally responsible for a great
many unnecessary quitters and a consequent unsteadiness of em-
ployment. The general question of personal relationship is a
question of managerial policy of the greatest importance and the
social problem must not only be met by such means as touched
upon above, but a social spirit based upon real democracy must be
developed as a matter of policy throughout all ranks of the organ-
ization.
The seasonableness of certain industries is generally recognized
as one of the extraneous problems affecting steadiness of employ-
ment. A great deal of education of the buying public is necessary
to assist in overcoming this condition. A great deal, however, can
be done by competent management to mitigate this difficulty. For
this purpose buying should be standardized to aid in the anticipa-
tion of orders. The most important problem in this connection is
the selling problem. The development of the sales problem and
the sales organization is generally far behind the development of
the manufacturing problem and the manufacturing organization.
Steps must be taken in order to insure sales not only of product
that is easy to sell, but chiefly such product that can be continu-
ously, and, therefore, profitably manufactured with the least inter-
ference with the steadiness of employment.
Mr. Morris L. Cooke, director of Public Works, Philadelphia,
in an able address on "Scientific Management as a Solution of the
Scientific Management — Steadying of Employment 111
Unemployment Problem"^ tells of a case in the hosiery industry in
the Philadelphia district where it was found that those mills which
sold their output through a single selling agent found their business
very seasonable and subject to varying demands of output. All
those mills which sold their own goods and developed the sales
policy co-related to the problem of manufacture were able to
regularize their demand as far as output was concerned to a very
great extent.
The Joseph & Feiss Company, in order to meet this problem of
seasonableness with a direct purpose of steadying employment,
have for some time past conducted an advertising campaign which
concentrated on certain of its products that could be produced from
season to season without being much affected by the style question.
As a rule, there is nothing more annoying to the industrial manager
than this problem, as the sales policy is generally not within his
control and there is no extraneous function which more affects his
problem of steadying employment and whose proper relationship to
this function is more misunderstood.
Volumes could be written on steadying of employment and the
employment problem in general, but proper consideration and reason-
able effort expended along the lines suggested above will prove
more profitable in result than can readily be comprehended. It has
already been shown that the Clothcraft Shops have reduced tardies
and absentees to a minimum. No greater proof of the effect of
steadying employment in an industrial establishment can be had
than the record of the ''labor turn-over" in this shop in the past
four years. During the period covered from June, 1910, to July, 1914,
the labor turn-over of the Clothcraft Shops has been reduced by 80
per cent.
The importance of this problem is only beginning to be recog-
nized. Most managers make a study of their mechanical problem
and consider it a necessity, not only to be equipped with the most
efficient and up-to-date machinery, but to make a study of its use
and the keeping of it in constant repair for steady work. But few
recognize that this attitude in connection with personnel is of far
greater importance. Steadiness of materials and machinery is
only the adjunct to the real problem of steadiness of employment.
In order to meet with real success, it must be recognized that it is a
function of management not only to build up a ** manufactory,*'
but to build up a "man factory."
^ Delivered before the Cleveland Advertising Club, May 19, 1915.
A FUNCTIONALIZED EMPLOYMENT DEPARTMENT AS
A FACTOR IN INDUSTRIAL EFFICIENCY
By Ernest Martin Hopkins,
Manager, Employment Department, The Curtis Publishing Company,
Philadelphia.
Th^ most significant fact pertaining to industrial management
today is the attention which is being given to the problems of
personnel. Recognition is being given to the truth that new sources
of power and evolution of mechanical processes have but changed
the points, in methods of production, at which the human factor
is essential, without changing to any degree the ultimate dependence
upon it.
The impressive thing is not that some men recognize the im-
portance of the individual worker, for this has always been true of
some; it is that such recognition is so rapidly becoming general, since
it has been so long delayed. Yet the causes are obvious. Power
can be produced for A and Z with little variation in cost to either.
Plant design has been standardized until one can gain small advan-
tage over another herein. The same mechanical equipment can be
secured by one as by the other. There is no longer marked advan-
tage possible to the thoroughly progressive house over another,
equally progressive and intelligent, in the securing of raw materials,
in the mechanical processes of manufacture, or in the methods of
promotion and distribution. Wherein lies possible advantage of A
over Z in the competition between them? Or the question may read
for Z, how may he retain his prosperity in competition with A?
This is one phase of the compelling logic which is leading to the
study of problems of employment.
It becomes increasingly evident that the statement frequently
made is universally true, if interpreted broadly, that the interests of
employer and employee are inextricably bound together.
The social significance of questions relating to the mutual
interests of employers and employees is so great that these could
not have been much longer kept subordinate under any circum-
stances; but the utilitarian advantage to employers, individually
112
The Functionalized Employment Department 113
and collectively, of scientific study of these problems has become so
plain that the present general interest in them among industrial
leaders can most positively be ascribed to the fact that, whatever
else they are, they are a vital concern of good business.
It was logical, when industrial management reached the stage
that its practices could be defined, and the preliminary studies made
to separate the good and the bad, in course of reducing such man-
agement to a science, that attention should have been focussed first
on processes, machines and buildings. These things needed to be
right before the worker could realize his possibilities. It is to be
recognized, however, that though the word "efficiency" came into
wide use during this stage of dealing with inanimate factors, the
word is entitled to the far broader significance which carries an
import of all-around effectiveness. Industrial efficiency, under
proper definition, does mean and must be understood to mean right
workers and right conditions for them as distinctly as right machines
and conditions designed for their best operation.
This is the broad principle on which the functionalized employ-
ment department has been established. It is simply the applica-
tion of the same reasoning to finding and maintaining the labor
supply that has already been applied in industry to problems of
building, equipment, mechanical supervision, and the methods by
which business is despatched.
There is this greater difficulty in establishing a functionalized
department for employment and correlated responsibilities than
in establishing a department for almost anything else, that how-
ever frankly men will acknowledge limitations on some sides, few
will admit or believe that they are not particularly perspicacious
in their judgments of men. This is particularly true of those of cir-
cumscribed vision, whose advantages have been few and whose
opportunities for developing breadth in their mental processes have
been limited, as is the case with many minor executives or sub-
foremen. Such an one feels, perhaps not unnaturally, that his
prestige with the new employee is impaired if employment is
secured through some department outside his own. Moreover, he
is likely to ascribe to the employment department no other basis of
appraisal than he himself has used, and with this as a premise, he
argues that his own intuition is better than that of one who lacks
his own intimate knowledge of the work for which he is responsible.
114 The Annals of the American Academy
Almost invariably, too, he fails to value to reasonable extent the
loss to his own work which comes from the waste of time involved in
interviewing and employing, even if he undertakes to do this with
such care as that of which he may be capable.
Too much emphasis may not be placed, however, on the diffi-
culties incident to establishing the employment department, for
the foremost concerns have so definitely accepted the principle that
it is bound to be accepted generally. It should simply be recognized
that such a department cannot fulfill its function to become a large
contributor to the success of the business unless it be given recog-
nition and endorsement sufficient to gain for it cooperation from the
departments with whose problems of personnel it must be in con-
tact. A large responsibility rests upon the employment department
to work carefully and considerately, with open mind and apprecia-
tion of the problems of others; but even so, occasional support in
the way of instructions from above will be needed to give the de-
partment access to some parts of the field wherein its work should be
done.
This raises the question as to the place of the department in
the organization. There can be only one answer, if the installation
of the work is made in good faith — it must be in direct contact
with the topmost management, where its problems can be passed
upon promptly and decisively by ultimate authority, if issues arise.
More important than this, the creation and establishment of such
a department in a business should mean that the avenues of com-
munication between those in the ranks and those at the top, which
too often have become closed as a business has grown large, are to
be re-opened. If this does not become true, the potentiality for
good in such work can never be more than partially realized.
It is a duty that distinctly belongs to the employment office,
to cultivate sympathetic knowledge of the opinions of workers and
to bespeak these to the management. All industry is so set up that
the word of the management can be quickly and easily transmitted
down. It is no less of consequence to those above than to those
below that some agency exists for facilitating the reverse process.
Industrial efficiency could not have been so definitely advanced
as it has been without gigantic accomplishment in gathering data,
codifying it, and the establishment of systems to realize benefits
from the lessons learned. It is useless to expect that great businesses
The Functionalized Employment Department 115
can be conducted without a great mass of prescribed routines
designed for the greatest good in the majority of cases. But it is
true that the necessary struggle for uniformity and system has
involved the limitation of individualism to standardized types to an
extent that raises some serious questions.
It is impossible to set limits to the advantages which may
accrue to a business from such attributes of personality among its
men as loyalty and enthusiasm, and yet personality cannot well be
standardized. Herein the employment department needs particu-
larly to be on guard in its own work. It must steer between the
danger of following the foreman's method of picking men because
he likes their looks or their manners, and a method so systematized
and impersonal as to have eliminated all individualism.
It is for this reason that great caution is needed to avoid blind
acceptance of methods from among the various systems evolved
by the less careful industrial psychologists or advocates of character
analysis. Much along these lines has been established which ought
to be known and utilized to reasonable extent in the employment
office. It is surely true that certain physical types are particularly
adapted to certain forms of manual labor; it is as true that certain
mental types have especial aptitudes which ought to be recognized
in assigning them to work. Experimental psychology has taught us
how to determine the mental defective and the moron, and is
capable of doing far more for us. But there is a refinement of system
proposed by some that is neither commercially profitable nor
ethically sound, in that on the one hand, at large expense, it attempts
the standardization of personality, and on the other, it accepts un-
duly a theory of predestination which would largely limit the oppor-
tunities for proving individual worth.
There are, however, no differences of opinion concerning the
desirability of standardization of jobs. This is not properly a respon-
sibility of the employment office, but knowledge of what the re-
spective standards are is one of its vital needs. If the data have not
been gathered and made available, one of the most essential moves
for the employment office in the establishment of its own work is
to undertake such a survey of requirements of the work and oppor-
tunities for the workers in the respective departments and sub-de-
partments as brought together will give a composite of the whole
plant. Such a survey need not be made obtrusively nor need it
116 The Annals of the American Academy
become a nuisance to department executives. It will necessarily
involve the expenditure of considerable time. But it is worth
while doing, even if it has to be done very quietly and very slowly,
for while it offers the most fundamental data for employment work,
it likewise often shows such inconsistencies in practice that a com-
pany can markedly raise its average of efficiency, if only it brings
the departments of lax or faulty standards somewhat up towards
the grades of those which are being well administered.
Such a survey in its elementary form should show at least such
facts concerning the respective departments as preferred sources
of supply for new employees, education or special training required,
any special attributes desired, initial wages paid, opportunities for
advancement in position and possible wage increases, working
conditions and working hours, and labor turn-over.
The term ' 'labor turn-over," which has recently come into gen-
eral use, even now is not fully understood by some, and is perhaps
best described by the more brutal phrase in general use, ''hiring and
firing." The annual "hiring and firing" figures represent the per-
centage of labor turn-over. For instance, if a company maintains
a normal labor force of a thousand people, and is obliged to employ
annually a thousand to compensate for those who leave or are dis-
missed, the labor turn-over is 100 per cent.
Probably no greater argument for the establishment of a f unc-
tionalized employment department in many companies could be
made than to induce a study of the labor turn-over figures. It is
not an unusual experience to find employers who estimate the
figures of their own concerns at less than 50 per cent, when it
actually runs to several times that figure.
It is to be noted that such figures, though illuminating in them-
selves, need further analysis to be of major use. For instance,
seasonal demands may be such in the specified shop normally
enrolling a thousand hands that two hundred must be employed
periodically for a few weeks and then dismissed, their places again
to be filled in a few more weeks. If this happens five times a year,
the turn-over figures will be 500 per cent. The other extreme
would be a concern with such lack of knowledge of the money loss
involved in change that practically every job was vacated and filled
at least annually, when likewise the labor turn-over would be 100
per cent. Such figures are much too high, but they are not infre-
The Functionalized Employment Department 117
quent. They likewise are expensive, but while in the latter case the
concern in question would bear much of the expense, in the former
it is more largely imposed upon the community. Working men or
working women who, through no fault of their own, are deprived
successively, time on time, of the opportunities to realize their
earning capacities, inevitably suffer impairment of courage, self-
respect, and even moral fibre, the loss of which falls first upon the
community, but eventually upon industry, in the depreciation in
quality and spirit of the labor supply.
It is extremely difficult to know what can be done to remove the
seasonal element in employment needs in the majority of cases.
On the other hand, much would be gained if, by analysis and com-
parison, foremen and sub-managers could be shown the futility
and financial loss of the lack of comprehension which allows them
to discharge carelessly on caprice, or for the maintenance of that
perverted sense of discipline which they phrase as ''keeping the fear
of God in the hearts of their people."
There is so much advantage in having employees who know
the ways and routines of a concern that it would seem that, except
where dismissals are for sufficient cause, those suffering them would
be preferred applicants for positions elsewhere in the company call-
ing for like grade of ability. It is not often so, nevertheless, except
where a well-established employment office or its equivalent exists.
All too frequently, a reduction of work in one department of a large
manufacturing plant will send workers out under dismissal, while
some other department of the same plant is seeking additional help.
A rule which has been established in some large plants, and
which has worked advantageously, is that no department can dis-
charge an individual from the company's employ; it can only dis-
miss from its own work. In effect, this subjects the case to review
of some higher official who holds the power of final discharge, gives
the employment office a chance to utilize the experienced employee
elsewhere, if of proved capacity, and acts as a healthy check on the
impulsive high-handedness of certain types of foremen and sub-
managers. Another rule which works to somewhat the same effect
is to require advance notices to be filed with the employment office
concerning projected dismissals, together with the reasons therefor.
Other statistics which will interest the progressive employer
may be compiled, showing the degree of permanency of the labor
118 The Annals of the American Academy
force — thus, the percentages showing what proportion of the total
enrollment has been employed less than a year, what proportion for
between one and two years, and so on. Not infrequently it will be
found that these figures reveal employment conditions quite apart
from the theories of the head of the house and contrary to his belief
as to how his business is being run. A manufacturer employing
about four thousand men told me recently that he had genuinely
believed that a large proportion of his men had been with him from
ten to twenty years, only to find from such a statistical table that
50 per cent had been there less than two and a half years.
Incidentally, it may be suggested that some of the easy generali-
zations which have been made from time to time in regard to the
lack of stability of workingmen as groups, because of the presence
therein of so-called ''floaters," would be materially altered if it
could be known to what extent it had been beyond the volition of
workmen of unquestioned skill to remain permanently placed. In
general, the handling of dismissals has been dictated by the intelli-
gence of sub-exec utiyes rather than by the intelligence of the man-
agement, and there has been no supervision from above.
The functionalized employment department is dependent, for
successful accomplishment, in particularly specific ways upon the
smoothness with which its work can be made to articulate with other
functionalized departments, such, for instance, as the accounting
department, the schedule or routing department, and other like
ones. It must rely on these for the data to prove much of its own
work, and in turn it may find within its perspective facts highly
important to them. Through the large number of its interviews,
it should come to have an unusually comprehensive knowledge of
current rates of wages for established grades of work. It ought,
furthermore, to come into position to know to what extent the law
of increasing returns will apply to additional rates of pay established
to secure superior ability.
It is probably due to the fact that the attention of industrial
leaders has been fixed in the past so intently on problems of power,
plants, and machines that so little practical recognition has been
given to the fact that the most efficient worker, even at considerably
increased cost, is far and away the most profitable. The most
obvious demonstration of this exists perhaps in the case of a shop
filled with expensive machinery working to full capacity, yet with
The Functionalized Employment Department 119
its production falling behind its orders. Would there be any hesi-
tancy if its management could have an option offered between added
efficiency and enthusiasm among its employees that would increase
its potentiality a half through the enrollment of its labor force on
the basis of capability to earn a largely increased wage, and the
alternative of the necessity of adding 50 per cent to its plant and
mechanical equipment? The truth is that seemingly there is not
yet any general understanding among employers that a high gross
payroll does not necessarily result from a high individual wage, or
expressed in slightly different terms, that the cost per unit of pro-
duction may be larger the lower the rate of pay to the individual
worker.
A somewhat analagous principle is involved in the matter of
working hours per day. The old-time practice indicated a theory
that if so much work could be accomplished by a working-week of
sixty hours, 20 per cent more could be accomplished in a working
week of seventy-two hours. Reduce these figures to fifty hours a
week as compared to sixty, and the theory does not seem to have
been so completely discarded even now. Yet the facts are available
from modern investigations of the physical and nervous reactions
from fatigue, lack of variety incident to refinements of methods in
specialization, and want of time for recuperative processes, to show
that up to some definite limit actual gross production may increase
under reduction of hours; or that up to some other limit a much
larger proportionate production per hour of work may be secured.
Moreover, these arguments have been proved again and again in
the actual operations of progressive companies.
It is not to be understood that the employment department
does have or should have final authority to govern these policies.
But the department is in a position to study and compile data regard-
ing these problems as very few other departments can; and either
in initiating or contributing to investigations of all such matters
affecting the human relations, it has opportunity for rendering the
most valuable kind of staff service to the general administration
and to departments associated with itself.
Industrial efficiency, with all its vital importance, is yet a
means to an end, and not the end itself. It is the quality or manner
by which a highly desirable result is to be accomplished, but it is
not the result. It has too often happened that an earnest advocate
120 The Annals of the American Academy
of efficient methods has become so engrossed in the technique of
his profession as to ignore its purpose, to the consequent detriment
of the general cause.
So it may be too easily with functionalized employment work.
An office may be set up under the direction of a master of system,
which in its operation shall be a model of method. Interviewing of
applicants filling out of skillfully devised application blanks and fil-
ing them, and creation of numberless card records may be so con-
ducted as to show these things to have been reduced to an exact
science, and yet the value of the department remain problematical.
Of course, no effort must be spared to have the ways devised
by which the best possible candidates shall be offered and chosen for
the respective kinds of work. But the work is incomplete if it stops
here. The good of the business is the criterion by which all accom-
plishment must be judged. If a high grade of labor has been secured,
the company's interests demand that the environment, the condi-
tions and the opportunities shall be made such as to hold it. The
employment department cannot omit any legitimate effort to
influence policies to this end. It must work helpfully and under-
standingly with other departments, without pride or arrogance.
But it must work unceasingly with clear vision toward the goal
of making its distinct contribution to the company's prosperity
through the improved human relationships which it may help to
develop.
THE NEW PROFESSION OF HANDLING MEN
By Meyer Bloomfield,
Director, The Vocational Bureau, Boston, Massarhusetts.
For more than three years a new type of association dealing
with the problems of hiring and developing employees has been at
work in Boston. During 1911, the Vocational Bureau of Boston
invited fifty men, who had in charge the hiring of employees in
large shops and stores of the city and vicinity, to come together and
consider the advisabiUty of meeting regularly. As a result, the
Employment Managers' Association was started.
The aims of this association are described as follows in the
constitution :
To discuss problems of employees; their training and their efficiency.
To compare experiences which shall throw hght on the failures and successes
in conducting the employment department.
To invite experts or other persons who have knowledge of the best methods
or experiments for ascertaining the qualifications of employees, and providing for
their advancement.
It will be seen that the aim of this new association was to
provide a professional medium for the exchange of experiences in
a field where little interchange of ideas had taken place; to study
the human problem in industry on the bfisis of fair dealing with the
employee. In short, there was a conscious effort to make indus-
trial practice square with the dictates of twentieth century en-
lightenment.
Since the starting of the Boston organization, the cities of New
York and Philadelphia have formed similar societies. The present
indications are that a country-wide extension of such organizations
will take place, because the idea underlying them appears to be
fundamental, and in accord with the aims of both industry and
social service.
If such extension, then, of employment executives' associations
should take place, the time is opportune to consider their purposes,
and their possible contribution to right industrial relations. Bear-
ing in mind the fact that the original effort for such type of associa-
121
122 The Annals of the American Academy
tion came from an institution whose chief aim is the promotion of
opportunity, the trend of development in such associations should
be along the line of enlightened thinking in modern industrial or-
ganization. If their growth remain true to the initial aims, such
associations are in a position to help unravel the tangled problems
of misemployment, underemployment and unemployment, and the
waste of human capacity in general.
When everything that present-day science can suggest in the
way of improving technical efficiency in systems of cost-keeping,
equipment, machinery and material has been adopted, the biggest
of all industrial problems still remains to be faced.
This is the problem of handling men. Every thoughtful em-
ployer knows that managing employees, selecting, assigning, direct-
ing, supervising and developing them, is the one phase of manage-
ment which is most difficult and complicated; and it is the one
problem in industry which has in the past had least consecutive
thought bestowed upon it. Not that employers have been unaware
of the size of this task. Experiment after experiment has been
tried with varying results, all of them aiming at the goal of welding
the working force into a stable, dependable, and well-assimilated
organization. And yet such organization is rare in modern industry.
Figures as to the change in the working force of various estab-
lishments are not easy to obtain, but enough are at hand to indicate
an enormous leakage of employees each year in the average store,
factory, and other places of employment. Many a concern employs
each year as many persons as its total payroll. That is, there is
a " turn-over '* of employees amounting to one hundred per cent.
The figures range from one-third to many times the total number
of employees. How many employers have figured out just what it
costs in dollars and cents to change an employee? How many have
estimated the cost in terms of organization, loyalty, steadiness and
esprit?
Obviously, an organization cannot be held together with ropes
of sand. The coming and going of employees on such a scale as the
data available would indicate cannot but prove a disintegrating
force, a foe to sound organization, a source of unceasing mischief.
Employers, of course, appreciate more or less clearly what all
this means. But few, however, have set themselves to study this
problem as it should be studied. Some have with unhappy results
The New Profession of Handling Men 123
expected miracle-workers to solve this problem, and have toyed
with strange employment schemes. Some employers have trusted
to sleight-of-hand performances in hiring men instead of dealing
with their big problem in the way they deal with other knotty
problems. If to psychology they must turn, a psychologist and
educator like Prof. E. L. Thorndike of Columbia, for example,
could have shown them that the application of science to the prob-
lem of handling men involved long and painstaking, not to say ex-
ceedingly laborious, investigation. There is no royal road to solving
the man-problem in industry. But there are ways, intelligent,
common-sense and practically understandable ways, of setting to
work. There are certain principles to be observed, methods to be
adopted and standards to be maintained in dealing with the question
of personnel, and adhering to these can alone insure a reasonable
degree of success. In any event the waste and friction now involved
in the average treatment of the hiring problem can be materially
reduced.
In the first place, the proposition must be firmly grasped that
handling employees is a serious business. Not everybody can or
should hire; not everybody can supervise men. But it is to the
employment department of the establishment that we must look for
a solution; to its powers, duties, functions and place in the scheme
of organization. And above everything else we must look to the
character, training, equipment and place of the man who does the
hiring.
It is at this point that thought can be most profitably bestowed.
A new conception is needed of the functions of the employment
department, and the qualifications of the employment superinten-
dent. Not every concern has a special employment department,
although the large establishments are giving up the system of hiring
by department heads, and concentrating the selection of employees
into a separate division. More and more the need is recognized of
functionalizing the hiring and handling of men. Without such
specialized treatment of this problem it is impossible to give the
matter the attention which it requires. Moreover, the power to
hire and discharge extended to a number of individuals has given
rise to abuses and frictions which have cost the employer dearly.
Nothing is more fatal to sound organization than such power with-
out adequate supervision. Petty executives should never be en-
124 The Annals of the American Academy
trusted with this vital function. Right relations cannot be secured
by such a method. Hiring men and discharging men are serious
affairs. Only big men can handle matters like these. Costly ex-
perience has settled this proposition. The human problem calls for
its solution the best men and the most expert consideration.
This indeed is a moderate statement. To pump the life-blood
through an establishment — this is what hiring men really means —
is no trifling matter. The quality of the working force determines
in the final analysis the quality of the organization, of its product,
of its success. Nowhere is this fact more evident than in the or-
ganizations which sell service; for example, department stores and
public service corporations. The point of contact between the
business and the customers is always through the individual em-
ployee. The medium of communication is that very individual.
The business is summed up as to its standards by this outpost in
the person of saleswoman, telephone operator, or car conductor.
Good will is made or unmade according to the type of representa-
tive. The larger the organization the more the units of contact.
Business may be essentially impersonal, but it is highly personal
in its service features. The teamster, driver, stenographer, floor
manager, claim adjuster and scores of others act in a personal sense
and with individual customers.
Who selects these people? On what basis are they selected?
Is it all guess-work? Is it possible to standardize the work of
selection? The business man who has not already asked himself
questions such as these will do so before long. The whole drift of
the time is in the direction of greater attention to the proper selec-
tion and supervision of the individual worker. It is no longer a by-
product of other responsibihties, this matter of choosing help. It
is no longer an inferior man's job.
The employment function is so important to good organization
as well as right relations that the hiring office must be looked upon
hereafter as one of the big departments of a business. Somewhere
in the scheme of organization provision must be made for a well-
equipped office to deal with the many problems concerning
personnel. Only through such specialization can the solution be
approached. In the first place, such office or department alone can
deal with the task of scientifically organizing the source of supply of
help. To depend on applicants at the gate, to hang out a want
The New Profession of Handling Men 125
shingle or to advertise through want columns or the medium of other
employees is too haphazard a method. Raw material is not pro-
cured in this way. Scientific purchasing requires a study of mar-
kets, testing out of material and figuring of conditions. There is
here no higgling and blind bargaining. The laboratory is frequently
used to render the final verdict in favor or against a certain purchase.
Why has the hiring of men been permitted to go on with less
systematic scrutiny? One reason has been the surplus, the labor
reserve. This will not long avail, first, because industrial condi-
tions and legislation are working to diminish, if not to wipe out,
the excess of appHcants for work on the fringe of every industry;
and second, because wise business management recognizes the good
sense of organizing the source of labor supply.
Source-organization assumes various forms. In the case of
prospective executives, some large establishments employ ** scouts,"
(not unlike those of major baseball leagues, who range the minor
circuits for promising players), who visit periodically the colleges
and other institutions and discover the men of promise. One of
the leading manufacturing companies of the country is noted for
its post-graduate business opportunities. Indeed, it has built its
entire executive force practically out of the findings of its scouts.
Another establishment recruits its rank and file from a careful can-
vass, a block-by-block, and house to house visitation of neighbor-
hoods. One of the leading department stores in the East has made
special arrangement with the high schools of its city and suburbs
to send during Saturdays and vacation periods boys and girls for
try-out work. They are fairly well-paid during the probationary
period. When they have finished their school work, positions are
awaiting them, based on the observations and the records of the
employment department which is charged with this duty.
The source of supply, then, is the first job of a properly organ-
ized employment office. Ample powers are given such offices to
reach out and tap the best reservoirs. There is no reliance placed
on securing a competitor's help. The aim of such offices is to de-
velop its own material from the raw. Permanence of work is
secured by the fact that fitness for the work required is carefully
ascertained in advance. Discharge is not in the hands of a variety
of sub-bosses. Whim and prejudice are eliminated. The employ-
ment office aims to secure help that will find it worth while to stay.
126 The Annals of the American Academy
To help in the proper appraisal of the employee's qualifications,
the office keeps complete records, reports, observations and other
data. Each employee may consult the file belonging to him. His
story is on file, impersonal as a barometer. But the most important
record of all at the start, in the right sort of hiring office, is that
which begins with the application blank.
As one studies the application cards of various concerns the
reason for misfits becomes clear. So little analysis of the work
required has been undertaken that we have practically no specifica-
tions, no blueprints of job-requirements in order to enable an ap-
plicant to measure himself against the actual demands. Hit-or-miss
is the prevaihng method. Here we have one explanation for the
labor turnover. The hiring office properly managed knows that a
well-devised apphcation blank is one of its first tasks.
Some time ago the application blanks of fifty leading corpora-
tions were collected. If one cut off the firm names, there would
be difficulty in locating from the material the nature of the business
it pertained to. The blanks showed little understanding of the
specific requirements of the various occupations. There was Httle
differentiation in the questions asked. Employees cannot be prop-
erly selected on such a basis. Each estabhshment must work out
its own needs and demands and record them in the hiring blank.
No conventional forms will do, unless selection be wholly given up.
In brief, to one who observes the current practice of hiring
and discharging employees, the conclusion comes home with peculiar
force that in no other phase of management is there so much un-
intelligence, recklessness of cost and lack of imagination. On the
other hand, in the right organization of the employment scheme
there would seem to-be endless possibiUties of genuine service, a
service not possible even in the most benevolent of welfare projects.
The situation on the whole suggests the need of recognizing a
new profession in the organization of industry — the profession of
hiring and developing men. Executives will have to be trained
for this work as they are trained for other important responsibilities.
The employment manager, the executive within whose duties falls
the direction of the personnel, must be prepared for this work as
for a genuine profession. The handling of men in this century will
I call for unusual preparation in the way of understanding "and a
spirit of justice.
THE LABOR TURN-OVER AND THE HUMANIZING OF
INDUSTRY
By Joseph H. Willits,
Instructor in Industry, Wharton School, University of Pennsylvania.
While the social and economic doctors are holding clinics over
the ills that have flowed in the wake of the industrial revolution,
some attention may profitably be given to the question "Wherein
will industry humanize itself?" While we are pondering over the
whereabouts of the dividing line that separates those industrial
evils which can only be eliminated by a greater degree of paternal-
istic government regulation, from those other evils whose eradica-
tion is so profitable that it can safely be left to individual initiative,
it may be worth while to point out some spheres in the industrial
field where more efficient management is just beginning to realize
that there has been an unsuspected under-appreciation of the human
resources. In other words, this article will attempt to point out at
least one chief field where management is cutting down its own net
profits by its failure to show sufficient consideration and regard for its
employees.
To some extent management has been led into a general
under-appreciation of the human factors by the development of
machinery and the resultant simplification of tasks. Not long ago,
I heard a nation-wide authority on the subject of the human side of
industrial management, draw an analogy between war and industry.
In war, before the invention of gunpowder, cannon, etc., the individ-
ual in battle was of supreme importance. Victory depended upon
the strength and number of individual fighters. With the gradual
"improvement" of our implements of destruction, from the days
of the bow and arrow to the present seventy-five millimeter guns,
the individual, as the winner of battles, has seemed to lose importance.
The power of war machines came to accomplish a destruction ap-
parently beyond the efforts of either man-quantity or man-quality.
However, the experience of the present war has shown that, while
the big guns can knock to pieces any fortification, there are relatively
few places where the immense guns can be satisfactorily mounted.
127
V
128 The Annals of the American Academy
Without control of these positions, the big guns are of Httle value.
For the possession of such places the infantry must fight — man-power
must win. The unit fighter has again become the important factor
in the ultimate victory. The importance of the individual, ap-
parently hopelessly dimmed by the big machines of destruction,
again stands out as in the days of the bow and arrow.
A similar swing of the pendulum is to be noticed in industry.
Big business after the first rush of growing big and using big machin-
ery is beginning to wonder whether industry itself may not have lost
something by its blind attention to the machine at the expense of
the individual. The men with vision, who lead to the industrial
world, see more and more clearly that it is the strength, skill, and
willingness to cooperate on the part of the individual worker behind
the machine that determines whether we shall get 40 per cent or
50 per cent or 90 per cent efficiency out of our imposing equipment
of plant and machinery. Industry has failed to make use of its
human assets.
One of greatest losses of human resources is in the excessive
labor turn-over. By labor turn-over is meant the number of hirings
and firings in a plant and the relation which that bears in a year to
the total number employed. It is to this form of wastage of the
human resources that this article refers.
The waste that is involved in the excessive amount of hirings
and firings has been described as the '^ biggest waste that is occurring
today " in the human side of management. One Philadelphia manu-
facturer to whom I wrote sums up the situation by saying, ''You
have absolutely put your finger on the sore spot in manufacturing
today." One authority estimates that the average firm takes on
each year as many new hands as are included in its normal working
force — I. e., it has a hundred per cent labor turn-over. The best
large-scale study that has been made of the size of the labor turn-
over and the loss that is thereby involved, has been made among a
large number of employing concerns in the United States and Europe,
by Magnus Alexander, head of the training schools of the Great
Electric Company. Mr. Alexander's study,^ which covered firms
employing all grades of labor, shows that the number of employees
in the firms considered, increased during the course of the year 1912
' See address delivered before National Machine Tool Builder's Association,
New York City, October 22, 1914.
Labor Turn-Over 129
only 8,128 (from 38,668 to 46,796). Yet the records show that
during the same period 44J365 people were engaged, indicating that
36,237 people had dropped out of employment during the year. In
other words about five and one half times as many people had to be
engaged during the year as constituted the permanent increase of
force at the end of that period. Of all these people engaged, 73
per cent were entirely new employees.
Allowing for vacancies due to death, sickness and other unavoid-
able causes, as well as increases in the force, Mr. Alexander estimates
the number of necessary hirings to be at least 22,140. But, "What
should be said, however, of the fact that 22,225 were engaged above
the necessary requirements?" Basing his statement on approxi-
mate figures furnished by the firms under investigation, and divid-
ing the workers up into different groups, Mr. Alexander estimates
the loss incurred by these firms, through the unnecessary hiring of
employees, as approximately $775,000.
A study of a representative carpet firm in the Philadelphia
textile district shows similar results. In that firm, one-half of
all the persons hired in the period from 1907 to 1915 remained
less than ten weeks. Seventy-four per cent of all hired remained
less than one year. (See Fig. 1.) The foreman testified that
"hands didn't begin to do good work for eight w^eeks."
More significant than the actual cost of high labor turn-over,
is the fact that the average firm has no definite knowledge of this
cost and even very little appreciation of its existence. Firms have
frequently assured me, with some show of pride, that, "while
what you say may be true of some firms, our turn-over does not
amount to over 10 or 15 per cent." Yet, time and again, investi-
gation showed that the actual turn-over in these firms ranged from
50 to 100 or even 200 per cent. The lack of appreciation of this
human-resource leak by the Philadelphia carpet firm noted above is
illustrated by the fact that the records of employment-duration had
never been compiled, although the foreman kept a record of the
dates on which individuals entered and left the employ of the firm.
During the process of compiling these records, the foreman mani-
fested considerable interest; and, on seeing the results, remarked
"Who'd a'thought it?" Even more significant of the under-ap-
preciation of the size and cost of the labor turn-over, are the results
of a canvass made of firms on twenty squares of one of the leading
130
The Annals of the American Academy
wr.
t
4/,
^t
4/.
l-i^
9%
11^
--5 ,
^3 <«
2 Oi
it
5
1
IL
nl
a
74/*
UnJcr I vr
I to Zyean
Z'^o3 yean
jto4 yearj
Fig. 1 — Chart showing length of time male employees hired from 1907 tc
1915 remained in the employ of one representative Axminster carpet firm in
Philadelphia. The chart for female employees shows almost identical results.
Labor Turn-Over 131
streets in the textile district of Philadelphia. This canvass showed
that of the twelve firms interviewed, eleven had no idea or record of
the number of persons hired and fired during the year. The
twelfth was so small that the number of new hirings during the year
was easy to remember.
It is inevitable that, with time and especially as a result of the
awakening that is taking place in industrial management, ignorance
and disregard of this waste will gradually give way before a general
enlightened attack. There is no question but that it can be re-
duced if the serious attention of employers is directed towards this
problem. The experience of one Philadelphia firm in this connec-
tion is significant. In 1912 the firm was running with a force of
about 800, and during the year, hired 799. About this time the
firm began to realize the seriousness of the turn-over problem and
to make a definite attack on it. A steady reduction of the labor
turn-over resulted until, in 1914, although the working force now
numbered 1,000 employees, only 186 persons were hired during the
year. In other words the turn-over in three years was reduced
from 100 to 19 per cent.
The mere reduction of labor turn-over is fraught with the most
far-reaching human results. A 50 per cent reduction of labor
turn-over would, if general, diminish by half the flow of employees
from shop to shop; would diminish by half the frequency of the
heartrending, degenerating hunt for a job. How degenerating
this frequent shift from job to job is, may be illustrated by the case
that was told me of a man who was forced, through unfortunate
circumstances, to change his job eight times in the course of one year.
At the end of that time he drifted back to his first employer. This
employer ascertained that his efficiency had diminished by one-
half from that cause alone. A 50 per cent reduction of this torrent
of labor through factories, would mean a longer chance to acquire
skill in one job; a better chance for the development of a personal
relationship between employer and employee; and would mean,
finally, that the labor reserve of each particular industry would
be reduced, since the chance for the casual worker would be less.
Of even more significance than the mere reduction of labor turn-
over, so far as human results are concerned, are the methods by which
firms are attacking the labor turn-over leakage. Broadly speaking,
if employees are to be held by a firm, more consideration must be
132 The Annals of the American Academy
shown them. It will pay the employer to show more regard for
his employees' interests — a fundamental force toward the humaniz-
ing of business. This regard includes a wide category of things, all
the way from better wages to insurance policies and Maxfield
Parrish pictures.
From among this wide variety of devices, the four following
devices are selected as being the most effective in reducing labor
turn-over and the most potent for obtaining human results :
1 . Improvement in the methods of hiring and firing.
2. Improvement in the methods of training employees.
3. Reduction of fluctuations in employment.
4. Better wages.
1. The Methods of Hiring and Firing
The improved method of hiring and firing most widely recom-
mended is the transfer of the authority in part or in whole from the
foreman to a functionalized employment department ^ in charge
of a high grade man, directly responsible to the heads of the concern.
Anyone who has had the opportunity to inspect at close range the
duties and mental calibre of the average foreman, must at once
recognize that any step that will guarantee more intelligent super-
vision of the relations between the foreman and his employees,
especially in such fundamentals as the hiring and firing of help, will
work toward the humanizing of industry. A man of narrow ex-
perience and narrower mental concepts, this man usually has one
thousand and one other duties to perform so that the hiring of help
is purely an incidental thing. The result is that the job and the
man may or may not fit each other — to the mutual injury of em-
ployer and employee. An extreme illustration of the result of
leaving the ultimate power of hiring with the foreman may be found
in the case of the Philadelphia textile factory, which advertised that
on a certain day it expected to take on a number of weavers. On
the morning indicated, a large crowd of applicants had assembled.
When the doors opened, each of those in front rushed in and grabbed
a machine. That was all the ''choosing" there was.
The withdrawal from the foremen of the power of choosing the
new help means that the firm is taking more responsibility for seeing
that the square peg is put in the square hole so that it is better
' See Mr. Hopkin's article on page 112 of this volume.
Labor Turn-Over 133
satisfied to remain there. In short, the better run firms are appre-
ciating that a man in a misfit job means not merely a discouraged
worker and perhaps a mis-spent life but also a definite money loss to
them. Hence many firms are assuming the responsibility for in-
telligent vocational guidance.
The average foreman is just as incapable of human and efficient
firing as of judicious hiring. The foreman usually has risen from
the ranks and his view is correspondingly narrow, which means that
his sense of justice is apt to be low and his sense of prejudice high.
To preserve his own power, he is apt to retain favorites, and fire
good men because he sees in them possible rivals. He often feels
that he has to fire some one about every so often to keep the " Fear
of God in their hearts." The effort to establish supervision of the
foreman's acts, that will be close and intelligent enough to reduce
effectively the excessive firing, will necessarily involve a supervision
from the same intelligent source of all the personal relations of the
foreman and the worker. To realize the humanizing gain that will
result from bringing the greater sympathy and brains of the actual
heads closer to the workers, one must realize that a surprisingly
large percentage of labor difficulties are occasioned solely by mis-
understandings which arise from the arbitrary acts of some autocrat
foreman, and not by any fundamental conflict with the real heads
of the concern. How great this gain is, is illustrated by a few cases,
the like of which may be duplicated in thousands from our industrial
experience. An Illinois manufacturer "became aware of the real
facts too late when he discovered that a serious strike had grown out
of the arbitrary enforcement by a foreman of a useless foreman-made
rule that certain three doors must be kept closed." A high official
of one of the largest business concerns in Philadelphia once said, ** I
have seen my foremen do things over and over again that were
absolutely cruel. " A large lace manufacturer told the secretary of
the National Lace Weavers' Association that he had more strikes
as a result of the arbitrary and senseless acts of foremen than from
any other cause. The more progressive firms are realizing that
allowing the foreman, way down the line, to formulate the hiring
and firing policy of the firm is poor business.
Progress in this direction is only just beginning. Even the
existing functionalized employment bureaus are recognized as
being, "underpaid, under-manned, under-intelligenced, and under-
134 The Annals of the American Academy
equipped." Among the great majority of firms, the choosing of
help is still in the entire charge of the foremen of departments. In
the canvass of the twelve firms lying along twenty squares of one
street in the textile district of Philadelphia, eight left the hiring and
firing absolutely to the foremen, and three followed the same
poUcy with slight supervision by the superintendent, whenever the
foremen's methods should appear inefficient. In the twelfth con-
cern, the head of the firm did the hiring.
2. The Methods of Training Employees
The second general cause for an unnecessarily high labor turn-
over is the general lack of effective training systems. With the
simplification of work due to the introduction of machinery, we have
been carried away by the apparent lack of need for training. In
many, if not a majority of cases, the only training the employee
secures is the chance to watch some one else. I know of one textile
mill, which is representative of many, where the older weavers are
given $1.00 a month extra to ''train" new weavers. Not only do
accurate costs accounting methods point out that such a system
means low-grade work, spoiled goods, insufficient wages, and re-
duced output; but accurate employment statistics show that the
man on whom no effort has been expended to make him fit for his
job, is apt to be dissatisfied and, therefore, a ''rover." Here also
high labor turn-over is causing industry to adopt devices that have
a broader human application than the simple reduction of labor
turn-over.
S. Reduction of Fluctuations in Employment
In the third place, a sincere effort to reduce the labor turn-over
involves an effort to make the productive situation of a plant uni-
form or as nearly uniform as possible throughout the year, because
"part-time" or "time-off" is one of the chief forces contributing
to a high labor turn-over.
To the worker, unemployment is the most inhuman charac-
teristic of industry. What famine and black plague were to the
middle ages, so is unemployment to the modern industrial world. ^
In view of the almost total lack of any definite knowledge on this
subject, the figures of the New Jersey State Bureau of Statistics of
' See Miss Van Kleeck's article on page 90 of this volume.
Labor Turn-Oveb 135
Labor and Industry, which show that New Jersey plants ran at 74
per cent of normal operating capacity in the prosperous year of 1912,
may be taken as typical. Superficially, unemployment is a problem
of irregularity in production. That irregularity in production is
partly a question of distribution and partly a question of production.
To the extent that the small purchasing power of those who spend,
i.e., the working classes, makes it take four days to use what we
can make in three days, unemployment may be a question of dis-
tribution, of underconsumption. To the extent that this irregularity
in production is due to seasons, to changes in style, and the decadence
of certain industries, unemployment is a question of production,
of management. Obviously the increase of enlightenment in
management will call employers' attention more definitely to
the many losses from unemployment, one of the greatest of which is
the disorganization of the labor force. As the sense of this and
parallel losses spreads, the narrow and fatalistic concept of the
power of the individual manager over fluctuations in employment
will pass away.
The future attitude of employers toward the question of the
steadying of employment* and production is very well summed up
in the following statement by a well-known firm which made efforts
in that direction:
What we have accomplished in the direction of leveling the curve of seasonal
work has been done chiefly through the selling end.
Our business in jewelers' boxes used to be extremely difficult because prac-
tically all of the output was made to order and work could seldom be started until
May or June, and had to be completed weU before Christmas. Our factory,
therefore, used to be out of work from the middle of December up to the middle of
May, and so seriously over-crowded from that time on that poor service was fre-
quently given customers and our business considerably damaged. A few years
ago we began to make earnest efforts to get box orders in earher. After the first
year or so of re-adjusting, we found our customers more than willing to help in this
work so that today the majority of our orders reach us between the Ist of January
and the Ist of June. This requires facilities for holding the goods imtil the date
desired by the customer for shipping and of course ties up capital, but we are able
to keep experienced workers busy the year through, are able to give almost perfect
satisfaction in service to our customers, and through the consequent savings and
increased business the cost of carrying the goods has been covered several times
over.
* See Mr. Cooke's article on "Scientific Management as a Solution of the Un-
employment Problem," on page 146 of this volume.
136 The Annals of the American Academy
One striking effect which went way beyond our expectations was the improve-
ment in quality of our output, which under the old system suffered more than we
realized through the work of untrained hands and the crowding and strain of the
fall season.
Our line of Christmas specialties has been handled in the same manner,
though an easier problem, because none of these goods are made to order. Designs
for Christmas 1915 were chosen in July, 1914, then approved and laid out as to the
way they should be put up, etc., so that the sample run could be ready by March,
1915. The goods are then sold for fall deUvery and the stock manufactured during
the first six months of the year.
We have fomid it possible once or twice to add to our line an item or two that
could be made to fill in a gap in regular employment; for example, we introduced
Christmas cards printed with steel die in order to keep our die-printing crew at
work during a slack three months.
Again, we have made good progress by substituting stock items for specials.
For example, certain goods of a standard type, ordered periodically by our sales
end, were manufactured special as the calls came in — sometimes in dull times, but
more often during a rush period. By selecting certain lines and manufacturing
a sufficient stock during the dull months the situation has been greatly relieved.
The containers which are used for our merchandise were formerly made by us
at different intervals, but under the new plan the entire quantity is manufactured
during the first three months of the year. Many other moves of this sort tend
toward further relief.
Our problems are imdoubtedly easier than those of some other industries;
however, we feel from our experience that if the advantages of regularizing em-
ployment became appreciated by the employer, some possible steps will suggest
themselves and these will in turn further steps so that considerable improve-
ment, if not a big cure, can be effected.
4. Better Wages
It does not seem possible to avoid the conclusion that one of the
advantages necessarily resulting from the reduction of labor turn-
over, will be that of better annual remuneration. If this does not
come about through better rates of pay, it will come through the
greater efficiency of workers who result from the better training
systems; and through the steadier employment that will result from
the attack on the regular fluctuations of employment. It is worth
while to point out that one of the devices used by the Philadelphia
firm, who reduced its turn-over in three years from 100 to 19 per cent,
was a slightly higher scale of wages.
These are the chief internal organization methods used by
individual firms to reduce excessive labor turn-over. Outside of
their internal organization there is plenty of evidence that a new
Labor Turn-Over 137
attitude towards labor problems is coming about as the labor turn-
over education spreads. One of the most pregnant of these bits of
evidence is the formation in Boston, New York and Philadelphia of
associations of employers for the discussion and interchange of ex-
periences regarding employment problems.^ One of the primary
problems confronting these associations, in fact, the one which in
some cases furnished the potent argument for the formation of such
an association, was the problem of labor turn-over.
Another evidence of this significant tendency in modern in-
dustry is to be found in the work of Robert G. Valentine, of Boston.*
Mr. Valentine makes for industrial and commercial plants a " human
audit" that is comparable in every way to the physical and financial
"audits" made by the majority of firms. These audits show count-
less ways by which firms are incompletely realizing on their human
assets through sheer obtuseness in management, largely the result
of an incomplete knowledge and analysis of the actual facts within
their own plant.
How far these tendencies will carry us in the humanizing of
industry, we cannot say. They may, however, be sufficient for
justifying more optimism than is at times felt.
•See Mr. Bloomfield's article on "The New Profession of Handling Men,"
on page 121 of this volume.
• See article "The Human Audit" in Harper's Weekly, July 17, 1915.
A NATIONAL SYSTEM OF LABOR EXCHANGES IN ITS
RELATION TO INDUSTRIAL EFFICIENCY
By John B. Andrews,
Secretary, American Association for Labor Legislation.
"No one can today predict what the condition of the labor
market will be at the conclusion of peace, how and within what
period the flooding back of the soldiers to the workshops will be
effected, what branches of industry will adapt themselves to the
transition from war orders to peace orders most quickly and in the
most extensive manner, and what r61e the influence of the seasons
and the condition of foreign commerce will play therein." This
was the calm statement made when in February, 1915, six months
after the outbreak of the world war, a national conference of tech-
nical and employment experts met in Berlin, Germany. "The
development by law of free employment offices is a problem for the
solution of which measures must be taken even before the end of the
war," was the declaration of all discerning men in technical circles
in Germany as well as among those engaged in the administration
of employment offices. "These measures, too," it was agreed,
"should be taken as soon as possible in order that Germany may be
better prepared for the violent fluctuations in the labor market
which will occur at the termination of the war."
It was admitted that employment offices will properly fulfill
their task only when they connect the demand with the supply in
the entire labor market. In addition to this most important task
it was agreed that they must create a basis for a reliable permanent
census of the unemployed and must serve as a means of control of
and as an auxiliary organization to a system of unemployment
insurance. Moreover, the local organizations must be combined
into district federations, and these, again, must be connected with
a national central organization. And such an organization, it was
declared, will make it possible to know the changing demand in the
labor market and "to direct the shifting of the working forces which
in our present economic system has become a necessity. "
The hasty reader might infer from this that Germany has just
138
National System of Labor Exchanges 139
been awakened to the need of public employment offices. But, on
the contrary, no other country has had wider experience with these
institutions. No less than 323 local labor exchanges were in opera-
tion under public auspices in Germany at the outbreak of the war.
The importance of the work was clearly recognized. To this con-
ference in Berlin came representatives from the Imperial Department
of the Interior, the Imperial Statistical Office, the Central Organiza-
tion for Public Welfare Work, the Bureau for Social Politics, as
well as the presidents of about forty central federations affiliated
with the General Committee of the Trade Unions, and many
employment office officials. All differences of opinion were set
aside in order to achieve the great goal common to all, "the legal
regulation and development on a large scale of the procuring of
employment on the basis of self administration, under legal super-
vision, of all employment offices without exception.'* In other
words, Germany recognized the necessity of welding together into
a national system her scattered local labor exchanges, and the above
principles for legal regulation proposed by the German Section of
the International Association for Labor Legislation were unani-
mously adopted. "For the first time in many years," says the
editor of Soziale Praxis, "the entire German organized labor
world is here seen united and harmonious in favor of a great funda-
mental social reform, the successful fulfillment of which is in the
highest interest of the public weal and is even a necessity in the
interest of the welfare of the Empire and of the federal states. " ^
Great Britain, after a careful investigation of employment
bureaus in other countries, established her national system of labor
exchanges five years ago. Before the outbreak of the war there
were in operation 430 local bureaus of the British system staffed
by full time officers, with which were connected 1,066 local agencies
for the administration of unemployment insurance.
As the following table indicates, the number of applications for
employment, the number of vacancies notified by employers, and
the number of vacancies filled, have gone almost steadily upward
since the system was put in operation.
» SoziaU PraxU, Vol. XXIV, No8. 21 and 22.
140
The Annals of the American Academy
Operations op British Labor Exchanges, by Specified Months
Month
Applications
for
employment
Vacancies
notified by
employers
Vacancies
filled
March, 1910
March, 1911
March, 1912
March, 1913
March, 1914
March, 1915
126,119
142,382
178,317
209,901
222,204
213,464
47,811
72,650
95,862
99,089
137.908
20,395
37,711
55,650
68,783
74,578
99,188
^ Five weeks.
The following table shows the usefulness of the exchanges for the
first five years of their existence :
Operations op British Labor Exchanges, by Years
Applications
Year for
employment
Vacancies
notified by
employers
Vacancies
filled
1910^
1,590,017
2,010,113
2,423,213
2,739,480
3,251,646
458,943
886,242
1,286,205
1,158,391
1,425,174
374,313
719,043
1,051,861
874,575
1,076,575
1911
1912. .
1913
1914
* Eleven months.
The percentage in 1914 of vacancies filled to vacancies notified
was 76 per cent.
Both Germany and Great Britain, then, have made definite
progress toward the organization of their labor markets on a national
basis. What is the situation in America?
It is apparent to any one who knows anything about the sub-
ject that our labor market in the United States is unorganized, even
in ordinary times, and that there is a tremendous waste of time and
energy in the irregular and haphazard employment of workers. It
is this very great social waste which we are just beginning to appre-
ciate, but every method for overcoming it so far tried in America
has been painfully inadequate.
National System of Labor Exchanges 141
The first and simplest method of bringing workmen and work
together is by unsystematic individual search. A man not recom-
mended for a position by a relative or friend often follows the easiest
course, that which involves the least immediate expenditure of
money and thought. He starts from home and drops in at every
sign of "Help Wanted."
''Help Wanted," scrawled on a piece of cardboard, is the
symbol of inefficiency in the organization of the labor market. The
haphazard practice of tramping the streets in search of it is no
method at all. It assures success neither to the idle worker in his
search for work, nor to the employer in his search for labor. On the
contrary, by its very lack of system, it needlessly swells the tide of
unemployment, and through the footweary, discouraging tramping
which it necessitates often leads to vagrancy and to crime.
It is impossible to reckon the cost to the community of this
methodless method. Beyond the tremendous waste of time, there
is the waste incurred by putting men into the wrong jobs. The law
of chance decrees that, under such lack of care, misfits must be the
rule; and society now permits the daily process of attempting to fit
a round peg into a square hole.
A second common method of connecting employer and employee
is through the medium of advertising. About 2,000 newspapers
published in New York State carry every year some 800,000 columns
of ''Help Wanted" and "Situation Wanted" advertising, at a cost
to employers and employees estimated at $20,000,000 — an expendi-
ture of about $5 for every worker in the state. If the money spent
brought commensurate results, there would be less ground for com-
plaint. But at present an employer advertises for help in several
papers, because all the workers do not read the same paper. The
employee lists the positions advertised, and then starts on the day's
tramp. At one gate fifty or a hundred men may be waiting for a
single job, while in other places a hundred employers may be waiting,
each for a single employee. Unnecessary duplication of work and
expense by both parties is apparent. In addition to the expense,
newspaper advertising also possesses inherent possibilities of fraud —
210 formal complaints of this particular sort have been investigated
by the New York City Commissioner of Licenses in one year. It is
difficult for the newspaper, even if it always tries, to detect misrepre-
sentations, and misrepresentation breeds distrust. The victimized
142 The Annals of the American Academy
employee very rarely seeks legal redress. Either he is ignorant of
his rights, or the game is not worth the candle to a man who owns but
one property, labor, upon the continuous sale of which he is de-
pendent for existence.
Philanthropic employment bureaus fail mainly because of the
taint of charity which justly or unjustly clings to them, and have
become for the most part merely bureaus for placing the handi-
capped. Self-reliant workmen are inclined to shun such agencies,
and employers do not generally apply there for efficient labor.
Charging small fees or none at all, these offices are unable to com-
pete with the more active private agencies which spend large sums
of money developing clienteles among employers and employees.
Trade union "day rooms" and offices maintained by employers'
associations have to contend with mutual distrust, while their
benefits are at best limited to one trade or industry.
Private employment agents, doing business for profit, have
sprung up in large centers, no fewer than 800 of them being licensed
in New York City alone. While many of these operate with a
reasonable degree of efficiency, their general character is pictur-
esquely if not elegantly indicated by their soubriquet, ''employment
shark." In the year ending May 1, 1913, the Commissioner of
Licenses of the City of New York reported the investigation of 1,932
complaints against registered employment agents, resulting in nine
convictions, the refunding of more than $3,000 to victimized appli-
cants and the revocation of thirteen licenses. Among the worst
evils laid at the door of the private agencies are charging extortionate
fees, "spHtting fees" with employers who after a few days discharge
a workman to make way for a new applicant with a new fee, collu-
sion with immoral resorts, sending applicants to places where there
is no work, and general misrepresentation of conditions.
Public employment bureaus, designed partly as an offset to the
abuses of the private agencies, date in America from 1890, when
Ohio authorized the first state system. Today there are between
seventy and eighty such bureaus, maintained by twenty-three
states and by a dozen or more municipalities. These offices (with
one backward exception) charge no fee, maintain a neutral attitude
in time of labor disturbances, and fill positions, according to the
official reports, at a cost ranging from four cents to two dollars
apiece. In Wisconsin, where there are four state exchanges well
National System of Labor Exchanges 143
organized on the most approved lines, the cost in 1911 was about
thirty-five cents per position filled. In Illinois, during the twelve
years 1900-1911, there were 589,084 applications for employment,
599,510 applications for workers and 512,424 positions filled.
Illinois now appropriates over $50,000 a year for direct support of
its state labor exchanges, of which eight have already been estab-
lished. Illinois, in 1915, in reorganizing its public employment
exchanges, specifically provided for cooperation with employers
with a view to encouraging regularization of industry.
Notwithstanding the work of a few, these public bureaus are
still far from furnishing an adequate medium for the exchange of
information on opportunities for employment. Fewer than half
the states are represented. Many of the managers are political
place-holders of worse than mediocre attainments. Some of the
offices exist only on paper. A uniform method of record-keeping has
yet to be adopted. Statistics are non-comparable, and frequently
unreliable if not wholly valueless.^ There is practically no inter-
change of information between various offices in a state or between
states. In short, workmen are still undergoing want, hardship and
discouragement even though often within easy reach of the work
which would support them, if they knew where to find it.
Nor does the evil end there. Every one who has studied the
problem realizes that method and system in putting men and oppor-
tunities for work in touch with each other will not of themselves
prevent over-supply of labor or of jobs. They will do so no more
than the cotton exchange guards against an over- or an under-
supply of cotton. They will serve merely as levelers in the scales of
labor supply and labor demand. Besides the unemployment which
is due to the failure of men and jobs to find each other, there is
much due to other causes which even the best system of employment
exchanges would not directly eliminate.
But every one realizes that these other causes of unemploy-
ment cannot be successfully attacked without a basis in compre-
hensive, conscientiously collected information such as cannot be
furnished by our present machinery for dealing with the problem.
Under present methods there exists no automatic, cumulative means
for collecting the facts. That results, of course, in exaggerated
>Mr. Solon De Leon fumishcfl an admirable and crushing analysifl of existing
Statistics, in the American Labor LegisUUUm Review for May, 1914.
144 The Annals of the American Academy
statements in both directions. Our paucity of information on this
complex and vital question has continued, even though labor prob-
lems in one form or another have taken the lead as subjects for
legislation. Without a nation-wide system of labor exchanges, no
basis can exist for anticipating in an accurate manner the ebbs and
flows of the demand for labor. Without concentration of the in-
formation now collected and now held separately in thousands of
separate organizations throughout the land, the possibility of looking
into the future, or of profiting by the past, is out of the question.
It was a growing realization of the foregoing facts which in-
evitably led to the demand for a federal system of public employ-
ment bureaus. Such a system would cover the whole country.
Without superseding either the state or the municipal exchanges
already in existence, it would supplement and assist the work of
both, dovetaihng them with its own organization into an efficient
whole. Country-wide cooperation and exchange of information
would then be an accomplished fact instead of merely a hope. Sta-
tistics for the study of unemployment and for the progressive de-
velopment of new tactics in the campaign against it would be co-
extensive with the national boundaries and comparable between
different parts of the nation. The regulation of private agencies
would be a natural function of the federal bureaus, and the trouble-
some "interstate " problem would be solved by an interstate remedy.
Finally, the greater resources at the disposal of the federal govern-
ment would provide better facilities for carrying on the work than
the states could provide, and would command the services of more
able social engineers than are found in most of the state exchanges
at present.
The lack of cooperation, the failure to interchange information
of vital importance to workmen and employees, is one of the sad
features of the public employment bureau situation at the present
time. Here is a great field for the standardizing activities of a
federal bureau. The scattered pubUc agencies must be brought
into full cooperation with the federal system and with one another.
Information of industrial opportunities must no longer be locked
within the four walls of each office, but must flow freely to other
offices and to other states. In the hands of the proposed federal
bureau more than in any other agency lies the opportunity of bring-
ing order out of the present chaos. It could devise, in cooperation
National System of Labor Exchanges 145
with public employment officials, a standard record system, en-
courage its adoption by the various agencies, and assist them in
installing it. It could encourage the adoption of a uniform method
of doing business and of appraising results.
The suggestion of a national system of public employment
offices for this, perhaps the most highly developed industrial nation
of the world, comes not as an untried notion, but as a workable,
proved possibility.
Several bills, looking to the establishment for the United States
of a federal system of labor exchanges, were introduced in Congress
in 1914. Action was deferred to permit the federal Industrial
Relations Commission, which publicly announced that it had begun
work upon the problem, to bring in a bill of its own. But the federal
commission failed to do so at that or at the succeeding session of
Congress. Meanwhile, under limited powers and in response to the
growing public demand, the Department of Labor, in cooperation
with the Department of Agriculture and the postal authorities, has
extended its work and established the beginnings of a federal labor
exchange system with branches in various cities through the
country. But this development is admittedly inadequate. If the
United States is to compare favorably with Germany and Great
Britain in efforts to increase industrial efficiency through the estab-
lishment of a national system of labor exchanges, the importance
of the work must be appropriately recognized by Congress.
SCIENTIFIC MANAGEMENT AS A SOLUTION OF THE
UNEMPLOYMENT PROBLEM
By Morris Llewellyn Cooke,
Director, Department of Public Works, Philadelphia.
Thomas Carlyle in his Latter Day Problems has said that " the
'Organization of Labor' is the universal vital Problem of the world."
This seems to summarize my interest in scientific management.
I believe that through a genuine science of management we are
going to get more of what Mr. Carlyle had in mind by "organization"
than by any other grouping of industrial mechanisms or by any
other system of industrial philosophy.
Management, of course, must be both efficient and scientific.
But it must be democratic as well — ultimately every party at
interest must have a fair share in its conduct. Just as surely it
must be built essentially out of cooperation and not out of strife and
loss. And more important than all, the principles upon which it rests
must be grounded so deep in eternal justice and the fear of God as
to afford a basis for an ever-expanding idealism.
It is not necessary for me to argue that unemployment as a
social evil is not only always with us but is always widespread.
It has been responsibly estimated that the average annual periods
of unemployment are for instance: 25 per cent in the textile indus-
tries, as high as 40 per cent in the building trades, 6 to 12 weeks in
the shoe industry and 20 to 30 per cent among those engaged in
printing and binding.
A telling picture of the concrete results of unemployment in
the lives of men and women is given in a letter from Miss Mary
Van Kleeck of the Sage Foundation. The story of Rose, the little
Italian, who earns her living making artificial flowers, and who had
worked so many places she could not even remember the names,
makes one eager to help to bring science to the ordering of this
haphazard industrial regime. For weeks at a time Rose had no
work when she needed it most. This happened again and again —
each time apparently for a different reason. Her ups and downs
140
Scientific management and Unemployment 147
were without regard to the normal labor demand and in no way
occasioned by her own efficiency or inefficiency.
We did not need Rose's testimony that "I am awfully scared
they will lay me off. The worry makes my head ache so I cannot
sleep nights" to know that the "fear of unemployment" is one of
the worst — if not the worst — burdens carried by the working classes,
and doubtless a very potent influence towards national inefficiency.
This industrial disturbance which we broadly characterize as
unemployment is brought about by almost numberless different
causes, important and trivial, known and unknown, operating both
at home and abroad, both inside and outside the factory, and both
regularly and spasmodically. Any effort to reduce the total amount
of unemployment whether in the nation as a whole or in an industry
or in the individual factory presupposes an analysis in which the
effects of the several operating causes are clearly isolated for indi-
vidual attack.
"Steady employment" can be made very largely a problem
of the individual employer. It is true, of course, that the ebb and
flow of immigration, fluctuations in the tariff, general trade booms
and depressions, and such world cataclysms as the present war
bring about unemployment. But my theory is that the problem of
unemployment is a problem of good times rather than of bad times
and that say 90 per cent of all the unemployment which makes men
and women suffer and which demoralizes and degrades them can
be eliminated by proper organization vrithin our factory walls.
A good many manufacturers work on the theory that periods
of employment or unemployment are "wished on" us or come
largely as "Acts of God." So the stroke of lightning may be taken
as an evidence of a Divine dispensation. But this does not prevent
us from erecting lightning rods to guide this power back to Mother
Earth in such a way that no harm is done. In the same spirit
scientific management takes the hopeful view as to these interrup-
tions in employment. We say that unemployment is something
that must be reduced to a minimum — yes, removed from our indus-
trial system.
William Ostwald, the great German scientist and philosopher,
has pointed out that the change from a pseudo-science to a real
science only comes when we begin to use the knoA^ledge we have
as to the present and the past to build a future which we then proceed
148 The Annals of the American Academy
to make come true. The astronomer bases his predictions as to the
future on the race-long accumulation of data. But in doing so he
marks out the progress of events in which he has no part except
that of the observer. In the science of industry, however, we hu-
mans have the power — if we can get that point of view — to write
the formula for the future according as we see what will be for the
benefit of our kind. God give us the light then to see this future in
colors as glorious to the many as the past has been glorious for the few !
The principal bar to any large accomplishment in this field is
our inherited fondness for things as they are. Walter Bagehot has
said, "There are many persons to whom a new idea gives positive
pain.'' In another place he has pointed out how honestly we have
come by our dislike for change. Usage he describes as something
which antedates law. In some parts of China even today land
tenure without either ownership or leases is the rule. The ruler —
call him emperor or president — theoretically at least, owns the land
as well as the people. Of what use is a lease to a people that cannot
read and that is without law? Usage alone gives the individual
Chinaman his opportunity to till a certain piece of soil and thus to
eke out his subsistence. In a community like that even the tendency
to change becomes anti-social — a crime. If I were a Chinaman so
situated and I saw one of my neighbors begin to tie his queue in a
novel way, he would become my enemy and the enemy of my people.
Could I be assured that if he made a minor change in this matter
he might not change his ideas as to more important matters? Once
recognize the possibility of change in one individual and it might
become contagious. Then the fateful day eventually might come
when I would be told to get off my land — yes, and in the absence of
a lease and of law there would be nothing to do but to get off.
And this is only a picture of how society at one time or another
everywhere viewed change in the abstract. Bagehot has pointed
out how necessary it was in the development of the ideas of nation-
ality and community action for the race to pass through countless
ages in which change was taboo in order that we might acquire the
cohesiveness necessary for progress. So we all come honestly by our
antipathy to change. Therefore we can afford to be very charitable
to those who have difficulty in adjusting themselves to any new
order. Perhaps we may today justly anticipate that progress
among us will involve an ever-increasing rate of change.
Scientific Management and Unemployment 149
The crux of that phase of the unemployment problem which I
am discussing here is the acceptance on the part of the employer
of the responsibility within certain definable limits to keep a given
number of men and women steadily occupied and at regular wages.
The outcome will be the same whether the employer strives for this
result on account of a more or less altruistic interest in his employees
or on account of those money-making considerations which appear
to afford ample argument for it or because both of these motives
actuate him.
The goal for a given establishment is a definite number of
employees each working full time — without overtime — and at
maximum wages and with no changes in the personnel. This 100
per cent result is not possible of achievement but is a good standard
with which to compare such results as are attained.
Every industrial establishment should theoretically at least
give itself a rating as to the number of men and women it employs.
This figure will change from time to time and in a successful plant
will constantly tend to go up. But neither additions nor subtrac-
tions from this number should be made without more thought than
is usually given to it. After an industrial establishment has decided
to make conscious effort to keep a full staff fully employed; to add
to the regular number of employees without adequate reason may
just as surely operate against accomplishing this desired result as
it will to cut down the staff.
Again, employees must be allowed to earn full time, otherwise
there is no special gain through keeping the full complement ''em-
ployed'*— except possibly in the periods of greatest general depres-
sion where our efforts are usually reduced to keeping the industrial
ship afloat. (It has always been the custom in Philadelphia to lay
off for the three winter months most of the day laborers employed
by the Bureau of Highways. This year we kept them on even though
they could make only three days a week. If we had not done this
most of these men would have been compelled to go to the Emer-
gency Relief for aid.)
Frequent changes in personnel — even when the total number
of employees remains fairly stationary — is one cause of unemploy-
ment and constitutes perhaps the worst malady of American indus-
try. The average employer in this country hires and discharges as
many men in a year as he employs. When I first heard this state-
150 The Annals ot the American Academy
ment made by a national authority on the subject, Mr. E. M. Hop-
kins in charge of the Employment Bureau of the Curtis Publishing
Company, it seemed to be an exaggeration. But taken the country
over, the average man has to seek a new job once a year. In some
trades the rate of change is even higher. I am informed that in the
clothing industry the "hirings and firings" run from 150 to 250 per
cent of the total number employed. A wonderful record of improve-
ment in the matter of the labor turmoil is afforded by the experience
of the firm of Joseph & Feiss, Cleveland, Ohio, during the last
four years:
jo J Standard
^' Pay roll New Hands Per cent
1910 1,044 1,570 150
1911 951 807 86
1912 887 663 75
1913 854 569 66
1914 825 290 35
Of this I am convinced that any employer will be surprised
if he takes the trouble to get definite figures so as to see how many
men he actually put on in any one year in comparison with the
number he steadily employed.
This very frequency with which the average American changes
his employer seems to have suggested the undue importance as
mitigating agencies which has been accorded to labor exchanges —
municipal, state and federal. We need such exchanges undoubtedly
and we want them to be the most effective in the world. But at
best they represent only the beginning of the attack on the problem.
Again the statement is frequently made that it is up to the
government — federal, state and municipal — to provide work for
the unemployed, especially in times of great industrial depression.
Only a little figuring as to the amounts of money available for public
improvements will convince you that at best government work can
only be used to ease off the worst of the distress at the peak of
unemployment. And as long as we depend upon the statistics
furnished by labor unions and the charity organization societies,
we will never know when the peak occurs.
Where the work of an establishment is at all complex, it hardly
ever happens that we have for each employee just the right amount
of work of the kind he or she is best quaUfied to perform — there is
apt to be either a feast or a famine. Too frequently this condition
Scientific Management and Unemployment 151
is allowed to cause a break in employment. In fact this is probably
the principal cause of lost time for those having so-called regular
employment. Under scientific management this great cause of
economic waste can be cut out — largely through teaching employees
how to do more than one thing and at least reasonably well.
Our industrial establishments are constantly hiring people
in one department and laying them ofif in another. In the lower
grades this can be much reduced simply by having one employing
agency for the entire establishment. In the more skilled operations
a planning room and a well-developed system of functional fore-
manship^ (the foremen — or some of them acting as coaches or
teachers) are required before it is possible to teach people to do new
things quickly.
In front of a large clothing house in Philadelphia there is a
bulletin board on which the concern is constantly making known its
wants as to workmen and workwomen. It recently read:
Ticket girls Feller Hands
Sewers Canvas B asters
Girls Pressers
Edge Rasters
A large hosiery plant in Kensington has the following signs hanging
in the doorway ready to insert in the ''Help Wanted" sign:
Examiners Pairers Girls
Welters Loopers Winders
Boarders Folders Knitters
Menders Toppers Boys
The head of this mill was recently asked whether they ever used an
excess of one kind of workers to do temporarily another simpler
grade of work and the answer was "No." I am not familiar with
either the clothing or hosiery industries but I do not have to know
much about them to know that establishments advertising in this
way for "help" are not scientifically managed — indeed they are
pretty helpless. Obviously all the operations called for on this
schedule are so simple as not to require any segregation by trades.
Under even a relatively crude type of factory management it should
be possible to teach workpeople of average ability in a very few
days — if not in a very few hours — to perform any of these operations.
* Fully described by Mr. Taylor in Shop Management published by Harper
Brothers.
152 The Annals op the American Academy
To advertise for such detailed industrial ability is really ludicrous
judged by the every day assumptions of scientific management.
M. Freminville, a distinguished French metallurgist and manu-
facturer, has stated that the most remarkable thing he had seen on
a recent prolonged visit to this country was the way in which at the
Plimpton Press, Norwood, Mass., the management had taught the
women workers especially to do two and three different operations
in addition to what they considered their several specialities. Mr.
A. E. Barter, superintendent of this plant, wrote to me some time
ago in regard to this:
Many of our girls know how to operate three different machines and are
expert at one or more of the manual operations, such as pasting, gathering, hand-
folding, gold laying, etc. That they have this knowledge is due to the fact that
scientific management haa
First:
Demonstrated the advantage both to the firm and employees of training
workers to do more than one kind of work.
Second:
Made it possible to select employees who can learn to do the different kinds
of work efficiently.
Third:
Furnished facihties for training the people in the shortest time and with the
least effort.
Fourth:
Furnished an incentive for the worker. This incentive may be either financial
or the opportunity for advancement or both.
With these selected and trained workers, with a normal amount of work, our
regular employees will have practically no lost time even during the slack season
and their pay should average from 20 per cent to 30 per cent more than under the
old system. Workers properly taught soon become bonus earners. Having
earned bonus on one kind of work they "get the habit" and when put at other
work are not satisfied until they can earn bonus on the new job.
The training of workers to do several kinds of work efficiently, the central
control of the work and good routing make it possible.
A To do a certain amount of work with fewer employees.
B Reduce cost.
C Give workers a higher wage.
D Give workers more steady employment.
E What is, perhaps, most important of all, it stimulates and develops the
worker.
There can be no question but that without scientific management we could
Scientific Management and Unemployment 153
not have trained the workers to do the different kinds of work and they would
not have had as regular employment.
A convenient mechanism which assists in this work is an expense charge
symbol which we call "retainers." In case we have a high-priced employee and
give him work of a somewhat lower grade than that which he is accustomed to
p)erform, our cost-keeping system permits us to charge the excess up to "retainers,"
which latter is then spread as a general business expense over the whole product.
We use the same accounting device for taking care of the superannuated employees
who are no longer able to compete in the matter of output but the question of
whose discharge cannot be considered.
In Miss Van Kleeck's book Women in the Bookbinding Trade
is given a schedule of advertisements which were printed in the
New York World from July 1, 1908 to June 30, 1909, a period of one
year, in which those in charge of these trades in New York City
advertised for 1,064 people. Especially interesting is the fact that
they advertised for 26 forewomen. During this same year I doubt
very much if there was a single advertisement for help placed by
any concern operating under anything approximating scientific
management and I am quite sure that during the entire history of
the movement no one has ever advertised for a foreman or a fore-
woman. Our methods are so different that those trained in the
school of thumb-rule and personal opinion make very poor leaders
in an establishment where scientifically determined facts are the
guiding stars. Advertising for workpeople is usually — almost
invariably — an indication of poor management.
Among the other causes of unemployment which are more or
less directly caused by the individual employer (or the effect of
which may be almost fully counteracted by the efforts of the indi-
vidual employer) some of course operate entirely outside the factory
such as:
1. Seasonal demand
a. Calendars for instance are usually wanted for delivery in
December. It is customary largely to increase the finishing room
staff beginning late in the summer. Four girls put on for one month
in December require four times as much room as one girl put on
September first and four times the teaching. A minimum of plan-
ning and routing on this class of work has proven that so much of it
can be done during the late spring, summer, and early fall, that
very little increase in the force is absolutely necessary.
6. Again the demand for shoes is very largely a question of
154 The Annals of the American Academy
seasons. Printed as an appendix to this paper is a very remarkable
memorandum prepared for me by a splendidly managed shoe
manufacturing concern doing an annual business of somewhere
around $15,000,000 in which are summarized the results of ten years
of study of the unemployment problem. As a result of this work
they have more than one plant where the daily output has not varied
by more than one per cent over a period of several years.
c. School books are usually required in late August and Septem-
ber. Under scientific management one factory has worked out
arrangements with its customers and planned its manufacturing so
that nearly all overtime in the so-called "rush season" has been cut
out. Formerly a large part of the employees worked until 10 p. m.
during the six hottest weeks of the year.
2. Intermittent character of work
a. The work of stevedores incident to arrival and departure of
vessels. In work of this kind a central agency acting for several
different companies would tend to lessen the necessary periods of
unemployment — perhaps to almost remove them.
h. The mailing of monthly publications is another example of
this class of work. Our largest periodical publishing house in
Philadelphia has only recently put a stop to laying off its mailers
once a month by finding other things for them to do when not actu-
ally engaged in mailing. ^
3. Rise and fallin demand due to changes in style
a. The narrow skirts of a season or two past threw thousands
of women out of work. From the standpoint of scientific manage-
ment this great change and its effect upon the labor situation should
have been foreseen, and something planned by those leading this
industrial army whereby the great distress caused by the change
could have been avoided.
h. One shoe concern maintains four men on the road all the
time, — salesmen who do not sell, — in order to get the earliest possi-
ble advice as to changes in style and demand.
4. Inventions of new machines
a. One of the most enlightened labor leaders and most expert
machine type-setters in the country told me that he walked the
streets for nearly a year after the invention of the type-setting
Scientific Management and Unemployment 155
machine, peddling groceries and not always making $10 a week.
This was before someone waked up to the fact that having been a
good hand type-setter, he could probably be taught to be a good
linotype operator.
The following causes operate largely within the industrial
establishment itself:
1. Carrying a larger number of employees on the payroll than are
actually needed
a. In the Kensington textile district of Philadelphia this appears
to be the rule. An employer having a mill which running entirely
full might require 500 hands will carry say 450 on the payroll but
give work actually to 400. This means that on the average 50 are
kept reporting for work and are told to come back tomorrow or next
week. Since the most valuable hands would quit if they were
treated this way, it usually happens that it is the least efficient and
lowest paid men who get the unsteady work, thus adding to their
demoralization. I am informed that this intermittence of employ-
ment is so usual that in this district it has had the effect of making
hundreds of men living there really incapable of continuous work.
After they have worked " steady '* for a week or a month they lay
off of their own accord because they can't stand the strain. In other
textile mills while- they start the same number of men to work in the
morning the closing hour is advanced to four o'clock, to three o'clock
or even earlier, according to the amount of work on hand. Of
course these two arrangements are essentially the same and in the
end cause the same amount of unemployment. These practices
are followed in good times and bad. The Secretary of our local
Lace Weavers' Union (one of the most reliable labor men we have
met) reports that part time employment is so permanently the rule
among the lace mills, that in his opinion the average lace worker
has not made ten weeks on full time in the last five years. This is,
of course, in large measure due to the attempt of the employers to
hold as large a labor reserve as possible. The conditions which led
up to the Lawrence strike were very largely the same except that in
that instance it was a whole town where more men and women were
housed and held than could possibly be given work under any set
of conditions which might reasonably be expected to occur. Our
wide-open immigration policy frequently gives rise to the same
condition on a national scale.
156 The Annals of the American Academy
2. Frequent changes in standard production, according to volume of
orders in sight
a. A remarkable instance of this is an eastern locomotive build-
ing, concern which on two occasions within the last ten years has
laid off more than 75 per cent of its force almost over night. On
January 1, 1908, this concern employed over 19,000 men and six
weeks later had less than 8,000 working half-time. No industrial
community can absorb such peaks of labor supply, no matter how
efficiently it may be organized. I never understood how this could
occur until I was recently told that for years this concern has
regulated the number of its employees by the total volume of busi-
ness booked so many weeks ahead. Running a manufacturing
plant of the size of this one is too big a job for such simple arith-
metical rules. Such methods smack too much of acquiescence in
what is handed to you — too little of that type of optimism which as
President Wilson says "makes an opportunity out of every lemon.''
An army of 19,000 men has a right to demand more resourcefulness
on the part of those in command. The time will come when public
opinion will force resignations from the inefficient leaders of an in-
dustrial army just as it does from those who fail the nation in mili-
tary enterprises.
3. Lack of balance between different manufacturing departments
a. This is altogether a problem in scientific control both of
selling and manufacturing.
4. Lack of stock
a. Mr. Taylor developed fully twenty years ago what has since
become the standardized and fairly uniform practice of dozens of
establishments in the matter of purchasing, receipt and storage of
materials. Delays due to no stock or the wrong stock have been
practically eliminated.
5. Stock taking
a. I am constantly hearing of concerns in all parts of the coun-
try which stop all operation to take an inventory. Most of our
Philadelphia textile mills lose from one to two weeks a year taking
stock. One lace mill is now shut down for twelve days taking stock.
One cannot help being reminded of Lincoln's story of the steamboat
SciENTinc Management and Unemployment 157
which had to stop every time it blew its whistle. Stock taking
in this sense should be, of course, a thing of the past.
6. Lay off because employee has earned more through piece rate than
regular weekly wage
a. This a is a good example of those insidious and below the
surface causes of unemployment, of which there are many. If
Molly Brown happens to be rated as a nine dollar a week girl and
also happens by Thursday night to have earned $9.30 through hav-
ing what are called *'fat" jobs, she is frequently laid off by the fore-
lady. Or if the necessities of the work allow a so-called *'$8 a week
girl" to earn $16 in one week, she is very apt to be told to stay home
the next week so that for the two weeks she will average her regular
wage. This is the means frequently taken by those in charge to
maintain respect for inequitable piece rates. I have never known
a factory using piece rates where this device in some form is not
practiced. The only relief is a scientifically determined wage scale.
Then of course there are many causes of unemployment for
which the employee is principally or altogether responsible, such as:
1. Coming in late
a. By issuing late slips and making everyone coming in late
give a full, even if inadequate reason, this can be gradually cut out.
Raising the general efficiency of the individual employee has a bene-
ficial effect.
2. Illness
a. High wages and the type of discipline that goes with scien-
tific management invariably improve the health standard. A regu-
larly employed shop nurse can help a great deal in this matter.
One shoe concern some years ago figured the total expenses of its
shop nurse at 67 cents per employee. Concerns too small to have
individual shop nurses can share one, each paying a prorated share
of the expense. Thus, in Walpole, Mass., I know of four smaller
concerns which hire a nurse in common.
6. A "booze fighter" coming in on Monday and about 9 a. m.
determining that the factory is no place for him can usually be put
back to work by the nurse after a good dose of aromatic spirita of
ammonia. The man gets his wages, his family is spared the dis-
158 The Annals of the American Academy
grace of his return and the employer keeps his machines going.
Again an employee who coughs too regularly will soon hear from
the nurse.
3. Home conditions
a. A good social worker can keep many men at work by straight-
ening out all sorts of home tangles, which through her experience
she is able to handle with precision and efficiency.
4. Incompatibility as between two employees. Sometimes a foreman
is concerned
a. The establishment of an employment bureau in charge of
all ** hiring and firing" is the only logical solution of these com-
plexities. One disciplinarian for the entire establishment as advo-
vated by Mr. Taylor soon does away with the necessity for much
disciplining. Captain Benson, just made the operating head of
the U. S. Navy, when he was Commandant of the Philadelphia
Navy Yard, insisted that the case of every man who voluntarily
left the service of the yard should be investigated. He held that
it was almost an insult to have a man willing to voluntarily retire
from the service of Uncle Sam. Such leavings were usually the
result of friction or misunderstandings.
A good deal of money may be required, if you are going to be
able to really make an impression on this problem. You must be
ready every once in a while to pay for spoiled goods (I hear some one
saying "We have spoiled goods anyhow!") because obviously if
you are going to teach people to do new things they are not going
to be as adept when they start as they will be a little later on. And if
you are going to fine people for spoiled work while you are teaching
them you will not be a very popular teacher. Again, you must
be ready to put some capital into storing work ahead. This is
true for instance in the printing of school books where the principal
demand even for standard works covers only a few weeks in the
late summer. It is usually cheaper to pay a little interest on out-
lays for materials and labor and spread out the work and thus steady
employment than it is to have everybody working feverishly —
and at overtime wages — at the peak of the demand. It takes money
as well as effort to hold people worth holding. But if you are
going to make a ''good thing" of educating people in your plant,
Scientific Management and Unemployment 159
you must hold them after they are educated. It is a pretty expen-
sive game to teach the same thing over and over to different people.
This fact has been so thoroughly accepted by the largest
employers in and around Boston, Mass., that for several years peist
they have been supporting in larger and larger numbers a society
which has for its object the study of the problem of unemployment.
Recently similar organizations have been started in New York
and Philadelphia.
Perhaps our crude methods of determining costs should be
referred to as a factor in this unemployment situation. My friend,
Mr. Henry L. Gantt, one of the very ablest of the exponents of scien-
tific management, has recently said on this point: '* In the past it has
been pretty co amon practice to make the product of a factory
at a portion of its capacity bear the whole expense of the factory."
Mr. Gantt offers the theory that the amount of expense to be borne
by the product should bear the same ratio to the total normal
operating expense, as the product in question bears to the normal
product, and that the expense of maintaining the idle portion of
the plant ready to run is a business expense not chargeable to the
product made. As he says: " This latter expense is really a deduc-
tion from profits, and shows that we may have a serious loss on
account of having too much plant, as well as on account of not
operating our plant economically. " If it was possible to estimate,
it would be interesting to know the amount of idleness which might
result from a false concept such as that which Mr. Gantt is combat-
ing. Again, general trade price schedules in some industries and
especially in some localities operate so as to produce rather than di-
minish unemployment.
We are told that labor unions are opposed to work-people
being taught to do more than one thing — or perhaps only that they
discourage it. I have gone into this with a number of labor leaders
and I am sure that there is nothing in the labor union attitude which
is essentially antagonistic to the practice. The ground for this
feeling is that the unions — perfectly properly it seems to me —
have sought to guard against the use of this scheme by the unscru-
pulous to lower wages permanently, either for individuals or for
groups.
How many industrial plants with which you are acquainted
keep any record of the annual earnings of employees? Yet this
160 The Annals of the American Academy
is the one vital question that is supposed to animate you and me
almost more than all others put together. It seems to me that
any proper attitude toward the individual employee will almost
inevitably lead to the voluntary and at least tentative establish-
ment of a minimum annual compensation for each worker. If
this is done a quarterly report as to wages actually earned — a
quarterly payroll in which actual earnings for the period are con-
trasted with a quarter of the projected annual pay — will be a con-
venient device. The use of such an employees' record card is
another illustration of how scientific management does everything
in its power to avoid herding employees, or putting them all on the
same level; on the contrary we try to individualize them. We at-
tempt at least to establish in the factory the relations with which
we are happily as a nation so familiar in the home.
One of the most efficient safeguards of proper conditions in a
factory is publicity. And there is no place where publicity is
needed more than in this matter of the payroll. We can afford in
America to pay men and women what they are worth. It is good
business to do this. If some one else wants to pay any one of them
more than he or she is worth, it does you no harm to facilitate it.
Being an economically unsound practice, it does not happen often.
So I think it is altogether in the line of progress that some concerns
are opening their payrolls freely to those who may have a proper
interest in them. The fullest possible understanding in these
matters tends toward industrial stability.
A very primitive philosophy of salesmanship seems to be at
the bottom of a good deal of unemployment. Of genuine vision
as to finding markets and distributing product we have had almost
none. Mr. Farrell of the Steel Corporation, Mr. Ford of auto-
mobile fame, and the shoe manufacturing concern to which I have
before referred suggest the future. The selling end for some reason
has had too much authority in most concerns as compared to that
given to the manufacturing end. If orders so accumulate that
normal production in a given period must be increased by half,
the selling force expects the manufacturing end to be resourceful
enough to cope with the situation. Almost a minimum of effort,
however, is made by the salesmen of most establishments to bring
in orders so that the peaks of demand for deliveries are evened off
and manufacturing thereby assisted. Salesmanship has too fre-
Scientific Management and Unemployment 161
quently meant only selling to unwilling buyers or securing undue
margins of profit. No great business of course can be built on such
policies.
Attention should also be called to the fact that the separation
of the selling and manufacturing ends of a business makes for unem-
ployment. Time after time, Mr. J. H. Willits of the University of
Pennsylvania, who is studying this unemployment problem for the
City of Philadelphia, has been told by textile men in Philadelphia,
''We are not sellers, we are the manufacturers. That's enough for
one concern." So long as the manufacturer is content to sit and
take whatever orders are handed him and whenever they choose
to come, he is disregarding the power he has to regularize production
by regularizing demand, or at least planning ahead against known
irregularities in demand, so that production at least shall be regular.
Moreover, where the manufacturer has placed the selling all in the
hands of one agent, that agent selling the goods under his own
brand, not the manufacturer's, comes to represent his entire market.
The agent, therefore, dominates the manufacturer. Agents in
this position *'lay down" when hard times appear. As a result
the production curves of firms who have deeded away the control
of their selling, drop much more quickly when hard times occur, go
down farther and come up more slowly.
This lost control of the selling contributes to irregular employ-
ment in yet another way. Since the agent sells under his own brand,
not the manufacturer's brand, he can, without inconvenience to
himself divert the orders that he is giving to Manufacturer A to
Manufacturer B. Manufacturer A's whole trade is gone and
serious unemployment results before he can readjust himself.
The manufacturer who "farms out" his selling does not have
his ear to the ground. He is slow to readjust himself to changes
in demand. For example, the hosiery market in the last five years
has come to demand less and less heavy cotton goods and more and
more thin, imitation silk, or silk goods. The manufacturers who
are in touch with the market recognize this as a permanent change
in demand and have adapted themselves to it. Many who deal
through selling agents are still making thick goods. Unemploy-
ment must result from any such miscalculation of the market.
Especially in such periods of business depression as those
through which we have just been passing the average salesman
162 The Annals of the American Academy
becomes almost a fatalist and really assists to make the situation
worse. Perhaps if we had a keener sense of responsibility to keep
our people employed in good times as well as bad, we might have
keener wits to bring to bear on the problem of finding things for
them to do. Surely the growing size of our industrial units and
the widening sphere of industrial cooperation suggest a great field
for this kind of industrial adventure.
Such experience as I have had suggests definitely that a decided
business advantage accrues to those who pay high wages and give
continuous employment. To make such policies pay dividends,
however, requires men not only leaders with brains and vision
but men to whom effort and struggle are inseparable factors of any
successful industrial regime.
I cannot leave you however with the impression that scientific
management would lose interest in these measures for the doing
away with unemployment even if they did not promise larger and
more steady profits. In the long run these measures will neither
be adopted nor rejected on considerations affecting dividends or
wages, but on the one eternal question — are they founded in fair
dealing? All the moves on the industrial chess board are not
dictated by money considerations. Even the so-called "economic
man" is in these days laying on some human qualities. Indeed we
are beginning to realize that there are possibilities for romance
even in our factories. And both the employers and the employed
are more and more going to become interested in this quest as
science and mutuality of interest point the way.
APPENDIX A
Notes Regarding Unemployment in the Boot and Shoe Manufacturing
Industry
I. Unemployment
Resulting from:
A. Seasonal demand for product where employees are laid off and work
on short time for a considerable period.
Notes: In the majority of shoe factories, particularly in the large
shoe centers, this causes shoe workers to be unemployed for periods
ranging from eight to sixteen weeks per annum; in some cases more than
this. Many of the employees are laid off entirely but more often
are obliged to work on very short time and at greatly reduced wages.
Scientific Management and Unemployment 163
How Improved:
1. By education of distributors to a realization that in the long run
this lost time has to be paid for in the product and by getting
their cooperation with this Company by working on monthly
estimates, put in at the beginning of the season. In busy
periods customers who order above their previous estimates are
cut down on deliveries in favor of customers whose estimates
are not overrun. Customers are not held strictly to monthly
estimates, but failure to follow them is regarded as a sales
problem and is freely discussed.
2. By the manufacture of special goods, made up without orders
and sold through a special department created for that pur-
pose. This department sells goods only when allotted to it and
sells them through special distributing channels, giving special
values and special terms.
3. By distributing through both wholesale and large retail trade
whose dehveries come at different periods.
B. Frequent changes in standard daily production policy of factories,
according to volume of orders in sight.
Notes: Many factories have no standard daily production basis,
but change frequently, taking on or laying off help as needed. Roughly
estimated, this causes unemployment of from two to four weeks per
annum; in many cases much more.
How Improved:
1. By adopting and holding absolutely to a uniform standard daily
production basis for each factory. Many of our factories have
run for periods of several years, putting into the factory each
day a production varying not over one per cent.
2. When orders do not in a monthly period or block equal the factory
capacity, by filling in with special stock goods in small quanti-
ties, to be distributed through the special department pre-
viously mentioned. (See 1-A-Item 3.)
3. When goods needed to fill monthly delivery blocks are necessary,
by asking distributors to send in orders on staples to fill short-
II. Lost Time of Employees Through Daily and Hourly Interruptions
Resulting from:
A. Employees coining late; lost time inconsiderable.
How Improved:
1. By "In Late Pass System," a proper investigation by foreman,
and discipUne where needed.
B. Employee going out or being laid off early, due to lack of work or stock.
(Estimates lost time two to five weeks.)
164 The Annals of the American Academy
How Improved:
1. By organizing material purchasing and supply system, based on
pre-determined sheet system, which gives purchasing Depart-
ments ample time to purchase all material to exactly meet
daily requirements, and to know absolutely when goods must
be delivered in the various departments to meet the product in
which this material will be needed.
2. By adopting a pre-determined standard daily production and by
holding rigidly to it, foremen are enabled to compute accurately
the number of employees needed on each job.
3. Pre-determination of employees needed on each operation is
facilitated by fact that all work is piece work, based on stand-
ard average production of operation.
C. Lost time due to fluctuation on special operations or in special depart-
ments, due to variation in the class of product. Estimated lost
time one-half week. Estimate ten per cent of employees lost five
hours a week, fifty weeks a year, equal one-half week.
How Improved:
1. By system of routing work into factories, not only uniformly in
pairs per day, but also uniformly in pairs per day in certain
types of product, such as Patent Leather Shoes, Bluchers, Tan
Calf, Button Boots, etc. Where production on these items varies,
whole operations or departments may work under badly fluc-
tuating loads. By routing such types of work into the factory
at a uniform rate per day for pre-determined periods these
operations are given a steady production, as well as the opera-
tions through which the total production passes.
There are many other ways similar to the above by which unemployment
problems on special operations or departments can be wholly or partially solved.
By keeping constantly in mind the necessity for steady employment it is usually
possible to bring about good, or reasonably good conditions.
To secure vacations for employees the entire business is shut down for the
Fourth of July week, giving employees an opportunity to get rested just before
the hot weather.
June and November are our most difficult months. We formerly closed four
days in June and four days in November for stock taking. This was discon-
tinued several years ago. Except for this inventory period there have been only
one or two seasons in ten years when factories have been closed, and then only for
one- to four-day periods.
SIMPLIFIED COST ACCOUNTING FOR MANUFACTURERS
By Walter B. Palmer,
Special Agent, United States Bureau of Foreign and Domestic CJommerce.
The object of conducting business is to secure profits. Nothing
that relates to manufacturing is of more importance than ''costing."
Efficiency rules may be applied in an excellently equipped factory,
but, unless the proprietor has an adequate cost-finding system, he is
liable to suffer financial loss. If he does not know, with a close
degree of accuracy, what the different articles he manufactures have
cost, and at what prices he can afford to sell them, he is not in a
position to meet competition intelligently, and he invites business
disaster. Under conditions as they existed formerly, he may have
been satisfied with the profit earned on his whole line of products,
as shown by his annual balance sheet, but in these days there is the
keenest competition in almost every line of manufacturing, and the
survival of the fittest is the inexorable law of the business world.
Even if a manufacturer is satisfied with his yearly profit, which his
balance sheet shows, he should know on which particular products
he is making the most profit, and on which he is making only a
narrow margin of profit or losing money. Intelligent costing would
enable him to distinguish between the profits on different products,
to discontinue the manufacture of products sold at a loss, to limit
the sales of products on a small margin of profit, and to give more
attention to the manufacture and marketing of products on which
the largest profits are realized.
Cost accounting is especially important for manufacturers with
small or comparatively small capital, in order that they may meet
the severe competition of those who manufacture on an extensive
scale. As a rule, the large manufacturers have, not only the most
improved machinery and most efficient methods of production, but
also very accurate cost-finding systems.
The comparatively small manufacturers have not been so slow
in equipping their factories with up-to-date machinery and in adopt-
ing efficiency rules as they have been in planning a system by which
they could know the actual costs of their different units of produc-
166
166 The Annals of the American Academy
tion. Any investigation of this matter which may be made will
show that an amazing number of American manufacturers have
practically no costing system or only the crudest sorts of systems.
Most manufacturers know the cost of materials and the direct
labor cost for each unit of production, but do not intelligently dis-
tribute the general expense, or ''burden," or as it is commonly
termed the "overhead." Many of them add to the material and
labor cost for each unit what they think, judging from past experi-
ence, the charge for overhead should be, and fix prices accordingly,
but if they manufacture any variety of products, such guess work
will surely lead to a diminution of profit or to financial loss.
In recent years the profession of cost accounting has developed,
but the small manufacturers, constituting much the larger number,
have been much more backward than the large producers in adopt-
ing the methods of this branch of efficiency. They complain of the
fierceness of competition, yet do not avail themselves of a costing
system which would protect them against selling at a loss and insure
larger profits. Perhaps the principal reason for this backwardness
on the part of the small manufacturers is that they think they can-
not afford to pay the fees which are charged by efficiency experts
for installing cost accounting systems. A simple, inexpensive and
yet accurate costing system is one of the crying needs of the small
manufacturers today. Regardless of the expense of the installation
of a scientific system by professional cost accountants, some of the
systems are so complicated as to preclude their general use, because
they are beyond the grasp of the ordinary small manufacturer.
Many small manufacturers employ as bookkeepers men, and
often girls, whose accounting experience is so limited that they can
scarcely prepare a profit and loss statement or an annual balance
sheet, and who would be utterly unable to figure out an elaborate
system of costing. And yet, simple, practicable systems can be
adopted which come within the comprehension of inexperienced
bookkeepers, and by means of which a satisfactory knowledge of
the costs of different products can be obtained.
There are two elements of cost, raw materials and direct labor,
which can be ascertained for different units with close accuracy, and
these are usually the largest elements. Almost any manufacturer
knows just how much raw material is used in any unit, and knows
the cost of the direct labor. If he pays his employees on the piece
Cost Accounting for Manufacturers 167
price basis, he knows the cost of the direct labor per unit exactly.
If the direct labor, or part of it, is paid on the time rate basis he
generally knows, from records of production, the average time re-
quired by his employees to produce a certain unit. Knowing the
cost for materials and for direct labor, the problem is to find the
proper burden for general expenses to apportion to each different
unit. This is the great stumbling block in the way of an incredi-
ble number of manufacturers.
There are three systems of costing, all of them simple, which
are more or less used. They may be designated the quantity
method, the direct labor method and the prime cost method.
The Quantity Method
By this method the total general expense during the preceding
business period, that is all expense except for raw materials and
direct labor, is divided by the number of units produced, and the
quotient is added to the cost of materials and direct labor for each
unit. This may be expressed as follows:
Burden, last period
r; — ; — ; = Amount of burden per unit.
Number of units produced
If, for instance, during the last period the entire cost of manu-
facturing and selling were $100,000, and the raw materials cost
$50,000, and the direct labor $30,000, the burden amounted to
$20,000. If, therefore, 10,000 units were produced during that
period, the burden for each would be $2. Of course the amount
for raw materials used in the computation must be the amount
actually used during the last business period, and not the amount
purchased, which may be more or less, and this requires that there
should be inventories of raw materials at the beginning and end of
the period. The amount for raw materials, that is materials used
in the unit, should be kept distinct from factory supplies.
This method of costing is the simplest of all methods, and where
only one kind of goods is manufactured it is the most accurate of
all systems. A concern that manufactures only one kind of type-
writer, for instance, would not need a more perfect system, but
obviously this method is very defective if applied in a factory where
goods of varying values are produced.
168 The Annals of the American Academy
The Direct Labor Method
By this method the burden charge is made on the basis of the
cost of the direct labor for the unit, in the proportion of the total
cost of direct labor to the total amount of burden during the pre-
ceding period. This may be expressed as follows:
Burden, last period _
:,^r^ — -7-7 = Per cent of burden per unit.
Direct labor payroll
If during the last period the total direct labor cost amounted
to $30,000, and the burden to $20,000, a charge of 66.67 per cent
of the direct labor cost of the unit should be made for burden, that
is should be added to the cost of materials and direct labor for the
unit.
Where units are produced which differ in labor cost, this method
is much more accurate than the quantity method, but it is defective
where raw materials of different values are used in different units,
for the reason that under it the more expensive grades of goods
would not carry their proper proportion of burden.
The Prime Cost Method
By prime cost is meant the sum of the cost of raw materials and
of direct labor. By this method the burden charge is made on the
basis of the sum of the cost of raw materials and direct labor for
the unit, in the proportion of the total cost of raw materials and
direct labor to the total amount of burden during the preceding
period. This may be expressed as follows:
Burden, last period _ ^,
— — — : — -z-r = Per cent of burden per unit.
Kaw materials plus direct labor payroll
If during the last period the cost of raw materials amounted to
$50,000, the cost of direct labor to $30,000, a total of $80,000, and
the burden amounted to $20,000, a charge of 25 per cent ($20,000 -^
80,000) of the prime cost of the unit would be made for the burden,
that is should be added to the prime cost.
This method provides for the distribution of the burden on the
unit much more accurately than the quantity method, where ma-
terials of different values are used in different units, or where more
labor is employed on some units than on others; and this method is
more accurate than the direct labor method, where more labor is
employed on some units than on others. In costing by any method
a charge should be made against the cost of the unit to cover the av-
erage loss from waste and seconds.
Cost Accounting for Manufacturers 169
Any of the three methods which have been described are easy
of application, even by clerks who have little accounting experience.
Another method is, however, recommended as more accurate and
nearly as simple. For want of a better designation, it may be
termed
The Dual Method
The prime cost method is accurate for computing the burden
on units which vary in the cost of materials and the cost of labor
only when during the last business period the value of the products
equalled the amount of the net sales. There would be an inaccuracy
if the net sales amounted to more or less than the production, be-
cause the burden for the cost to sell should be computed on the
amount of the net sales and not on the production.
By the dual method the ratio of burden for the unit is computed
on the prime cost, during the preceding period, for indirect labor
and for factory expense, because these portions of the burden are
related to the amount of the production, but the selling expense
is computed not on the amount of production but on the amount
of the net sales. The ratio of burden for administrative expense
is also computed on the amount of net sales as the base, because
administrative expense is perhaps more nearly related to the amount
of net sales than to the value of the production, though this may
differ in different industries.
If, for example, the expenses during the last period were $50,000
for raw materials, $30,000 for direct labor, $4,000 for indirect labor,
$3,000 for factory expense, $6,000 for administrative expense, and
$7,000 for selling expense, making a total of $100,000, but if the
net sales amounted to $110,000, the percentage of burden for the
unit would be computed as shown in the following illustration:
Expenses, last period Per cent of burden for unit
Raw materials $50,000
Direct labor 30,000
Prime cost 80,000
Indirect labor 4,000 5.00 ($4,000 + 180,000)
Factory expense 3,000 3.76 ($3,000 + $80,000)
Administrative expense 6,000 5.46 ($6,000 + 110,000)
Selling expense 7,000 6.36 ($7,000 + 1 10,000)
Total 100,000
Net sales 110,000
170 The Annals of the American Academy
These percentages are used to find the burden for a unit which
is intended to be sold at $10, for instance, and the cost of which
for raw materials was $4.25 and for direct labor $2.55, as illustrated
below:
Raw material
$4.25
Direct labor
2.55
Prime cost
6.80
Indirect labor
.34
(5% of $6.80)
Factory expense
.266
(3.75% of $6.80)
Administrative expense
.545
(5.45% of $10.00)
Selling expense
.636
(6.36% of $10.00)
Waste
.043
(e.g., 1% of $4.25)
Seconds
.068
(e.f/., l%of$6.80)
Total cost
8.69
Profit
1.31
(13.1% of $10.00)
Selling price 10.00
As a matter of fact most goods are manufactured to sell at
certain prices, which are determined in advance, and if the specifi-
cations, for raw material and for labor are found to be too high to
allow a fair profit at the determined price, cheaper material or less
labor is used.
The dual method maybe varied by basing the percentage of bur-
den for indirect labor and factory expense on the direct labor cost, in-
stead of the prime cost, and it is claimed that for some industries,
where the materials used differ but little in cost per unit, this mod-
ified method is more satisfactory.
In order to compute the burden by the dual method, accounts
should be kept for the foregoing mentioned items, and they may
be subdivided as appears below:
Raw Materials
Direct Labor
Wages of all employees in manufacturing occupations
Paid to contractors
Paid to home workers
Total direct labor
Indirect Labor
Salaries of officials, chargeable to manufacturing
Wages of factory superintendent and foremen
Cost Accountihg for Manufacturers 171
Wages of designers
Wages of employees in sample department
Wages of other general help-machinist, clerks in factory,
(not general office), floor boys and girls, etc.
(not including engineer and fireman)
Total indirect labor
Factory Expense
Rent of space used for manufacturing and shipping departments
Power, heat (or fuel and wages of engineer and fireman), light, and water
Repairs on equipment
Depreciation of equipment
Fire insurance
Workmen's compensation or employers' liability
Welfare work
State, county, township, and municipal taxes
Other factory expense
Total factory expense
Cost of Administration
Salaries of officials, not chargeable to indirect labor or cost to sell
Salaries of general office force and auditor
Rent of general office
Office supplies, stationery, postage, telegrams, telephones
Insurance — other kinds than fire
Expense of collection and legal service
Bad debts
Corporation tax
Other administrative expense
Total cost of administration
Cost to Sell
Salaries of officials, chargeable to sales department
Salaries, commissions, traveling and general expense of salesmen
Wages of other employees in sales department
Rent of showroom
Packing materials
Cartage and freight outward
Advertising
Other selling expense
Total selling expense
Waste and Seconds
Loss from waste
Loss from seconds
Total
Such accounts can be kept very easily if a specially ruled ledger
is used. Some of the items under factory expense might not im-
172 The Annals of the American Academy
properly be entered under cost of administration, their placement
being a matter of opinion, but as these items are usually small,
the result in computing the burden on a unit would be little if any
affected by a transfer of them from one account to another.
In computing the proportion of burden for the unit on the basis
of production and net sales during the preceding business period,
the results would be more accurate if the profit and loss statement
were made semi-annually, instead of annually, and still more ac-
curate if such a statement were made quarterly. In making com-
putations by any method it should be borne in mind that the cost
of materials and direct labor, while usually the largest elements of
cost, are those which are most liable to fluctuation, and in calculating
the burden on the basis of the last period the differences in the cost
of materials and direct labor at that time and at the time the com-
putation is made should be taken into consideration.
When a manufacturer gets out new styles he must be particu-
larly careful in costing if all or any part of the direct labor is paid
on the time-rate basis. In making up samples for salesmen to take
out on the road he should make time studies of the several direct
labor operations, to ascertain as nearly as possible the direct labor
cost per unit. When the goods to fill the first orders received are
manufactured, he should check up his first computation by the
cost to manufacture in quantities, and if there is a difference, he
should adjust the selling price per unit accordingly. If it should
happen that his price for goods of a certain style, as given to the
salesmen, is too low to afford a profit, the earlier he checks up his
first calculation of the cost for that style, the less money he will lose.
While all of the methods of costing which have been described
are comparatively simple and inexpensive, and while for most fac-
tories one of these methods would be found entirely practicable and
satisfactory, it is not claimed that for a highly organized factory,
with many departments, any of these methods would be as accurate
as one which would be adapted to the particular needs of the plant,
and which might be devised by cost accounting experts after a
complete, careful study of the factory conditions.
In a highly organized establishment the departmental method
of apportioning burden should be adopted. Certain burden charges
should be made against the whole production of the factory, certain
charges against the production of particular departments only, and
Cost Accounting for Manufacturers 173
other charges in part against the production of the whole factory
and in part against the production of particular departments. If
a cotton mill, for instance, sells yarn and cloth, the factory expense
for the weave room or for the cost of indirect labor in that room
should not be made a part of the burden on the product of the
spinning room. In a printing plant the product that is printed
only should not be charged with the expense for the bindery de-
partment.
The great need of adequate cost finding among American manu-
facturers has been emphasized. The subject has been discussed in
national associations of manufacturers from year to year, but, so
far as known, no association has approved any particular system.
In many lines of manufacturing, whole industries have suffered
from the general lack of intelligent costing. The unintelligent or
unprogressive manufacturer often makes prices to undersell his
competitors, not really knowing whether he is making or losing
money on the goods he sells, but in some cases thinking he is mak-
ing money when he is actually losing. So much business i^ done
in this cut-throat manner that even establishments which have
installed elaborate cost-finding systems have been forced to abandon
them and revert to the ruinous policy of meeting the competition
of reckless business rivals regardless of consequence. They do this
to hold their trade, hoping that profits on some lines will compensate
for losses on other lines. The result is that many lines of the manu-
facturing business are cut to pieces. The national manufacturers
associations could do no greater service for their members than to
urge them to adopt adequate cost-finding systems.
WORKING CONDITIONS NECESSARY FOR MAXIMUM
OUTPUT
By Norris a. Brisco,
Author of Economics of Efficiency.
The nineteenth century has been justly called the century of the
machine. Inventions followed one another in rapid succession, and
machines became more and more highly specialized. Managers of
industrial plants sought to obtain greater efficiency through two
sources, first, the acquiring of more improved and more highly spe-
cialized machines for the different processes of production, and sec-
ond, through better designed buildings and more carefully arranged
machinery, so as to allow production to be carried on in all of its
stages with a minimum expenditure of time and energy. During
the last quarter of the century, production increased with rapid
strides. Manufacturers realized that if industrial expansion were
to continue at its rapid pace, more extensive markets must be
obtained. By the last decade of the century, markets in many
cases had become national, and at its close, many manufacturers to
continue their business expansion were compelled to seek world
markets for their goods. The resulting keen competition drove
manufacturers to tax their ingenuity to devise methods for lowering
costs. Attention had been centered upon improved machines,
better designed buildings, more carefully arranged equipment, and
economies arising from large-scale production. The closer study
given to these factors of production made clear the limitations upon
them. Attention was now turned to the human factor, and manu-
facturers soon recognized its importance in business activities.
This factor so long neglected is at present recognized as the most
important to lower costs, make possible successful competition, and
pave the way for greater industrial growth and expansion.
Machines depend largely for their output upon the labor at-
tending them. The worker should thoroughly know his machine
to obtain the best results from its working. This has been recog-
nized since the intro/luction of machinery, but the manufacturer has
174
Working Conditions and Maximum Output 175
failed until recently to realize the necessity of knowing his workmen
in order to obtain the best results from their labor.
The effect of environment upon workers is great, and there is
an intimate relation between the conditions which surround workers
and their output. Machinery is carefully protected from dust,
kept well lubricated, and in good repair, but in the average plant,
until recently, little thought was given to the human heads and
hands which operate the machines. Just as machinery is affected
by environment, so is the worker, but more so, because he is sen-
sitive to slight changes in the conditions which surround him.
Maximum output in the average plant depends in a large measure
upon the worker's physical and mental well-being. Light, ventila-
tion, temperature, humidity, dust, air, odors, and gases are some of
the factors which should receive careful attention in every plant.
Light in a plant has a direct bearing upon output. According
to experts, the normal capacity of workers may vary 20 per cent
under proper and improper lighting. Proper light affects workers
in different ways, as, it causes greater accuracy in work, saves
eyestrain, permits greater rapidity of work, reduces the number of
accidents, improves the quality of work, decreases costs through less
spoiled work and fewer mistakes in work, and lastly discourages
slovenly work and soldiering. There is no fixed standard for light,
as plants vary in the character of work performed, and in the
amount of light required. The best light is natural light. Experts
have proved that after three hours of work in ordinary daylight,
there is little change in the working efficiency of the eyes, but after
the same period of work in artificial light, the keenness of the eye
is decreased and there is a distinct loss in muscular adjustment
for accurate vision. Artificial light does not furnish the pure white
ray of the natural light, as its rays are red, yellow or violet. The
vision is perfect and there is less strain to the eye with natural light
than with artificial.
The average manufacturer has only recently learned the value
of an abundant supply of natural light, and in factory building has
taken special pains to obtain as large an area of glass as possible.
Roofs as well as walls should be used for window space. The saw-
tooth roof with the glass portion towards the north gives a good
diffusion of light. The window glass in order to give the greatest
diffusion of light should be pure white, ribbed or prismatic. The
176 The Annals of the American Academy
walls and ceiling of a factory have an important bearing upon light
diffusion. White is a bad color, as it frequently gives a glare which
is injurious to the eye. Creamish white or greenish gray are the
best colors, as they cause good diffusion of light and do not glare.
Walls, ceilings, and windows should be kept clean, because if dirty
and dingy, they prevent proper light diffusion.
During many months of a year, it is impossible to get a sufficient
supply of natural light during the entire working day, consequently
an artificial lighting system is necessary in every plant. Due to
the absence of danger from fire, to no gases being given off, and to
causing no material increase in temperature, the electric light has
decided advantages over gas. Electric light gives the best satis-
faction in artificial lighting, and should be used wherever possible.
The artificial lighting of every plant should be carefully inspected
to see that the following injurious conditions do not exist; ex-
cessive light, insufficient light, glare, strong contrasts, flickering,
heat or odors from light, and shadows. A too brilliant light is as
injurious as a poor one. This is frequently caused by a poorly
arranged system of lighting fixtures. The source of light should
never be on a level with the eye of the worker. Glare is very fatigu-
ing and straining to the eye. It may come from lights, walls, or
ceilings. Frequently a slight change in the arrangement of fixtures,
and the addition of frosted globes prevents much eyestrain. Care
should be exercised to see that the walls and ceilings do not glare.
A cream kalsomine gives good diffusion of light, and at the same
time does not glare.
A steady uniform light is what is needed in every plant, and
care should be exercised to see that it is obtained. Flickering and
strong contrasts are very injurious to the eye. Strong contrasts
are caused by some defect in the electric circuit, and this should be
remedied as soon as possible. Serious ill health often arises from
poisonous odors given off by gas lamps. In one factory, sickness
was reduced 50 per cent by changing from gas to electric lighting.
If a plant is lighted by gas, a frequent inspection should be made to
ascertain if the workers in any way suffer from the products given
off by the combustion of the gas. If gas jets are too near workers,
discomfort, headaches, and sickness are frequently caused from the
effects of products given off, or from the heat of the burning gas.
Poor lighting and gloomy surroundings have depressing bodily
Working Conditions and Maximum Output 177
and mental effects upon workers. The efficiency of workers, and
consequently the output of a plant, are increfised through the provi-
sion of proper light. Too great emphasis cannot be placed upon
the importance of proper light, and it is only recently that its bear-
ing upon output is being realized by the average manufacturer.
The discomfort of a stuffy room is apparent when it is entered.
No worker can do efficient work in a stuffy, ill-smelling, or over-
heated room. Such conditions foster drowsiness, lack of ambition,
inaccuracy, carelessness and poor work. Workers are forced into
these faults through the environments in which they work, and yet
they are blamed and criticized for them. Pure fresh air of proper
humidity and temperature is a pre-requisite for maximum output
in any plant, and no effort or expense should be spared to supply it.
It is rather remarkable that many shrewd business men who are
always on the alert for improvements to increase profits have over-
looked pure fresh air, a most important factor in securing maximum
output. The obtaining of air so that workers may work under the
most favorable conditions demands the closest attention of every
manufacturer. The chief factors to be considered in securing air
best suited for efficient work are temperature, humidity, air move-
ment, dust, and fumes.
Manufacturers forget that workmen do more in the cool morn-
ing, not only because they are physically fresh, but because the air
they breathe is fresh and exhilarating. There is no reason why the
air in the afternoon should not be as fresh as it is in the morning,
and the manufacturer who has fresh air for his workmen during the
entire working day has an important factor working for increased
efficiency of his working force, and a larger output from his factory.
An enterprising English manufacturer could not get the same output
from his working force in the summer as in the cooler months. He
installed a ventilation system and electric fans, and the output of
the summer months was greatly increased. The additional output
paid for the expense of the improvement the first two months of
service. A hot, sultry factory causes a listless, half-hearted working
force which results in a decreased output. Overheated factories are
a menace to the health of workers during the winter months.
Workers pass from the overheated rooms to the cold air on the
outside. Their vitality is lowered and they become easy prey to
colds and different maladies. This results in impaired health and
178 The Annals of the American Academy
frequent absences, and either hinders increased efficiency or cur-
tails output.
An important problem for every manufacturer is the prevention
of overheating, and the practical method for reaching this end is
the changing of air. Ventilation or air change is obtained either
by natural or by artificial means. In a large room where only a
few people are working, proper ventilation may be secured through
windows, doors, cracks, ceilings, and floors, without special provi-
sion for the purpose. In the average factory, proper ventilation by
natural means is impossible, and some artificial system must be
used. The average worker produces about as much heat per hour
as is given off by the burning of two candles. In many factories,
this is increased by the running of machinery, lighting, and other
sources of heat. The problem is to force out the heated air, and to
have cool, pure air take its place. If the air comes from the outside,
it should be made in temperature a little below that which is nor-
mally felt to be comfortable. This is invigorating to workers. In
summer time, it may be necessary to cool the air, while in winter,
the air should be warmed. The latest device is to take the air from
a room, cleanse and cool it, and then force it back again. Methods
of ventilation are many and should be suited to meet each factory.
The air in every factory should be in motion. In this respect,
it should be like the air in the open which is constantly in motion.
A basic principle of ventilation is not merely that pure air should
be forced into a factory and foul air expelled, but that the air should
be changed in a way, so as to produce a steady movement of air
in every part of the factory where workers are at work. Proper
circulation or movement is an absolute essential in securing suitable
air conditions for efficient work. Experts declare that the air in a
factory should be made to move at the rate of from two to five feet
per minute.
Space is also an important problem in ventilation. Experts
vary in their opinions as to the minimum space per person from two
hundred and fifty to four hundred cubic feet. The proper space
does not guarantee good air conditions, but simply prevents over-
crowding to the point where it is impossible to secure proper air
conditions. When the space is less than two hundred and fifty
cubic feet per person, it is impossible to get proper air conditions,
but above that, they may be secured in spme cases by natural, and
Working Conditions and Maximum Output 179
in others only by artificial means. Proper air circulation is an ab-
solute essential in ventilation. English experts discovered that
without proper provision for air change, the condition of the air
was no better in factories with over five thousand cubic feet of air
space per person, than in those with an air space of under three
hundred.
Air contains water in the form of vapor from 30 per cent to
complete saturation. A certain amount of water is daily given ofif
by the skin. When the air possesses a high percentage of moisture,
it lessens evaporation, as it has little drying power, and the water
from the skin is with difficulty evaporated. A chief method for
cooling the body is the evaporation of perspiration. When the air
is hot with a high percentage of moisture, it increases the effects of
heat, and discomfort, headaches, and even fever follow. This con-
dition may become so intensified, that the temperature of the body
greatly exceeds the normal, and heat exhaustion follows. Excessive
dryness of the air is also harmful. It increases evaporation, the
skin becomes dry and the mucous membranes of the mouth, eyes,
and respiratory passages are irritated. It also causes discomfort,
irritability and nervousness. Haldane has shown that as far as
the psychological effect is concerned, a very high temperature with
low humidity is about the same as a very low temperature with high
humidity. When the temperature rises to eighty degrees Fahren-
heit with moderate humidity, and about seventy degrees with high
humidity, depression, headache and dizziness manifest themselves.
Haldane found that at seventy degrees Fahrenheit with saturated
air, the temperature of the body began to rise, that is, fever set in.
The best air condition for efficient work is a temperature between
sixty-five and seventy degrees Fahrenheit, with an average humidity
of from 60 to 70 per cent. In every plant, special care should be
taken to avoid extremes of heat, cold and moisture.
A comfortable temperature, a moderate humidity, and a proper
circulation of air are necessary factors for maximum output. . A
slight variation of incoming air from that of the air in a factory
invigorates and stimulates workers. Working in a high tempera-
ture, workers soon become listless and careless in their work, which
has an important bearing upon output. Lack of proper air condi-
tions causes drowsiness, discomfort and headaches, and leads to
devitalized bodies which become easy victims to all kinds of diseases.
180 The Annals of the American Academy
Proper air condition not only assures better health in a working
force, but increases efficiency. It is an absolute prerequisite for
maximum output in every plant.
The air in a plant is never as pure as that on the outside. It
is always polluted more or less by the decomposition of substances,
by the products of combustion, and by the wear and tear of tools,
machinery, buildings and materials. Workers always tend to add
impurities in germs and organic matter from skin, mouths, lungs and
soiled clothing. The air impurities which may be found in a factory
may be classified under three heads, dust, fumes, and gases.
Maximum output cannot be obtained in any plant unless the
workers enjoy good health. Dust, through its effect in impairing
the health of workers and decreasing their efficiency, has an impor-
tant bearing upon output. Dust may be divided into three classes,
insoluble inorganic, soluble inorganic, and organic. The first class
includes small particles of metals, minerals, stone, etc. Soluble
inorganic dusts comprise substances which are soluble, and if taken
into the body, will in the course of time be absorbed, as small par-
ticles of arsenic, mercury, etc. The third class comprises fine par-
ticles from flour, grain, cotton, wool, rags, hides, etc.
Many dangers arise from dusts of any of the three classes.
First, dust causes irritation of the respiratory passages, eyes, nose,
and skin of workers; second, if inhaled, and lodged in the lungs,
it may reduce the resistance of these organs to harmful bacteria,
and cause workers to become easy victims to tuberculosis and other
diseases; third, dust may be germ-laden and carry germs not only
to the lungs, but to other parts of the body; fourth, many kinds are
highly inflammable, and in the proper proportions and under suit-
able conditions may cause spontaneous combustion.
Many conditions have more or less influence upon workers and
their output, but one which is most certain of injurious results is dust.
Experts have discovered that sickness and mortality of workers are
high or low in almost exact proportion as the air is filled with or free
from dust. The proportion of deaths from tuberculosis and respira-
tory diseases is very high in trades with continuous or frequent
exposure to metallic or mineral dusts. Manufacturers who strive
for increased efficiency of their workers and maximum output should
realize that an absolute prerequisite is to have their premises as'free
as possible from dust.
Dust prevention is in many plants a difficult problem. Hoods
Working Conditions and Maximum Output 181
for dust-making machines are inexpensive. A good ventilation sys-
tem greatly assists dust removal. Where it is impossible by hoods
or other devices to remove dust, and it is in sufficient quantities
to be injurious to workers, respirators and goggles should be worn,
and they should be furnished by the employers.
The average manufacturer does not take the proper precau-
tions in removing dust from floors and walls. The old-fashioned
broom and the dry duster are dust movers and not dust removers.
Dry sweeping and dusting should never be allowed in any room
where people are working. Dustless brooms, dustless brushes, wet
sawdust, sweeping compounds, hygienic floor brushes, vacuum
cleaners and numerous preparations for dust removal are available
and cheap, and should replace in every factory the corn broom,
cloth, feather duster, and mop and pail.
Offensive fumes and gases are given off in the making of many
products. Discharge of gas may be prevented by proper covers for
vats and vessels. There are on the market many condensing and
burning devices for gas removal. When it is impossible to prevent
the presence of gas or fumes, respirators, goggles, and sometimes
gloves and skin protectors should be used. Dust, fumes, and gases
are arch-enemies of efficiency, and maximum output cannot be
reached in any factory where their presence in any quantity exists.
Accident prevention has a direct bearing upon output. It is
not only in the interests of humanity, but a business proposition for
the manufacturer to use every means in his power to protect his
employees against the manifold dangers to life and limb which ac-
company production in all its phases. Workers appreciate measures
taken to protect them and respond by taking a better interest in
their work. The fact that they no longer have fear of getting hurt
and getting no compensation is a factor working towards increased
output. Actual tests have shown a marked increase in output on
safeguarded machines due to natural speeding of workers who are
relieved of the fear of accident. It stands to reason that if a worker
is compelled to divide his attention between the fear of coming in
contact with dangerous moving machinery and his work, that if ho
is relieved of the first, he will prove more efficient by giving his entire
attention to the latter.
i^"^he important measures necessary to minimize accident risks
may be summarized as follows: First, the providing of machinery
and equipment with safeguards, and making it almost impossible
182 The Annals of the American Academy
for a worker to be caught or injured by a piece of machinery or
apparatus; second, the careful instruction of workers to inculcate
habits of caution and to know how to avoid dangerous places around
a plant; third, the providing of effective rules, signs, bulletins, and
illustrated lectures which constantly remind workers of dangerous
places, and the enforcing of strict discipline in carrying out all rules
and instructions; fourth, the provision of means for promptly caring
for any who may be injured through establishing emergency rooms
and first aid to the injured service; fifth, the passing of legal statutes
compelling every manufacturer under severe penalty to equip ma-
chinery and working places with every practical safety device it is
possible to secure, and sixth, the provision of adequate accident
compensation to the injured in case of accident. You cannot find
a manufacturer who has installed accident prevention devices
who does not say that money so expended is well expended, and that
it pays.
Every manufacturer should realize that it is necessary to study
carefully his own plant, and to ascertain and provide working con-
ditions which are most conducive to output. It is a matter of
common experience that an intimate relation exists between the
conditions which surround a worker and his efficiency. All physical
inconveniences which waste human strength and effort, as, foul air,
poor light, dust, gases, and insanitary conditions, are marks of in-
efficiency and affect output. The lack of proper hygienic conditions
in a large majority of plants is due to ignorance rather than to neg-
lect. There is need of dissemination of scientific knowledge of the
requirements of the human body. The factors which protect health
and their influence upon output are just beginning to^be understood
in this country. Manufacturers cannot be blamed for not wanting
to install expensive safety devices, ventilating and dust-removing
systems, and other devices for protecting the workers, unless they
can be shown that such expenditure is a profitable investment on
account of the resulting increased output. With realization of the
fact that the increased output obtained repays several times the
expenditure, and an understanding of the demands of the human
body, the next few years will see a rapid improvement in working
conditions. There is no reason why most factories cannot be kept
at comfortable temperature, with air containing the proper percent-
age of moisture, and at the same time free from dust and impurities,
and have workers protected in every possible way from accident.
THE PRINCIPLES OF INDUSTRIAL EFFICIENCY
APPLIED TO THE FORM OF CORPORATE
ORGANIZATION
By Henry S. Dennison.
Treasurer, Dennison Manufacturing Company.
Among the most widely acknowledged principles of efficiency
engineering and common sense are the two, — that responsibility must
be closely related to ability, and that reward must be closely related
to service. It has also been many times insisted upon that the
efficiency of the methods in the ranks of a company cannot be
expected to rise above the standards of efficiency laid down and lived
up to by those who are at the head.
• The last ten years have seen the development of many systems
of management and wage payment which find their origin in the
effort to make practical applications of these principles. Some of
these systems include profit sharing for the wage-earner and some
do not, but it cannot yet be maintained that profit sharing is neces-
sary to them.
Not so much thought has been given to the application of these
principles to the actual make-up of the company itself. The two
principles, that responsibility must be related to ability, and that
reward must be related to service rendered, find their parallels in
the two old problems which have faced most concerns established
for more than a generation — to wit, how to keep the voting control
in the hands of those acquainted with and interested in the business,
and how to give a fair share of the profits to those of the leaders in
the concern who do not hold a significant amount of stock. It is
with this special part of the big question of industrial efficiency that
this paper deals.
To simplify the problem let us first consider the established
company in which the extreme risks of a new venture have been
met and passed, so that the capital invested in it is subjected to no
more than a normal business risk; we can later take up the question
of extra hazard with some of the field cleared away. When the
voting control of such a business is in the hands of a few men inti-
183
184 The Annals of the American Academy
mately connected with the business, success depends upon the
character of these men. If they are the founders of the business,
there is little doubt of their ability to carry it on, though difficulties
may arise with advancing age. But if they are sons of founders,
it will not always happen that their abilities for that particular
business fit them for the powers and responsibilities which go with
the voting control. When, through the inheritance laws and
customs of our country, the vote has been scattered among the
daughters and sons-in-law of the second and third generations, the
problem frequently becomes acute. Here are often found glaring
instances of considerable shares in the ultimate responsibility for the
success of a corporation resting in the hands of those who have not
the least knowledge of its needs. The corporation may be success-
ful— not because the form of organization is calculated to help it
toward success, but rather in spite of a form which at its best is no
help and at its worst may be a distinct handicap. The only alter-
natives in such a case are for some one man to regain control, or
for the control to be placed in the hands of all of the active leaders
in the business. If the first alternative is chosen, the next genera-
tion is likely to present a repetition of the same problem. If the
latter alternative, then some provision must be made whereby the
vote should not thereafter pass out of the ranks of the active men.
Such provisions are not difficult to make. The capital interests,
as such, can be represented by bonds or non-voting preferred stocks,
while common stock, industrial partnership stock, or partnership
certificates, can be put into the hands of leaders of the business in
some proper proportion and made non-transferrable. If such
partnership certificates are required to be sold to the corporation
when active employment ceases, and are issued to those who newly
enter the ranks of the leaders, a voting body can be maintained
which shall always have the ability to correspond to its duties.
Under such circumstances the problem of reward for service
rendered is made comparatively easy of solution. If on account of
able management the business pays a dividend greater than is
necessary to compensate for the normal business risk, the outside
stockholder is being rewarded in part for services which have
not been rendered; and the sales manager, the senior salesman
and the department head, who have helped to earn this surplus, have
not been paid in full unless by chance they happen to own stock in
Industrial Efficiency and Corporate Organization 185
due proportion to their respective values to the business. To
square the books, then, the bonds or preferred stocks above men-
tioned should have a fixed return, calculated to make full payment
for the service which capital itself renders, and any surplus which
may be earned should be distributed in some form and in proper
proportion among those upon whose individual efficiency the earning
of such surplus depended. Since this surplus earning is frequently
just that part of the total earnings which ought in every corpora-
tion to be reinvested for its growth and development, it is appro-
priate that the surplus should have the form of a certificate rather
than cash; or, if the surplus should exceed the proper amount for
reinvestment, part can be paid in cash and part in the form of
certificates.
The determination of the particular employees upon the suc-
cess of whose efforts the earning of a surplus depends, is a problem
which must be studied with particular reference to the kind of
business in question. It may be wisely approached in many cases
by listing employees by name or by classes, and separating them
into those whose efforts have direct influence, and those whose
influence is remote. Few generalizations can help, though to char-
acterize the profit earners as those whose work requires imagination,
and the non-profit earners as those whose work does not, comes
frequently near to the truth. When the distinction has been made
between these two classes, some rule must be looked for to provide
for future divisions. In some cases titles can be the basis of such a
rule, and in other cases resort must be had to a salary minimum.
The device of having some committee choose the profit sharers each
year is attractive on its face, but introduces the dangerous elements
of inconsistency and politics.
Profit sharing as a spur to greater efficiency is more particularly
jidapted to the jobs in which the cooperative spirit is an important
essential. Wherever the chief need in individual effort and full
efficiency can be obtained through a carefully regulated system of
commission, task and bonus, or piece-work payment, profit sharing
probably has little or no place. In any case, profit sharing cannot
be a success where the sharers cannot see clearly the influence of
their individual efforts upon the profits account, and where they have
not the vision to realize the full meaning of cooperative effort.
The foregoing general principles as applied specifically to an
186 The Annals of the American Academy
established concern are illustrated in the By-Laws of the Dennison
Manufacturing Company, which are too long to follow this article,
but which will be willingly sent to anyone interested in them.
Wherever the problem of profit sharing concerns a company
just forming, or in the early stages, the element of abnormal risk to
capital must be taken into account. The degree of risk will vary
greatly, sometimes warranting a chance for capital to increase its
value ten times in case of success to compensate perhaps for a ten-
to-one chance for loss, and sometimes demanding nothing more
than a liberal interest rate. But the important point is to make
such a trade with capital that there will somewhere be a stopping
point to the increase in its value. The peculiarities of each venture
will usually dictate just what this trade with capital is. It may be
that there shall be no return to the enterprisers in the business until
capital has received a certain percentage, or a sliding scale may be
arranged ; but at some point the necessary and fair return to capital
ceases and from then on the surplus will more wisely go to those who
earn it. In these stages and, in fact, during the transition stage in
an established business, it is wise and just that capital should have
an important or perhaps the sole voice in electing the management.
The sliding scale can provide for the gradual transfer of control from
capital to the enterprisers, or a fixed point can be set at which the
enterprisers gain full control. If reduction in earnings again places
capital in jeopardy, it should again receive its vote.
The dependence of complete industrial efficiency upon the
principles of industrial partnership is very real. Where absentee
owners are reaping increasing harvests, beyond any justification
through their efforts or the risks they assume, and where the true
ultimate authority rests in the hands of stockholders entirely unfa-
miliar with and unskilled in the business, the most logical systems
of task and bonus, or differential piece-rate, rest upon an illogical
basis and will sooner or later face questions impossible to answer.
GREATER AGRICULTURAL EFFICIENCY FOR THE
BLACK BELT OF ALABAMA
A Study of the Possibilities of Developing Greater
Agricultural Efficiency in the Black Belt
THROUGH Better Management
By C. E. Allen,
Austin College, Sherman, Texas.
Alabama is conducting an energetic campaign for greater
agricultural efficiency. The establishment of demonstration farm
agents and experiment farms in the counties for the study of soils
and plants, district agricultural schools for the instruction of the
youth, extension work by the State Agricultural College, personal
visitations by experts wherever needed, and the coordination and
correlation of these forces under a central board whose activities
reach out to all parts of the state, have given to this campaign the
nature of an intensive and expert handling of the entire agricultural
situation.
It is the purpose of this paper to present the agricultural sit-
uation in the Black Belt, and then to discuss the possibilities of
developing greater agricultural efficiency in this region. This will
be done by comparing the Black Belt with the regions immediately
adjacent to it, north and south, where white majorities of popula-
tion are found and successful farming obtains.
The Black Belt of Alabama stretches across the south central
portion of the state, from east to west, and comprises twenty-one
counties.^ It embraces a variety of physiographic divisions and
soils. Thejnorthern part of the Belt embraces a country somewhat
rolling, of metamorphic soils, and the southern extends into the
upper part of the coastal uplands, but the greater part of the Belt
embraces the central prairie region that runs diagonally across the
state, with a width of thirty-five or forty miles. By fact of the
physiographic features the soils of the Black Belt are the most
» Russell, Chambers, Lee, Barbour, Macon, Bullock, Montgomery Butler,
Lowndes, Autauga, Perry, Dallas, Wilcox, Monroe, Clarke, Marengo, Choctaw,
Hale, Sumter, Greene, and Pickens.
187
188 The Annals of the American Academy
fertile of the state and better adapted to the cultivation of the
staples than the other regions.
Immediately adjacent to the Black Belt, north and south, res-
pectively, are regions of gravelly hills, grey gneissic lands, and long
leaf pine uplands, which contain white majorities of population.
Out of these regions, twenty-one counties have been selected ^ for
the purpose of comparisons with the twenty-one counties of the
Black Belt.
In presenting comparisons of the Black Belt with the White
Counties it is possible to cite in each group of counties striking par-
ticular instances of individuals who have adopted new and scien-
tific methods of agriculture with remarkable results. But agri-
cultural records will tell more accurately the story of the mass of
farmers.
Agricultural Records
In the counties of the Black Belts in 1910 there were 26,138
white farmers and 76,648 negro farmers cultivating 1,798,056 acres
in cotton and 812,982 acres in corn.^ The average production of
cotton per acre was 0.27 of a bale, and of corn 10.4 bushels per acre.
The cotton acreage in 1910 was 51,840 acres greater and the corn
acreage 140,614 acres less than in 1900. In the twenty-one White
Counties there were 51,131 white farmers and 20,797 negro farmers
cultivating 917,143 acres in cotton and 771,378 acres in corn. The
average production of cotton per acre was 0.34 of a bale and of
corn 11.4 bushels per acre. The cotton acreage was 203,880 acres
greater and the corn acreage 102,594 less than in 1900.
Two significant facts stand out in these records: the per acre
yield and the increase or decrease of acreage. As to the per acre
2 Fayette, Lamar, Tuscaloosa, Bibb, Chilton, Coosa, Elmore, Talladega,
Shelby, Tallapoosa, Clay, Randolph, Henry, Dale, Pike, Coffin, Crenshaw,
Covington, Escambia, Conecuh, and Washington. To be referred to hereafter
as White Counties.
' A farmer or farm operator according to the census dej&nition is a person who
directs the operation of a farm. A farm is all the land directly farmed by one per-
son managing and conducting agricultural operations, either by his own labor,
alone, or by the assistance of the members of his household or hired employees.
Therefore, owners, tenants, and managers are classed as farmers. The census
classification of share laborers as independent farmers is not correct, for the
share system involves supervision. The classification serves the purpose here,
however.
Agricultural Efficiency 189
yield, it is conceded by all who are familiar with the soils of the
Black Belt and the White Counties that by nature the soils of the
Black Belt are much more fertile and more adapted to the culti-
vation of the staples than the soils of the other regions, yet there is a
smaller average yield per acre in the Black Belt. The reduced
acreage of the Black Belt is due to the decline of rural population as
will be shown herein later, and not to turning the lands into other
forms of agriculture. They are idle and vacant, turned in many
instances into grass fields. In the White Counties, the increase is
due to increase in rural population and to opening up new lands.
An analysis of the two groups of counties locates more def-
initely the causes of the smaller average yield per acre of the Black
Belt. In the counties of the Black Belt in which the negro consti-
tutes 62^ per cent of the population,^ the average yield of cotton per
acre is 0.26 of a bale and 10.5 bushels of corn per acre; in those coun-
ties in which the negro constitutes from 50 to 62| per cent of the
population,* the average yield of cotton per acre is 0.30 of a bale and
10 bushels of corn per acre. In the group of White Counties where
the negro constitutes 37i to 50 per cent of the population,® the yield
of cotton per acre is 0.34 of a bale and 11.4 bushels of corn; in the
counties where the negro constitutes 10 to 37J per cent of the popu-
lation,' the yield of cotton per acre is 0.35 of a bale and 11.5 bushels
of corn per acre. These results are significant, for the negro in
increasing majorities is found on the best soils of the state.
Farm Improvement
' Scientific farming includes within its program not only actual
agricultural results, but the whole life of the farm: improvement
of soils, adequate farm buildings, new and modern implements and
machinery. In the Black Belt the value of lands and buildings
incrojused 88 per cent between 1900 and 1910 and the value of imple-
ments and machinery increased 69 per cent. In the White Coun-
ties the per cent of difference in the same items for the same period
* Russell, Macon, Bullock, Barbour, Montgomery, Lowndes, Wilcox, Dallas,
Morengo, Perry, Hale, Greene, and Sumter.
» Pickens, Autauga, Chambers, Lee, Butler, Monroe, Clarke, and Choctaw.
• Tuscaloosa, Talladega, Cooea, Ehnore, Pike, Henry, Conecuh, and Wash-
ington.
'Lamar, Fayette, Bibb, Chilton, Shelby, Clay, Randolph, Tallapoofla, Cren-
shaw, Dale, Coffin, Covington, and Escambia.
190 The Annals of the American Academy
of time was: land and buildings, 150, buildings alone, 133, imple-
ments and machinery, 113, a per cent of difference in each item
twice as great as in the Black Belt.
An analysis of the two groups of counties as to the above items
also reveals striking results. In the counties of the Black Belt
where the negro constitutes 62^ per cent of the population,^ the
improvements between 1900 and 1910 were: land and buildings, 75,
buildings alone, 68, implements and machinery, 54; in the counties
where the negro constitutes from 50 to 62J per cent of the popu-
lation^: land and buildings, 108, buildings alone, 107, implements
and machinery, 93, In the White Counties where the negro con-
stitutes 37§ to 50 per cent of the population,^^ the improvements
were: land and buildings, 121, buildings alone, 102, implements
and machinery, 96; in the counties where the negro constitutes 10
to 37 J per cent of the population,^* land and buildings, 171, build-
ings alone, 153, implements and machinery, 130. It is thus evident
that agricultural production and farm improvements increase in a
ratio inverse to that of the presence of the negro population. This
is set forth in the map — Race, Farm Improvements and Produc-
tion.^^
Movements of Population
The real condition and spirit of agriculture are probably more
accurately revealed in the movements of population. Between
1900 and 1910 the rural population of the Black Belt, if we exclude
four border counties, decreased 37.1 per cent. Ten counties suffered
an average loss of 8.3 per cent.*^ In rural and urban population
nine counties" suffered a loss of white individuals; eleven counties*^
suffered a loss of negroes. On the other hand, every county in the
group of White Counties increased in rural population. The aver-
'<See footnote 4.
* See footnote 5.
1" See footnote 6.
" See footnote 7.
*2 See map.
" Wilcox, Dallas, RusseU, Greene, Lowndes, Perry, Sumter, Barbour, Hale,
Bullock.
»< Wilcox 771, Russell 197, Greene 295, Lowndes 993, Perry 94, Sumter 295,
Barbour 595, Macon 245, and Bullock 1,013.
1* Wilcox 1,050, Dallas 1,861, Russell 954, Greene 1,169, Lorvides 2,764,
Perry 468, Pickens 970, Sumter 3,716, Barbour 1,915, Hale 3,360, and Bullock 735.
Agricultural Efficiency 191
age increase for the group was 21.3 per cent in rural population.
The entire white population, rural and urban, increased 19 per cent
and the negro population 20.8 per cent.
Such is the agricultural situation in the Black Belt as revealed
by the records; a low rate of production, low rate of farm improve-
ments and an actual decline in rural population. But the presen-
tation of the situation is not complete unless we include those
phases of rural life which touch and interact upon the agricultural
problem, those phases of rural life, educational, social, and economic,
that are determining factors in agricultural efficiency. Upon these
phases of rural life up-to-date statistics for the two groups of counties
are not available, and therefore comparisons impossible, but a sur-
vey ^* of two typical White Counties and one Black Belt county as
to improved highways found the Black Belt county to rank third
in the scale with only twenty-five miles of improved highway as
compared with eighty and forty miles for the two White Counties.
The average highways of the Black Belt counties are the neglected,
crude and inadequate roads of ante-bellum days.^^ An educational
survey found conditions more satisfactory in Covington than in
Macon County. The question sent out by the state agent for rural
schools, "If you were a leader in rural districts and desired to make
country life more attractive to young people, along what three
lines would you suggest improvement?" brought the following
replies: better roads, 137, better schools, 187, more amusements,
180, better churches and more frequent services, 123, better agri-
cultural methods, 59, better houses with labor-saving devices, 101,
etc. These replies are more descriptive than words of mine. They
present the views of the boys and girls who live in the rural dis-
tricts and who have already come to know the inadequacies of rural
life, inadequacies that have inter-acted upon each other to prevent
efficiency in the Black Belt.
This general problem is not without its history. It is the result-
ant of determinant forces in an earlier period. The distinguishing
characteristics of the ante-bellum Black Belt was its agricultural
supremacy in Alabama. Its industrial system was made up of the
^Educational Survey of Three Counties in Alabama. Published by State
Department of Education, July 1, 1914, Montgomery, Ala.
'^ Some Black Belt counties have made modern improved highways, notably
Montgomery and Dallas counties.
192
The Annals op the American Academy
Alabama Black
Belt — Race and
Farm Improve-
ments, AND Pro-
duction.
Negroes.
62| % and
over
50-62^ %
37^—50 %
10— 37i %
vv.
Production per acre: cotton, 0.26 of a bale; corn
10.5 bu.; improvements, land and bldgs., 75
bldgs., 68; implements, 54.
Cotton, 0.30; corn, 10 bu.; land and bldgs., 108
bldgs., 107; implemenis, 93.
Cotton, 0.34; corn, 11.2 bu.; land and bldgs., 121
bldgs., 102; implements, 96.
Cotton, 0.35; com, 11.5 bu.; land and bldgs., 171
bldgs., 153; implements, 130.
Agricultural EFFIC^BNCY 193
big plantations as the industrial units, and the dominant feature
of these units was organization and management, which made this
the region of supremacy in Alabama. But the upheaval of the
sixties shattered this industrial organization and destroyed this
supremacy. In the confusion and disorders of society that followed
the Civil War, the Black Belt lost many of the men who had given
dignity and strength to its former civilization. Many planters in
the unsettled conditions of labor did not care to attempt farming
and moved out of the state; others unable to realize on their holdings
gave up farming and went to the towns and cities; still others, seek-
ing better educational and social advantages, went to the places
where these were to be found. The result was that the lands of
the Black Belt were left largely in the hands of the listless, ignorant
and unskilled negro. William F. Sanford writing in 1870 described
this condition:
We are today poorer than we were on the day of the surrender of the Southern
armies. Our carpet baggers and negro scalawags have imposed intolerable tax-
ation upon a people already crushed to earth. A deep and sullen gloom is settling
upon the Southern heart. Twelve cents for cotton and one hundred and fifty
dollars and rations for a negro idler, — for laborer he will not be, — winds up the
plantation business. All this great staple producing area is essentially upon the
sheriff's block. **
In the adjustment of labor to the new conditions of freedom the
negro was employed largely under two forms of tenantry: the rent-
ing system and the share system. ^^ Since the beginning of the
system the renting negro has been without supervision and control.
By the lien law he was able to obtain supplies from merchants of
nearby towns, and being obligated for only so much rent, he farmed
according to his own pleasure and judgment, with the result that
the farm on which he worked consistently deteriorated. The
ditches grew up with grass, the soil washed away, fences and houses
decayed, roads went unkept, and there arose in the land the saying,
"The negro renter's foot is poison to the soil." On the other hand
the share system has involved a degree of control by white men,
close in some instances, indifferent in others. The white planters
who remained on the plantation after the war, employed largely the
share system, sometimes a combination of share and renting. Un-
*' Letter of William F. Sanford. Transactions of Alabama, History Socitiy
Vd.IV.
" The wage system was at first tried but that has been steadily on the decline.
194 The Annals of the American Academy
der this system close supervision was necessary, else failure and ruin
were certain. Consequently these men, even though their abilities
were great, had their time and energies consumed in this atrophying
routine of drudgery. To the woes of supervising listless negro
labor were added the distresses of the iniquitous credit system. The
life of the post-bellum Black Belt planter therefore was a struggle
for dire economic existence. It is little wonder that he lost his
independence and his vision. Little wonder that the arts of rural
life went undeveloped and that a condition of inefficiency settled
upon the Black Belt which has not been removed today.
The history of the White Counties is different. When in the
ante-bellum period the competition between industrial units took
place — a competition that inevitably took place between the large
planters and the small farmer — the small farmer was pushed to the
uplands and the region thought by the planters infertile and unsuited
for cultivation of the staples. This process in Alabama resulted
in majorities of white population in the uplands and Piedmont
region, and an industrial system made up of the small democratic
farm. The effect of emancipation on these regions was to free their
industrial system from competition with the wholesale system of
the Black Belt. From the devastation and demolition of the war
the White Counties suffered greater losses than the Black Belt, and
they had less capital and equipment to begin with after the wslt,^^ but
from the nature of their industrial organization readjustment was
easier, quicker and more complete. Since 1870 these regions have
marched steadily ahead of the Black Belt in production and in
agricultural importance in the state. Their lands are less fertile
than the lands of the Black Belt, but by the use of commercial
fertilizers, rotation of crops and modern methods of farming, they
are giving illustration of the possibilities of greater agricultural
efficiency through scientific management.
It is clear, I think, that conditions in the Black Belt are out of
harmony with other parts of the state, and out of harmony with
the times.2^ If we translate these conditions in terms of dollars it
means that the state is losing millions of dollars annually. Suppose
the average production per acre of the Black Belt were raised to the
*<> Reconstruction in Alabama. Fleming, page 713.
'* There are certain nuclei of modern methods, for instance at Uniontown,
Ala.
Agricultural Efficiency 195
average production of the White Counties, upon a conservative
estimate it would add fifteen million dollars to the state's wealth.
Raise the average production of the Black Belt to half a bale of
cotton per acre and thirty milHon dollars or more will be added to
the State's wealth. To put it more emphatically, the state is losing
each year approximately thirty million dollars by the continuation
of the conditions in the Black Belt.
It-is evident that the crux of the problem in the Black Belt is the
color and form of tenantry, for greater agricultural efficiency through
scientific management is impossible so long as the crude, ignorant
negro, unsupervised and undirected, tills the soil. But it merits
little and accomplishes less to discover an ill condition and stop
with censure. The state faces a condition, not a theory. These
facts serve to reveal the stupendous task of the state in the devel-
opment of efficient agriculture in the Black Belt.
The problem resolves itself, in the first place, into one of im-
proving rural conditions of living so that rural life will become at-
tractive. Improve rural conditions by the establishment of improved
highways, cooperative agencies, and better educational facilities,
that those who have left the farm may hear the call back to the soil,
and that the young men and the young women already on the farm
may find the gratification of life's ambitions there! Such an effort
as this will raise the price of land to the point where it will remain
no longer idle or tilled altogether by unsupervised and unscientific
tenantry. But their values will be such that they will be manned
by competent white farmers and independent negro tenantry will
decrease.^*
In the second place, a greater vision must be given to the farm-
ers. Where there is no vision the farmers err. A farmer in the
Black Belt who has been farming for thirty years, and considered
one of the best in his community, remarked to me, "I am just be-
ginning to know how to farm; I am just beginning to catch the
vision; I have been without it all these years." This man is catch-
ing the spirit of scientific agriculture. Give this vision to the
farmers and the movement will proceed from within outward. The
possibilities of greater agricultural efficiency in the Black Belt can
" With the rise in the price of lands, renting decreases and the shares system
increases. This is true in the white counties of Alabama, also in the white coun-
ties of Georgia.
196 The Annals of the American Academy
be unfolded in such a manner that the farmers may catch the
vision.
• In the third place, the negro in the Black Belt must be taught
agriculture. We do not believe that the great mass of these people
are capable or willing to follow the rules of scientific agriculture,
but that some will and can, has already been demonstrated in Ala-
bama.23 Agricultural instruction for the negro in the Black Belt
appears to be a well nigh hopeless task because of the overwhelming
ratio of blacks to whites. Here, by fact of the great numerical
majority, the negro loses the influence of the white man's example.
Removed from proximity to his landlord, he cultivates according
to his own methods, which by the very nature of the case are crude,
unscientific, and unprofitable. Tenant for the year, he cares only
for the year's crop, and that none too seriously, so long as supplies
are furnished him. The same crops are planted on the same lands
year after year, unsustained by fertilizers and unstirred save by the
merest attempt at ploughing. So thriftless are his manners of living,
so improvident his methods of agriculture, that they give illustration
in our midst of that tribe of South American Indians, who, while
being taught agriculture by missionaries, killed their plough oxen
when they had felt hunger after the first day's labor. However
hopeless the task may appear, the great economic waste of the negro's
methods of agriculture urge the undertaking.
The very hindrances the negro presents to the white farmers
by his crude methods are reasons in themselves for some kind of agri-
cultural instructions for the negro. That the negroes' method of
farming is a direct economic waste is a palpable truth; that the
crude and wasteful methods of the negro farmer tend to make the
methods of the white farmer less excellent and less scientific
is equally true if not so self-evident. The white farmer who
deals with ten or twelve negro tenants finds his own standard
lowered through the conditions of his contact with their less de-
veloped habits of efficiency. He may be ever so exacting and de-
termined in the standard of his methods when he undertakes the
enterprise, but he will awake to find himself compromising his stan-
dards with those of the crude farmer under him. This truth operates
over the entire Black Belt to reduce its agricultural efficiency. The
tenant supervised, and the tenant unsupervised, affect the white
^ The negro schools as community centers in Macon County — Educational
Survey of Three Counties of Alabama.
1
Agricultural Efficiency 197
farmers of the region with the dragging pull of their low and crude
methods. There is something organic even in the nature of the
unity of the society of farmers. As within our physical being the
improper functioning of one organ hinders the body as a whole,
so within the general order of society, the low or unprogressive group
is a deterring force. So it is that the crude methods of the negro
farmer in the Black Belt pull downward the standards of the white
farmer. This is nothing more than a fact of life; it is nothing less
than the tragedy of habitual self-adjustment to lower conditions
of hfe and to feebler notions of excellence.
Not only is it true that a group which is decHning in efficiency
has a tendency to pull the stronger in the descending processes of
its ruin, or if it be at stagnation point to impart something of its dead
spirit to the living body of the other, but a group which is low has a
tendency, if it be growing in efficiency, to exert an upward pressure
on the stronger. This is to say that one of the ways to enable the
white farmers of the Black Belt to become better and more scien-
tific farmers is to teach the negro better methods of agriculture.
Such a process would aid the white farmers by the direct contri-
bution of an advancing efficiency both as to the execution of details
and to the larger policy of production. How often does the com-
plaint go up from the farmer of the Black Belt that scientific agri-
culture is impossible so long as the negro is the laborer! Modern
machinery cannot be used because he knows not how to operate it.
Valuable accessories to the plantation he knows not the value of.
Harness he leaves in the field to mould in the coming rain, culti-
vators where the last furrow was ploughed, binders or reapers where
the last grain was thrashed. Lacking in that sense of value, of
thrift, and of economy, he forces the white farmer to that inade-
quate and inefficient policy that has bound the South since eman-
cipation. But the employer of an improving and saving negro
labor may modernize his methods. As his labor becomes more in-
telligent in agriculture it becomes less wasteful, and thereby relieved
somewhat of the minute and nerveracking supervision of ignorant
and careless labor, he may give more attention to a sounder economy
and a broader outlook for the plantation. So, too, improved knowl-
edge of agriculture among tenants supervised and tenants unsuper-
vised will not only reduce the pull downward of the white farmers*
standards, but will exert an upward pressure. If the negro farmer
198 The Annals of the American Academy
be growing in efficiency the white farmer will likewise grow in order
to maintain his relatively higher standard. This, too, is nothing
more than a fact of life; it is nothing less than the hopeful policy
by which the Black Belt will be raised from its present backward
and inefficient economic position.
DEVELOPMENT OF STANDARDS IN MUNICIPAL
GOVERNMENT
By Henry BRufeRE,
Chamberlain, New York City.
To discuss broadly the development of standards in American
city government would require complete consideration of the new
temper and quality of civic administration throughout the country.
In common use, the word ''standard" connotes quality of conduct
and character of service. "Standards of efficiency," "business stand-
ards," "standards of economy," are phrases now in frequent use in
city government talk. They express vaguely, perhaps, but never-
theless suggestively, the new juxtaposition of ideas in reference to
city government, and imply that there are positive tests available,
if as yet unformulated, for measuring the quality of city govern-
ment.
These phrases are to a large degree the product of the recent
regeneration of American city government. Before commission
government, bureaus of municipal research, and the city manager
plan, there were no concepts of standards for city government
except with regard to the virtue or morality of public officials.
Tests applied to city activities were, therefore, negative rather than
positive. Manifestations of effectiveness were not measured against
an ideal of maximum effectiveness, but against the shades and shad-
ows of conventional civic incompetence and Corruption.
Standardization is a part of the process of creating objective
tests for various municipal activities. The present development of
standards in city government represents the efforts of the analysts
of civic management as well as of civic administrators to develop
efl&cient practices and to establish tests for measuring the effective-
ness of city work.
Standardization may mean any one or all of the following:
/. The application of accumulated and analyzed experience in
respect of the past performances of specific services or func-
tions to the future or current performances of such services
or functions.
199
200 The Annals of the American Academy
2. The establishment of a scale of merit for measuring values in
work, services, supplies, materials, etc.
3, Devising structures or parts of structures so that they may be
best adapted to their prospective uses and susceptible of ready
reproduction, replacement or interchange.
4' The development of exemplary processes for the performance of
work of a specific character or for classes of work, or for gen-
eral application where like work is performed under like or
closely similar conditions, or for gauging the efficiency of meth-
ods already in use.
In each of the foregoing relations standards may be objectively
represented in the form of specifications, procedures, physical
product or work methods. They are of no value unless they can be
so objectively expressed and thus made to serve as a denominator
for measuring cognate services or products by the public (consumers
or citizens), by administrators, and by those who perform or con-
trol the work of administrators.
In government, standards are of practical value in promoting
efficiency: (1) as a basis for measuring needs with respect to which
services are to be performed; (2) for determining appropriations of
funds by means of which services are to be performed; (3) for guiding
administrators in performing such services; (4) for establishing a
scale of compensation equated to the value of work performed;
(5) for equating values with prices paid for supplies; (6) for guiding
the selection of personnel, materials, supplies and equipment in
accordance with the requirements of prospective service or use;
(7) for regulating the routine performance of duties by the various
integral parts of the organization; (8) for providing in various rela-
tions the means of common understanding between public, offi-
cials, administrators, appropriating bodies, etc.
Standardization means the formulation of definite concepts
with respect to the elements of administration as opposed to vague
generalized impressions.
Standardization provides a common language for the discus-
sion of the problems of a specific business, both as between the pub-
lic (citizens, consumers or stockholders) and administrator, and as
between administrators.
The method of standardization varies with the nature of the
problem under consideration. As between the application of the
Standards in Municipal Government 201
principle of standardization to public and private business, there is
this fundamental difference: In private business there has been
developed a body of recorded information respecting processes,
organization, etc., acquiring somewhat the character of a science, as
in banking. This recorded information is generally lacking in
government, and if it were present would be of little value because
of the low order of effectiveness of past governmental services.
Standardization in government is, therefore, empirical, except in
so far as experience and consequent method devised in private
enterprise are applicable to governmental functions.
In many fields of private administration, standards have
evolved gradually during a long period of effort to conduct the par-
ticular enterprise with maximum efficiency. In government, the
desire for effectiveness on the part of officials, and the ability of the
pubHc to enforce its demands for efficiency, are of such recent origin,
that in order to bring government practices up to best attainable
levels, it has been necessary to undertake the conscious formulation
of standards.
It will be clear, of course, that the methods employed in devel-
oping standards in city government are in large degree applicable
to private business as well, because the methods of private business
are susceptible to improvement through study, analysis, precise
formulation, etc. Thus, compensation in private business is gen-
erally as unstandardized as in public business, so far as salaries are
concerned. In many fields of private enterprise prices for labor are
wholly devoid of standardization, even in the same industry, be-
cause subjective tests, generally in the form of haggling, are em-
ployed in fixing the compensation rather than objective tests in a
form calculated to ascertain value of services performed, living
requirements, etc. In many respects, obvious to students of ad-
ministration, standardization is as necessary in private business as
in public business.
Because of the extensive character of New York City's program
in standardization, as well as because of the similarity of problems
of administration in government to those existing in private enter-
prise, New York's exceptional present efforts to develop standards
will be of value not only to othor miinicip.ilities, but in many respects
to private enterprise.
A prefatory word may be said regarding the origin of standard-
202 The Annals of the American Academy
ization in cities. The first attempt to standardization, so far as
I know, was in reference to specifications for paving. Paving con-
struction in New York and in other American cities was trouble-
some for many j^ears, because of the lack of technical information
on the part of city representatives respecting the nature of paving.
Contractors' guarantees were relied on to ensure satisfactory pave-
ments, with the result that throughout the city there developed the
greatest inequality in paving conditions resulting in public concern
regarding the use of vast appropriations for paving purposes.
Standard specifications were evolved, first to control the use
of funds appropriated to different divisions of the government
for paving, and subsequently to formulate the technical experience
of the city, supplementing or opposed to the technical experience
of engineers employed by contractors and ensuring for the city a
pavement of suitable character. Through the provision of uniform
specifications for paving, the appropriating authorities of the city
set up the first objective use test for measuring appropriations.
Similarly, the board of education through its architectural depart-
ment had developed a standard type of school building, not so much
to control the use of funds, as to facilitate the construction of school
buildings by utilizing the accumulated experience of the depart-
ment in planning a type of building best adapted for New York
City's school purposes.
It was, however, rather as an incident to the control of appro-
priations made by the fiscal authorities, than as a means of plan-
ning and directing administrative activities by the executive branch
of the city government, that the process of standardization devel-
oped in New York. As now worked out it includes the following
major lines of activity:
Standardization of supplies, materials and equipment.
Standardization of salaries.
Standardization of accounting, payroll preparation, voucher
processes, office practice, reporting, etc.
Standardization of purchasing practice.
Standardization of work methods.
Standardization of principles of management.
Standards in Municipal Government 203
Standardization of Supplies Specifications
Standardization of supplies specifications promotes efficiency
from three standpoints:
1. From the standpoint of the user of supplies.
2. From the standpoint of the vendor.
3. From the standpoint of those responsible for the appropri-
ation and administration of funds.
The work of supplies standardization has been in progress in
New York since 1910. It has proceeded slowly for several reasons,
the most conspicuous being the absence of precedent and the in-
adequacy of the machinery provided for the development of stand-
ards. The task, however, has been one of prodigious proportions
involving the analysis and description of some 22,000 articles in
current use in various city departments, and annual expenditures
of some $15,000,000.
To prepare standard specifications for supplies, the following
steps are necessary: First, the use to which the supply is put must
be determined, then, whether the particular character of supply
currently requisitioned is best adapted for the purposes served.
These being determined, the essential qualities and characteristic
of the supply must be ascertained either by the advice of practical
experts or by technical analysis. The results of this advice or an-
alysis must then be formulated into terms which are understand-
able in the trade, susceptible of easy enforcement and permissive
of competition among vendors. These steps having been taken
there are available for the use of purchasing agents, specifications
calling for carefully selected articles designed to satisfy the use
requirements of requisitioning departments.
In New York standardization of supplies has gradually de-
veloped the basis for an efficient central purchasing plan, making
possible the consolidation of the requirements of a large number
of different departments into joint contracts for purchase. Now,
when forage, food supplies, such as meats, coffee, canned goods,
etc., coal chemicals, soap, etc., are requisitioned by any one
of ten or fifteen consuming departments of the city government,
the requisition expresses a quickly understood requirement and
leads to a purchase which provides for every branch of the city
government having like needs a supply of like character. Before
standardization, a requisition for coal had a different meaning in
204 The Annals of the American Academy
every one of the thirty-two departments consuming coal in the city.
A requisition for soap meant only what the dealer found it profitable
to have it mean. It is inconceivable that supplies may be pur-
chased efficiently without standardization. Neither can they be
efficiently used or intelligently desired unless supply requirements
of the using institution have been subjected to the processes now
implied by the term ''standardization."
Standardization of Salaries
In government, wages and salaries represent the principal part
of the annual outlay. Unscientific determination of personal
service compensation rates has been a principal cause of municipal
inefficiency. New York, Chicago, Milwaukee, Pittsburgh and one
or two other cities have recently undertaken to re-order salary
schedules on the basis of a standard classification of positions and
the adjustment of rates to the character of work and its relative
value in the field of city employment. The procedure involves, first,
an analysis of work actually performed by units or groups in an
organization, consideration of the feasibility of readjusting work
so as to make existing compensation or desirable compensation more
appropriate to the position, or adjustment of compensation up or
down to conform with rates paid for similar service elsewhere in the
government or in private employment.
In practice, the appUcation of a standard plan of compensation
to an existing schedule is likely to involve either the ungrateful task
of reducing salaries, or the alternative of waiting for vacancies to
readjust compensation for the appointment of fresh incumbents.
Standards may be applied with ease, of course, to new positions as
they are created, and wherever an increase of compensation will
result by reason of existing underpayment or underassignment of
duties.
New York City, through its bureau of standards, has prepared
a plan of promotion, a standard classification and uniform rates for
the several grades in the fifteen primary divisions of city service.^
^ These divisions are as follows:
Executive Social and Educational Police
Legislative Sub-Professional Institutional
Judicial Inspectional Street Cleaning
Professional Clerical Skilled Trades
Investigational Custodial Labor
Standards in Municipal Government 205
This work is perhaps the first comprehensive attempt made to
determine a scheme of compensation based upon the value of work
performed, its relation to other grades and classes of work required
by the institution, and the considerations of standards and cost of
living, special qualification required, opportunities for advance-
ment, provision of superannuation pensions, etc. The New York
work furnishes a basis for considering compensation in all fields of
activity, public and private, and is the first attempt to supplant the
haphazard, bargaining, accidental determination of salary rates
with a definitely formulated plan of compensation based on such
principles as experience evolved from employing and paying up-
wards of 80,000 employees has suggested.
The field of compensation standardization is so broad that one
is not safe in generalizing on a brief statement of the elements of
the problem. It may be said at this time, however, that a rational
plan of compensation is the first requirement of efficient organi-
zation, and indispensable to just and successful management of a
large body of employees. The field of salaries and wages furnishes
one of the most inviting opportunities for constructive effort, not
only in government but also in industries and mercantile activity.
One is inclined to picture an institution ordered by some ar-
bitrary process of regimentation when considering the complete
application of standards to administration. The fact is, however,
that an essential element of standardization is the recognition of the
necessity of divergencies from the standard. This is true in regard
to compensation, forms of organization and even details of proce-
dure, for no two organizations can be made identical unless the
elements involved in the organizations are identical. In city govern-
ment this rarely happens. But there are certain elements of rou-
tine administrative procedure which may be patterned on a common
model under varying forms of organization. Thus, there have been
installed in New York City standard accounting practices in the
several departments, uniform methods of payroll preparation,
standard filing systems, methods for handling correspondence, etc.
These routines, with modifications in detail, may be applied as an
aid to efficient administration throughout a city government. So
much has been said of this aspect of the problem of ordering prac-
tice to conform to the formulation of comparative experience, that
I need only refer to it in passing.
206 The Annals of the American Academy
Least has been done in the most important field of activity to
which standards may be applied, namely, the actual processes of
operation themselves. In 1913 the board of estimate and appor-
tionment in New York established a division of efficiency to make
detailed examinations of methods employed in the conduct of pub-
lic business, and by tests to establish a standard routine for the
performance of work. Studies were made in the borough of Rich-
mond of various public works activities, and as a result of long
experiments in planning work, organizing gangs, arranging
for delivery of material, devising records to govern the performance
of work, the formulation of specific instructions, etc., standard
routines were evolved. These have as yet failed of application to
other sections of the city where similar work is done, because of
decentrahzed responsibility and the persistence of a spirit of indi-
vidual freedom in the management of public departments, which is
one of the principal embarrassments to efficient municipal admin-
istration.
Similar analyses of work problems and methods are now in
progress in the department of street cleaning. An average, typical
section of the city has been selected for the development of model
methods for general appfication. Here, as in other similar problems,
observation, analysis, recording, comparison, testing and measure-
ment of results by a standard or ideal established as a goal, are the
methods pursued in evolving a standard, efficient practice.
It is proposed to apply the same method to every branch of city
activity. This has already been done in numerous fields. Indeed,
the process of analysis has somewhat outrun the actual application
of the results of analysis by administrators. But not until New
York obtains a greater degree of centralized authority in adminis-
tration so much needed, will it be able to apply standards to its
multifarious fields of activity. Theoretically, the opportunity for
standardization runs from end to end of city government. There is
first the study of the field of municipal activity, to learn what are
the problems to be solved and what service standards are to be ob-
served in solving them. Thus, it is not enough to standardize
methods of street cleaning, a standard of cleanliness must be de-
termined as a prerequisite. In determining a standard of cleanliness,
it is necessary to consider health and comfort requirements, cost
Standards in Municipal Government 207
limitations, efficiency in equipment, limitations imposed by traffic,
habits of street users, or residents, etc.
Efficient administration involves as a continuing process the
formulation of standards and their revision with changing condi-
tions. Gradually, in this way, a body of experience and method
will be developed under which a city government may be conducted
up to the level of efficiency which the knowledge and capacity ob-
tained from years of analytical conduct of the activities of govern-
ment will have produced. New York is fairly well launched on a
program of standardization. It is formulating principles of adminis-
tration by which to test its standards. More and more it is recog-
nizing that no limitations may be placed upon the effectiveness of
city service except the changing limitations of human knowledge and
ability. The apologist has played his part and exhausted the array
of excuses which have heretofore been accepted in lieu of efficient
municipal service. Standardization is both a challenge to citj^
administrators and the means by which they are able to answer to
demands for greater effectiveness in city management.
WHAT SCIENTIFIC MANAGEMENT MEANS TO AMERI-
CA'S INDUSTRIAL POSITION
By Frank B. Gilbreth
and
Lillian Moller Gilbreth, Ph.D.,
Providence, R. I.
There is some confusion today as to the meaning of scientific
management. This concerns itself with the nature of such manage-
ment itself, with the scope or field to which such management
applies, and with the aims that it desires to attain. Scientific
management is simply management that is based upon actual
measurement. Its skilful application is an art that must be ac-
quired, but its fundamental principles have the exactness of scien-
tific laws which are open to study by everyone. We have here
nothing hidden or occult or secret, like the working practices of an
old-time craft; we have here a science that is the result of accurately
recorded, exact investigation. Its results are formulated, or are
being formulated, into such shape that they may be utilized by all
who have the desire to study them and the concentration to master
them. The leaders in the field are, as rapidly as possible, publishing
these results, that progress may take place from the stage of highest
present achievement, and that no time or effort may be wasted in
re-making investigations whose results are already known and
accurately recorded. The scope of this management, which may
truly be called scientific, is unlimited. It applies to all fields of
activity, mental and physical. Its laws are universal, and, to be of
use in any particular field, require only to be translated into the
vocabular}^ of the trained and progressive workers in that field.
The greatest misunderstandings occur as to the aims of scientific
management. Its fundamental aim is the elimination of waste,
the attainment of worth-while desired results with the least neces-
sary amount of time and effort. Scientific management may, and
often does, result in expansion, but its primary aim is conservation
and savings, making an adequate use of every ounce of energy of any
type that is expended.
208
America's Industrial Position 209
Scientific management, then, in attacking any problem has in
mind the question — How may what is here available be best used?
It considers the problem, in every case, according to the scientific
method ; that is, by dividing it into its elements and submitting each
one of these to detailed study. Every problem presents two ele-
ments: the human element, and the materials element. By the
materials element we mean the type of material used, the quality of
material used, the quantity of material used, the manner in which
the material is used, with conclusions as to why the material is
chosen and handled as it is. In other words, we would apply to the
material the familiar questions, what, how much, how, when, where,
and why. These same questions are applied to the human element;
that is to say, to all members of the organization.
Having in mind now the principles and practice of scientific
management, we can consider its relation to the industrial position
of any country. Industrial growth, like all other growth, consists
of progress and maintenance; that is, of advances over and beyond
present achievement and of making adequate provision for holding
any advantage that one may gain. It is generally realized that
maintenance contains always the thought of conservation, that it is
impossible to hold any advantage without making careful provision
for using one's resources in the best possible manner. It is not so
generally realized that progress also implies constantly this same
conservation. The reason for this is the result of a confusion be-
tween saving, or conserving, and hoarding. True conservation
contains no thought of miserliness or niggardliness. It is based
upon a broad outlook on life and upon the needs of the situation,
upon a willingness to pay the full, just price for what is wanted, but
an unwillingness to pay any more than is necessary. Progress
differs from lack of progress, fundamentally, not because the pro-
gressive man is willing to pay more than the unprogressive man will,
but because the progressive man has a broader outlook and a keener
insight, hence, a more adequate knowledge of where and when it is
necessary to pay. The unprogressive man or nation suffers from a
limited outlook that makes it practically impossible to make a just
estimate as to what is worth while.
When we compare the various countries of the world, and try
to estimate their relative industrial positions, we find a strong
relationship between conservation in its highest sense and industrial
210 The Annals of the American Academy
supremacy. Again, as we turn to history, we find this same relation-
ship constantly manifesting itself; that is, progress depending upon
an ability to see what is worth-while, and a willingness to pay for
that and that only, and stability or maintenance depending upon
an efficient handling of available resources.
As we review history, and observe present conditions, we see
that the differences between various countries are becoming less
and less, as time goes on. Transportation, with its numerous by-
products that affect both the material and the human element, is
increasing the likenesses between different countries at an astound-
ing rate. This means that industrial supremacy will depend more
and more upon the handling of available resources and less and less
upon distinctive features in these resources themselves. The
calamitous war, which is now apparently offering such a serious check
to industrial progress, is contributing toward ultimately making
working conditions more similar, in that many countries are being
thrown upon their own resources for both materials and men, and
are being forced to make discoveries that will more nearly equalize
these resources.
Another outcome of this war, that should prove of advantage to
the world, is the emphasis that is being laid upon the causes of
industrial position and industrial supremacy and the resulting study
that is being made as to the reasons for such supremacy. Such a
study should be particularly profitable here in America. This
country has always conceded her important industrial position.
She has realized thoroughly her enormous natural resources and
also her wonderful human resources in that she is "the melting pot
of the nations. " It is only within the lifetime of those still young
among us that we have come to realize the necessity of conserving
our natural resources. It has not yet reached the attention of many
among us that our human resources are as worthy, in fact, infinitely
more worthy, of being conserved.
It is self-evident, then, that to attain and maintain an indus-
trial position of which she may be proud, America must conserve
both her natural and her human resources. If she hopes for indus-
trial supremacy, she must set about this conservation with energy,
and must pursue it unremittently.
The writers have a thorough knowledge of European indus-
trial conditions, through having done business simultaneously in
America's Industrial Position 211
this country and abroad for many years, through frequent trips
abroad before the war, through having crossed the boundaries of
many of the warring countries many times since the outbreak of
the war, and through having observed carefully industrial condi-
tions and methods. Their opinion, which is that of all who have
made intensive studies of these conditions, is that America is far
behind European countries in conservation of the materials element,
both natural and manufactured resources. This statement needs
no proof in this place. The fact it contains is universally accepted
by serious thinkers and investigators. It is equally true that up to
recent times European countries have done comparatively little
toward conserving the human element.
The hope of this country lies, then, in equaling or surpassing
foreign conservation of material and in maintaining or progressing
beyond our present conservation of the human element. The
material problem is being attacked along different lines in a more or
less systematic manner. We all appreciate the benefits of scientific
or intensive farming, until now our native farmers, working under
the direction of and with the cooperation of the Department of
Agriculture, get results that equal those of European farmers, in
their native lands, or here in ourisi. The importance of laboratory
analysis of materials and the help that applied science can render
and is more and more rendering to the industries are also being
recognized. Agricultural experience has taught the valuable lesson
that it is possible to get great output, yet, at the same time, leave
the producing force unimpaired, by a proper expenditure of money
and brains. Experience with applied science has taught that by-
products, as well as products, must be considered, and that the
exact methods of science often bring results that are beyond those
looked for or hoped for. It has been common practice to con-
sider a transaction satisfactory, or better, if it fulfilled one's expecta-
tions, to lay emphasis upon the result rather than to standardize
the means or method. Laboratory practice has taught that while
the immediate results are important, the standardization of the
method is more important, since the unexpected ultimate results,
sometimes called by-products, are often by far the most valuable
outcome of the work. Certain industries in this country have gone
far toward applying scientific methods to the material element, but
no one of us need go outside his own experience to be able to mention
212 The Annals of the American Academy
other industries that as yet have no conception of what such work
means.
Much has been done not only in the analysis of materials, but
also with the handling of materials. America has cause to be proud
of her machines and her tools. The chief criticism that we may
make of present practice in this field is that of lack of standardiza-
tion. The reasons for this are many. One is business competition,
though the feeling is gradually dying out that making one's product
markedly different from that of all others is a strong selling advan-
tage. Another is the strong feeling of independence and individ-
uality that leads one to prefer a thing because it is different rather
than because it is adequate to the purpose for which it is needed.
A third is a lack of channels for direct and easy communication of
ideas. This is being supplied both through organizations and
publications. A fourth is the former lack of standardizing bodies or
bureaus, a lack which is also being supplied as the demand for such
bodies increases.
Because of the highly specialized nature of much present-day
work, few of us realize how widespread, almost universal, the lack
of standardization is. It is only necessary to turn, however, to
such a field of activity as surgery, which engages the attention of
some of the finest brains in the country, and which is apt to come,
sooner or later, in some way, into the field of experience of everyone,
to see a striking object lesson of lack of standardization both of
tools and of method.
It is the work of scientific management to insist on standardiza-
tion in all fields, and to base such standardization upon accurate
measurement. Scientific management is not remote, or different
from other fields of activity. For example, in the handling of the
materials element, it does not attempt to discard the method's of
attack of intensive agriculture or of the laboratory of the applied
scientists; on the contrary, it uses the results of workers in such
fields as these to as great an extent as possible.
There is a widespread feeling that scientific management
claims to be something new, with methods that are different from
those used by other conserving activities. This is not at all the
case. It is the boast of scientific management that it gathers
together the results and methods of all conserving activities, formu-
lates these into a working practice, and broadens their field of
America's Industrial Position 213
application. In handling the materials element, then, scientific
management analyzes all successful existing practices in every line,
and synthesizes such elements as accurate measurement proves to
be valuable into standards. These standards are maintained until
suggested improvements have passed the same rigid examination,
and are in such form that they may be incorporated into new
standards.
Turning now to the field of the human element — by far the
the more important field — we find that, while there is much talk of
work in that field today, comparatively little has actually been
accomplished. There have, in all places and times, been more or
less spasmodic and unsystematic attempts to conserve human
energy, or to use it for the greatest benefit of all concerned; but there
has not been steady and conspicuous progress in this work for several
reasons; 1. Because the methods used were not accurately meas-
ured and were not standardized. This made it impossible for the
individual conserver to accomplish much of lasting benefit. 2. Be-
cause of lack of cooperation between such conservers.
It is the task of scientific management to supply both these
wants. Success in handling the human element, like success in
handling the materials element, depends upon knowledge of the
element itself and knowledge as to how it can best be handled. One
great work of scientific management has been to show the world
how little actual knowledge it has possessed of the human element
as engaged in the work in the industries. Through motion study
and fatigue study and the accompanying time study, we have come
to know the capabilities of the worker, the demands of the work, the
fatigue that the worker acquires at the work, and the amount and
nature of the rest required to overcome the fatigue.
Those not actively interested in the industries can scarcely
realize that the process of keeping the soil at its full producing
capacity and of providing depleted energy is infinitely more stand-
ardized and more widely used than the process of providing that
the human organism overcome fatigue and return to its normal work-
ing capacity in the shortest amount of time possible. Scientific
provision for such recovery in the industries, before the days of
scientific management, was unknown.
It is even more surprising that only the pioneers in the work
realize the application of any necessity for the laboratory method
2 14 The Annals of the American Academy
in the study of the human element as it appears in the industries.
When making accurate measurements, the number of variables
involved must be reduced to as great a degree as possible. Only
in the laboratory can this be successfully done. It is fortunate for
scientific management that its initial introduction in the industries
has been made by engineers rather than by men who are primarily
laboratory scientists, for this reason: the engineer has been forced
by his training to consider constantly immediate as well as ulti-
mate results, and present as well as future savings. Investigations
of scientific management have, therefore, been made to pay from
the start in money savings, as well as in savings of energy of all
kinds. We note this in the results of motion study, fatigue study,
and the accompanying time study.
As an example, take the laboratory investigations in motion
study. These, where possible, are made by us in the laboratory,
which is a room specially set apart in the plant for research purposes.
Here the worker to be studied, with the necessary apparatus for
doing the work and for measuring the motions, and the observer,
investigate the operation under typical laboratory conditions. The
product of this is data that are more nearly accurate than could be
secured with the distractions and many variables of shop conditions.
The by-product of this work, which is a typical by-product of engi-
neer-scientists' work, is that the conditions of performing the opera-
tion in the laboratory become a practical working model of what the
shop conditions must ultimately be. When the best method of
doing the work with the existing apparatus has been determined in
the laboratory, the working conditions, as well as the motions that
make this result possible, are standardized, and the working condi-
tions in the shop are changed, until they resemble the working con-
ditions in the laboratory. In the same way, the length and period-
icity of intervals to be allowed for overcoming fatigue, and the best
devices for eliminating unnecessary fatigue and for overcoming
necessary fatigue, are determined during the investigation, and are
incorporated into shop practice.
The various measurements taken by scientific management
and the guiding laws under which these are grouped determine not
only the nature of the human element, but the methods by which
it is to be handled. Motion study, fatigue study, the measures
supplied by psychology, — these result in the working practice that
America's Industrial Position 215
fits the work to the worker, and produces more output with less
effort, with its consequent greater pay for every ounce of effort
expended.
Through scientific management, then, the individual conserver
is enabled to progress constantly and to maintain each successful
stage in the development. Scientific management can, also, and
does, wherever permitted, provide for cooperation among conservers.
It does this by:
1. Demonstrating the enormous waste resulting from needless repetition of
the same investigation.
2. Providing standards which must be recognized as worthy of adoption,
since they are the results of measurement.
3. Emphasizing the importance of teaching and of the transference of skill,
which depend upK)n co6p>eration.
4. Showing that maintenance depends, in the final analysis, upon cooperation.
We have formulated our program for such cooperation into
the following stages:
1. Each individual to apply scientific management to his own activities,
individual and social.
2. Groups, such as industrial organizations, to apply scientific management
to the group activity.
3. Trades to apply scientific management to the trade activity. This in-
cludes, ultimately, a reclassification and standardization of the trades, such as
we have advocated in Motion Study. ^ The trades must be classified according to
the amount of skill involved in the motions used, and must then be standardized
in order that the necessary training for succeeding in them can be given.
4. Industries to apply scientific management to the entire industry, with
cooperation between the various trades involved.
5. A national bureau of standardization to collect and formulate the data
from all the industries into national standards.
6. An international bureau of standardization to collect national standards
and to work for international cooperation.
America's immediate industrial position depends upon Amer-
ica's realization of the need for conservation, as demonstrated by
scientific management, and upon America's use of such means of
conservation as scientific management offers.
America's ultimate industrial position depends upon America's
realization that the highest type of conversation includes cooperation.
Individuals, groups, trader, and industries have realized and
are realizing more and more, daily, that it is for the good of all that
' D. Van Nostrand Company, pages 94-103.
216 The Annals of the American Academy
common practice be standardized and that improvements take
place from the highest common standard. Nations have not yet
come to any great realization that this same principle appli«s to
international relationships.
If America desires to gain and maintain leadership in indus-
trial progress, she must be the advocate of industrial conservation
and cooperation, and must be the example of that readiness to
derive and to share standards for which scientific management
stands.
THE BASIS OF CONSTRUCTIVE INTERNATIONALISM
By W. G. S. Adams,
AH Souls College, Oxford, England.
One of the most striking features of the great crisis in its
history through which the civilized world is now passing is the
complexity and variety of important issues which are at stake.
But among the great issues the greatest is that of safeguarding
the development of international rights. The war opened with the
denial of a right which lies at the foundation of a stable international
system, — the right of a nation to be heard before it is comdemned
to the punishment of war; the progress of the struggle has witnessed
the deliberate violation of solemn international treaties and con-
ventions.
Such a situation is a challenge to civilization. International
law no longer ofifers any trustworthy security, and our immediate
duty is to face the problem not of its superstructure but of its
foundations. It is only too clear that until these foundations are
better laid than they are at present, the particular rights even of
neutrals are not safe.
With this end in view it will be well first of all to define what
is the object of the international polity. For the conception of
this polity, though it is yet very imperfect even in theory, is in-
involved in the idea of international relationships, and is necessary
to their proper development. The object of the international polity
may be defined as, first, to secure the existence of the individual
nation states, and to this end to determine their relations one to
another. So long as society continues to consist of a number of
sovereign states of very unequal strength without any collective or
international control, so long will some of its members be in a posi-
tion of insecurity from the strength of others. To examine the
field of national rights, to adjust them one to another, and to prevent
the outbreak of a condition of affairs, viz., war, which restricts and
may put an end to international relationships, is the first object of
the international polity.
217
218 The Annals of the American Academy
The second object of the international polity is to secure that,
when war has broken out, international agreements regulating the
conduct of war, in the interests alike of the peoples of belligerent
and of neutral states, shall be maintained.
Thus far it may be said that the character of the international
polity is simply protective or preventive. But that cannot remain
its sole character. Just as in Aristotle's famous definition, the
state comes into existence to make the life of the individual possible
but continues to exist to make it good, so the international polity
comes into existence to secure the life of the nation, but continues
to exist to make nationality good — that is to realize its potential
qualities for good. In other words, internationalism ultimately
will realize progressive functions by doing for national states what
they cannot as well do for themselves. It will seek to assist the
mutual development and cooperation of states, and to realize that
harmony of interests which should be the aim of their political life.
Over against this present disruption or interruption of inter-
nationalism, it should be remembered that the past fifteen years
have seen a very remarkable advance in the development of in-
ternational organization. This is not the place to trace the various
ways in which such expression has been given to the spirit of in-
ternationalism. But it is an important evidence of the growing
recognition of the need of the international polity. And the present
world-shaking war, while it has brought into ruins the fabric built
up by international law and understanding, may yet be found to
have advanced the real cause of internationalism even more than
the preceding years of peace. For it has demonstrated more plainly
than a hundred conferences of peace could have done the weak-
nesses in the present position of international development and
the need of rebuilding on firmer foundations.
I
Now what are the foundations which have to be examined?
First of all, at the base of the whole structure is the question of
sanction. It is not necessary here to draw attention to the differ-
ence in this respect between national and international law. That
is well known to all students. But it will be useful to analyze
briefly the nature and necessity of the sanction in international
agreements.
Constructive Internationalism 219
It would show a lack of sense to fail to recognize the value
of the moral influence as a sanction of international agreements.
The moral influence, despite the events of the war, has been by
no means a negligible factor, and the dishonoring of international
agreements has brought on the transgressing parties a loss of sym-
pathy and support which, though it cannot be measured in terms
of men, munitions and money, has meant a very real cost. It
has alienated the sympathy of neutrals, and it has awakened a
burning sense of wrong in those who have directly suffered which
has strenghtened their resistance and given confidence of ultimate
victor}'. No faith can rest on transgression, and faith is one of
the elements of victory. There should be no room for doubt that
the moral sanction is a real support to international agreements.
But more than the moral sanction is required. The moral
sanction should find its expression in men, munitions and money.
The punishment of wrong-doing, by economic restrictions and by
armed resistance, is required to support the moral sanction. The
economic boycott is a powerful weapon in the modern commercial
and industrial world, and it should be a duty of those who are
parties to international agreements to use this weapon against the
transgressor and to inflict economic ostracism until expiation has
been made. But the economic weapon, powerful as it is, and suf-
ficient as it may be in many cases, is not always an adequate sanc-
tion. More direct methods are then necessary and recourse must
be had to armed intervention by force. On the question of the
relations of moral sanction and force there has been too often a
confusion of thought. Force, it cannot be too plainly said, is in
itself neither moral nor immoral. It is the use of force which is
right or wrong. And there are occasions when, with the nation
as with the individual, to fail to use force is to do wrong. There
are sins of omission, and nations can be guilty as well as individuals.
There is not one morality for individuals and another for nations.
Where wrong is done it is a duty to stay the wrong-doer, by suasion
if that can be, by force if suasion fails.
Therefore, behind international law there must be put the com-
plete sanction of moral, economic and military pressure. Until
such provision is made by international agreement to secure that
transgression of the law shall be punished there can be no stable
foundation of the international polity.
220 The Annals of the American Academy
Let it be said, however, at once, so that this matter may be
clear, that such a sanction does not necessarily involve an inter-
national military organization if by that is meant an international
police or armed force. For reasons which need not be discussed
here, it seems probable that it will be to the action of individual
nations, controlling and determining their own military and naval
forces, that the international polity must look for the support of
its authority.
The first and for the present by far the most important ques-
tion which has to be faced is, therefore, that of sanction, for the
policy of "constructive internationalism" must be provided with
an effective foundation of "sanction."
The second question is: what are the fundamental international
rights for which the sanction exists? There has grown up a com-
plex body of international rights and in examining the problem
before us it is important to distinguish what are the fundamental
rights which it is necessary to secure. The present war has enabled
men to see this question more clearly, in that it has witnessed the
denial and transgression of what we must postulate as the two
fundamental international rights. First of all, there is the right
of a nation to be heard before it is punished. Second, there is the
right to the protection of established international law. If the right
of a nation to be heard before it is condemned is denied, or if the
international agreements upon which states have entered are set
aside by the act of an individual state, then the basis of interna-
tional political society is destroyed. Let us consider somewhat
more fully this very important question, for as matters now stand
we see that these foundations have been shaken.
The first and fundamental right which must be secured to each
nation is that it shall not have war declared against it until the
case for the defence has been heard by an international tribunal.
Just as it may be said that, where the individual has not secured
the right to have his case heard, there is no system of constitutional
government, so, without this fundamental right of nations, there
can be no secure development of the international polity. When
one individual can take upon himself the execution of justice against
another individual, or where the state condemns a man unheard,
there is no liberty; so, as long as one nation can refuse to submit
its dispute to public inquiry and can proceed without hindrance
Constructive Internationalism 221
to declare war against a weaker state, there can be no real inter-
national liberty. Fundamental as this right is, and wide as is the
moral acceptance of it by states, nevertheless the fact remains that
internationally the right of a nation to have its case heard before
war is levied upon it has not yet been secured. The principle of
''obligatory arbitration" has been accepted by the assembled na-
tions at the Hague, but the actual treaties of arbitration, save in
the case of a few states, reserve matters of ** national honor, vital
interests, and independence." There is no statutory obligation, if
we may use this term, which binds nations to submit a dispute in
a matter of "vital interest" to inquiry, much less to arbitration.
Arbitration involves the acceptance of the judgment of the court,
and on matters of the greatest concern sovereign states are not
willing to surrender their independence of judgment and action.
Arbitration makes too heavy a demand on the mutual confidence
of nations. But the right to an inquiry before judgment is executed
is something very different from arbitration. If an individual or
a nation is condemned unheard, that is the very negation of liberty.
The second fundamental right of a nation is to receive the
protection provided by the observance of international agreements.
If in a society agreements are not kept, and if the breach of agree-
ment is not punished, the basis of that society is destroyed. So
also in the international sphere it is fundamental that agreements
should be kept and that their breach should be punished. To
admit the doctrine of national "necessity" as being above all and
conditioning all international agreements is to destroy international
security. This is a matter of principle on which there can be no
compromise.
Such are the foundations of the system of international rights
and of the international polity. What steps can be taken to secure
these rights?
II
A great advance has been made within the past year by the
action of the present government of the United States in ratifying
with this country,* with France, and with several other states,
treaties which provide for the establishment with each of these
countries of a permanent international commission to which all
disputes, where diplomacy has failed, shall be submitted. That
^ November 10, 1914.
222 The Annals of the American Academy
step marks a practical contribution to the building up of the inter-
national right of inquiry which cannot be too gratefully recognized.
It is a limited step, but it is the first step, and it opens the way to-
wards developments which may complete and secure by effective
sanction the recognition of the first and fundamental right of a nation
to have its case heard. Those who have studied the history of inter-
national arbitration will recognize the wisdom of not attempting too
much at one time. These treaties have prepared the way, and if, as
we hope, the method of procedure which they have initiated is
adopted by other states, there will grow up a network of treaties
which will greatly facilitate progress.
But it is no disparagement to the value of such treaties to
say that they mark only a first step. They go far to strengthen
the chances of peaceful settlement of disputes between particular
nations, yet the right of a nation to have its case heard is not thereby
adequately secured. There are nations which may not agree to
such a procedure, and the agreement itself lacks the support of
an adequate sanction. No doubt in many cases the sense of honor
is such as will secure the strict observance of the treaty. But it is
very desirable that there should be behind such treaties, if they are
to be extended into an effective security of the right of inquiry, the
sense of a definite and visible sanction. What then is the next step?
Three years ago in a speech of March 13, 1911, in the House
of Commons, Sir Edward Grey said, in speaking of the possibility
of an unreserved treaty of arbitration between the United States
and England:
It is true that the two nations who did that {i.e. enter upon an unreserved
agreement) might still be exposed to attack from a third nation who had not
entered into such an agreement. I think it would probably lead to their follow-
ing it up by an agreement that they would join with each other in any case in
which one only had a quarrel with a third power by which arbitration was re-
fused.-
This is a noteworthy statement. It was made with regard to the
right of arbitration, and not to the much lesser right of inquiry.
It is well to observe, however, that such a step, postulating the
system of separate treaties between single states, would involve a
considerable extension of responsibility. To join with one other
state against any third party is a general obligation, and the history
2 Hansard, Vol. XXII.
I
Constructive Internationalism 223
of international development shows us that individual nations are
averse to undertaking such wide risks as this provision against third
parties may involve. A state if it were bound up by such an ob-
ligation might find itself involved in a dispute with some third state
with which it had perfectly good relations. Furthermore, it will
be seen that in such a step there is implied the idea of sanction
expressed in the term of both states ''joining" against a third party.
It should, however, be kept in mind that all which is here being
considered is the right of a state to an international hearing before
force is used against it, and this is a right which civilized nations
should be prepared to support.
But something more is desirable and should be attempted than
can be satisfactorily provided by treaties between two individual
states. Has not the time come when all states which recognize the
fact that the right of inquiry is fundamental should unite together
to assert this right and to declare that they will resist any power
which refuses to submit its dispute to international inquiry before
proceeding to war? By international inquiry, is not necessarily
meant a court mainly representative of "other" nations. Where
two states which have a matter in dispute agree upon a court of
inquiry, that is sufficient. But just as in industrial matters where
any two parties at dispute cannot agree upon an arbitrator the
state should have the right to appoint, so, where two states cannot
agree as to the court of inquiry, an international authority must
have the right of instituting the court. What therefore seems to
be clear is, that while it would mark a further advance if any two
states, such as the United States and England, agree to support each
other against any third party which refuses to submit its dispute
to inquiry, it would be a still better and sounder method of advance
if a general agreement were made between all states which are
prepared, (a) to submit any dispute among themselves to inquiry,
and (b) to support any member of this group against a third party
who refuses inquiry before hostilities.
Such a general agreement should be open to all states which
are prepared to enter upon it. But if it is to be effective it must
have behind it a definite obligation on the part of the signatory
states to support by the full weight of their resources, moral and
material, the disregard or denial of this fundamental right. A union
of states so constituted forms the best foundation for the develop-
224 The Annals of the American Academy
ment of the international polity. It provides a system of mutual
insurance. While one or two important nations must take the
lead in such a policy, we venture to assert that it would win at
once the loyal support of some at least of the great powers and of
many of the smaller states. Indeed it may well be that all states
would sooner or later agree to accept this position. It would be a
union of a defensive character. It would not be formed against
any state. If, however, any state or group of states refused to
acknowledge such a right, the ground for the existence of such
a union becomes all the more imperative. For it would reveal
how futile and how dangerous the attempt would be to build up
again an international system without securing the foundations.
If such an agreement then can be reaUzed, time may bring
mutual confidence between the nations and a respect for the judg-
ments of the courts of inquiry, which will lead to the adoption of
the principle of arbitration. But it may even be found that the
system of inquiry and conciliation achieves the result which arbi-
tration proposes to attain, and that it does so by methods which
are much more acceptable to the nation states and may even avoid
miscarriage of justice against which arbitration itself cannot offer
any absolute security. For inquiry and conciliation is a much more
elastic method than that of arbitration. In certain international
disputes, on matters of a strictly juridical character, arbitration
has shown itself to be the right and proper method. But in
the wider and more difficult field of political relations, the method of
inquiry and conciliation offers the soundest and safest line of
progress.
There is then this broad foundation for constructive inter-
nationalism, namely, an agreement between states: (1) that they
will recognize the obligation to submit all disputes between them-
selves and any other state to inquiry before declaring hostilities,
and that they will support any state which recognizes this obliga-
tion against a state which threatens aggression and refuses to sub-
mit its claim to inquiry; (2) that they will respect and observe
international^agreements and conventions; and (3) that they will
unite to protest against, and if protest is without effect, to punish
by economic action or by armed intervention, the disregard of such
conventions.
Constructive Internationalism 225
III
If we have seen aright what are the foundations of the inter-
national polity, it may be profitable to consider briefly some of the
developments which it may be possible to build on such foundations.
For it is only as a fuller vision of the international polity reveals
itself to us that we can seize the importance of the whole question
of international development. The right not to be condemned un-
heard is a very real gain especially to the weaker states. But
arising out of it is a larger question which, even if the times are
not yet ripe, it is none the less useful to state as a problem. The
end or purpose of the international polity is to protect the rights
of states and to develop friendly relationships and the spirit of
mutual help. As then the object of international control and or-
ganization is to assist the proper development of nationality so
it may come within the scope of international action to guarantee
the right of independence which is the foundation of national exist-
ence. Already in the case of Belgium, and of certain other states,
independence has been guaranteed by European treaties, and while
at the present it may seem to many that such international guaran-
tees have proved unavailing, it would be surely a grave mistake to
think that the policy of neutralization has failed. Rightly seen,
the doctrine of neutrality is a step in the direction of securing peace
for small states holding what would otherwise be a very exposed
position. This subject has been well expounded by Professor
Charles de Visscher,^ who has pointed out how that these neutral-
ized states have marked an advance in the international organization
with a view to peace. Because such a step has not yet realized the
desired results, it is no proof that the policy is wrong. On the
contrary, a considerable extension of the policy of neutralization,
provided it is supported by a suflBcient sanction, is a definite step
towards peace. But, as Professor de Visscher has pointed out,
the guarantee of neutrality does not remove from the guaranteed
state the obligation of preparing for its own self-defence, and one
of the conditions which should accompany an extension of the policy
of guaranteed independence is that the neutralized states should
assist in the work of protecting, not only their own, but also the
independence of all other states so guaranteed.
• "The Neutrality of Belgium," PolUical Quarter} u, Oxford, February, 1915.
226 The Annals of the American Academy
This question at least deserves to be asked: should not the
international organization undertake to guarantee the right of in-
dependence of small or weak states in a more definite way than
has been hitherto done? No doubt it has been a principle in the
foreign policy of the United Kingdom to support small states, and
no less it can be said that the United States would look with intense
distrust and indignation on the action of any powerful state which
threatened the national existence of a small neighbor. But the
time has come when it is important to see whether the right of
nationality cannot be further strengthened and secured. Such a
measure would certainly bring to any powerful and trusted group
of states the friendship and support of the smaller states whose
independence may be threatened. We have only to look at the
history of the smaller states of Europe to see how important such
a question is.
A second illustration will serve to indicate further the wide
sphere of right on which sooner or later the international polity
must enter. The study of the complex problems of European inter-
national relations has revealed more clearly than before the im-
portance of what may be called the right of ''economic access."
It is evident that when the settlement of Europe after the war comes
up for consideration one set of cases which will present no little
difficulty is that of the possession of certain seaports which are of
vital consequence to different and it may be rival nations. The
ports, for example, of Danzig, Trieste, Salonica, and similarly, the
control of Constantinople and the Dardanelles, illustrate the diffi-
culties which arise. If there is to be an exclusive national posses-
sion of such strategic positions, unless rights of equal economic
access are guaranteed to the nations which are excluded from these
gateways of commerce, they will remain a permanent source of
friction. So long as political interests impede natural developments,
so long there will be unrest. Nations should have the right of free
access to the world. No state should be allowed to penalize or
differentiate against the produce of another nation which has to
pass through its territory on the way to other markets. It is and
should be within the rights of a sovereign state to determine the
conditions on which the goods of any state may or may not enter
its territory for consumption, but to prevent or even to penalize
the goods of a state passing through its territory on the way to the
Constructive Internationalism 227
markets of the world is a matter which should be beyond the com-
petence of any state. The simple expedient of transit in bond
should be guaranteed by international agreement.
The security of the right of economic access will remove many
particular causes of friction between nations, and it opens the way
for far-reaching considerations. The function of the international
polity is to secure that just rights are conceded and, while guaran-
teeing to nations their independence, to see that independence is
not used to thwart the natural development of other states. If
commercial rights of access are granted, the ground for political
hostility is at least greatly minimized. But where a nation refuses
cooperation and controls a potential access which it does not use,
there is a natural grievance which sooner or later will prove to be a
danger. It is in this respect that international control can come in
to arbitrate between powers, to secure that there is the proper give
and take, to distinguish between what can and cannot be fairly
granted, and to seek to develop the mutual interests of states.
And there is a still wider problem connected with these eco-
nomic rights. So long as there were fresh lands to occupy', the
world was in a stage of development in which national rights of
occupation were admitted. But we have reached the stage when
all the available lands have been mapped out. Wherever then
there are lands occupied, but not developed, there will be a growing
pressure against such mere rights of occupation. More and more
it will be seen that only effective use will justify the claim of occu-
pation. Moreover, it is evident that just as in the sphere of the
rights of individual property important modifications are being
made conditioning and controlling these rights, so in the sphere of
the colonies and protectorates which nations have acquired there
must enter an element of international right which has not been
hitherto pressed. No nation can in these days seek to monopolizt*
for itself large and important tracts of the world to the exclusion
of other nations. We are coming to a parting of the ways in which,
if there is not to be a development of equal rights for all, we shall
be faced with the situation of the "haves" and the "have-nots"
among the nations. These are great problems on which it is not
possible to enter here, but they are mentioned for the purpose of
indicating the sphere of the international polity, and of showing
228 The Annals of the American Academy
how vital it is that the first steps in the foundation of that polity
should be wisely and firmly laid.
We are indeed as yet only in the first stage of the developments
of this greater polity. But every development in international
relationships, in international law, and in public international opin-
ion is a mark of the presence of the international state. And on
its progress depends the real guarantee for peace. For it is only
by the progress of constructive ideas of international right that the
permanent security of national rights is to be found and that the
way of peace among nations can be broadened and strengthened.
As society advances in its conception and realization of interna-
tional relationships, as the international poHty becomes clearer to
men's view, so is the hope of peace increased. With each wider
and higher stage of political organization peace is secured within
the new polity; and if within the polity itself war may break out,
that internal survival of recourse to armed strife becomes more
and more rare in the history of men. The realization of a bond of
union — be it the full sovereignty of the national state, be it the
single link of a customs union binding a group of national states —
is a great earnest of mutual peace for the members of that state or
union. There is no secure guarantee of peace short of the inter-
national polity. We need, therefore, to postulate as the founda-
tion of international relations the idea of the international polity
or international state, however imperfect even in theory this con-
ception may be. If this is not done we fall into views based on
what is a narrow, selfish, and dangerous nationalism. Every nation
should be the guardian of international rights, and one of its most
sacred duties should be to adjust its nationalism to these inter-
national rights. Today, the public, political mind has been awakened
as never before to the gravity of these problems. The witness
of the breakdown of international agreements and of the inad-
equacy of international sanctions has led to the asking of questions
which are a necessary preliminary to the growth of a more stable
and effective internationalism. For this reason in the very failure,
as it may seem, of international control up to the present, there is
a hope for the future of seeing more clearly what are those steps
which must be taken if international control is to become real and
effective. The very existence of this widespread emergence of
inquiry is a political psychological factor of great importance. For
Constructive Internationalism 229
it is well to recognize from the outset that in the field of international
development the part which public opinion has to play is one of
the greatest significance. The problems of international right and
of international control are, in their most important aspects, ques-
tions of a simple but fundamental character. They are matters
not of the intricacy which diplomacy presents, but issues which,
because they are so deep and fundamental, appeal straightway to
the ordinary citizen. International law which has been a study of
the Chancellery and the Academy, has become a question of the
market-place. Not that the workman or the man of business ex-
pects or desires to master the intricacies of the questions which
international lawyers and diplomatists have elaborated, but simple
fundamental issues of right have been raised which awaken in all
who have developed the civic sense an interest and a demand for
judgment such as has not existed before. Questions of interna-
tional right, because of their gravity and urgency, have become to
us real and present.
There is now, therefore, an opportunity as there has never
been before of making progress towards a constructive interna-
tionalism which will be the best guarantee of peace. But it will re-
quire strong and wise leadership. If the United States and England
are prepared to step out boldly in the cause of international peace
there is a good hope that many other states, great and small, will
follow their lead. The opportunity should not be lost. The first
step is to secure that as many states as possible do agree to submit
their disputes one with another to inquiry and to forswear hostili-
ties until a report on the causes of dispute has been received. Sec-
ondly, this union of states should undertake mutually to guarantee
each member of the union against any third state which has re-
course to hostilities before submitting its dispute to inquiry by an
international court. All treaties made by states which enter such
a union which are inconsistent with these conditions should be
denounced or modified so as to make them compatible with the
principles on which this union of states is based. Third, this union
of states should uphold with all its resources, material and moral,
the security of international agreements.
HOW AMERICA MAY CONTRIBUTE TO THE
PERMANENT PEACE OF THE WORLD
By George W. Kirchwey, Ph.D.,
Professor of Law, Columbia University.
How can America — how can the United States — contribute
to the settlement of this war in such a way that we may hope for an
extended reign of peace, if not for permanent peace?
I will confess to you that I would not have come before you if
I hadn't believed that there was something that we could do, some-
thing that we could propose, some concrete aim that might be pro-
moted by our assembling here tonight and talking this matter over.
What is it that we can do?
In the first place, let me say that I believe it to be as true today
as it was yesterday, as true in international concerns as it is in all
our other affairs, that the kingdom of heaven cannot be taken by
storm. We shall not, by any trick or device of statesmanship,
achieve a permanent and enduring peace at the end of this war.
If we shall have advanced the cause of permanent peace by a single
stage on the long journey that lies between us and Utopia, we shall
have done well. I have spent much time during the last few months
with some ardent spirits — lovers of peace, men and women of good-
will— in the hope of determining how best we can bring the public
opinion of the United States to bear, with a view to the termination
of the war when the proper time for that shall seem to have arrived
and with a view to aiding in the creation of a public sentiment in
Europe which will result in a decent, magnanimous and not a pred-
atory and defective peace, a peace which will not sow dragon's
teeth of future wars, and which shall also picture to the bankrupt
statesmanship of Europe the desirability of nations living together
in concord; perhaps even of modeling their institutions more upon
those that we have established on this side of the Atlantic, looking
forward toward that federation of the world to which the poet has
pointed the way. But the more I work with these groups of incur-
able optimists, the more convinced I become that salvation does not
lie in any attempt to realize such large aims as that in such a direct
230
Permanent Peace of the World 231
and immediate way. I feel more and more that the problem is one
of civilization. The process that will lead us to peace and civilization
is a long process, one in the education of experience. But in the
meantime what can we do to forward it?
Let me mention one thing that I think we should not do. I
do not believe that we, the people of the United States, should join
with any power or group of powers in Europe with a view to main-
taining the peace of the world by the sword. In the first place, I
believe profoundly in the truth of the saying that he who takes the
sword shall perish by the sword. I do not beUeve that any good
thing is ever accomplished by violence. In the second place, if it
is a good thing for Europe to maintain peace by miUtary force, it is a
good thing for us to keep out of.
It has been well said that the governments of the world are in
a way superfluous, if not artificial, survivals from — was it the Stone
Age? Some prehistoric period, anyway. That the real government
of the world is an invisible government made up of the great indus-
trial and intellectual and moral forces which actually control the
actions of men. Superimposed upon this invisible government we
have these rehcs of mediaevalism, our poHtical and military govern-
ments, which have very little function left excepting to plunge into
chaos this modern world which they do not understand. The
world — the modern world — has become a great industrial common-
wealth, one single web woven of a thousand million strands of mutual
interests and mutual sympathies, and the question for us is: What
can we, the people of the United States, do to preserve the integrity
of that web?
I believe, in the first place, that we can best do it by keeping
our own part of the web from disintegration. I believe that we can
best do it by maintaining our tradition of peace and our habit of
peaceful living; by setting our faces resolutely against every incite-
ment to militarism, from whatever source it may come; by refusing
to be stirred by panic cries of danger when there is no danger; by
remembering that from our geographicalposition, from our relations
of amity with the whole world, we are as safe from attack as any na-
tion ever has been in human history. The point that I wish to insist
upon is this: that we must not be driven by panic into adopting
an attitude of militarism towards the rest of the world, as the nations
of Europe were driven by panic into the militarism which finally
232 The Annals of the American Academy
resulted in this war. In that way destruction lies, and nothing
but destruction. We are, then, to maintain our position as a pacific,
peace-loving people.
And in the second place, we are, by virtue of our position in
the world, the great neutral, as well as the great pacific, power.
As such we owe to all other neutral peoples a duty — the duty of
leading them in the ways of peace — of cooperating with them in the
great work of making the world a world in which a nation shall be
free to lead a peaceful life without undue interference from nations
that are still dominated by the war spirit. And it seems to me that
this duty cannot be properly discharged by us if we continue to
work alone and for the protection solely of our own national inter-
ests; it requires us to get into close working relations with all other
neutral peoples, to enter into conference with them with a view to
common, concerted action for the protection of neutral rights and
interests.
In the third place, we are, in a peculiar sense, trustees of one of
the chief goods of civilization, the international law of the world,
that body of rules and principles which represents what Gladstone
called ''the public right" of Europe and the civilized world — perhaps
the greatest achievement of the international mind, during the last
hundred years. This public right has no sanction, in the strict
legal sense. No military force, no international police stands behind
it, to give it power. It rests solely upon the public opinion of the
civilized world — and the public opinion of half the world is paralyzed
by war, and that of the other half is benumbed by fear or by indif-
ference. It is for us, I believe, to come out into the daylight, to
take our place in the sun, and to stand for these violated principles
of international law, to the end that public right shall not perish
from the earth.
Then, lastly, there is another function which the United States
may well perform. We are on terms of growing intimacy, arising
out of a growing understanding, with the other republics of this
western world. It seems to me that we shall do more for the cause
of durable peace if we begin by creating an international community
in the Americas, which shall be held together by the binding ties of
peace, amity, mutual interest and good-will. In other words, I do
believe in a league of peace, provided it is a league of peace
in which it is proposed to live by peace and not by war; and it seems
Permanent Peace of the World 233
to me that we are in a position to create such a league, perhaps first
among the republics of this western hemisphere, the Latin American
states with ourselves, and then, next, with all other neutral powers
or rather, shall I say, all other pacific powers, those that have laid
aside, if they ever cherished, the fatal ambitions of national great-
ness, to be promoted by violence and force, which have brought the
greater part of Europe to its present pass.
Therefore, I propose as the methods by which we may hope
to contribute to the permanent peace of the world: First, that we
shall at all hazards and in the face of all dominions and powers,
steadfastly maintain our honorable position as a pacific nation, a
nation that seeks her ends by the righteous ways of persuasion and
good-will and not by force of arms; second, that we shall, as soon as
possible, enter into close relations of amity and, if possible, into
a durable league of peace with the other states of the western world ;
third, that we shall, without delay, enter into conference with a
view to some such permanent relation with every other neutral and
pacific power; and, lastly, that we shall do everything that lies in
our power to build a new international law, remembering that the
world — the real world in which we live and move and have our
being — has become industrial and, therefore, peaceful, and that
war — once the normal condition of man — has become abnormal, an
anachronism to be outlawed; and, therefore, that this new interna^
tional law shall not be written, as international law has heretofore
been written, by belligerents for belligerents, but that it shall be
written from the point of view of the neutral powers and in the
interests of neutrality and peace. What that may mean in the way
of enlarging the isles of safety in the world, the areas of land and
water permanently dedicated to peace, what in the way of freeing
neutral commerce, no one can yet say. Nor can we have any assur-
ance that we shall be permitted to play an important r61e in the
conference which will settle the terms of peace at the close of this
war. But this, at least, is certain, that we cannot be excluded from
any conference which shall settle the international law of the civilized
world, and it will be there that we shall make our impress and exert
a real influence in the direction of an enduring peace.
You will observe that this is a modest program; that it does
not bring us very close to the millennium. It will take us only a step
or two in that direction. I conceive that there will still be wara and
234 The Annals of the American Academy
rumors of war in the years to come. But I hope and believe that
the Europe that will emerge from this catastrophe will be a chastened
Europe, and that the belligerent nations will make a serious effort to
live together, and httle by little form the habit of living together, in
peace and amity. But whether that comes about or not, and
whether we can by our example and precept contribute to that end
or not, the fact remains that it rests wholly with us to determine
whether we shall be a pacific nation in the future, as we have been
mainly in the past, and whether we shall or shall not extend the
area of peace by drawing within the circle of our amity and concord
the South and Central American states and the other nations of the
world that choose to walk hand in hand with us in the ways of
peace.
HOW CAN AMERICA BEST CONTRIBUTE TO THE MAIN-
TENANCE OF THE WORLD'S PEACE ?
By G. Lowes Dickinson,
Fellow, Kings College, Cambridge, England.
In putting down my views on this subject I am not unaware
that it is a delicate matter for a foreigner to make suggestions to cit-
izens of another country as to the principles on which they should
conduct their afifairs. My excuse is the importance of the subject
to the world at large. I will not, therefore, waste time in apologies,
but will state briefly such views as I have been able to form, at a
distance from the scene and without the advantage of conversation
with leading Americans.
The conclusion of this war will be, in my opinion, the great
turning-point of civilization. Either we shall move henceforth se-
riously and deliberately in the direction of peace, or we shall move to
a continual increase of armaments among the nations already armed,
the arming of those that are not armed, and, in particular, of the
United States and China, and a series of wars in which civilization
itself may be engulfed. Which of these alternatives will be adopted
will depend, to a great extent, upon the influence the United States
may be able and willing to exert at the peace settlement. I have
always thought that the most hopeful issue of the war would be a
peace made by the intervention of President Wilson, and followed
by a congress at which he should preside. The United States is
the one great nation not directly interested in the outcome of the
war, not seeking increase of territory, or prestige, or power, not
inspired by the desire for revenge. Of all the governments that may
be concerned with the future of Europe, and therefore, of the world,
yours is the only one likely sincerely to take the view of the peoples
instead of that of the militarists and diplomats. And the imperative
condition of peace is that the view of the peoples should be heard
and acted upon for the first time in history.
The congress at which I hope to see the United States occupy
a leading position, should be one where all the European states,
not only the belligerents, should be represented. The belligerent
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governments are not to be trusted to aim at a permanent peace.
Their representatives are not likely to have the imagination to con-
ceive such a purpose, nor even the desire to pursue it. They will
be, indeed, in all probability the same who made the war. But the
neutral powers may be trusted, I think, to be favorable to a radical
change in the spirit and organization of European diplomacy. And
a strong lead given in that direction, as it might be given by the
United States, would be likely to be backed by the British govern-
ment and by the better elements of public opinion everywhere.
Everything, in fact, will depend on the impulse given. And that
impulse could be given with the greatest force and the greatest
disinterestedness by the United States.
The business of the congress would be twofold. First, the
settlement of the questions arising immediately out of the war.
Secondly, the creation of a new international organization. The
first point will deal mainly with territory and indemnities. What
territory will actually come up for settlement, only the military
result of the war can determine. And it is probable, though not
desirable, that the matter will be arranged between the belligerents,
in the preliminaries of peace. The detailed settlement, however,
should be left to be carried out by an international commission,
under the guidance of principles laid down by the congress. And
the United States would, no doubt, throw all its weight on the side
of the principle that in any transfer of territory the interests and
wishes of the populations concerned should be the only point
kept in view. With regard to indemnities, they should not be
penal, but belUgerents whose territories have been invaded and
ravaged should be awarded compensation.
It is, however, with regard to the future that I should hope
the most from the influence of the United States. The congress
ought not-to dissolve without substituting for the system of aUiances
under which Europe has been suffering an international guarantee
of peace. I have already put forward, elsewhere, at some length,
the form I think such a guarantee might take. It should be, I think,
a treaty agreement between the powers to submit their disputes to
arbitration, or conciliation, before taking any military measures;
and the treaty shall be backed by the sanction of force, in case of a
breach by any of the signatory powers. I do not myself propose
an international force nor an international executive, though there
America and the World's Peace 237
are many who put forward such proposals. But I think the powers
should be bound to apply joint pressure, if necessary, by their na-
tional armaments, to guarantee the fulfillment of the treaty.
If such a scheme, or any more drastic one, is to be adopted and
to be successful, I believe it to be, if not essential, yet very important,
that the United States should be one of the signatory powers. And
it is here that I see the great problem and the great choice for the
American people. Will you be willing, in the interest of peace, to
depart from your traditional policy of non-intervention in European
disputes, with the chance of being involved in hostilities over a
question which, in the first instance, is purely European? Your
intervention, it may be suggested, might take the form not of armed
force, but of a refusal to trade with a power that should break the
treaty. But such refusal would of course mean economic loss to
your country. As far as that is concerned, it would be a question
of balancing such loss against that which must fall on neutrals,
no less than on belligerents, if war breaks out. But such questions
are not and should not be decided merely on grounds of economic
interest. The American people would have to decide whether they
care enough for peace to take risks for it. And on their decision
may depend the possibility of peace. The alternative seems to be
an America unentangled by agreements with European states,
yet progressively arming herself to meet possible menace from thenv
If that course is adopted by the United States, most probably the
European states will continue the system of armed isolation or
alliances. And the question will be, not whether there shall be
another war, but simply when it will break out.
If a council of conciliation such as I have elsewhere suggested
should be set up, to that council should be referred not only actual
disputes but burning questions such as are certain to lead to disputes.
These all turn, I think, on race and trade. Both these kinds of ques-
tion lie behind the present war: race troubles in the Balkans, and
trade rivalry in Morocco and elsewhere. There is, I believe, no
ultimate solution of such questions other than complete toleration,
political, social and religious, wherever different races are included
in a single political system, and complete freedom of trade and of
immigration. The enormous difficulty of such a solution, and the
mass of prejudice and interest against which it would have to con-
tend, are at least as patent to you in America as to us in Europe.
238 The Annals op the American Academy
It must be a long and difficult campaign to change public sentiment.
But the campaign would be sensibly assisted if an impartial inter-
national council should consider the whole situation in time of peace,
and suggest possible lines of settlement. The adoption, for example,
of the policy of the ''open door" in all undeveloped territories would
obviate much of the friction that makes for war. The great question
of the immigration of the colored races into territory occupied by
white ones is more difficult. Yet the ventilating of it by an impartial
international body and the focussing of the public opinion of the
world upon reasonable compromises might do much to prevent
the outbreak of war over issues no war can permanently settle.
In these brief notes, I have, I hope, shown clearly the importance
I attach to the action that may be taken by the United States at
the conclusion of the war. Naturally I do not presume to advise.
But I think the mere facts of the situation show that upon the action
your country may be able and willing to take may depend the whole
trend of western civilization. And in trying to show that, I have,
I think, accomplished the task I was invited to undertake.
AMERICA'S POSSIBLE CONTRIBUTION
TO A CONSTRUCTIVE PEACE
By Morris Hillquit,
New York.
The time has passed when two or more great nations could
wage war without involving the rest of the world. Today the
international organism of human civilization is so delicately attuned
that the slightest disturbance in any of its parts immediately com-
municates itself to the whole body.
The United States can no more be indifferent to the frightful
ravages of the European cataclysm than the brain of a man can be
indifferent to an acute disorder of his heart. We are united with
the leading countries of Europe by intimate and vital ties. Every
economic or social improvement, every scientific or spiritual advance
and every progress of the arts on the other side of the ocean, raises
our standards of thinking, feeling and living, and every retrogression
in these fields of human endeavor checks our own progress, deterio-
rates our own worth.
The war, which is fought on battlefields more than three thou-
sand miles removed from us, is disarranging the entire social and
industrial fabric of this country. We are involuntarily drawn into
the maelstrom of the war in everything but the physical fighting.
I hold that the United States has vital interests and imperative
duties in this war, and should exert every atom of power to bring
about a speedy and lasting peace between the nations.
How can this great task be accomplished?
There are three main channels through which modern countries
interact on each other — political, economic and spiritual. If the
people of the United States have the power to influence the bellig-
erent nations in favor of a cessation of hostilities, such power must
be found in one or more of these channels; and I maintain that we
may exercise a decisive influence on the destinies of the world-war
in all three directions.
Politically the nations are almost equally divided into belliger-
ents and non-combatants. One-half of the world is under arms,
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striving for mutual extermination, while the other half witnesses the
inhuman spectacle with impotent dismay.
If all the nations at peace, all American republics and all neu-
tral powers of Europe and Asia, would join in a definite and urgent
offer of mediation, the proposal would come with such commanding
moral force that it could not be long ignored by the belligerent
powers.
Every neutral country is deeply and disastrously affected by
the war and wishes to see peace. But the world is inert and inactive
for lack of leadership. It is this leadership which we must assume.
The United States is the largest, most powerful and influential of
the neutral nations. It is also the most independent and secure.
It is naturally placed in a position of leadership in this world-crisis.
Our government could properly take it upon itself to organize a
council of all neutral nations, a modern "International Concert of
Powers" to conciliate the warring nations and not to relax in efforts
until peace is finally and firmly established.
This may be a rather unconventional step in established diplo-
matic procedure, but the world has never faced a crisis as great as
that through which we are now passing. The extraordinary situa-
tion calls for unusual methods, bold measures and big men.
Economically we have it within our power to minimize the
ferocity of the European slaughter and perhaps to shorten its dura-
tion by cutting off our supply of arms, war equipments, ammunition
and credits from all belligerent countries. It is barbarous enough
to set the engines of industry to work manufacturing instruments
for the assassination of an ''enemy," but it is criminally culpable to
produce such weapons for the killing of people with whom our coun-
try is supposed to be at peace. By furnishing arms to the belliger-
ents we take an active part in the direct hostilities, and our part in
it is all the more hideous and revolting because it is a cold-blooded
traflSc for profit. It is urged that if we refused to export arms and
ammunitions, it would aid Germany as against the allies, and result
in increasing militarism in Europe because each country would be
forced to increase its production of military supplies in times of
peace. These arguments bear on their face the trade-mark of the
armor-plate works and are as full of holes as the main products of
these works. The fact is that our broadminded manufacturers of
war supplies sell indiscriminately to both sides, and the chances are
America and a Constructive Peace 241
that wars would be rarer and milder if each country had to depend
on its own resources for waging warfare.
Morally we may influence the course of the European war by
our general attitude. Our people, and particularly our press, are
too much inclined to view the appalling tragedy on the other side of
the Atlantic in the light of a sport. We follow the moves of the
hostile armies with an interest akin to that which we feel towards a
fascinating chess play or an exciting ball game. We pick the win-
ner, we take sides. In the people of the belligerent countries such
an attitude is excusable. War is a pathological state and creates a
morbid psychology. But we have no such excuse. Our press, our
pulpit and our lecture platforms should resound with emphatic
protests against the wholesale carnage and with consistent and per-
sistent councils of peace. Our views and sentiments are instantly
communicated by the electric spark to the entire world. We speak
daily to the people of Europe — let us speak to them of the horrors of
their war and of the blessings of peace, and eventually they must
hear us.
But there is another and greater moral service which we may
render to our unfortunate fellow-men in Europe — the service of
example.
This war will end some day. Whether peace will come sooner
through neutral influences, or whether it will come later as the result
of the physical exhaustion of the combatants, come it must some
time. And when this greatest of all wars in history will be over, the
world will have its greatest opportunity for laying the foundations of
eternal peace, of a civilization worthy of the name. This war is
bound to have a great sobering effect upon mankind. It has robbed
warfare of its romantic halo and has revealed it in all its ugly and
brutal nakedness — a mutual butchery by factory methods, a gen-
eral carnage on land, water and in the air, a prostitution of all the
sciences and arts to the task of destroying human life. It has
demonstrated the ruinous character of the policy of imperialism and
the dangerous fallacy of militarism.
When the smoke of the battle will be cleared, and the masses
now in the war will cast their eyes around them, they will encounter
nothing but ruin and devastation, nothing but evidences of madness,
savagery and shame, the total and fatal collapse of a false civilifa-
tion based on the philosophy of the jungle, on the rule of the claw
242 The Annals of the American Academy
and the fang. They will find but little comfort, little promise in old
Europe. They will turn to us, the great democratic republic in the
new world, which alone of all great world-powers has managed to
preserve sanity and peace. What shall we offer them? Shall it be
the old, destructive gospel of armament, '' preparedness" and mili-
tarism, or shall it be a message of peace, a promise of a better, saner
civilization? By our own example of peace and good-will we may
help to usher in an era of brotherhood into the history of the human
race. This is the signal opportunity that the great world-crisis
offers us. Let us not fail.
HOW CAN AMERICA BEST CONTRIBUTE TOWARD
CONSTRUCTIVE AND DURABLE PEACE ?
By Charles W. Eliot,
Cambridge, Mass.
In accordance with your request, I send you a brief answer to
the question "How Can America Best Contribute toward Con-
structive and Durable Peace?'*
1. The United States can teach by precept and example that
no nation should endeavor to establish by aggressive war dominion
over any other state large or small. It has already twice abstained
under trying circumstances from adding to its territory by con-
quest, once in Cuba, and once in Mexico, and is entitled to
assert steadily that aggressive war is not an available means, in the
present state of the world, of settling international disputes, or of
extending national power.
2. The United States, as an original advocate of the doctrine
of exemption from capture of private property at sea, may now
properly maintain that all seas, and all canals or channels connect-
ing great seas, should be free to the commerce of the world, and
that this freedom should be placed under international guaranties.
3. The United States should urge for general acceptance John
Hay's policy of the "open door" as the best means of promoting
the trade of all manufacturing peoples — Occidental or Oriental.
4. The United States has no desire to hold colonial possessions
by force, or to govern subject peoples in any part of the world, and
can, therefore, contend and hope for the general recognition of the
principle that the only enlargements of national territory worth
having are those brought about by consent and with good will
and, therefore, likely to become bound to the central or parent state
by the sense of mutual service and advantage.
5. The United States has advocated arbitration as a means of
settling international disputes, and has itself resorted in numerous
cases to the method of arbitration as a means of settling its own
disputes with other nations. Recent events, however, seem to
prove beyond question that the major cases of international strife
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are matters which do not permit of either arbitration or concilia-
tion, because they originate in racial or religious differences, hot
commercial competitions, or other popular emotions and passions.
The court contemplated in the Hague Conferences has always been
of an arbitral nature, suited for composing disputes on minor points
which permitted of compromise. The United States should here-
after use all its influence toward the creation of an International
Council capable of securing a permanent peace, and created by
fresh international treaties.
6. Since such a Council would be ineffective unless supported
by an international force, the United States ought to prepare to
furnish its full quota, in proportion to its population and its wealth,
of the international naval force competent to prevent any inter-
ference with the freedom of the seas. This quota should be of the
highest possible efficiency as regards types of vessels, ordnance,
munitions, and skill of officers and men.
7. The United States should use all its influence in interna-
tional discussions to substitute frankness and honesty in negotia-
tions, amity, mutual forbearance, cooperation, and stable inter-
national peace in place of secret and cheating diplomacy, enmity,
domination of the strong over the weak, injustice, and recurrent
war.
8. When a Supreme International Council or Tribunal has been
established, the United States can urge consistently with its own
practice that national armaments should be reduced, and that the
practice of fortifying frontiers and cities should be abandoned.
ACQUISITIVE STATESMANSHIP
By W. Morgan Shuster,
Washington, D. C.
I am not going to discuss the neutrality of the United States.
It is, I presume, in good hands. At any rate, we cannot alter it.
It was in good hands when Judge Moore had something to do with
it. I wish to say a few words on the very elusive subject of
the right of small nations to independence. This sounds some-
thing like a joke, after a review of the history of the past fifty years;
yet our friends of South and Central America ought to be interested
in it, at least academically. The fact is that the denial by us at
times of that right, and the refusal of all the other leading civilized
nations of the world to observe it, is what has been the real cause
of all the wars of the last century. Each nation, in denying it, can
always offer good pretexts to its own people and to the rest of the
world. You cannot catch up with the modern international diplo-
mat. He is always three leaps ahead of the rest of the people. A
government may do anything if it has carefully prepared to issue
the proper bulletins on the subject afterwards.
Let us begin with ourselves. The United States has been
guilty, during the past 140 years, of several breaches of the ethical
right which we are discussing. We must freely admit that fact
before proceeding to criticize others. Doubtless we played the
game on quite as high a plane as the international standards of the
different epochs involved seemed to require. We evidently be-
lieved in the fundamental justice of the law of conquest. Certainly
up to very recent times it has been well recognized that when a
nation went to war with another it might take the other's terri-
tories or its colonies, among other things. And we have done it.
Sometimes we have done this without going to war and sometimes
by going to war. Of course there are many other nations which
pursued this course on a larger scale, and there are other nations
which circumstances prevented from doing it to so large an extent
as they wished. These facts practically caused the present world
struggle.
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246 The Annals op the American Academy
I do not believe at all in Peace Societies. I gladly and freely
acknowledge the sincerity and high-mindedness of their work; I
mean I do not believe that they are on the right track. You can-
not make people stop fighting for loot simply by preaching godliness
to them. If they were godly, they would not be fighting for loot.
Then there are gentlemen who are so Utopian as to believe that we
might create a red, white, blue, pink, green and yellow international
police force, composed of warships and armies contributed by the
various civilized nations of the world — I suppose on a per capita
basis — and that after establishing a supreme arbitral tribunal, with
this, I do not like to say motley, naval force back of it, wise and
just decisions of all kinds in cases of international disputes could be
effectively enforced. I do not think that the idea is practical. I
cannot imagine, with patriotism defined and taught as it is today,
with our civic education following the lines with which we are famil-
iar, any ordinary person committing treason against his own country
(and in time of war, of course, treason is defined as bearing arms or
taking service against one's own flag); nor can I imagine that an
international police force composed of ten or twelve different races
and nationalities would bring about anything but ample oppor-
tunity for dispute, even in time of peace.
There remains the proposition of disarmament as a means of
bringing about peace. After all, whatever we may start to talk
about, what we are thinking about is peace — permanent world
peace. There are people who sincerely believe that if the strong
nations disarmed, or partially disarmed, continued peace would be
rendered more possible, or more probable. History does not indi-
cate anything of the sort. I have been unable to discover in my
leisure moments the case of any nation which, unarmed, has been
treated with more careful consideration by any other nation or
nations because of the former's defenseless situation. There may
have been such instances, but they are not recorded in history.
Perhaps the Chinese Republic is the best example of an unoffending,
unarmed and unaggressive nation, but it is suffering bitterly at the
present time. So that, while it is true that great preparations for
war, great armies and powerful navies, may set the hair-trigger,
may render it easier for the ruling powers to bring about war, if
they so desire, because the nations feel so well prepared for it, it is
equally true that lack of preparation for defense has never pro-
Acquisitive Statesmanship 247
tected any nation or people in the world, and it would be a very
dangerous experiment, it seems to me, for the American people to
endeavor to test out that theory just at this particular time. We
have then the idea of a supreme arbitral tribunal which requires
an international posse comitatus, as Colonel Roosevelt has suggested,
to enforce its decrees, and we have the idea of disarmament, and I
declare frankly, as a lover of peace, that I do not believe that either
of the plans would produce peace. The question therefore becomes
whether there is any tendency towards peace which we could fur-
ther or encourage. I think that there is, if we are ready to face it.
I believe that the cause of every war in the past century, and
many before that, has been acquisitive statesmanship, the wrongful
lust for land, and the commerce and advantages flowing from it.
It is the basic cause of the present war. There is not a nation with
even a fifth rate statesman which cannot offer a perfectly good pre-
text for going to war; and, unfortunately, most of the people in the
country always believe the pretext put forward by their own states-
men, and pay no attention at all to any arguments advanced by
the other side. The result is that we have the almost incredible
spectacle of eight or nine different nations, of relatively high civil-
ization, ranged in a death struggle against each other, with the
people of each nation sincerely believing — 90 per cent of them at
least — that its cause is just. It is not of any real importance whose
cause is just, because it may well happen that the really just cause,
practically speaking, will be defeated by the greater number of
men, ships and cannon. The important point is: what state of
diplomacy or what state of education exists in the world when nine
nations can go to war, with not only the statesmen but the mass of
the people of each believing that it is right? There is only one
possible explanation, in ray opinion, and that is that the people of
those nations are in reality fighting for something very much nearer
to them and more tangible than a theory of academic justice. The
war has been put to them on racial lines, or on religious lines, or on
the line of altruism, or on the line of the upholding of treaties, but
the fact is that the real appeal is to something very much more
solid, very much more practical than anything of that kind, and
that appeal is to the long since familiar " larger national develop-
ment." Can't you see those words when they appear in the official
bluebooks and communiqu6s? It is this aspiration for more land
248 The Annals of the American Academy
which at least one neutral nation in Europe is using today to in-
flame the war spirit of its people. What does that mean? What
does it mean in the case of this neutral nation? It means "more
territory," ''more commerce," "more people to be taxed," more
land over which to rule, and more people over which the flag might
float. I would take great pleasure in uttering these same words to
any audience in the world. We Americans are no more free from
it than any other nation in the world. We have our own name for
our national exploits. We free the oppressed. We do pretty well,
all things considered. There is some good in everything, but I am
thinking about the principle not of ethics, but of international cus-
tom which permits a nation on any pretext to violate the sovereignty
of any other nation. The denial of this may sound rather radical,
because war between sovereign peoples has been the fashion for
thousands of years. But we have grown out of a great many fash-
ions, and the fact is that until land, fixed by international bounda-
ries, shall be recognized as inviolate, and until some other method
of punishing a nation which infringes on the rights of other nations
shall be found, war will continue, and no peace societies, arbitral
tribunals, or international fleets, or anything of that kind, can pos-
sibly stop it. We have seen in the last fifty years a dozen flagrant
and shameless violations of treaties, violations committed by the
leading nations of the world, including, in one instance at least,
the United States, where in a small or weak country there has been
some little oppression of foreigners or other cause for the complaint
which has been seized as a convenient pretext for the treaty violat-
ors, at home and abroad.
We have seen a whole continent practically divided up in the
last twenty years. We see a large part of another great continent
about to be divided up between two of the leading civilized nations
of the world. We have over here two great continents whose future
status is by no means permanently fixed, certainly not, if the prin-
ciple is to be accepted by the world that strong naval or military
power allows a nation or group of powers to dictate new international
rights.
The United States and the American people who are neutral,
officially, in this present struggle will probably come out of the
situation disliked by all parties. We cannot do anything now but
prepare for eventualities, except begin to think in larger terms than
Acquisitive Statesmanship 249
those of counties and states. The great glaring defect in the inter-
national affairs of the American people is that they cannot think
in broad terms. Let us begin by remembering that there are a
great many nations in this world, contributing to its welfare and civ-
ilization in a high degree, and making life both interesting and
profitable for all of us, which could never by any reasonable proba-
bility become great military powers. If these nations are to be
wiped out, if they are to become subject peoples, merely because of
their indisposition, as in the case of China, or their inability, as in
the case of many smaller nations, to become great military powers,
then the world will live in centuries more of strife. And if that is
to be the future, the United States should become a military power
as soon as possible. On the other hand, if there is such a thing as
a manly appeal, if there is such a thing as an unselfish proposition
in international affairs, let us put forth, in proper diplomatic lan-
guage, at proper times and under proper conditions, a distinctly
American doctrine, which has not to do with the interning of vessels
or the shipment of arms, but declares that under all circumstances
the integrity 'and sovereignty of all neutral nations as they exist
shall be recognized, all pretexts to the contrary notwithstanding.
The first and most important result to flow from that declara-
tion would be the way in which our neighbors to the south would
regard us. I do not blame them for having the greatest suspicions
of what American policy — (Yankee policy, as they call it) — means
for them. I myself believe that those suspicions are unjustified,
as do you, but I am speaking from their standpoint. We ought to
put forth that doctrine for their sake. We ought to make it very
clear to them that no matter what happens, no matter what the
temptation or the crisis may be, or what interests may be involved,
we will never take a hand in stealing from any other nation on the
Western Hemisphere (nor, of course, elsewhere) a single square
mile of territory under any pretext. It is possible that after we
have proclaimed that and made good at it, we might get some other
nations in the world to see the permanent value to peace of that
doctrine. There is not very much unseized land left in the world
except China, and she seems to be on the point of being altruisti-
cally taken in charge, so that we ought not to be considered entirely
unreasonable when we suggest to them that all nations stop fighting
among each other for the land which they have already divided up.
250 The Annals of the American Academy
But the United States, you say, took the Philippine Islands
purely for altruistic reasons. I know some will smile at this, be-
cause there are many people who really think that we are there for
that reason, and we may be, but the fact is that the British say,
the French say, the Russians say, and the Japanese say, "You found
it convenient to rob poor old Spain when you were in a war with
her, and you took the Philippine Islands.'^ We quote our speeches
in Congress and everything of that kind to prove that we are there
for the welfare of the people. England is where she is all over the
globe for that, and France is in a good part of Africa for that pur-
pose, and Japan and Russia are struggling in one direction or another
for that purpose. I am aware that this is a very unpopular line of
conversation. I wouldn't go out and run for pubUc office on this
platform, but the fact is that it is impossible to make exceptions.
It may well be that the great mass of us are sincere in our belief
that we can govern better certain portions of the globe which we
could hardly have found on the map seventeen years ago than could
the people who were there for hundreds of years before us, or the
people who were born there. It may also well be that a Russian
form of government would be much better for the people of Con-
stantinople than the present one. But that is not the point. The
point is, is there anything practical about such a doctrine? Where
would we stop?
How are we to demarcate acquisitive statesmanship from altru-
istic statesmanship, if you once admit you can take another's native
land? Suppose that the intricacies and tendencies of international
law do make it more difficult in future for a nation to pick a quarrel
of conquest, it is easy for clever statesmen to devise new pretences.
The right of conquest, the taking of territory by bald conquest,
has already gone out of fashion. Now-a-days a weaker nation is
rarely taken by conquest. There is a clash of interests, carefully
advertised and worked up in advance, then the national commerce
of the aggressor becomes vitally important, or a racial affinity is
discovered which makes it necessary that one nation leap eight or
nine hundred miles to stand by another nation in going to war. I
only mention these things because we have grown used to them.
Fine expressions may be very consoling to the people of the country
being seized. But we all know that such things are merely a ques-
tion of a pretext, and there can be no just pretext for taking the
Acquisitive Statesmanship 251
land and the birthright of another people. Certainly the American
people should never admit such a pretext, and if we do, it must be
because of some finesse of diplomacy and international law.
When certain difficulties arise I can conceive that it would be
almost easier to go in and "spank" a smaller nation than to reason
with it, or to arbitrate. I think we have seen cases of that kind
not so very long ago. But the vexations of self-restraint are much
less than the difficulties which flow to the world at large from the
admission of the doctrine of the right of the acquisition of territory
belonging to another sovereign people. I should like to see the
United States (and I suppose that we can do so at least as fittingly
as any other nation) put forth this doctrine at the proper time, take
it as their national slogan and await the result. We cannot impose
it upon others, if they do not choose to accept it, and it will be hard
at times to sit quietly by and see other nations reject it and profit
by their attitude while we are following a principle. That is true,
however, of every principle which is worth while. I should like to
see our country do one thing more, at the same time that we are
preparing to put forth that doctrine of the fixed balance of territory
as a possible safeguard against war, — I should like to see established
and maintained in this country an army and a navy so efficient and
so large that, whatever the international situation might be, there
could be no suspicion in the mind of any ''doubting Thomas" any-
where in the world that we were putting forth this peaceful and
generous doctrine from either weakness or fear.
WAR— OR SCIENTIFIC TAXATION
By C. H. Ingersoll,
New York City.
Two important factors which mark the growth of civilization
are an increasing control over the forces of nature, and a more minute
division of labor. The latter makes us to a large extent dependent
on others, and this has never been more conclusively shown than
during the present war. Although we are a neutral nation, the
struggle has affected every one of us in an economic sense. Some
have lost — others gained, so far.
At any rate, the war's costs are enormous and will continue to
be. Professor Charles Richet, of the University of Paris, estimated
some years ago that a general European war would cost approxi-
mately $50,000,000 a day. Recent figures from London indicate
that the annual expense of England and her allies will approxi-
mate $8,000,000,000 and the total annual direct expenditures of
the nations at war will probably reach $16,000,000,000.
Statistics of capital known to be normally available for invest-
ment and securities are compiled year by year by the Belgian Finan-
cial Publication Le Moniteur des InUrits MaUriels and these
show the average annual amount available, for the past few years,
to be about $4,000,000,000. One yearns war will consume approxi-
mately four years' savings! A costly plaything — War.
And I have not yet spoken of the indirect costs. The enormous
destruction of property, the almost complete disorganization of the
agencies of production and distribution, the economic loss sustained
by the almost unbelievably large loss of life — these are factors which
cannot even be approximated.
Who will pay for this war? Will the people of the nations at
war stand all the costs, or will they be distributed among humanity
in general? I believe that we will all have to bear a share of the
burden, and that it will fall most heavily on those who are least
fitted to stand up under it — the consumers. The consumer is the
laborer in more than nine cases out of ten. Under the present sys-
tem of taxation, business will stand the first costs. But a tax upon
252
War — Or Scientific Taxation 253
business is a tax upon capital and industrial enterprise, on which
the consumer-laborer depends for employment. If business thrives,
the consumer-laborer pays the tax in the form of higher prices; if
the tax is so high that business cannot be conducted at a profit, he
pays it in the form of unemployment. In other words, he gets it
coming or going. Perhaps it will be in the form of higher prices —
perhaps increased unemployment — or in some other manner, but
these costs will be paid. For many months we have been paying the
costs in the form of disorganized and dislocated business, and by
special taxes on proprietary and toilet articles, telephone and tele-
graph messages, and so on.
The government must be supported — that is not open to discus-
sion. Under the present system governmental revenues are quite
largely secured from import duties. When this source is cut off,
or lessened, as it has been since the war started, we pay the pen-
alty in another way — and always through taxes levied upon those
who have least cause to have to bear them. Taxation as now in
vogue is all bad; taxes fully deserve the evil reputation they
bear. Taxation today means taking from people something they
think they own; hence their persistent objections. This is
evidence of the wrong basis for taxation, and proof that it is
interfering with normal life, industry and prosperity. If we want to
do away with war, let us first remove the cause — unjust taxation.
Can business prosper while being driven from pillar to post by the
tax assessor? Or is it better not to have business prosper? A
stranger might reasonably infer that the prosperity of business is
decidedly against public policy.
What is the present financial status of American industries?
We are blessed with good crops, for one thing. In addition to hav-
ing plenty for home consumption, we have enough to feed several
of the warring nations and some of the neutrals. The farmer instead
of worrying about how he will pay the interest on his mortgage, now
spends his earnings assiduously studying the pages of the automobile
catalogue. He is selling the products of the field at top prices, and
so far at least, the increased prices of the things he has to buy do
not equal his increased revenues.
It is the opinion of 2,000 leaders of thought and action in the
financial, mercantile and industrial field that "while money is cheap,
credit is subnormal." There is a super-abundance of money in some
254 The Annals of the American Academy
sections of the country, mainly in the larger centers. This is to be
expected, for the sequence of a period of business depression is al-
ways an accumulation of money at the large centers and a closer
scrutiny of credit that results in the elimination of those who were
hopelessly crippled by the panic but were temporarily carried along
by bankers until better financial conditions permitted of their re-
habilitation through bankruptcy or reorganization, with less shock
to the community and with greater salvage to their creditors. Econ-
omy is general, and reports indicate that in many instances it is
deliberate and is being followed as a matter of choice and not of
necessity. The Federal Reserve Law is making money easier to
secure. We have a brisk home trade and a strong export trade in
foodstuffs and war materials. Our ''balance of trade" has reached
a record figure. Our citizens are '* Seeing America First. " Millions
of dollars are being kept at home this year through force of necessity.
This war was not desired by any nation now involved in it, nor
by the people, nobility or ruling class of any country, and was beyond
the power of the world's financiers to have averted. It is a com-
mercial war, always raging, due to the fact that each nation is always
unconsciously fighting to extend its area oifree trade. The existence
of tariff walls is the prime cause of national and racial hatreds. On
the other hand, the examples of the German Zollverein and the
United States of America show the mutual advantage and amity
that flow from state autonomy and the freedom of commerce.
"Suppose" with me for a moment. Suppose that there were
tariff walls between the various states of the Union. Now then —
Michigan automobile manufacturers are trying hard to build up an
export trade in South America. The cheapest method of transpor-
tation is, we will assume, by Mississippi River boats, to New Orleans.
But to reach the Mississippi or Ohio, the Michigan manufacturers
wou'd have to pass through Illinois, Indiana or Ohio, and there pay
a duty on their products. Think of the jealousy and hatred this
would cause! We are so accustomed to free trade within the United
States that our senses have failed to grasp the importance of the
cause which has thrown Europe into a state of indescribable turmoil.
The real cause of the European war was not the shooting of an
Austrian noble by a Serb — the real cause was an economic one — the
unconscious fight of each nation to extend its area of free trade.
Russia, for example, is a nation without a good seaport. What is
War — Or Scientific Taxation 255
more natural then, than for her to look with envy at German soil
along the Baltic, and at the region of the Dardanelles? What would
prevent her from shipping her goods from German ports? The
answer is the existence of tariff walls. If she sent her goods through
Germany, she would be taxed. This is a condition which has
existed for centuries, has caused numberless wars, and will continue
to create discord and ill-feeling until governments remove tariff bar-
riers and gain their support from nature's creation instead of from
the fruits of man's labor.
The remedy — the only insurance against war — is a more scien-
tific, rather a scientific, system of levying taxes. Under the present
system unimproved land goes almost free on the theory that it is
earning no income, and in disregard of the fact that it is a stumbling
block, a drag on development, and that it is growing valuable by
the industrious efforts of others. Build a house, or even paint one,
or beautify your property, and you must pay a penalty. Buy a
suit of clothes, a barrel of sugar or a ton of coal, and you will have
paid another fine that must discourage your effort to live comfort-
ably. Our present system is a direct encouragement to spiBculative
inaction, and at every turn a blow at honest industry.
The site tax, or tax on land values would not disturb existing
titles to land at all, but by surrounding users of land with fair con-
ditions, not now existing, would make these titles absolutely secure.
The force of the change would fall on those non-users or partial
users of tracts they are holding for an advance in price. For exam-
ple, of two adjoining pieces of land, one is occupied by a building
and other improvements, and the other is in its raw natural state.
The owner of the first pays a high tax on every building and its con-
tents,— on even his fences, ditches, grading and so on, as well as a
high tax on the land itself, while his neighbor pays a low tax on the
land alone. A tax on site values would remove all tax from the
improvements and take the full rental values of the land only,
without considering in the slightest degree the improvements, thus
lowering the tax paid by owner No. 1. The tax on the unimproved
plot would be increased three or four times, bringing it to the actual
economic value, corresponding to the adjoining land. And what
would be the net result of this? First, an industrious man's taxes
would be lowered, and he would be encouraged to make further
improvements. Second, the *'dog in the manger" would realize
256 The Annals of the American Academy
that there was no longer any profit in holding land idle; so he would
use it, build upon it, cultivate it, and employ labor, thus raising
wages. Third, another house would be in the market, lowering rents
for houses, and more produce would be sent to market, contributing
to cheaper prices for such. Fourth, as the revenues from land
would more than suffice for all expense of government, every other
tax would be abated, so that general public would actually be
exempt from taxation! The land would take care of it all, and
justly so, because these same people have made every dollar of
these values. "Every other tax would be abated." This would
mean the end of war and its terrors. There would be little incentive
to reach out for more land if every country levied taxes on site
values alone.
Great Britain made a step in the right direction by removing
tariff barriers and establishing free trade. But England did not
dig down to the roots of the question — and as a result England has
^ perhaps the worst tax system of any nation. A few nobles — law-
lords as well as land-lords — hold the greatest share of the land, and
are encouraged to hold it, idle and useless, by a tax system which
lets unimproved land off nearly free and puts a high tax on improve-
ments.
The whole object of any system of taxation is that it shall be
certain, just, easily collected and shall not be a burden to industry,
thrift and initiative. Our present system, in order to be certain, is
unjust, for it is not placed on those who should and are best able to
bear it. Under the present tax laws, those whom we have a habit
of thinking pay the tax are in reality tax collectors from those who
rent, use and purchase. Such factors as labor, sea and rail trans-
portation, supply of capital and interest rates do, of course, con-
tribute to the prosperity of American industries — and I speak of
industries in the broad sense. But back of these factors, and more
fundamental, is another factor — taxation. Until we have just and
scientific taxation — wars or no wars — the prosperity of American
industries will be uncertain. Until tariff walls are broken down and
taxes levied from site values only, we must always be prepared for
the outbreak of war.
I
THE CONSTRUCTIVE WORK OF THE AMERICAN ARMY
By Leonard Wood,
Major-General, United States Army.
I want to say a word to you about the life-saving work of our
country in the tropics through its principal agent, the Army, an
agent which is more generally misunderstood in this country, per-
haps, than any other branch of the government, an agent whose
life-saving work has been of infinite value to mankind and to the
nation. We in America understand too little the work of the Army,
too little of what it has done to save life, and we talk too much of
it as a destructive force. There are very few who realize or know
that in ten peaceful Fourth of July celebrations of a war finished
about 135 years ago we killed some 1,800 people, mostly young
boys, and wounded some 35,000 and odd, also mostly boys and
young children. The killed of those ten peaceful single day celebra-
tions about equal all the killed of the Spanish war and the Philippine
Rebellion and the Indian wars of the preceding ten years. And
the wounded of those ten peaceful single day celebrations, were,
roughly, seven times the wounded of all those wars.
War is by no means the greatest cause of death among the
human race. Typhoid fever every year in this country, until some
doctors discovered how to control it, cost 40,000 lives. That num-
ber almost equals the loss of life on the battlefield of all our wars,
excluding that of the Civil War, beginning with the foundation of
the Republic. Our industrial accidents each year amount to some
462,000, with a death list of nearly 80,000. You take little interest
in correcting the causes and conditions which make such things
possible, but talk a great deal about war, of which you know ex-
tremely little. Seventy-nine thousand lives a year, or a number
of lives equal to the losses of any two average years of* the Civil
War, and more than the total loss in battle of all our other wars,
and yet you don't think much about it.
We have heard here tonight that international peace can best be
secured by doing away with patriotism, and that there is no such thing
as a national conscience. So far as America goes, I claim that there
267
258 The Annals of the American Academy
is such a thing as a national conscience, and a very strong and a
very active one. On some questions it is not keenly alive because
their importance has not been brought to the attention of the people,
but once brought to their attention and placed squarely before them
in such a way that they can understand it, the national conscience
becomes active. The best type of national conscience will only be
found where the training of individuals has been broad and sound.
The national conscience as a whole consists, as it were, of the col-
lective conscience of individuals, consequently it depends upon in-
dividual training and individual morals. International congresses
can do very little if the training of the people has been unsound
and they are wanting in proper moral principles. It is the education
of the individual, after all, which counts, and this education must
begin in the home. If we have decent, moral boys and girls and
sound teaching in the home we shall have good morals in public life.
You will have a quiet, strong, God-fearing nation which, while not
aggressive, will, I hope, always be proud of its flag and all that it
stands for, willing to defend its interests when attacked, and, while
seeking to avert war through justice and fair dealing, will never-
theless be ready and willing to resist injustice and accept war rather
than peace with dishonor or peace which involves conditions worse
than war.
We must always remember one thing: we are too prone in this
country to, figuratively speaking, pat ourselves on the back as being
the most intellectual and the most advanced people. Our opinion
in this matter is not generally accepted by foreign countries. Do
you know that our criminal rate is the highest of any of the great
Christian nations? I doubt if you do. Our murder rate is several
times that of Switzerland, where general military training to defend
the country seems not to have debauched the youth, if we can
judge by the criminal rate.
Now, when we took over our trust in Cuba, the conscience of
the American people decreed that we should not exploit that island,
but that we should do all that we could to build up and better the
people. For four years the work was entirely in the hands of the
Army, acting as an agent of reconstruction. The courts and munic-
ipal and provisional governments of Cuba ran without interference.
The record for the prompt punishment of crime was better than
in any state of the Union. The death-rate in that Island was re-
Constructive Work of American Army 259
duced from one of the largest in the world to one of the smallest.
The wonderful results which grew out of the work and discoveries
of Dr. Walter Reed and his associates, who nobly and generously
gave health and even life itself to the work, have been applied to
the control of yellow fever in our southern states, in Central Ameri-
can and northern South American countries, as well as in Cuba and
the islands of the West Indies, and have brought untold blessings
to those lands through the doing away with their most terrible
scourge — the much dreaded yellow fever. The tropics have been
made a white man's country so far as this disease is concerned.
The number of lives saved in the tropical lands every year are many
times the number of those lost during the war, and the saving in
our own country has been very great, not only in life but in money,
exceeding in all probability many times the cost of the war, in each.
Those who are business men can appreciate what a quarantine
extending from the mouth of the Rio Grande sometimes almost
to the Potomac and away up the Mississippi above Memphis, cost
the people of the South. All freight was tied up, all movement
of individuals greatly curtailed — business practically paralyzed.
Not only was its effect far-reaching in the case referred to, but out
of its results came the possibility of another great work, the Panama
Canal. Magnificent as has been the engineering work and its con-
duct by General Goethals and his assistants, in my opinion it never
would have been possible to build the canal had it not been for the
discovery of Reed and his associates and the application of this dis-
covery to Panama under the direction of the present Surgeon-
General, Doctor Gorgas, who for a long time had charge of yellow
fever work in Havana and established there methods of handling
it which were later applied in Panama with great success. The
sanitary work of Gorgas in Panama made it possible for that great
undertaking to be conducted under health conditions which were
exceeded in few portions of the United States. When we speak of
what has been accomplished in the control of yellow fever you must
remember that the accomplishment is for all time and for all people
living in the tropical and semi-tropical region of the western
hemisphere.
In Porto Rico one of our young medical officers, Dr. Bailey K.
Ashford, interested himself in what is known as tropical anemia,
or hookworm disease. He established the method of its control,
260 The Annals of the American Academy
established a systematic campaign against it throughout Porto Rico,
and finally reduced the death-rate from this disease alone in this
httle island with its million people, some 1,400 per year. Here
again is a great sanitary discovery growing out of our war with
Spain, and like yellow fever, it is a discovery which is of immense
value to tropical and semi-tropical peoples. What we for a long
time considered as tropical laziness or shiftlessness is traceable very
largely to the effects of this disease, so that the discovery of its
cause and the establishment of a method of treatment and control
means the revitalizing of the people of these tropical countries, as
well as of the people of a considerable portion of our southern states.
A recent estimate by planters in Porto Rico places the increased
efficiency of their men, incident to doing away with this disease,
as high as 60 per cent. It is hard to estimate the economic value
of a discovery of this kind, and it is still more difficult to appreciate
the far-reaching effect in the way of the saving of human life and
adding to the measure of human contentment and happiness.
You are no doubt familiar with the assembling of troops on
the Mexican border, and that when first assembled a great deal
of tyhoid existed on the Mexican side of the river. This made it
necessary to take up the systematic control of typhoid through the
use of a typhoid serum beginning to be used in the British Army.
It was taken up by our medical officers with such success that last
year, with something over 100,000 men scattered all over the world,
there was not a death from typhoid in the Army. Contrast this
with the conditions at Chickamauga when there were over 1,500
cases of typhoid in that camp alone, with a huge death-rate.
Again, in the Philippines, our medical work incident to the
occupation of those islands has done away with beri beri. This
was not the work of the Army, but was accomplished by the medical
officers connected with the Insular government, working under the
direction of the Insular Bureau of the War Department.
Other great results have been accomplished in the control of
malaria and the general betterment of sanitary conditions. In fact,
the whole work in these tropical possessions has tended to the
betterment of conditions under which people live, both from the
standpoint of government and the standpoint of sanitation. The
improvements in sanitation have been more generally appreciated
than in any other department of our work, and they have been
Constructive Work of American Army 261
accomplished without any exploitation of the country and have
undoubtedly resulted in building up bonds of lasting sympathy
between the people who have come under our control and ourselves,
for they must appreciate in their hearts the great work which has
been done for them.
So, when you think of our Army and its work, do not think of
it always as an aggregation of fighting people, bent only on fighting,
but remember that it is one of the great constructive life-saving
agencies of the Republic. Its work has been continuous from the
earliest days. In addition to the great work of the Spanish war
and the subsequent colonial period, and preceding it, it was engaged
for years in opening up the West, controlling the Indian situation,
safeguarding the mail routes, keeping roads open, aiding in surveys,
conducting many of them, in fact. It was the advance guard of civil-
ization and the protecting agent of people crossing the great unset-
tled section between the Pacific slope and the eastern frontiers. In
recent years the control of conditions resulting from Mississippi
floods has been handled by the Army — handled so quietly and so
effectively that few have ever heard that at times 200,000 people
were being taken care of each day. This work was done quietly
by young officers who were trained to be obedient, to do things
as told and when told, to do them promptly, to get things done.
This is possible when you have conditions of discipline and training.
Remember that the Army is not working for a large army, we are
working for an efficient one, and a system which will make it capable
of expansion in time of need. We believe in a good militia, sup-
ported like the regular Army, by good reserves, and a system which
will make military training more general among the people, believing
that reasonable preparation is the best insurance against war.
There is no more democratic element in this country than your
Army and your Navy, and no class which stands abuse or mis-
representation with less resentment than the two sister services.
We know you do not understand us, our purpose or work, but don't
constantly refer to armed force as a destructive element. You
might as well say that your police force is a destructive element
simply because it is trained to do certain things with force if it has to.
Another idea you must get out of your heads is that soldiers
and sailors are fond of fighting for its own sake. You might just
as well say that the life-saving service down on the coast in winter
262 The Annals of the American Academy
is praying for gales of wind and rough work at sea simply because
they are trained to it. The Army and Navy are willing to do
cheerfully what the nation decrees in this line because they are
the people to do it. That is as it should be. Look at the con-
structive work the nation has done through its military arm (Army
and Navy), and remember that it is always subordinate to the will
of the nation, that it is without unworthy ambition, that it hates
militarism, that it is simply your agent. When you turn to the
work of your country in its dealings with the tropical peoples who
came under our control as a result of the war of 1898, remember
that none of these countries has been exploited for our profit, that
their people have received great benefit as the result of our con-
trol, and that they are living under far better conditions as to
education, material comforts and health than ever before.
SOME PROBLEMS OF DEFENSE
By Amos S. Hershey,
Professor of Political Science and International Law, Indiana University.
In this crisis of the nation's history, I have thought that some
consideration of problems or methods of defense would not be out of
place. Knowing little of military matters, I shall leave it to military
experts to decide upon the means and methods of military defense.
I wish merely to pose some general problems and discuss means and
methods from a diplomatic rather than a military standpoint.
First let us consider the main objects, or perhaps we had better
say, subjects of defense. These may be said to consist of the nation's
frontier, the strategic points commanding the entrances to the Gulf
of Mexico and the Panama Canal, and other vital interests, such as
the Monroe Doctrine and the freedom of the seas, more particularly
of the great trade routes on the Atlantic, Pacific, and the Mediter-
ranean.
With respect to the nation's territory, it may be observed that, if
we except the possibility of war with Canada or England, it includes
only one exposed frontier — that of the Philippine Islands. It is
useless now to indulge in vain regrets over our great mistake in
taking over this hostage to fortune, but a frank recognition of our
blunder may help us in the solution of the difficult problem of mak-
ing a wise disposition of these Islands and in avoiding similar pitfalls
in the future.
It will, I think, be generally agreed that our northern and south-
ern frontiers are relatively safe from attack or invasion. I think
the same can be said of our eastern and western coasts. I believe
the invention and improvement of the submarine will practically
insure us against invasion on either the Atlantic or Pacific seaboards.
It is inconceivable that a fleet of transports even if covered by the
great guns of modern calibre on board dreadnoughts and battleships
should be able to effect a landing of troops in the face of a goodly
number of up-to-date submarines. Whether these sea wasps will be
able to prevent the bombardment of our coast towns and the in-
fliction of serious damage remains to be seen.
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264 The Annals of the American Academy
Sharing with Great Britain, as we do, important strategic points
in the Bahamas and the West Indies, the Caribbean entrance to the
Panama Canal is practically at the mercy of England. We are like-
wise largely dependent upon the mistress of the seas for the main-
tenance and enforcement of the Monroe Doctrine.
I do not propose to enter upon a discussion of the merits or
demerits of this doctrine. Whether it be a wise or a foolish doctrine
is not pertinent to this discussion. It may be a *' shibboleth " but
it is certainly not an "obsolete shibboleth," as one critic has termed
it. This he would soon discover, if he undertook to violate it at
the head of an army or a navy. Upon no point are the American
people more sensitive or determined than upon the maintenance of
this doctrine. This was illustrated by the instantaneous and vocif-
erous approval of President Cleveland's application of the doctrine
to the boundary dispute between England and Venezuela in 1895.
It is shown today by the suspicious attitude of the American press
and of the American people toward alleged Japanese activities in
Mexico.
Originally suggested by Great Britain for selfish reasons of her
own, though at times flouted and disregarded by her, the Monroe
Doctrine, at least in its essence, has become almost as much a
British as an American interest. Certainly we are largely dependent
upon the good will of England for its maintenance unless we choose
to enter upon a long and exhausting career of naval rivalry with her
and attempt to build a navy equal or superior to her own. For the
enforcement of the Monroe Doctrine is primarily a matter of sea
power.
The Monroe Doctrine is often said to be vague, ill-defined, and
uncertain in its meaning and application. This may be true with
reference to certain implications or corollaries which have been
drawn from the doctrine, such as the degree or extent of our respon-
sibilities for the preservation of order or the payment of obligations
contracted or guaranteed by Latin American states. But it is not
true with reference to the essence or substance of the doctrine itself,
upon which nearly all authorities seem to be agreed. The consensus
of opinion is that the American people or government would not
tolerate without resistance the permanent occupation, a future
attempt at colonization, or an endeavor to control the political
destiny of any portion of this hemisphere by any European power.
Problems of Defense 265
Another vital interest of America is the freedom of the sea, the
common highway of nations, more particularly the great trade
routes on the Atlantic, Pacific, and the Mediterranean.
For a century or more we have acquiesced in British naval
supremacy partly, I suppose, because it was regarded as a settled
and inevitable fact, but mainly because it has been to our advantage
to do so. In the navies this trust of sea power has been adminis-
tered in a liberal, considerate, and non-despotic manner.
True it is that Great Britain has managed to ocCupy many of
the best strategic points and most important colonies on the great
trade routes, but she has maintained an open door so far as possible
and has granted equal opportunities of trade to all nations, not even
excluding her recent arch enemy, Germany, who has grown fat and
prospered under the free trade policy of England the same as we
have.
Even during the present struggle, though we are not permitted
to trade with Germany which is in a state of virtual siege or block-
ade, our trade flourishes under the protection of the British flag.
Great Britain has managed to keep the great trade routes of the
Atlantic open in spite of a method of warfare new and unprecedented
in the history of civilization.
Imagine the effect upon our commerce of a successful or effective
blockade of the British Isles or of the destruction of the British fleet,
whether by legal or illegal and inhumane methods of warfare!
Commercial ruin, a financial panic, bankruptcy on a scale hitherto
unknown would inevitably follow in the wake of such a calamity.
How could the sale and delivery of cotton, copper, arms and
ammunition, or even of foodstuffs to Germany compensate us for
such frightful losses?
And what of the future? What expectations or prospects of a
wise, liberal, and benevolent regime would there be in a future with
the trident in the hands of Germania? The answer may be found
in the traditions, history, and spirit of Prussian militarism and in a
bare enumeration of some of the numerous acts of German brutality
which have defaced the pages of modern history — such acts as the
treacherous invasion of Silesia by Frederick the Great in 1740, the
treatment within recent >ears of Alsace Lorraine and Prussian Po-
land, the piratical seizure of Kiao-chow for the murder of two Ger-
man priests in 1898, the excesses of the German troops in China dur-
266 The Annals op the American Academy
ing the Boxer uprising in 1900 directly inspired by the Kaiser, the
rape of Belgium, the destruction of Louvain and of many other well-
attested German atrocities in Belgium and France, the countless
violations of the letter and spirit of international law during the
Franco-Prussian as well as the present war, and finally the destruc-
tion of the Lusitania.
Another vital interest (which is also a matter of national honor)
is the protection of our own citizens on the high seas or in foreign
lands — a duty too much neglected by our government during late
years. It is possible to be too aggressive and sensitive in this
matter, but a nation which fails in this important duty will soon
find itself losing in self-respect and lowered in the esteem of the
world.
Now what are the chief means and methods of defense? In such
a world as this the first and main reliance of a nation must always be
upon its own strength. We must depend chiefly upon our navy,
the discussion of details bearing upon whose increase and improve-
ment, I leave to naval experts.
It is, I beUeve, generally agreed that, in addition to an increased
and improved personnel, the greatest present-day needs of our navy
are perhaps several hundred submarines, a considerable number of
swift battle cruisers, together with a variety of air and sea craft such
as aeroplanes, hydroplanes, torpedo-boat destroyers, etc.
There is an additional method of defense which is generally
employed by other nations than the United States. It is that of
leagues or alliances.
We have relied mainly upon our geographical isolation for im-
munity from attack. It is not many years since England was forced
to abandon her policy of ''splendid isolation, " and it is probably only
a question of time when we shall come to see that our traditional
policy of freedom from entangling alliance may need modification.
At any rate it would be well to consider the question with minds
unhampered by prejudice.
I do not for a moment question the wisdom of the Fathers in
committing us to a policy of non-entangling alliances during the
formative period in the history of our Republic, nor do I question
the wisdom of their successors in following the policy until recent
times. But we live in a changed and rapidly changing world of
international relations. The United States is now a world power
Problems op Defense 267
and cannot indefinitely continue to evade the duties and responsi-
bilities incumbent upon her as a world power.
Besides, the modern means and methods of intercommunication
between nations (largely the result of the application of steam, oil,
water-power, and electricity, together with the invention of the
telegraph, telephone, and the various forms of aircraft) will soon
make it evident to nearly all of us that a policy based on the idea of
geographical isolation and separate national interests and ideals
cannot always be successfully maintained. In spite of appear-
ances to the contrary offered by the fearful spectacle of the great
European war, the nations are rapidly becoming more and more
intimately bound one to another in a spiritual as well as a material
sense; and the illusions of nationality, state sovereignty, and in-
dependence are rapidly giving way to the great facts of international
solidarity and interdependence. Even the present war is a demon-
stration of the superior power of ideals based upon the ideas of
freedom, humanity, cooperation, and democracy over those based
upon mere nationalism, bureaucratic autocracy, militarism, and
brute force.
Occupying, as we do, a position in the great ocean between Great
Britain and France on the Atlantic and Japan and Russia on the
Pacific, all now bound in close alliance, would it not be well to look
ahead and cultivate closer relations with these powers, particularly
with England and France? Until Germany is either crushed or
converted to the ideals of peaceful intercourse, democracy and
humanity, there can be no permanent peace between her and the
Allies. We may sooner or later be forced to take a position on one
side or the other of this conflict as was the case during the Napoleonic
struggles. Heaven grant it may not be on the side directly opposed
to our national interests and the cause of humanity as then hap-
pened. We could not afford to repeat that error.
A recent facile and somewhat reckless writer has predicted that
we shall be compelled, sooner or later, to fight the victor in this
war, whether it be England or Germany. I have long been of the
opinion that Germany was a menace not only to Europe, but to
America and the Far East as well. If Napoleon had effected a
permanent conquest of Europe, his "manifest destiny" would have
called him to America and India. In 1803 he was forced to choose
268 The Annals op the American Academy
between America and Europe. He chose Europe. Hence the sale
of Louisiana to the United States.
A war.with England is inconceivable. It is in the highest degree
improbable because we have behind us a century of peaceful inter-
course. Then, too, our language and literature, our institutions,
our customs, our religion even are for the most part of Anglo-Saxon
origin. In spite of past differences, of real and imaginary grievances,
in spite of much mutual dislike and a number of family quarrels, the
two peoples are united not merely by genuine bonds of sentiment
but by the indissoluble ties of sympathy and interest. A blow at
the heart of Great Britain would inflict serious, if not fatal, injury
upon the United States.
The existing interdependence between Great Britain and the
United States stands revealed more clearly than ever in this war.
The destruction of the British fleet or of British commerce by Ger-
man submarines would be only less disastrous to the United States
than to Great Britain. The destruction of the Lusitania has
brought it home to us that just as Great Britain and France are
largely dependent upon us for food and other supplies, so are we
largely dependent upon British sea-power not merely for a contin-
uance of our prosperity but for our very security and peace of mind.
What is the solution for this precarious situation? Is it that we
must enter into naval rivalry with Great Britain? Is it not rather
that, while augmenting and improving our means of defense, par-
ticularly the navy, we must draw still closer the bonds which unite
us to the British Empire and to France? Whether we realize it or
not, whether we like it or not, we are already a powerful, albeit silent
member of that great free Confederacy of English speaking peoples
which compose the most important part of the British Empire.
An additional reason for joining or openly proclaiming our
allegiance to this league of free peoples which, with the addition of
France and possibly of Italy and Japan, might readily be transformed
into the League of Peace, advocated by many distinguished peace
advocates, may be found in conditions in the Far East.
The recent treatment of China by Japan furnishes a sad com-
mentary upon the aims and methods of Japanese policy which now
stands revealed to all the world. Japan has shown her hands, but
whether she will play her cards depends upon future events. It will
probably be found at the end of this war that she has acted in con-
Problems of Defense 269
cert with Russia and it will lie largely with England and the United
States whether or not she is to be thwarted in her designs upon China.
It is not likely that Japan desires the Philippine Jslands, but
they form a very vulnerable point of attack and if we decide to retain
or protect this exposed frontier at all hazards, we may eventually
have to choose between a Far Eastern fleet equal or superior to
that of Japan or an alliance with Great Britain.
ECONOMIC PRESSURE AS A MEANS TOWARD CON-
SERVING PEACE
By Herbert S. Houston,
Vice-President, Doubleday, Page & Company.
Everyone seems to agree that nations should arbitrate their
differences. That demand for compulsory arbitration is heard the
world over. The Woman's Peace Conference, which met at the
Hague in the spring of 1915 under the presidency of Jane Addams,
declared strongly in favor of compulsory arbitration. The week
before several hundred German Socialists held a conference in Vienna
and joined in a similar declaration. But above and beyond these
recent pronouncements stands the final declaration of the last Hague
Conference, that of 1907. I think we sometimes forget that that
conference, before adjournment, passed, without a dissenting vote,
a declaration in favor of compulsory arbitration. Now, when the
next peace conference meets it will be in a world wasted and ex-
hausted by war and it does seem that such a conference ought to
be willing to start where the last Hague Conference ended, namely,
with this declaration in favor of compulsory arbitration.
Now, if arbitration is to be compulsory, how is that compulsion
to be applied? In my judgment, the most effective possible means
is that of economic pressure.
Economic pressure could be applied in three ways:
1. To compel nations to submit to arbitration.
2. To compel nations to submit to the decrees of the High Court of Arbi-
tration.
3. To serve as a penalty against an offending nation for breaking a Hague
Convention.
Let us briefly examine economic pressure. Of what does it
consist and how could it be applied? The most effective factors in
a world-wide economic pressure, such as would be required to com-
pel nations to arbitrate and to submit to the decrees of arbitration,
are a group of international forces. Today money is international
because in all civilized nations it has gold as the common basis.
Credit based on gold is international. Commerce based on money
270
Economic Pressure and Peace 271
and on credit is international. Then the amazing net-work of
agencies by which money and credit and commerce are used in the
world are also international. Take the stock exchanges, the cables,
the wireless, the international postal service, and the wonderful
modern facilities for communication and intercommunication — all
these are international forces.
The sum total of these forces would constitute economic pres-
sure of the most powerful kind. It would affect subsistence, arma-
ment, equipment and every side and phase of war. If nations felt
that they were going to meet the pressure of such an embargo as
soon as their own resources were exhausted, isn't it fair to believe
that such days as July 29 and 30 and August 1 of last year will not
be so likely to come again in the calendar? White papers and gray
papers and blue papers of the future would have to do with mobiliz-
ing the great protective reserves of commerce rather than those of
the army and navy.
Of course, the one apparently strong and valid reason against
such economic pressure is that it would bring great loss to the com-
merce of the nations applying it. But that loss would be far less
than the loss brought by war. And there would be no loss whatever
if war were avoided. Still to one beholding the wheels of his factory
whirring with overtime work brought by war contracts; to the
farmer enchanted with the magic of "dollar wheat," and to those
especially affected by mounting export balances, an economic pres-
sure that resulted in smaller trade will seem an astonishing and absurd
measure to adopt, unless we are utterly bereft of our senses. But
ask the cotton growers who had their market cut from under them
by war; consider the virtual moratorium when the exchanges closed,
bringing an incalculable loss in shrinkage in security values and
affecting all business; listen to the poignant human appeal on bundle
days and from country-wide unemployment; at least one must grant
that the shield of Mars has two sides. But the burnished side is
not that which reflects the ghastly image of war.
If a balance could be rightly struck in this country is there
anyone who sincerely believes that our interests would be best served
by war in some other country? This is quite apart from any ques-
tion of humanity or civilization. Let it be a trial balance of com-
merce alone and it will show a heavy debit against war. And an
accounting will show the same result in all other countries. If this
272 The Annals op the American Academy
be true, with only current commerce entering into the equation,
how staggeringly true it becomes when the piled up debts caused
by war are considered.
So why shouldn't business, which has been binding the world
more closely together for centuries, be employed to protect the
world against the waste and loss of war? Hague Conferences have
sought earnestly for penalties that would save their conventions
from being treated as mere "bits of paper." Penalties that every
nation would be bound to respect could be enforced through eco-
nomic pressure. The loss in trade would be small or great in pro-
portion to the amount and duration of the pressure; but it would
be at most only an infinitesimal fraction of the loss caused by war.
This pressure would not require an international police force
to make it effective. Each nation signatory to a Hague Conven-
tion that some nation, had broken could apply it against that nation.
Of course, the fact of infraction would have to be established, but
that would be equally necessary if an international police force were
to be used. The point urged is that economic pressure is a powerful
and peaceful way to insure peace, while an international police force
is likely to be a warlike way to provoke war. Probably such a force
could be employed as a constabulary for the Hague Conference,
under well defined limitations, but its use would be beset with end-
less difficulties and enormous and perpetual expense. Economic
pressure, on the other hand, could be put in operation from within
by each nation without expense and its power would be as sure and
steady and irresistible as gravity.
In conclusion, may I read some brief resolutions, that it was
my privilege to present at the recent convention of the Chamber of
Commerce of the United States in Washington, embodying this idea
of economic pressure as a means toward conserving peace?
These resolutions, which are now being considered by the Cham-
ber of Commerce of the United States, are as follows :
Believing that commerce as the organized business life of
the world is interdependent because international and believing
that it can become a great conservator of the world's peace,
therefore, be it
Resolved, by the Chamber of Commerce of the United
States, that the next Hague Conference be urged in the interest
of peace, to provide as a penalty for the infraction of its con-
Economic Pressure and Peace 273
ventions that an embargo shall be declared against an offend-
ing nation by the other signatory nations as follows:
1. Forbidding an offending nation from buying or selling
within their territory or in territory under their control.
2. Forbidding an offending nation from raising money
through the sale of bonds or of any other forms of debt within
their territory or in territory under their control. Be it further
Resolved, that the President and the Board of Directors
of the Chamber of Commerce of the United States be instructed
to take all possible and proper means at their command to
secure the adoption by the next Hague Conference of this pro-
posal to apply the economic pressure of commerce as the most
efficient, humane and civilized means of insuring the world's
peace.
AN INTERNATIONAL COURT, AN INTERNATIONAL
SHERIFF AND WORLD PEACE
By Talcott Williams,
Director of the School of Journalism, Columbia University.
Constructive peace can only come when international courts
are stronger than international causes of war. Not only a possible
but the largest possible service America can do the world's peace
is to put the sheriff behind the courts of arbitration. We have
had international tribunals for over a century. They have not
prevented war. We have had recorded treaties for forty centuries.
They have not prevented war. The peace of humanity will only
come as the peace of the people and the king's peace came, when
behind treaty and international courts there is a strong man armed
able to deal with the sons of violence and the lovers of war. Last
July, when Serbia offered arbitration and the neutrality of Belgium
was in peril, had all the neutral powers, outside those now at war,
led by America, with America led by the United States, insisted on
arbitration as a posse comitatus of humanity, arbitration would
have come, and war would not have come. The machinery was
not ready. It should be prepared when peace comes. No nation
is strong enough to fight all the world, even if it may be ready to
risk war with half the world. Humanity is still stronger than any
one nation and as the peace of the people can only be protected by
all the people so the peace of humanity can only be protected by all
humanity.
No hemisphere can lead in this organization of humanity but
the American hemisphere. No nation can lead the American hemi-
sphere but the United States. As it is, the two issues of fact on
which the war began remain unadjudicated. War cannot give
justice. Peace alone walks hand in hand with righteous justice.
Were the Servian government or its officers implicated in the murder
of Grand Duke Ferdinand? Who first violated the neutrality of
Belgium? These are justiciable issues of fact. Even now, these
ought to be adjudicated. Were they tried, and the judgment of an
impartial court enforced, war would cease among men and per-
274
An International Court 275
petual peace be brought nearer than any possible issue of the present
conflict, whichever party to it crushed the other.
Unless America, led by the United States, in due time secures
and organizes a force behind courts of arbitration able and willing
to insist on all issues likely to lead to war being adjudicated, out of
the furrows of this great war no harvest of the peace of humanity
can come. Either we must create an international force strong
enough to keep the world's peace or we must arm to defend ourselves
to keep our peace in a world of war. Such a court with such a force
behind it, not of one nation, but of all nations that love peace and
ensue it, could deal with the weak disordered land that breeds war.
Weak and disordered China, Turkey, Persia, Morocco, these have
brought twenty years of war. The one indispensable service con-
structive and perpetual peace demands is an international court
with an international sheriff behind it, made up of allied powers
strong enough to compel attendance at court, to enforce its judg-
ments and to execute an international receivership of a land like
Mexico unable to keep its own peace. By force, stronger than the
unruly, law, courts and peace have in the past been established in
each civihzed land. So will come the peace of humanity and by
no other path.
WORLD COURT AND LEAGUE OF PEACE
By Theodore Marburg, M.A., LL.D.,
Former Minister of United States to Belgium.
A realization of the unintelligent methods by which nations re-
gulate their relations with each other, and the waste and danger of
competition in armaments, led to the call for an international con-
ference which met at The Hague in 1900. No progress whatever
was made at the conference on the question of disarmament, for
which primarily the gathering was called. But there did emerge
from it new institutions, not looked for, which were a real gain to the
world. I refer first of all to the Permanent Court of Arbitration,
which has decided several difficult questions, among them the Casa
Blanca Affair between France and Germany, at one time quite
acute. There emerged also an International Commission of Inquiry
which, in 1904, proved of the highest value. You will remember that
the Russian Admiral Rodjesvensky, emerging from the Baltic,
thought that he discovered an enemy in some innocent English
fishermen. He attacked them, sank a ship and killed several men.
Now, in the minds of many men that incident might have led to war
the next day — a generation before it would undoubtedly have led
to war. But there happened to have been set up by the First
Hague Conference this institution, the Commission of Inquiry.
The question was referred to it and it was found that Rodjesvensky,
however foolishly, still honestly believed he saw in these fishermen
Japanese warships. Moreover, time was given for national passion
to subside. As a result there was no war between Russia and Eng-
land. Then, too, at the First Hague Conference, good offices and
mediation were recognized for the first time as friendly functions. It
was agreed that if a country should tender its good offices to two
countries on the verge of war, or at war, this act should not be re-
garded as unwarranted interference but as a friendly act. It was
under this institution that Mr. Roosevelt succeeded in bringing
Japan and Russia together at Portsmouth and so terminating,
earlier than would otherwise have been the case, the Russo-Japanese
War.
276
World Court and League of Peace 277
A second peace conference took place at The Hague in 1907.
The task of improving the rules of war which had been begun at the
first conference was carried forward at the second conference. The
second congress, moreover, adopted in fact an institution known as
the International Court of Prize. Then it adopted in principle the
Court of Arbitral Justice, intended to be a true international court
of justice, composed of judges by profession, whose tenure should be
permanent. This latter institution was to be brought into being
through diplomatic channels as soon as the nations should agree
upon a method of selecting the judges. The reason the court is
not in existence today is that up to this time such a method of select-
ing the judges has not been found.
Now, why did the Second Hague Conference vote for this Court of
Arbitral Justice when we already had in existence, working success-
fully, the Permanent Court of Arbitration set up by the First Hague
Conference? The reasons were several. In the first place, the
Permanent Court of Arbitration was not a true court. Its deci-
sions were to be based upon the principles of law but at the same
time its functions were those of arbitration; and, as you know, the
main object of the arbitrator is to bring about the settlement of a
dispute; that is to say, he is more interested in that which often
involves compromise, than he is in bringing out the true justice of
the case, that which would tend to develop the principles of law
and enlarge accepted practice.
Now, those of us who believe in this true court of justice for
the world feel that international law would be built up by it in two
ways. First, it would grow through the decisions of the judges
themselves in cases actually coming before them, the judges being
governed by previous decisions of the court — the way in which the
great Common Law of England has grown. That process produces
the most natural, healthy, sound, and permanent kind of law. Then
it is felt that the existence of this court will invite the codification of
certain spheres of law. An example in point is the way in which
the provision for the International Court of Prize led to the London
Conference of 1908-1909, at which the law of prize was codified.
England declined to proceed with the project of the International
Prize Court until that was done. Hitherto the law of prize has de-
pended upon the interpretation each nation has placed upon it.
One nation might set up as contraband that which another nation
278 The Annals of the American Academy
declined to accept as contraband. Questions of how long an enemy's
ship should be suffered to remain in a neutral port, whether mer-
chantmen may lawfully be converted into armed cruisers after
leaving home waters, and numerous similar questions, were differ-
ently answered by different countries. England said **we must
know what we are undertaking." Therefore, at her instance, the
conference met at London and evolved the London Convention
which codifies the law of prize. When the present war began,
Germany announced her willingness to accept the Convention. On
the other hand, England, who had not yet ratified the Convention
(owing to the opposition of the Lords), proceeded to modify it and
proclaimed it in this modified form. France did the same. It was
accepted in its original form by the United States Senate but not
promulgated by the President, who took the position that the
United States could not accept a convention in which several
nations had introduced their own amendments not agreed to by all.
But the history of the London Convention shows how the existence
of an international court will invite the codification of certain spheres
of international law. I use that term advisedly because it is a
tremendous undertaking to codify the whole body of international
law, nor is it certain that it is advisable so to do : it may become
too rigid.
Now, that project of the Second Hague Conference, the Court
of Arbitral Justice, was accepted by the forty-four nations partici-
pating in the conference. It was indorsed in 1912 by the Institute
of International Law. It has been supported earnestly by all the
powers, including Germany, France, and England ; and every lawyer,
every man who feels what justice means, approves of it. There is
no difference of opinion as to the desirability of putting it into
effect.
The name of the proposed court, the Court of Arbitral Justice,
is misleading. The word "arbitral" does not belong there. It was
put in because Germany insisted on its being there. The word
''court" carries with it the idea of obligation. When a court in
municipal law renders a decision, usually an obligation goes with
it. Germany was not ready for anything obligatory in international
institutions; therefore her demand. But a true court of justice is
none the less provided for by the convention.
In 1910 a society known as the American Society for Judicial
World Court and League of Peace 279
Settlement of International Disputes was formed to promote this
court. The society has had four annual meetings, the proceedings
of which have appeared in four substantial volumes. Besides, it
publishes a quarterly usually Hmited to one article on the subject
by some prominent man. The Proceedings have been translated,
have been liberally quoted by foreign publicists, and have made a
profound impression upon public opinion not only here but in other
countries. The distinguished foreign minister of The Netherlands,
Jonkheer Loudon, said we had demonstrated the feasibility and the
necessity for this world court.
Now, conjointly with this project there is in the minds of many
of us a desire to have the world go a step farther and introduce the
element of obligation.
Mr. Hamilton Holt is one of the principal advocates of this
latter idea, which is nothing less than a league of peace. The sub-
ject was put forward by him in September in The Independent.
Then he came forward with the suggestion that we should have a
pubhc conference. We first got together a group of about twenty
scientific men, professors of political science, of international law,
of history, of economics, threw the subject into the arena and had
it torn to pieces by them at three meetings held at the Century Club
in New York. In this way was worked out what we regarded as
a "desirable" plan. We then took this "desirable" plan and on
April ninth laid it before men of wide practical experience, including
Mr. Taft, and Mr. A. Lawrence Lowell, in order to ascertain how
much of it was, in their opinion, a "realizable" project. It was
found that they were not ready to accept as realizable the whole of
the plan of the first group, which was practically this: a league of
peace which shall bind its members to resort to a tribunal for the
settlement of all disputes to which a member of the league may be
a party, and obligate them to use force, if necessary, both to bring
the nation law-breaker into court and to execute the verdict of the
court.
When the element of force is introduced in a plan it is found
that the unanimity of opinion to which I have referred as applying
to the Court of Arbitral Justice as at present proposed, and to
similar purely voluntary institutions, no longer exists; that there is
very great diversity of opinion as to whether force should be used
against a nation under any circumstances. The reason for this
280 The Annals of the American Academy
diversity of opinion is the shortcomings of the leagues of the past.
The Quadruple Alliance, the Grand Alliance, and the Holy Alliance,
all formed immediately after the Napoleonic wars, were by no means
wholly beneficial. The Holy Alliance, set up between Prussia,
Russia, and Austria in 1815, ostensibly to promote Christianity,
but really to support dynasties and combat the democratic tendency
of the times, operated in fact to suppress liberty in Hungary, in
Italy, and in Spain. It was the Holy Alliance acting through
France as a mandatory which overthrew the liberal form of gov-
ernment in Spain and restored full autocratic powers to the king.
Then there were the partial successes and many failures of the Con-
cert of Europe. The Concert of Europe has done some good things.
It smashed the Turkish fleet in 1827 and liberated Greece. It has
prevented more than one Balkan war. It has improved the lot of
the Armenians in Turkey. But it has had many failures, this pres-
ent disastrous war the most conspicuous of them. Then there were
these groups like the Triple Alliance and the Triple Entente, which,
though set up for purposes of peace, have really given to the present
war its broad character. All of us felt that, owing to their existence,
when war came again to Europe it must be a general war. The
breaking out of the war surprised many people; its extent surprised
no one.
Manifestly, then, the first step in planning a league of peace
is to find out why the leagues of the past have failed. I think the
answer lies in one thing: the narrowness of the group composing
the league, permitting of the triumph of selfish interests, permitting
of collusion, the swapping of favors, and resulting in injustice and
oppression. That is what men fear.
. Now, many of us believe that if we can set up a league so broad
as to include all the progressive nations, big and Httle, it will be
permanent and successful. Such a league would include the eight
great nations of the world, among them the United States and Japan.
It would include the secondary powers of Europe — Switzerland,
Norway and Sweden, Denmark, Belgium (such as it was and such
as it will be again), Spain, Greece, and, in fact, all the countries of
Europe with the possible exception of some of the Balkan states
and the certain exception of Turkey. The ''ABC* countries of
South America would also be included. It would not include the
backward countries, because we feel that the country which cannot
World Court and League of Peace 281
maintain law and order within its own borders would bring no
strength to the league.
We believe that such a group would be successful. In the first
place, it would embrace three great nations with common political
ideals — England, France, and the United States. These three peo-
ples feel that democratic government is no longer a passing phase
of political experiment but a permanent fact in politics. Therefore
they would cling together. Then you have in the group two great
nations — Great Britain and the United States — who may be said
to be satisfied territorially; you have the secondary powers of Europe
who have no disturbing ambitions and whose voice would be for
reason and justice, so that we think that if we could get these states
associated together in a league, substantial justice would emerge,
just as substantial justice results from the united action of the
forty-eight states composing the American Union.
Whether you believe this league is practical or not depends on
your answer to the question whether justice would emerge from its
united action. Unless it does justice it cannot endure. Unless it
does justice we don't want it: we don't want oppression. Injustice
within a country — persistent injustice — sooner or later brings war;
if not civil war then foreign war, or both; just as gross injustice in
the conduct of a war will draw into the struggle an ever-widen'ng
circle of nations, because there are irresistible forces which insist that
justice shall emerge finally in the world.
Now, it was not proposed that this league should itself pass
upon disputes. All it would do is to insist that members, party to
the league, or any nation having a dispute with a member of the
league, shall not resort to war. It may refer the disputants to
existing institutions at The Hague or to other institutions to be
hereafter set up. They shall be privileged to go on with their
dispute indefinitely if they choose, but they may not resort to war.
The United States, under this plan, would have been permitted to
continue the Fisheries dispute with Great Britain, as it did, for
three-quarters of a century without interference; but if either Great
Britain or the United States had shown a disposition to resort to
arms the league would have been invoked and would have used its
combined forces to prevent aggression.
There are four ideas or stages in the conception. The first is
simply a true court of justice to which nations may refer their dis-
282 The Annals of the American Academy
putes, if they see fit to do so. This is the court called for by the
Hague Convention of 1907 under the name of the Court of Arbitral
Justice — simply a voluntary institution. To this institution we find
no objectors. Practically all the governments of the world have
endorsed it, peoples have endorsed it, experts and plain men have
endorsed it. In other words, it is a realizable project. It is there-
fore well to keep the movement for a world court quite distinct.
Now, the second stage of the larger and more problematic
project is a league in which the element of obligation enters to this
extent, that the members of the league, if you call it such — parties
to the treaty — should obligate themselves to resort to the court.
There is no such obligation embodied in the present Hague Con-
vention. Like all our other international institutions, it is there
for the nations to use or not, as they like.
In the third stage, the element of obligation is extended to
forcing the nations into court. That is to say, if war threatens,
we say to the disputants, *' You must refer this dispute to the court.
We will not force you to carry out the award nor do you bind your-
self to do so, but you must go into court and have a hearing."
Now, many men have come to realize that publicity is three-
quarters of the battle for justice. Very often simply bringing out
the facts stops not only illegal practices, but also unjust practices
not covered by the law, and does it without resort to a court or even
to arbitration.
The fourth stage is enforcing the award, admittedly giving rise
to the danger of oppression unless you have all the progressive
nations in the league so that substantial justice would result from
its action. The meeting of April ninth, to which I have referred,
was unwilling to accept the fourth stage of this plan, namely, en-
forcing the verdict. Men like Mr. Taft, with his wide experience,
Mr. Lowell, who has made a study of governmental institutions,
in fact all except two out of the twenty eminent and experienced
men gathered at that meeting, were, however, willing to adopt the
first three stages of the plan as a ''realizable" project, namely, the
court, the obligations of the states to each other to go into court,
and the obligation of the League to force the nation law-breaker
into court if recalcitrant.
If there is no obligation on the part of the nation entering the
court to abide by the verdict and the league itself will not enforce
World Court and League of Peace 283
the verdict, surely no oppression can result from the demand for a
hearing. It is a reasonable demand as applied to any controversy
whatsoever, whether it be a justiciable controversy or a controversy
arising out of a conflict of political policies. The league would sim-
ply act as an international grand jury to hale the nation law-breaker
into court for a hearing. That is as far as the meeting of April
ninth was willing to go, and that is the project which the notable
gathering at Independence Hall, Philadelphia, on June seventeenth,
made the program of the League to Enforce Peace. By starting
with this minor project we get something which is practicable and
out of the minor project, the larger plan may grow of its own accord.
BOOK DEPARTMENT
GENERAL WORKS IN ECONOMICS
Ely, Richard T. Property and Contract in Their Relations to the Distribution of
WeaUh. (2 vols.) Pp. liv, 995. Price, $4.00. New York: The Macmillan
Company, 1914.
The work is as difficult to classify as it is to review. It is not an interpre-
tation ; nor is it a source book or a book of readings. Perhaps it would be fair to
call it a compilation of invaluable data regarding property and contract. There
is an index of some fifty-eight pages, and a list of authors and cited works of
forty-five pages. The book itself contains but seven hundred and fifty-one pages,
including voluminous references and notes. The reader is oppressed with a
feeling of unbalance and a lack of continuity, which comes dangerously near being
a lack of unity.
Professor Ely speaks very frankly of the "years of growth" of this work (p.
ix). He also alludes in the same paragraph to "the orderly nature and continuity
of progress" and the "internationalism of law and institutions corresponding to
economic internationalism." Some of his students, he says, urged him to publish
the work "as early as 1900." The final debt of gratitude for the finishing touches
on the work Professor Ely gives to the "stimulating environment" of the Univer-
sity of London, where he delivered a course of lectures on "Property and Its
Relation to the Distribution of Wealth" in 1913-14 (p. xvi). "The lectures on
property and contract were written more than ten years ago, and as early as 1899
many parts of the book were substantially in their present form" (p. viii).
The author is immensely impressed by the simplicity of the ideas growing out
of the economic experiences. He writes: "My ideas are the outgrowth of Ameri-
can life; yet apphcable again in many particulars to conditions in Germany,
England, and other European countries. The German economists are regarded
as progressive and our American courts as conservative; but I have found no
difficulty in passing from German economic literature to the decisions of American
courts. Each land shows continuity of thought and the similarity of ideals is
here striking for frequently the decisions are as progressive as modern economic
thought" (p. x). The reader will be more readily convinced of this similarity
by reading the Preface than from the book itself.
The book covers a wide field. In the Introduction distribution is defined.
The forces behind it are analyzed, and a general statement is made of the subject
matter of economics, with particular relation to distributive problems. Part I deals
with property, public and private; Part II, with contract and its conditions; Parts
III and IV contain appendices. Appendix III consists of an essay written by Dr.
W. I. King on Production^ Present and Future. It contains, as Professor Ely says,
a statement showing "the hmitations on distribution in production." Pro-
fessor Ely describes this appendix as "an invaluable contribution to our economic
284
Book Department 285
literature." It is diflScult, however, to see exactly why it was included in the
present work.
The reader is prone to raise questions regarding the position of Appendices I
and II. Appendix I deals with vested interests. Appendix II, headed Personal
Conditions, contains discussions of slavery, caste, and other forms of personal
status in their relation to contract. In so far as these problems bear upon con-
tract, it would seem that they might have been included in the section headed
Contract and Its Conditions. In their present position they go far to upset the
unityof the work.
The content of the book is of the very highest order. The work has appar-
ently been done with the most scholarly care. At the same time, the language
of most of the text is simple, and the style is so direct and telling as to make the
reading of it a positive delight. The work is an admirable statement of the issues
involved in property and contract. Its thought-provoking analyses of the rela-
tion between economic situations and political problems are particularly suggest-
ive. There have been a number of books on property which attack and defend it;
the present work explains. There is no apparent leaning to this side or to that.
The author has been content with an exposition.
Professor Ely has prepared an invaluable body of data regarding property
and contract. The two volumes of the work contain a mine of useful and highly
available information. Nevertheless,, even the most confirmed scholar will re-
gret that Professor Ely did not make a book. Surely it would havcbeen possible
with the extended body of notes and references following each chapter to compress
the data necessary to the scholarly understanding of the chapter contents. Such
a scheme might easily have resulted in the avoidance of the unwieldy body of
appendices appearing at the end of the second volume. The author attempts to
explain why it was necessary to exclude certain data from the text. He seeks to
justify the inclusion of certain material in the appendices. A compendium of
useful information on property might legitimately be constructed on this basis,
but a book on property must exhibit more organic unity if it is to be regarded
as a book. Professor Ely is to be highly congratulated upon the character of
his contribution, however unsatisfactory its form may be.
Scott Nearing.
University of Pennsylvania.
Clark, Walter E. The Cost of Living. Pp. 168. Price, 50 cents. Chicago:
A. C. McClurg and Company, 1915.
No recent book written in English on the cost of livipg question has at-
tempted to cover a wider field. The author has made his statements regarding
price increases international, and has covered the cost of living subject under
six principal headings : The Facts, the Money Problems, the Question of Supply,
the Question of £>emand, the Effect of the Increasing Cost of Living, the Remedies.
The whole book is of necessity general in treatment and popular in tone. At
the same time, the author has a knowledge of the subject which lends a weight
of authority to most of the things that he says. The reader lays down the book
with a feeling that increasing living co0t« are, after all, not & particularly unde-
286 The Annals of the American Academy
sirable "thing, and that time may provide a remedy. The book must be criticised
chiefly because of its incompleteness in this respect.
Crowell, John F. Trusts and Competition. Pp. 191. Price, 50 cents.
Chicago: A. C. McClurg and Company, 1915.
This httle volume gives nothing that is fundamentally new as regards trusts
and competition. However the reader will find it valuable in giving a compact
and concrete discussion of trust problems in their many ramifications. The
author sees a great value in competition, using that term to mean a competitive
struggle to serve the interests of the public and the investors. He then por-
trays big business activities which are tending toward such a goal. Carefully
arranged and enumerated are the many arguments bearing on almost all of the
issues arising out of monopohes and competition. Mr. Crowell has filled a need
in giving a small volume, general in scope and briefly summing up the trust
situation of today — especially as it stands in the light of inherited ideals of com-
petition.
Taussig, F. W. Principles of Economics. (2nd ed. revised) (2 vols.) Pp. Iv,
1120. Price, $4.00. New York: The Macmillan Company, 1915.
The changes introduced in this revision aflfect entirely chapters deahng with
practical problems of current interest. The chapter on banking in the United
States has been rewritten so as to include discussion of the Federal Reserve Bank
system. Similar reorganizing and rewriting have made almost new the chapters
discussing trusts and combinations, workmen's insurance and taxation. These
changes add much to the current value of a work which in its earlier edition had a
reception as unusual as it was merited.
COMMERCE AND TRANSPORTATION
Ripley, William Z. Railroads: Finance and Organization. Pp. xix, 637. Price,
$3.00. New York: Longmans, Green and Company, 1915.
In this second volume of his treatise on railroads, Professor Ripley brings to
a close what is unquestionably the most comprehensive and adequate work yet
written on the various phases of railway transportation in the United States.
Railroads: Rates and Regidation which constituted the first volume gave a
description of the intricate structure of transportation rates and an account of the
long struggle of the people to secure rate regulation by the government.
Though the clarity with which Professor Ripley presents the analysis of the
many aspects of railway finance and organization commands the constant admira-
tion of the reader, it is the history of the financial hfe of American railway corpora-
tions which gives the chief interest to this work. Sorry, mean and sordid, however,
is the story, a repulsive chapter of the economic history of the nation, a chapter,
too, which many thought had been closed until the disclosures concerning the
New Haven, the Rock Island, and the Frisco Systems showed that in many
quarters the financial morals of "Jay Gk)uld and Jim Fiske" still survive, and that
the swindling practices of the early construction companies and of the looters of
Book Department 287
the Alton treasury have not been forgotten. But in the midst of his condemna-
tion of the fraud and dishonesty which has characterized so much of the financial
history of American railways, Professor Ripley does not forget to point out and
commend the leading examples of sound railway finance. Such examples are
conspicuously rare. Even many roads which have had a long and honorable
record of conservatism and sound pohcy have fallen a prey to piratical speculators
and manipulators into whose pockets have been swept the fruits of years of honest
prosperity.
It is this long persistence of knavery, this constant danger that rank out-
siders may raid and destroy a sound financial structure, that help make Professor
Ripley's argument for pubUc regulation so effective and convincing. Though
the action which single states have taken in the regulation of capitalization re-
ceives his approval, he points out that state governments are unable to cope with
the situation, and recommends the creation of a federal commission, separate
from the Interstate Commerce Commission, which shall have powers over railway
capitalization similar to the powers now f>ossessed by the strongest state com-
missions. The recommendations of the Railroad Securities (Hadley) Commission
he flatly rejects, and with convincing arguments disposes of the important fea-
tures of its proposed policy.
But while seeing in government control of railroads the only safety of the
public. Professor Ripley is not unaware of the serious problem which the possession
of a full measure of public control involves. As he explains, railway regulation has
had two phases. The first, which is past, was the struggle of the people to
demonstrate their right to regulate the railroads and to establish the machinery
for regulation ; the second, which is now beginning, is the problem of using wisely
the hard-won power. The issue, while capable of expression, cannot be so clearly
visualized. The separation of interests is teis distinct, the alignment of parties
not so definite. Wliat is designed to eliminate evil must not harm the good.
"Public regulation in future must not be governed by the mandates of the law
applied too narrowly. It may be sound business policy to be more generous.
. . ." The railway problem is still that of securing adequate service at rea-
sonable rates but now that the people have the machinery by means of which
this can be done, "the point to carry forward is that they cannot hope to reach
this goal, under private ownership at least, until the investors' interest is ac-
corded just and full consideration." If this warning is unheeded, private owner-
ship must give way to government ownership. What a change of view such a
statement represents. A dozen years ago government ownership was the sole
alternative in case the public could not secure a proper degree of control over the
railroads; today it is the alternative in case the railroads cannot secure a sufficient
measure of protection from the public.
Like most economists, Professor Ripley believes that a certain degree of
cooperation among competing railways should be permitted, and he favors a
relaxation of the present legal prohibition against pools and rate agreements.
Excellent statistical charts and tables presented here and there throughout the
pages aid the reader in grasping the thought of the text. Well-chosen references
are indicated in connection with each important topic. Ezrors are few, except
288 The Annals of the American Academy
for a number of slips in the use of "infra" and "supra" in footnotes. These slips
are not confusing; one merely wonders why the expressions are used at all.
T. W. Van Metre.
University of Pennsylvania.
Hough, B. Olney. Ocean Traffic and Trade. Pp. vi, 432. Price, $3.00. Chi-
cago: La Salle Extension University, 1914.
Mr. Hough, who is the editor of the American Exporter, has in this volume
aimed to produce a text-book on the organization of practical ocean shipping and
foreign trade. The scope of the book is consequently so wide that many phases
of ocean transportation are treated very briefly. Thus the chapters on Ocean
Carriers, Tonnage Measurement, Ocean Routes, Mercantile Marine Policy and
Pubhc Regulation are brief, and the chapter on Ocean Freight Rates, although it
contains much practical information, does not describe the forces which determine
and the principles which underlie rates.
Mr. Hough's discussion of the methods of conducting foreign trade, on the
contrary, constitutes an addition to the literature on that highly important sub-
ject. Particular attention is called to the chapters dealing with Handling Ex-
port and Import Shipments, Handling Small Export Shipments, Getting Foreign
Business, Developing Export Trade, and Foreign Credits and Collections. These
chapters on foreign trade methods may be profitably read in connection with an
earher volume entitled Elementary Lessons in Exporting which was written by
the same author. No phase of commercial organization is more important, for
the development of export markets for American manufacturers has become a
national problem. The chapter on Marine Insurance is also an excellent one
which may be read with profit by anyone interested in that phase of shipping.
LABOR PROBLEMS
Price, George M. The Modem Factory. Pp. xx, 574. Price, $4.00. New
York: John Wiley and Sons, Inc., 1914.
Since there are some six million persons working in industrial establishments
in the United States, Doctor Price thinks that the modern factory is a paramount
economic force in the hfe of our nation. Consequently questions of safety, sanita-
tion and welfare within work -places, and the legal steps necessary to improve
factory conditions are among the vital problems of the present day.
With this in mind, the author traces the rise, growth and influence of the
factory, discusses the cause of factory fires and their prevention, deals with
industrial accidents and treats the subject of factory environment in its various
phases of lighting, sanitation and ventilation. The effect of wage work on
physical well-being is brought out in chapters upon industrial poisons, gases
and fumes, and the dangers of dusty trades. The trend that factory legislation
and inspection ought to take is also considered.
From the foregoing it can easily be seen that the book is a comprehensive
piece of work. Although it covers a wide range of topics no one of them has
been slighted. The experience of the author has fitted him admirably to write
Book Department 289
just such a book as he has given us. He has been a medical practitioner in a
congested city, a sanitary inspector of the New York Health Department, a
director of the Joint Board of Sanitary Control in the Cloak, Suit, Skirt and
Dress and Waist Industries, a director of the New York State Factory Com-
mission and a special agent of the United States Department of Labor to in-
vestigate European factories. This wealth of experience is reflected in the present
book. Points are proven by numerous examples. Comparisons between Ameri-
can and European factory conditions are made. The official position of the
writer has given him access to a great number of photographs whose use makes
the book more valuable. The Modem Factory is the only work in its particular
field and is to be recommended.
Malcolm Keih.
University of Pennsylvania.
Hedges, Anna Charlotte. Wage Worth of School Training. Pp. xvi, 173.
Price, $2.00. New York: Teachers' College, Columbia University, 1915.
A number of recent studies directed toward the problems of the wage-earning
woman have led to a growing conviction that there must be some modification
in the educational scheme that will lead more directly into vocational activity.
The outcome of this detailed report, based on 617 questionnaires, answered by
working women, is a conviction that the present system of education does not
meet the vocational needs of girls, and further, that any system of education
that fails in this respect is false. The study is analytical rather than constructive.
Kellor, Francis A. Out of Work: a Study of Unemployment. (Rev. Ed.)
Pp. xiii, 569. Price, $1.50. New York: G. P. Putnam's Sons, 1915.
The very serious industrial situation with its accompanying mass of unem-
ployment which has so aroused the interest of the country in the last year makes
very timely this new edition of Miss Keller's study originally published in 1904.
In this volume she has attempted to introduce material bearing on the later
situation, together with an account of the measures that have been tried in various
places to cope with the problem. It is an extremely valuable book which de-
serves wide use.
Martin, Eleanor; Post, Margaret A., and Others. Vocations for the Trained
Woman. Pp. xvii, 175. Price, $1.50. Persons, Charles E.; Parton,
Mabel; Moses, Mabelle, and Three "Fellows. " Labor Laws and Their
Enforcement, with special reference to Massachusetts. Pp. xxii, 419. Price,
$2.00. Bosworth, Louise Marion. The Living Wage of Women Workers.
Pp. vi, 90. Price, $1.00. New York: Longmans, Green and Company.
Hewes, Amy (Prepared under direction of). Industrial Home Work in Matsa-
chuselts. Pp. 183. Price, 80 cents. Allison, May (Prepared under
direction of). The Public Schools and Women in Office Service. Pp. xv, 187.
Price, 80 cents. Boston : Women's Educational and Industrial Union.
The series contains a popular statement of the relation existing between
women and the economic and educational world. The books are planned to be of
290 The Annals of the American Academy
particular value to working women. The most important problem which the
editors of such a series necessarily face is that of getting the studies to the atten-
tion of the workers. The value of the studies to students is quite apparent.
Their utility in the direction for which they were intended may well be called
into question.
SuFFERN, Arthur E. Conciliation and Arbitration in the Coal Indiistry of Amer-
ica. Pp. xvii, 376. Price, $2.00. Boston: Houghton, Mifflin Company,
1915.
The author has attempted to cover in an historic and constructive manner
the chief incidents leading up to conciUation and arbitration in the various coal
fields of the United States. The book is well written. Authors are quoted at
length; many passages bear the earmarks of fine scholarship. The style is clear
and flowing. The treatment is sufficiently general to be interesting and suggest-
ive, and at the same time so detailed as to satisfy the inquirer regarding the minor
incidents to which the work relates. Although the author displays a strong
sympathy for the laborers' side of the case, the reader cannot help feehng that
the sympathy is justified, in view of the conditions which the book portrays
MONEY, BANKING AND FINANCE
Lyon, Hastings. Principles of Taxation. Pp. v, 133. Price, 75 cents. Boston :
Houghton, Mifflin Company, 1914.
In his introduction, the author frankly acknowledges that he may be prej-
udiced, but urges his readers to consider his arguments. He is equally frank
throughout his brief but excellent discussion. Disagreement with some of his
conclusions by no means implies a lack of appreciation.
His argument rests on two principles as the bases of taxation, viz., "the cost
of performing the pubUc service to pay for which the tax is levied, and ability to
bear the public burden." Cost of service, it is urged, is better than a benefit
theory, since benefits are subjective and incapable of measurement. Moreover,
most persons usually mean cost when they say benefit — a contention with which
the reviewer agrees. A proper allocation of cost being frequently difficult and
often impossible, ability to pay must in practice be used to supplement it. Fac-
ulty, however, also presents difficulties and cannot in practice be determined with
accuracy. Income as a measure is very faulty because of the differences be-
tween earned and unearned and between continuous and fortuitous income.
Market price of property is a much better faculty test than income, because
it makes allowance for risk. Properties, however, differ in many important
particulars and should not be taxed at the same rate. Especially should property
be distinguished from debts which are not wealth and do not create wealth.
Taxing credits is not taxing wealth, but a method of doing business. Moreover,
the tax is usually shifted from creditor to debtor. The difficulties are increased
because residents of one community often own wealth located in another. Con-
flict of interest among communities often results in unjust double and multiple
taxation which is proving especially burdensome to corporations doing an inter-
Book Department 291
state business. Local assessors are partial and hence objectionable, central con-
trol of tax machinery is favored and arguments are advanced against the single
tax and the increment tax, even the unearned increment.
To many of the arguments in the treatment no one will object. That there
are weaknesses in the modem income tax must be acknowledged, and we can all
agree to the author's criticism of the injustices resulting from double taxation.
At the present time, however, destructive criticism is insuflBcient. Increasing
pubUc expenditures and a realization of the injustice of many phases of our present
system (including those mentioned by the author) make constructive suggestions
imperative. Except in a few particulars, these have not been presented. It is
true that economic interest is urged (p. 88) as a solution for the evils of double
taxation, but no method of determining that interest in each community is pre-
sented.
In one important particular, also, the author is at variance with most modern
writers and that is in his failure to provide for progressive taxation. The principle
of progression is becoming fully interwoven in our modern systems, especially in
the income tax and the inheritance tax, yet no allowance is made for it. In one
passage (p. 58) there is a suggestion that might even be interpreted as opposition
to the entire idea. In this paragraph the author points out that a tariff on luxuries
is a tax on productive consumption and that unproductive consumption decreases
ability to pay and then adds: "Assuming that labor will in the long run shift the
incidence of a tax on necessities from a tax on consumption to a tax on production
in the form of higher wages, the consumption of necessities comes nearer being an
index of ability to pay than a tax on luxuries."
E. M. Patterson.
University of Pennsylvania.
Chen, Shao-Kwan. The System of Taxation in China in the Tsing Dynasty,
16U-t9tL Pp. 118. Price, $1.00. New York: Longmans, Green and
CJompany, 1914.
Dr. Chen has recognized in his study the importance of acquainting Enghsh
readers with the general structure of the Chinese government as a preliminary
to explaining the system of taxation. He then describes the pubhc expenditures
before discussing taxation which he takes up under the three headings, taxation
of land, taxation of salt and taxation of commodities. The defects of the ar-
rangement now in force are the scrambling for funds by the different provincial
governments and the numerous opportunities for the concealment of revenues.
Unfavorable conditions will be slow to disappear.
Secrist, Horace. An Economic Analysis of the Constitutional Restrictiotis upon
Public Indebtedness in the United States. Pp. 131. Price, 40 cents. Madi-
son: University of Wisconsin, 1914.
Professor Secrist has treated his subject by dividing it into an analysis of
the constitutional restrictions on state debt and on local or municipal debt,
treating each topic both historically and analytically. His conclusions are that
present restraints hamper legitimate borrowing without accomplishing the desired
292 The Annals of the American Academy
purpose of restraining public debt within reasonable limits. The study is a
valuable one. It is to be hoped that at some date in the near future the author
will be able to present a larger number of constructive suggestions, especially as
to control over state debts.
Smith, Harry Edwin. The United States Federal Internal Tax History from
1861-1871. Pp. xix, 357. Price, $1.50. Boston: Houghton, Mifflin Com-
pany, 1914.
This volume was awarded the Hart, Schaflfner and Marx prize in Class A
for the year 1912. After an introductory chapter discussing the conditions
prior to 1861 and the causes of the fiscal pohcies during the period just prior
to the Civil War, the author treats his subject by devoting chapters to each of
the different kinds of taxes. The last two chapters are more general, treating the
influence of internal taxes on the important duties and the administration of the
tax system during the period under discussion. An appendix contains a number
of tables and a bibUography.
The book contains a large amount of detail; the various measures proposed
in Congress being analyzed, their provisions presented and their progress traced.
This plan is extended even to many measures which finally failed of passage and
in some instances to bills which do not seem to the reviewer important enough
for such extended treatment. The treatment is thorough and painstaking, but
the reader must follow the subject matter very carefully to grasp the thread of
the discussion amid the mass of detail. This failure to interpret the material
presented is illustrated by the criticisms at the close of the second chapter dealing
with the direct tax. In view of the preceding description, the criticism seems
very brief and very mild.
Criticisms are, however, ungracious when the volume is such a valuable ad-
dition to the hterature of our financial history. The very detail is important
and beyond the general suggestions just made regarding method of treatment
there is but httle adverse comment that can be offered. Emphasis should be
placed on the very valuable collection of tables in the appendix and on the ad-
mirable index.
SOCIOLOGY AND SOCIAL PROBLEMS
Bo WEN, Louise de Koven. Safeguards for City Youth at Work and at Play. Pp.
XV, 241. Price, $1.50. New York: The Macmillan Company, 1914.
For many years the author of this book has been devoting much of her time
and resources to activities in aid of Chicago children. Gradually the reah-
zation dawned upon her that it was not enough to maintain the juvenile court
with its probation system and permit causes of distress to work unchecked year
after year. With others, therefore, Mrs. Bowen organized the Juvenile Protec-
tive Association.
The chapters in this volume, therefore, really cover a description of the condi-
tions which have been brought to her attention, together with an account of the
methods adopted to try to meet the situation. We thus have chapters dealing
Book Department 293
with civic protection in recreation, legal protection in industry, legal protection
for delinquents, legal safeguards for the dependent, protection against discrimina-
tions in legal treatment, with a closing chapter on the need of further protection.
Into this account she has woven innumerable personal anecdotes illustrating
points discussed.
Among the needs yet to be met, Mrs. Bowen feels is the more active partici-
pation of women in the government of the city. Though for years a board of
women had overseen the work of school nurses, when the school nurse became a
city official there was no longer any woman fit to be a member of the city council
and continue such supervision. Mrs. Bowen feels that women should also be
members of the Board of County Commissioners in order to maintain some direct
supervision over the probation officers of the juvenile court. She feels that better
laws and better enforcement of law dealing with the sale of food, particularly of
milk, better registration of births, better control of child labor, particularly \Vith
reference to newsboys, messenger boys, etc., better supervision of employment
agencies and more adequate provision for the treatment of the inebriate are
needed.
To those who are dealing with problems of social welfare in our large cities and
to those who are interested in knowing what is being done, this volume is to be
heartily conmiended.
Miss Jane Addams contributes the preface.
Carl Kelset.
Unweraity of Pennsylvania.
Healt, William. The Individual Delinquent. Pp. xi, 830. Price, $5.00.
Boston: Little, Brown and Company, 1915.
This masterful achievement is an inductive and anal ji-ical study of a thousand
juvenile delinquents. It is the result of five years of study and investigation by
the Juvenile Psychopathic Institute of Chicago under the direction of the author.
Based upon the assumption that most criminals begin their career of crime at a
very early age, Dr. Healy has sought to analyze the causes and conditions which
lead to anti-social conduct. It is a most comprehensive treatise. The effects of
heredity, of disease, of mental abnormahty, of physical defects, of environmental
influences, including home life and associates, are all studied with the most pains-
taking care. Methods of study and investigation are presented with the purpose
of developing a science of diagnosis and treatment. Part I, comprising ten chap-
ters, deals with general data. This part should prove invaluable to judges,
lawyers, probation officers, physicians, clergymen, social workers; in fact, to all
who are interested in the problem of delinquency. Part II, with twenty-seven
chapters, is devoted to the description of cases and tyi>es and to the study of
causative factors. Here the concrete material is presented upon which the
scientific results are based. This part is characterized by balanced judgment
and ought to have the effect of disciplining the imagination of the theorist.
The comprehensiveness of the work, its thoroughness and intensiwness,
make it a veritable source book both as t« material and as to method. It is an
epoch-making work in the study of delinquency. Dr. Healy is to be congratulated
294 The Annals of the American Academy
on his achievement. He has made every scientific student and every practical
worker in this field his debtor.
J. P. LlCHTENBERQER.
University of Pennsylvania.
Melvin, Floyd J. Socialism as the Sociological Ideal. Pp. 216. Price, $1.25.
New York: Sturgis and Walton Company, 1915.
Dr. Melvin, having in mind the social philosophy so well put by Ward —
"the conscious improvement of society by society," finds great emotional and in-
tellectual forces making for this ideal in the tenets of socialism.
Entering this kingdom of "social self -consciousness," the individual finds
bulwarked against his further progress the evils of a rockbound competitive
system of industry — a system diametrically opposed to the ideals of the sociolo-
gist. Under this competitive reign he sees justice mocked, ethical and aesthetic
tendencies choked, and rehgion shackled. These spiritual ideals are now de-
manding realization. Likewise cooperation, the division of labor, the factory
system and the introduction of machinery are the material forerunners of the
social commonwealth. Means and methods of social regulation such as educa-
tion, a "controlled" evolution and a "representative decision" must replace the
anarchistic means of deadly warfare, natural selection and grueUing competition.
The writer closes his book with a clear portrayal of the aims and ideals of
the socialist summed up in his sentences: "Having no classes, sociaHsm has no irra-
tional principles to uphold, no vested rights to be protected, no cherished insti-
tutions to be maintained. All is fluid, plastic. This is spiritual freedom."
Many sociologists will take bitter exception to Dr. Melvin's linking an
economic panacea with the science of sociology as the latter's ideal. This branch
of study has fought and fought hard to establish itself, and now to link it with
socialism, a movement and a term arousing so much antagonism, must to many
minds work havoc for sociology as a science.
C. E. Reitzbl.
University of Pennsylvania.
Morgan, Barbara Spofford. The Backward Child: A Study of the Psychology
and Treatment of Backwardness. Pp. vii, 263. Price, $1.25. New York:
G. P. Putnam's Sons, 1914.
The recent development of clinical psychology and statistical studies of re-
tardation in elementary school systems have outlined the problem of the "back-
ward child." This is not the problem of the feeble-minded child whose training
can never have great social value. It is rather the problem of the child whose
educational progress has been delayed through certain mental or physical inca-
pabilities or through lack of proper training and education.
To the latter problem the book is addressed. It is intended for the use of
parents, teachers, and other educators who have to deal with atypical children.
Its primary emphasis is on individual treatment. There must be a careful
psychological analysis of the individual child in question. He must "be very
delicately persuaded into revealing" his handicaps and abilities, and the "tests
Book Department 295
used for this persuasion are a kind of abbreviation of the activities of a child's
life." But these tests must never become a merely formal means to a rigid classi-
fication. They must be interpreted and the writer bases her interpretation on
clinical experience from which she has taken a number of cases for iUustration.
Once the problem of a particular child is outlined, his training must follow
the lines indicated. This must conform to certain psychological principles of
mental development, and a large portion of the book is devoted to an interesting
treatment of the familiar topics of attention, memory, perception, reasoning, etc.
The careful reader will certainly realize that most of the principles and even
much of the method of the book will have application in deaUng with the pre-
cocious as well as with the backward child.
F. N. Maxfield.
University of Pennsylvania.
Antin, Mary. They Who Knock at Our Gates. Pp. x, 142. Price, $1.00.
Boston: Houghton, Mifflin Company, 1914.
It is too much to expect that an author who has won deserved renown for
her autobiographical sketch The Promised Land will rise to quite the same heights
in an attempt to interpret modem immigrants. She writes in interesting, sym-
pathetic and friendly fashion and the book is enjoyable. She feels that our
present duty lies in the distribution and safeguarding of the immigrants rather
than in artificial tests of fitness whose real aim is exclusion.
Bernheimer, Chas. S. and Cohen, Jacob M. Boys' Clubs. Pp. 136. Price,
11.00. New York: The Baker and Taylor Company, 1914.
Contains in brief compass suggestions for the formation and conduct of
clubs for boys (and girls) with a brief parliamentary guide, typical constitutions
and by-laws, and many hints as to programs for meetings and various other aids.
BowLEY, A. L. The Measurement of Social Phenomena. Pp. viii, 241. Price,
38. 6d. London: P. S. King and Son, 1915.
The author has departed from the standard of his previous books and at-
tempted to write a popular book on statistics. The result of his effort is an
interesting combination of statistical technicalities and explanations of the most
elementary character. The book was aimed to reach a group of social workers.
It is improbable that they will get from it a working knowledge of statistical
method.
Boyhood and Lawlessness; with The Neglected Oirl. Pp. xix, 215; iii, 143.
Price, $2.00. The Middle West Side; with Mothers Who Must Earn. Pp. xiii,
67; viii, 223. Price, $2.00. New York: Russell Sage Foundation, 1914.
The Russell Sage Foundation in these volumes continues the publication
of investigations made under its auspices.
In the first volume is a study of boys in a part of the West Side of New York
City, a description of their daily life and their troubles as well as troubles caused
by them which lead them into the court. The material was ooUeot«d by Mr.
296 The Annals of the American Academy
Edwin M. Barrows and Clinton S. Childs. The second part o/ the book on
The Neglected Girl was written by Miss Ruth S. True. It is rather curious that
so little has really been written on the neglected girl. Miss True's study, there-
fore, of actual conditions will be of value.
In the second volume we have a sketch of The Middle West Side of New
York City by Otto G. Cartwright and a study of Mothers Who Must Earn by
Katharine Anthony.
At first glance little relation may appear between these books, but the student
is moved to ask if the mother who must go away to work under city conditions
does not offer a partial explanation of the lawless boy and the neglected girl.
Whether these descriptive studies, therefore, immediately lead to any changes
in public conscience or industrial methods it must be recognized that the knowl-
edge of actual conditions is the necessary basis of all wise changes, and the
dissemination of such reports by the Russell Sage Foundation will have its own
real influence in the gradual shaping of public opinion of the subjects discussed.
Briggs, John E. History of Social Legislation in Iowa. Pp. xiv, 444. Price,
$2.00. GiLLiN, John L. History of Poor Relief Legislation in Iowa. Pp.
xiv, 404. Price, $2.00. Iowa City: The State Historical Society of Iowa,
1915.
The State Historical Society of Iowa has made a commendable record
through its publication of monographs dealing with the history of the state.
In the volumes now before us we have a history of poor relief legislation in Iowa
by John L. Gillin, which is probably the first book of its kind emanating from
the Middle West. Mr. GiUin has done an excellent piece of work. He outlines
the old laws of the territory, describes the problems of the almshouse, outdoor
relief and the care of defectives. He tells what has been done and indicates
very plainly many things which have not been done and are left for the future.
A companion book is the one on History of Social Legislation in Iowa by
John E. Briggs, in which the public health, provisions, care of prisoners, defect-
ives, pensioners, laborers are discussed in chronological order.
Both volumes contain very complete notes and references to the statutes
and other documentary material.
Capen, Edward Warren. Sociological Progress in Mission Lands. Pp. 293.
Price, $1.50. New York: Fleming H. Revell Company, 1914.
The fact that the father of the author of this volume was for many years
the head of the American Board of Foreign Missions doubtless has much to do
with his interest in this subject. The knowledge growing from this home en-
vironment, however. Dr. Capen has strengthened and widened by extensive
journeys around the world, in which he had opportunity to observe the work
of the foreign missions. He is now professor at Hartford Theological Seminary.
He writes of the changes he has found bearing on education, on material pros-
perity, as well as on the position of woman, ideals of the family, development
of ethical ideals, progress in social reconstruction and christianizing tendencies
in non-Christian religions. He has given us a bird's-eye view, as it were, of
Book Department 297
the field described at so much greater length years ago by Dennis. There will
be many who will welcome such a story.
Devine, Edward T. The Normal Life. Pp. 233. Price, $1.00. New York:
Survey Associates, Inc., 1915.
In a series of lectures given before the Social Service Corporation of Balti-
more in February and March, 1915, Dr. Devine undertook to emphasize the
positive rather than the negative side of social questions, speaking therefore
of the normal life rather than the abnormal, and in this little volume containing
these lectures we have infancy, childhood, youth, maturity, and old age discussed
from the standpoint of one who is tremendously interested in social welfare.
Like all of Dr. Devine's writings, these Assays are interesting and stimulating.
Ellis, George W. Negro Culture in West Africa. Pp. 290. Price, $2.00. New
York: The Neale Publishing Ck)mpany, 1914.
Few men have had better opportunity to study the negro in his African
home than the author, who for eight years was secretary to the American Lega-
tion to Liberia. This little volume is an account of the culture of the negroes
with whom he came in contact, and is descriptive of their life from day to day.
Approximately half of the volume is given to their proverbs and stories.
He deals primarily with the Vai peoples.
Kellogg, Paul U. (Ed.) Wage-Earning Pittsburgh. Pp. xv, 582. The Pitts-
burgh District — Civic Frontage. Pp. xviii, 554. Price, $2.50 each. New
York: Survey Associates, Inc., 1914.
Both volumes consist of a number of articles by different authors, many
of which have already appeared in the original Pittsburgh survey. The value
of the articles is enhanced by a number of maps, diagrams, and illustrations.
The editor, Mr. Kellogg, has now made available for public use the material
collected in the first great American movement toward an intensive survey of
a large industrial community. This survey has played a r61e of vast importance
in leading the way toward the ascertainment of social facts. The student of social
science cannot but regret that the example so splendidly set has not been followed
on a large scale in any other industrial community.
Mayo, Marion J. The Mental Capacity of the American Negro. Pp. 70. Price,
85 cents. New York: The Science Press.
This little study is an attempt to determine from an analysis of the records
made from white and colored children in high schools of New York City the rela-
tive capacity of the two races. The author recognizes that the old tests of race
siipcriority and inferiority are of little value. He thinks that this method will
ultimately give us very important results. The study and the method is to be
commended. Whether conclusions based on this material are sound is another
question, for progress in school depends not merely upon individual but upon
race, background, home atmosphere and all the outside stimuli to progress.
Little attention, however, is paid to this fact.
298 The Annals of the American Academy
MooREHEAD, Warren K. The American Indian in the United Stales. Pp. 440.
Price, $3.25. Andover: The Andover Press, 1914.
Frankness and candor seem to be characteristic of this work. The author is
interested primarily in neither the historical nor the ethnological problem but
in the present welfare of the American Indians now living in the United States.
Descriptions of all the principal groups in all parts of the country are given, with
many of their customs and peculiar characteristics, but the main purpose of the
book is to reveal the situation of individuals, tribes, and groups as a result of their
care or lack of care since 1850. We have in this book the most frank and fearless
presentation of the wrongs inflicted upon these defenseless wards of the govern-
ment which has yet appeared. The gigantic land steals and swindles, the indi-
vidual and collective fleecing of near-citizens and helpless women and children
by unscrupulous land grabbers are set forth in all their shocking detail. The
weakness of our governmental machinery is made clear without personal malice or
incrimination. The faults are due to politics and lack of pubUcity. The good
features of our Indian poUcy are presented fairly and with appreciation.
The book is a mine of information for the social student, but it is intended to
arouse public feeling and action in behalf of the Indian. Written for this avowed
purpose, it is remarkably sane. It is profusely illustrated and well indexed.
Redfield, Casper L. Dynamic Evolution. Pp. xi, 210. Price, $1.50. New
York: G. P. Putnam's Sons, 1914.
The word dynamic is used here in the purely mechanical sense. Accumulated
energy in parents is transmitted to offspring. Illustrative material is drawn
from the pedigrees of horses, cattle, dogs and men. Energy is acquired by use,
such as training in trotters. This is the Lamarckian theory of hereditary trans-
mission in a new form. Longevity in man, the author holds to be conditioned
by the age of parents. The older the parents the greater the expectancy of the
child. Peculiar mental abilities correspond to the characteristics of parents at
various ages; i. e., the fathers of military heroes average 30 years; of artists,
musicians and literati, 31—40; of statesmen, 41-50; of philosophers, 51 and over.
The data seem inadequate for such generalizations, but the subject cannot be
dismissed without further investigation. The theory is to be reckoned with,
and invites corroboration or disproof by further studies.
Reeves, Edith. Care and Education of Crippled Children in the United States.
Pp. xi, 252. Price, $2.00. New York: Survey Associates, Inc., 1914.
Ordinarily, few people realize how many crippled children there are in this
country, and much less the extent and nature of the provision which is made for
their care and education. Miss Reeves has rendered a genuine service in the col-
lection of this material and its translation into available form by the student.
While nearly every sane person recognizes and welcomes the development of
medical science and the resulting saving of life through our knowledge of how to
deal with the sick and injured, the author would be the last to have us forget
that prevention of accident or sickness is a greater public service than the cure of
those who are afficted.
Book Department 299
Roman, Frederick W. The Industrial and Commercial Scliools of the United
Stales and Germany. Pp. xv, 382. Price, $1 .50. New York : G. P. Putnam's
Sons, 1915.
A comparative study, full of informative detail. Those interested in voca-
tional education and continuation schools will read the book in its entirety. To
others it will be particularly serviceable as a reference work.
Sumner, Wiluam Graham. (Ed. by Albert G. Keller.) The Challenge of Facts
and Other Essays. Pp. xii, 450. Price, $2.25. New Haven: Yale Univer-
sity Press, 1914.
For this third volume of the late Professor Sumner's writings we are indebted
to the careful and persistent research of his associate, Professor Albert Galloway
Keller.
At least five of these essays are here printed for the first time, so far as
Professor Keller can discover. The twenty-five others had become inaccessible.
It is obviously impossible to attempt in a review even to outline the ground
covered by the author in such varied fields as are indicated in some of the subjects :
In Reply to a Socialist, Who Win by Progress, Federal Legislation on Railroads,
Democracy and Responsible Government, Foreword to Lynch-Law. One can only
express his amazement that so busy a man as Professor Sumner managed to do
all of this work. One must be equally impressed by the modesty revealed in the
fact that he allowed much of it to go unpublished. Professor Keller is to be con-
gratulated for collecting and publishing the essays of one of the most interesting
and virile teachers of his time.
POLITICAL AND GOVERNMENTAL PROBLEMS
DeWitt, Benjamin Parke. Progressive Movem£nt. Pp. xii, 376. Price, $1.50.
New York: The Macmillan Company, 1915.
This book is more than a eulogy of the progressive party. The author real-
izes there are men in all parties who are trying to place the government more fully
within the control of the community and to make it more serviceable to the
community at large and especially to those who are laboring under economic
disadvantages. He describes this movement within the various political parties
in recent times and then takes up in turn the national, state and city governments
in order to show the most important efforts which have been made within recent
years to entrust the government to more representative men, to improve its struc-
ture or to increase its usefulness. While he exhibits strong sympathy with the
progressive party, he usually tries to be non-partisan, and he states the results of
hi« studies in a most interesting manner.
The discussion of popular control of the government, however, is extremely
weak. The word "politician" is used frequently and only in a disparaging man-
ner. The author nowhere shows that he realizes that the running of our gov-
ernment requires, in addition to the services which our public officials render as
such, the expenditure on the part of a large number of men of an amount of
thought, time and energy which is far greater than can be expected from the
300 The Annals of the American Academy
average citizen, that such an expenditure is not in itself an evil but is essential,
that the inducing of sufficient men of the right type to make this expenditure is
the main difficulty in any real reform movement, and that undiscriminating
abuse of those who do this work adds to the difficulty and injures the cause of good
government.
The author deplores the fact that in some places it is necessary to have
watchers at the polls on election days and says that policemen should be substi-
tuted. He fails to realize that the work done on election day is only a very small
part of the work done in a campaign by men who have strong convictions and
who make practical efforts to have those convictions adopted by the electorate.
His opinion that police supervision would be sufficient is amusing. The reviewer
himself has been obliged to keep from voting a man who did not live in the divi-
sion but who was brought to the polling-place by a policeman, and he has caught
another policeman repeatedly violating the election law. Both policemen had
secured their positions by the method which is said to secure efficient and faithful
public service. They were no worse than many other members of the force.
The book has, it is true, many good features. But it does not show that ac-
quaintance with political conditions which is essential to an adequate discussion
of our system of government.
Robert P. Reeder.
Philadelphia.
McLaughlin, Andrew C. and Hart, Albert Bushnell. Cyclopedia of Ameri-
can Government. (3 vols.) Pp. xxxiii, 2290. Price, $22.50. New York:
D. Appleton and Company, 1914.
The classic example of the old lady who was well informed on such subjects
as those which began with the letters A to D, but none others, because she had
not read further in the encyclopedia, does not apply to reviewers of such works.
It is a safe prediction that reviewers of encyclopedias, academic or otherwise, either
sit down immediately and read critically a few sections or use the encyclopedia
as a reference work for a time and then give their judgment resulting from this
use. The author of this review has used the latter method.
As tested by a year of use, the reviewer feels that this encyclopedia is one that
will be of material assistance to all students of government as a ready-at-hand
reference work. Even on those subjects that come within the owner's specialty,
the encyclopedia will offer at least a bibliography of secondary and original
material that will almost invariably prove suggestive and valuable. And aside
from one's specialty, the encyclopedia presents concise, readable articles of both
general and informational value. The articles, as a rule, are not evasive, but
concise and "meaty." What this means with reference to the mass of detailed,
practical information presented in its 3,000 pages is barely suggested when one is
told that the index alone refers to 13,500 topics.
The authors. Professors Andrew C. McLaughlin and Albert Bushnell Hart,
have surely realized their ambition to present a work that will supply "the need
for a usable, succinct and comprehensive presentation of practical, actual and
theoretical government in America" of particular use not so much to the specialists
who will be aided by the discussion of subjects in neighboring fields as to the
(
Book Department 301
"general reader and to those whose interests and duties call them to the study
of public affairs; it is meant for the library, the study table, the editorial room,
and the class room." There are some 250 contributors to this work, including
many of the best known university men in America.
Clyde Lyndon King.
University of Pennsylvania.
Moses, Robert. The Civil Service of Great Britain. Pp. 324. Price, $2.00.
New York: Longmans, Green and Company, 1914.
The thesis of this doctoral dissertation is essentially that the results secured
by the British system of dividing civil service employment into two classes (one
open to university graduates and practically closed to others, the second open to
all comers with the prerequisite qualifications) have, on the whole, proved suc-
cessful and beneficial in securing high-grade talent in the pubhc service. The
author feels that the government "should see that it9 schools educate for all kinds
of work, that ability and promise are lifted as far as possible above want and social
handicap. . . . For the present we must recognize and be prepared to find
men who are ambitious and dissatisfied, and for whom the state can do nothing;
and we can extend only our sympathy to the stenographer or clerk of long stand-
ing who sees himself subordinated to recent university graduates, and feels that
he has suffered the last indignity."
The author points out that there is no such thing as really open competition
in the United States in civil service. As obstacles separating the ablest available
competitors from the best available positions he enumerates: the apportionment
to states, the practice of submitting to the appointing officer the names of three
eligibles for each vacancy, the low standards of examinations for all but the tech-
nical and legal positions, the practice of preferring disabled veterans, soldiers and
sailors for all civil positions, the want of proper waiting lists and the practice by
which "candidates bid for salaries" — that is, indicate the lowest salary that they
are willing to accept.
It is contended that the personnel and efiiciency of the civil service should be
improved by "raising educational standards and salaries and making a definite
appeal to men of the highest college and university training, and to those especially
prepared to choose the civil service as a career." On the whole, the thesis is a
well supported, well written and creditable piece of research work.
Clyde Lyndon Kino.
University of Pennsylvania.
Taft, William Howard. The Anti-Trust Act and the Supreme Court. Pp. 133.
Price, $1.25. New York: Harper and Brothers, 1914.
First and last an enormous amount of literature has been written upon the
various decisions of the Supreme Court under the Sherman Anti-Trust Act. But
it may be confidently asserted that never has there appeared a more keen and
■earching analysis of those decisions than is contained in ex-President Taft's little
book The AtUi-Trusl Act and the Supreme Court.
The volume begins with an examination of the common law rule regarding
302 I'he Annals of the American Academy
restraint of trade and carries the reader through the successive interpretations
of the Sherman Act by our highest court, closing with a brief summary of its
effects upon business.
Several interesting points are made by the author. In the reviewer's esti-
mation one of the most important is that of the common law doctrine of the
reasonableness of restraint of trade measured "by the lawful purpose of the prin-
cipal contract." The common law rule of reasonableness did not and does not
extend to cases where the main object was to get or keep another man out of
business or to restrict his business in quantity, prices or territory (p. 11).
In Chapter III the inadequate preparation of the first Sugar Trust case is forci-
bly emphasized as one of the causes leading to the decision and it is pointed out that
Mr. Justice Harlan's emphatic dissent "represents much more fully the present
view of the court." The author takes the ground that both the Trans-Missouri
and Joint Traffic decisions were based upon a misconception of the common law
rule of restraint of trade induced partly by the error of the lower court in holding
the arrangements reasonable at common law and partly by a failure to interpret
correctly the Mogul Steamship case. In other words, the decisions of the court
were correct, since the arrangements involved were not reasonable at common lawj
but this body erred in the grounds upon which it placed those decisions.
In the chapter on the Oil and Tobacco decisions, the author endeavors to
show that these decisions harmonize with the other decisions of the Supreme
Court.
The author's view of the Sherman Act is that under the construction of the Su-
preme Court and measured by the common law test this measure has constituted
all the law necessary for adequate regulation of the trusts. It is difficult to escape
from this conclusion in the light of the careful analysis made. Furthermore, the
author points out that under the common law interpretation adopted by the court
there is no need of any doubt in the mind of any man as to the legality of any
given business arrangements under the Sherman Act. If the main purpose is to
reduce competition and gain control of the business in any particular branch and
if this is not a mere incidental result, the arrangment is a violation of the Sherman
Act and a man "must know that he is violating the law and no sophistry, no
pretense of other purpose need mislead him."
W. H. S. Stevens.
Columbia University.
Van Hise, Charles R. Concentration and Control. (Rev. Ed.) Pp. xiii, 298.
Price, $2.00. New York: The Macmillan Company, 1914.
When Dr. Van Hise's book first appeared some two or more years ago the
present reviewer criticized it in The Annals because of many statements which
not only would not bear careful scrutiny but which also indicated both care-
lessness and lack of knowledge. The new edition seems to have made no attempt
to correct the loose and erroneous statements of the old. In so far, therefore, as
this is the case, the second edition is subject to the same criticisms that were made
in the earher review.
The new matter in Concentration and Control consists of a few additional
pages in the chapter on the Laws regarding Cooperation and a new appendix deal-
Book Department 303
ing with the Trade Commission and the Clayton Acts before the same were
passed Even in these additions of but a few pages Dr. Van Hise does not escape
errors and misstatements of fact. Thus, he declares that the power given the
Trade Commission by the House Bill of prescribing a uniform system of account-
ing is among those which "have already been exercised by the Bureau of Corpora-
tions" (p. 287). The reviewer confesses some curiosity as to where Dr. Van
Hise derived this bit of information; when has the Bureau ever exercised any such
power, and finally from what law did it derive this authority. Similarly the author
is somewhat in error in regarding as new the power given the Trade Commission
''to make a report to the court regarding the form of dissolution." Apparently
Dr. Van Hise is unaware of the services of the Bureau of Corporations in con-
nection with the tobacco dissolution. Othenv^ise, he would have qualified this
statement to some extent at least.
W. H. S. Stevens.
Columbia University.
Hunt, Gaillard. The Department of Stale of the United States: Its History and
Function. Pp. viii, 459. Price, $2.25. New Haven: Yale University Press,
1914.
Dr. Hunt has not attempted to wTite a popular account of the machinery of
our foreign relations, but has limited himself to a careful and well-arranged expo-
sition of the various functions with which, from time to time, the Department of
State has been entrusted. The subject is of necessity somewhat technical, but
the pages are interspersed with interesting incidents and examples which make
clear the subject-matter and lighten the treatment. The Department of State
has cared for a great variety of matters beside our foreign relations, which are
naturally its most important duty. The list of its activities includes patents,
ronstis, pardons, supervision of the affairs of the territories, care of the Great
Seal of the United States, and the pubhcation of the laws. Obliged to cover so
wide a field, the author, as was natural, has curtailed his consideration of those
functions of the Department which relate to the conduct of our relations with other
states. Nevertheless, the book contains a wealth of detail which will facilitate
the task of investigators. It is to be hoped that in some later publication Dr.
Hunt will give a fuller treatment to the Department of State as our Foreign Ofiice,
and not confine himself quite so closely to the documentary side of his subject.
His long experience in the service and his personal relations with his colleaguea
would, if recorded, help us to understand the actual place of the Department of
State in our polity.
INTERNATIONAL QUESTIONS
FuLLERTON, W. MoRTON. Problems of Power. (New and rev. ed.) Pp. xxiv,
390. Price, $2.25. New York: Charles Scribner's Sons, 1915.
The reviewer recalls the keen pleasure with which he read this most stimu-
lating book when it first appeared in 1913. It then impressed him as a meet
remarkable "study of international politics," to quote the subsidiary title, written
304 The Annals of the American Academy
by an evident international expert, a former correspondent of the London Times,
and one who unmistakably has been admitted into the innermost circles — the
coulisses — of the diplomacy of Europe.
The events which have supervened testify in a striking manner to
the extraordinary knowledge and the substantial accuracy displayed by Mr.
Fullerton concerning the whole field of European politics. When irresponsible
idealists Uke Norman Angell, and responsible statesmen like Lord Haldane, to-
gether were demonstrating the folly and the entire improbability of war, Mr.
Fullerton in a most logical, forceful manner was endeavoring to make thinking
men face the realities of the menacing situation in Europe.
It is true that the author has his leit motifs to emphasize, namely, his belief in
the predominance of the influence of economic interests and of public opinion in
international affairs. He also sees the death agonies of the principle of nationality.
But it must be confessed that one loses interest rather in his main thesis, and be-
comes absorbed in the extraordinary array of facts he presents and his brilliant
comments on these facts. Mr. Fullerton's work does not compel assent so much to
his general conclusions as it enlarges one's mental horizon and stimulates clear
thinking through the clever presentation of powerful facts and truths.
Problems of Power at this particular time is a book that all earnest students
of international affairs should read and re-read most conscientiously. No other
contemporaneous work presents so completely and convincingly the fundamental
truths not only in respect to the situation in Europe but also in respect to inter-
national reahties in general. Americans who are conscious of the momentous
fact that the United States is actually a world power should not fail to heed the
vital lessons that Mr. Fullerton has learned from his profound study of inter-
national pohtics.
Philip Marshall Brown.
Princeton University.
Hodges, H. G. The Doctrine of Intervention. Pp. xii, 288. Price, $1.50.
Princeton: The Banner Press, 1915.
The importance of an understanding of the problems involved in interven-
tion needs no argument. Practice is so divergent and even the opinions of text-
writers so various that the formulation of a doctrine is at best difficult. Among
such a mass of conflicting examples as confronts the investigator, it is often hard
even to express what is the general practice on specific points.
Mr. Hodges reviews intervention from ancient times to the present. The
first portion of the book treats political intervention, most of the instances of which
involve policy as contrasted to law to so great a degree that its underlying prin-
ciples are and perhaps must remain confused.
Non-political intervention is, of course, the phase presenting the most
interesting problems. The author gives a summary view of the general holdings
as to intervention, for protection of property and persons of citizens, for the pro-
tection of missionaries, on the grounds of humanity and for the collection of
debts. A brief review of the so-called right of asylum is included.
A chapter on non-intervention brings out some strong contrasts as to theory
Book Department 305
and practice among the nations of the world. The main discussion closes with a
chapter summarizing the status of the attempts to limit the possibiUties of inter-
vention by contract provisions and municipal law; the feehng of the smaller
states as to intervention and an estimate of its results.
Unfortunately the discussion is presented in language which often lacks
clarity and present-day developments enter into consideration more than is to be
expected in a general work. Those who are anxious to follow the subject farther
than the text will be disappointed in that the author often omits a statement of
the source of his material when discussing recent developments, though he regu-
larly cites his authority when quoting from the standard texts. One is surprised
also to find that apparently no use has been made of The Right to Protect Citizens
in Foreign Countries by Landing Forces, a memorandum of the solicitor issued
from the Department of State, 1912 — the best summary, especially of the prac-
tice of our government, which has appeared. The neglect of United States prac-
tice is a serious defect. Few foreign countries have temporarily occupied parts
of other states to protect the safety of citizens and their property oftener than
we, and it is these repeated actions which show the trend of development in the
doctrine of intervention.
Chesteb Llotd Jones.
University of Wisconsin.
Angell, Norman. Arms and Industry. Pp. xlv, 248. Price, $1.25. New
York: 0. P. Putnam's Sons, 1914.
The author of The Great Illusion and of War and the Worker once more writes
most interestingly in furtherance of his intellectual war upon war. Mr. Angell
has won wide recognition as an advocate of civilist philosophy and politics as op-
posed to the militarist, but his argument in this book is disappointing in presenting
no constructive program. Few will deny his thesis that intelligent self-interest
and cooperation should supplant coercion and blind physical force as determi-
nants of international as well as national action, but the author fails to give any
intimation as to how this desirable end can be attained in the international field.
The pessimistic admissions that the "prehuman" elements in m^n outnumber his
human and spiritual ones, that "civilization is but skin deep," and that " man is so
largely the unreflecting brute" might be met with something more concrete than
social conceptionalism, and mere lament. Regardless of past and present wars
in Europe, some content yet remains in law and in compacts still observed, of
the accomplishments of diplomacy. Whether Utopian or not, former President
Taft's League of Peace based on international force seems constructive in com-
parison with Mr. Bryan's conceptionalism of the world and America peacefully
slumbering on imaginary "Isles of the Blessed" protected by inaccessible seas.
The six lectures of the book, though delivered in a most important group of Ger-
man and English universities some time prior to the war, do not seem to have
ed to any interdependent or cooperative suggestions there.
306 The Annals of the American Academy
Longford, J. H. The Evolution of New Japan. Pp. 166. Price, 40 cents.
N. Y.: G. P. Putnam's Sons.
After a brief historical sketch of Japan, the author presents summaries of
the chief features of Japanese life in our own day. The discussion is sympathetic
and at some points glosses over defects in Japanese civilization generally recog-
nized. Among foreign influences which are discussed that of England is given
decided prominence. The more important chapters deal with Japan's foreign
pohcy, social reforms and the struggle for national autonomy.
Masaoka, Naoichi. (Ed.) Japan to America. Pp. xii, 235. Price, $1.25.
New York: G. P. Putnam's Sons, 1914.
This little volume containing some thirty-five brief essays from the pens
of Japanese statesmen and leaders of thought, expressing their candid sentiments
on Japanese-American relations, should be helpful toward preserving the historic
friendship between the two nations. The editor, a Japanese newspaper corres-
pondent, who saw service during the Portsmouth peace conference and subse-
quently, is to be commended for his efiforts to make Japan better known to
Americans and America better known to the Japanese.
In a very terse and direct way leading Japanese statesmen like Premier
Count Okuma and Privy Councillor Viscount Kaneko; commercial men hke
Asano, president of the Oriental Steamship Company; bankers like Baron Shibu-
sawa; business men like Fukui of the Mitsui Products Company and Otani of
the Yohokama Chamber of Commerce and professors like Suyehiro and others
make their special pleas for the Japanese view of certain disputed questions.
But they all emphasize cooperation, friendship and peace with America and the
spirit of the message they desire to convey is encouraging and hopeful for good
understanding and good feeling.
Russell, Lindsay. (Ed.) America to Japan. Pp. xv, 318. Price, $1.25. New
York: G. P. Putnam's Sons, 1915.
This book is in response to Japan to the United States published in 1914.
Mr. Russell, who is president of the Japan Society of New York, modestly an-
nounces himself as editor, but also contributes to it a valuable paper on "America's
Interest in the Orient." The book contains a series of short articles, some fifty
in number from statesmen, college presidents, business men and others expressive
of America's good will to Japan, and dealing sensibly with points of danger. It
ought to aid in the righteous work of removing misconceptions and cultivating
an honorable and profitable friendship. Such an antidote to the apparently
fltudied attempt to create animosity and misunderstanding is needed.
Book Department 307
MISCELLANEOUS
Bolton, Herbert Eugene, (trans.) Athanase De MSzikres and the Louisiana-
Texas Frontier, 1768-1780; Documents published for the first time, from the
original Spanish and French manuscripts, chiefly in the archives of Mexico
and Spain; translated into English; edited and annotated. (2 vols.) Pp. 743.
Price, $10.00. Cleveland: Arthur H. Clark Company, 1914.
Professor Bolton has creditably performed a difficult task in selecting from a
mass of material respecting De M6zi6res some fifty-two documents covering a
wide range of this interesting Frenchman's activities. De M^zi^res, though
belonging to the former regime, served Spain so well at the time of the transfer of
Louisiana to that nation that Spain proposed to reward him with the governor-
ship of Texas. He was an explorer of the territory between Louisiana and
Texas, and his efforts to promote the mutual advantages of these provinces and
to win the Indians to support the new pohcy of Spain were important in the at-
tempt to check English advance. The documents deal with Indian troubles in
Texas, joint campaigns of Louisiana and Texas forces against the Osages and
Apaches, the expeditions of 1778 and 1779, and with recommendations for re-
forms in the province of Texas. The editor's introduction, which covers 126
of the 351 pages of the first volume, and his notes give evidence of his care in the
execution of this work which is the first in a proposed series of original documents
from foreign archives relating to Spain in the West.
INDEX
Accidents: Important measures nec-
essary to minimize risks from, 181-
182; number of industrial, annually
in United States, 257.
Adams, W. G. S. The Basis of Con-
structive Internationalism, 217-229.
Agricultural efficiency : Efforts of Ala-
bama to establish greater, 187; pos-
sibihties of greater, through scientific
management, 194.
Agricultural Efficiency, Greater,
For The Black Belt of Alabama.
C. E. Allen, 187-198.
Agricultural experiment stations, im-
portance of, to agriculture, 48.
situation in Black Belt of Ala-
bama, 191.
Agriculture: Disadvantages of crude
methods of, employed by negro,
196-197; importance of agricultural
experiment stations to, 48; instruc-
tion in, for negro, 196; records
regarding, in Alabama, 188.
Alabama: Agricultural records in the
Black Belt of, 188; agricultural
records in the White Counties of,
188; agricultural situation in Black
Belt of, 191; decrease in rural popu-
lation of Black Belt of, 190; effect
of Civil War on industrial organiza-
tion of Black Belt of, 191-193;
effect of emancipation on industrial
system in White Counties of, 194;
efforts of, to establish greater agricul-
tural efficiency, 187; extent of the
Black Belt of, 187; farm improve-
ment in the Black Belt of, 189-190;
farm improvement in the White
Counties of, 189-190; increase in
rural population of White Counties of,
190-191; need of improving rural
conditions in Black Belt of, 195;
suggestions for improvements in
rural districts of, 191.
Alabama, Greater Agricultural
Efficiency for the Black Belt
OF. C. E. Allen, 187-198.
Allen, C. E. Greater Agricultural
Efficiency for the Black Belt of
Alabama, 187-198.
America: Dependence of, for pre-
pared materials, 48; freedom of the
sea, a vital interest of, 265 ; necessity
for conservation of natural and hu-
man resources in, 210; need of con-
servation in, 215. See United States.
America, How Can, Best Contrib-
ute TO the Maintenance of the
World's Peace? G. Lowes Dick-
inson, 235-238.
America, How Can, Best Contrib-
ute Toward Constructive and
Durable Peace? Charles W.
EHot, 243-244.
America, May Contribute to the
Permanent Peace of the World,
How? George W. Kirchwey, 230-234.
American Army, The Constructive
Work of the. Leonard Wood,
257-262.
American business houses, number of,
in Buenos Aires, 57.
citizens: Protection of, in foreign
lands, 266; protection of, on high
seas, 266.
doctrine, results of the establish-
ment of an, 249.
American Export Policies. Frank-
fin Johnston, 51-59.
American industries, present financial
status of, 253.
American Industry and Labor,
European War Influences Upon.
Samuel Gompers, 4-10.
308
Index
309
American markets and trade, effect
of European war on, 5.
America's Industrial Position, What
Scientific Management Means to.
Frank B. Gilbreth and Lillian Moller
Gilbreth, 208-216.
America's Industries as Affected
BY the European War. Alba B.
Johnson, 1-3.
America's Possible Contribution
TO A Constructive Peace. Morris
Hillquit, 239-242.
America's Unemployment Problem.
Henr>' Bru^re, 11-23.
Andrews, John B. A National Sys-
tem of Labor Exchanges in Its
Relation to Industrial Efficiency,
138-145.
Arbitration: Adoption «f principles
of, 224; demand for compulsory,
270; necessity of a sheriff behind
courts of, 274; objection to, 221.
Argentine: Commercial failures in,
54; growth of our exports to, 51.
business houses, number of, in
Buenos Aires, 58.
Arms, exportation of, by United States
to belligerents, 240-241.
Austria-Hungary, population of, 35.
Belligerents, exportation of arms by
United States to, 240-241.
Bloomfield, Meyer. The New Pro-
fession of Handling Men, 121-126.
Bonn, Moritz J. Commercial Isola-
tion versus International Trade,
60-65.
Hoot and shoe manufacturing industry :
Methods of improving unemploy-
ment in, 163; notes regarding unem-
ployment in, 162-164.
Boston, establishment of Employment
Managers' Association in, 121.
Brazil, growth of our exports to, 51-62.
BRiscQf NoRRiB A. Working C/ondi-
tions Necessary for Maximum Out-
put, 174-182.
British business houses, number of, in
Buenos Aires, 57.
fleet, effect on our commerce of
the destruction of the, 265.
Isles, effect on our commerce of a
blockade of the, 265.
BRufeRE, Henry. America's Unem-
ployment Problem, 11-23.
BRuijRE, Henry. Development of
Standards in Municipal Government,
199-207.
Buenos Aires: Number of Argentine
business houses in, 58; number of
American business houses in, 57;
number of British business houses in,
57; number of German business
houses in, 57; number of Italian
business houses in, 58; number of
Spanish business houses in, 58; total
number of business houses in, 58.
Bulgaria, population of, 36.
Business: Causes for depression in,
before the war, 2; need of co6pera-
tion between government and, 41-
42; need of flexibility in government
and, 47; problems confronting, 19.
Central America, condition of business
in, 83.
Central and South America, the
Relations -of, with the United
States as Affected by the Euro-
pean War. Luis F. Corea, 66-70.
City government: Regeneration in,
199; standardization in, 199, 206.
Civilization: Effect of European war
on, 235; factors marking growth of,
252; international organism of hu-
man, 239; United States army as ad-
vanced guard of, 261.
Chiyton Act, export trade and the, 55.
Clearing house, an international, 60-
61.
Commerce: Freedom of seas to,
243; reason for decrease in, with
South America, 79.
CoMMERaAL Isolation Vbbsub In-
310
Index
TERNATIONAL TrADE. MoritZ J.
Bonn, 60-65.
Commercial relations between United
States and Central and South
America, 67-69.
Conservation: Need of, in America,
215; of natural and human resources,
necessity for, in America, 210; rela-
tion between industrial supremacy
and, 209-210.
Cooke, Morris Llewellyn. Scien-
tific Management as a Solution of the
Unemployment Problem, 146-164.
Cooperation: Between bankers and
industries in Europe, 74-75; for
the development of foreign trade,
76; necessity of, in an industrial
organization, 107; necessity of, in
handling problem of unemployment,
28; need of, between business and
government, 41H12; program for,
among conservers, 215; scientific
management, a means of providing,
among conservers, 215.
Cooperative foreign selling agencies,
existence of, 68.
CoREA, Luis F. The Relations of
Central and South America with
the United States as Affected by the
European War, 66-70.
Corporate Organization, the Prin-
ciples OF Efficiency Applied to the
Form OF. Henry S.Dennison, 183-186.
Cost, elements of, 166-167.
accounting: Accounts to be
kept in dual method of, 170-172;
advantages of intelligent, 165; back-
wardness of small manufacturers in
adopting systems of, 166; the direct
labor method of, 168; the dual
method of, 169-172; the prime cost
method of, 168; the quantity
method of, 167; three systems of,
167-169.
Cost Accounting, Simplified, for
Manufacturers. Walter B. Palmer,
165-173.
Cost finding, need of adequate, among
American manufacturers, 173.
Costs and Profits, the Effect of
Idle Plant on. H. L. Gantt, 86-89.
Court of Arbitral Justice, acceptance of,
by forty-four nations, 278.
Courts of arbitration, necessity of a
sheriff behind, 274.
Credits: Question of extension of,
81-82; system of, in South American
business, 72-73.
Cuba, accompUshments of United
States army in, 258-259.
Defense : Chief means and methods of,
266-267; subjects of, 263.
Defense, Some Problems of. Amos
S. Hershey, 263-269.
Demand, rise and fall in, a cause of
unemployment, 154.
Dennison, Henry S. The Principles
of Industrial Efficiency Applied to
the Form of Corporate Organization,
183-186.
Dickinson, G. Lowes. How Can
America Best Contribute to the
Maintenance of the World's Peace?
235-238.
Economic access, security of the right
of, 227.
opportunities, offered United
States by European war, 5.
pressure: Apphcation of, 272;
means of applying, 270; of what it
consists, 270-271; reasons against,
271; resolutions embodying, as a
means of conserving peace, 272-273.
Economic Pressure as a Means
Toward Conserving Peace. Her-
bert S. Houston, 270-273.
Efficiency: Efforts of Alabama to
establish greater agricultural, 187;
in government, value of standards
in promoting, 200; in industrial
plants, efforts to obtain, 174; in
organization, rational plan of com-
Index
311
pensation, a requirement of, 205;
of employees, means adopted by one
industrial establishment to insure,
107-108; profit sharing as a spur to,
185; promotion of, by standardiza-
tion of supplies specifications, 203.
Efficiency, Greater Agricultural,
FOR THE Black Belt of Al.sjbama.
C. E. Allen, 187-198.
Eliot, Charles W. How Can Amer-
ica Best Contribute toward Con-
structive and Durable Peace, 243-244.
Emigration, effect of European war,
on, from United States, 38.
Employees: Advantages resulting from
training, to do several kinds of work,
152; advantages to a business of
loyalty and enthusiasm of, 115; care
necessary in hiring new, 104; causes
of lost time of, 163-164; determina-
tion of, to receive part of surplus,
185; development and training of,
a function of the management,
107; diminishing of time lost by,
163-164; importance of character
of, 106; importance of fitness of, for
organization, 105, 106; importance of
physical and mental fitness of, 105-
106; improved method of hiring and
discharging, 132; loss occasioned by
unnecessary hiring and discharging of,
129; means adopted in insuring effi-
ciency of, 107-108; method of secur-
ing new, 107; methods of hiring and
discharging, 132-134, 151; methods
of training, 134 ; proper treatment of,
109; results of carrying a larger num-
ber of, on payroll than necessary,
155; seriousness of handling, 123.
Employment: Advantages of contin-
uous, 162; advantages of scientific
study of, 112-113; conditions affect-
ing steadiness of, 110-111; function
of, 108-124; future attitude of em-
ployers toward steadying of, 135-136;
iniiM)rtance of, in an industrial estab-
lishment, 103; importance of appli-
cation blank in, 126; instability in,
96-97; irregularity of, among miners,
99; meaning of, 103; methods of se-
curing, 141; reduction of fluctuations
in, 134-136; results of fluctuations in,
41; results of instabihty in, 97; sea-
sonal element in, 117; steadiness of,
on what it depends, 1 10.
Employment, Scientific Manaqb-
MENT Applied to the Steadying
OF, ai«) Its Effect in an Indus-
trial Establishment. Richard A.
Feiss, 103-111.
Employment agents, disadvantages of
private, 142.
bureaus: Disadvantages of the
present situation of pubhc, 144-145;
extent of pubhc, 142-143; need for a
federal system of pubhc, 144; need of
establishing, 158; reasons for failure
of philanthropic, 142.
department: Argument for estab-
lishment of a functionaUzed, 116;
difficulty in estabhshing an, 113-114;
importance of, in an industrial es-
tablishment, 104; importance of a
functionahzed, 132; place of, in in-
dustrial organization, 114; relation
between, and other departments of
organization, 118.
Employment Department, A Funo-
tionalized, as a Factor in In-
dustrial Efficiency. Ernest Mar-
tin Hopkins, 112-120.
Employment Managers' Association:
Aims of, 121; establishment of, in
Boston, 121; organization of, 17.
associations : Organization of,
17; work to be accomphshed by, 122.
offices: Duties of, 138; powers of
organized, 125; public, in Germany,
13&-139.
sup)erintendent, qualifications of
the, 123.
England: Benefits derived from free
trade policy of, 265; improbability
of a war with, 268.
312
Index
Europe: Average annual amount of
money available in, 252; conditions in
after war ia over, 33 ; cooperation be-
tween bankers and industries in,74-75.
European capital, extent of, in South
America, 74.
control of railways in South
America, 74.
war: As a factor in the advance-
ment of internationalism, 218;
causes of, 245; condition of unor-
ganized workers as a result of, 8;
consumers as bearers of cost of, 252-
253; econpmic opportimities offered
United States by, 5; effect of, on:
American markets and trade, 5, civi-
lization, 235, emigration from United
States, 38, German trade with Latin
America, 67, immigration, 32, 37-38,
industry, 45, industry in Germany,
46, international credit relations,
61-62, mankind, 241, organized
society, 4, social and industrial life
of United States, 239, wage-earners,
5; effects after the, 9; first
effects of, on industry and commerce
in United States, 6; first result of, 1;
increase in unemployment as a result
of, 6; indirect costs of, 252; lessons
taught by, 50; moral influence of
United States on, 241; probable an-
nual expenditures of nations engaged
in, 252; real cause of the, 254-255;
rise in prices a result of, 6.
European War, America's Indus-
tries AS Affected by the. Alba
B. Johnson, 1-3.
European War, Some Industrial
Lessons of the. John Price Jack-
son, 45-50.
European War, the Relations of
Central and South America with
the United States as Affected by
the. Luis F. Corea, 66-70.
European War Influences upon
American Industry and Labor.
Samuel Gompers, 4-10,
Expense distribution, new theory of,
87.
Export distribution, facihties to help
manufacturers in, 56.
manufacturers, ratings of various,
51.
merchants, number of, in large
cities, 57.
Export Policies, American. Frank-
lin Johnston, 51-59.
Export trade: American success in, 51;
apphcation of Sherman law to, 54-
55; objections of small manufactur-
ers to combinations for, 55-56; the
Clayton Act and, 55.
Factory, air impurities found in a, 180.
Farm improvement: In the Black Belt
of Alabama, 189-190; in the White
Counties of Alabama, 189-190.
Federal reserve banks, value of, to
business, 3.
Law, effect of, on money,
254.
Feiss, Richard A. Scientific Man-
agement Applied to the Steadying of
Employment and Its Effect in an
Industrial Establishment, 103-111.
Force, effect of introducing element of,
in league of peace, 279-280.
Foreign investments: Value of Eng-
land's, 61; value of France's, 61;
value of Germany's, 61.
trade: Cooperation for the devel-
opment of, 76; pohcies with regard to
future of, 63-64.
Free trade policy, benefits derived from,
of England, 265.
Gantt, H. L. The Effect of Idle
Plant on Costs and Profits, 86-89.
See oho 159.
German business houses, number of, in
Buenos Aires, 57.
trade with Latin America, effect
of European war on, 67.
Germany: Change in export poUcy of.
Index
313
54; effect of European war on indus-
try in, 46; efforts of, to relieve unem-
ployment, 46-47 ; public employment
offices in, 138-139; serious faults in
export methods of, 53.
GiLBRETH, Frank B. and Lillian
MoLLER. What Scientific Manage-
ment Means to America's Industrial
Position, 208-216.
GoMPERS, Samuel. European War
Influences upon American Industry
and Labor, 4-10.
Government : Interest of, in unemploy-
ment, 12-13; need of cooperation
between business and, 41^2; need
of flexibility in business and, 47;
value of standards in promoting
efficiency in, 200.
Governmental aid, need of, in industry,
48-49.
Great Britain: Interdependence exist-
ing between United Stat«s and, 268;
national system of labor exchanges
in, 139-140.
Hebrew immigrants, number of, in
1914, 30.
Hershey, Amos S. Some Problems of
Defense, 263-269.
HiLLguiT, Morris. America's Pos-
sible Contribution to a Constructive
Peace, 239-242.
Hopkins, Ernest Martin. A Funo-
tionalized Employment Department
as a Factor in Industrial Efficiency,
112-120.
Houston, Herbert S. Economic
Pressure as a Means toward Conserv-
ing Peace, 270-273.
Idle Plant, the Effect (jf, < )n ( "< .s rs
and Profits. H. L. Gantl, M) s«>.
Immigrants: Annual number of, 30;
methods established to prevent tm-
employment of, 43; number of, in
1914: Hebrew, 30, Italian. 30. Polish,
30, Ruseian, 30.
Immigration: And our industrial pros-
perity, 33; beginning of a national
domestic policy of, 42; effect of:
development of ocean transportation
on, 33, European war on, 32, 37, 38,
on labor market, 22, on our demo-
cratic institutions, 37, previous
European wars on, 32; Uklihood of an
increased, 36; minimum wage as a
means of restricting, 43; need of
restrictive legislation against, 37;
probabilities as to future, 33 ; reasons
for our large flow of, 31 ; result of un-
restricted, 8; temporary effect of
European war on, 37-38; transfor-
mation in racial composition of our,
30.
Immigration, the War and. Frank
Julian Wame, 30-39.
Immigration, Unemployment and.
Frances A. Kellor, 40-44.
Income: Effect of unemployment upon,
99; importance of regularity of, 100.
Independence, right of small nations to,
245.
Industrial accidents: Number of, in the
United States, 257; number of deaths
caused annually in the United States
by, 257.
depression, causes of, 19.
efficiency: Advancement of, 114-
115; definition of, 113; dependence of,
upon principles of industrial partner-
ship, 186; problem of, 183. See
Efficiency.
Industrial Efficiency, A Function-
alized Employment Departmbnt
AS A Factor in. Emeet Martin
Hopkins, 112-120.
Industrial Efficiency, A National
System of Labor Exchanges in
ITS IIelation to. John B. Andrews,
138-146.
Industrial Eiticibncy, the Prin-
ciples of, Appubd to the Fobm of
Corporate Oroanuation. Henry
S. Dennison, 183-186.
314
Index
Industrial Estabushment, Scien-
tific Management Applied to the
Steadying of Employment, and
Its Effect in an. Richard A.
Feiss, 103-111.
Industrial establishments : Ignorance
of, as to their high labor turn-over,
129, 131; importance of an employ-
ment department in, 104; importance
of employment in, 103; problem of
ventilation in, 178-179.
Industrial Lessons of the Euro-
pean War, Some. John Price Jack-
son, 45-50.
Industrial management, relation be-
tween personnel and, 112.
organization: Effect of Civil War
on, of Black Belt of Alabama, 191-
193; necessity of cooperation in an,
107; place of employment depart-
ment in an, 114.
plants: Efforts to obtain efficiency
in, 174; necessity of having artificial
hghting systems in, 176; need of
fresh air in, 177.
position, relation of scientific
management to, of a country, 209.
prosperity, immigration and our,33.
supremacy: Reasons for, 210; re-
lation between conservation and,
209-210.
Industry: Analogy between war and,
127-128; effect of European war on,
45; effect of European war on, in
Germany, 46 ; efforts of, to prevent un-
employment, 21; first effects of Euro-
pean war on commerce and, in United
States, 6; need of governmental aid
in, 48-49; regularization of, 17.
Industry, the Labor Turn-over
and the Humanizing of. Joseph H.
WiUits, 127-137.
Industry and Labor, European War
Influences upon American. Sam-
uel Gompers, 4-10.
Ingersoll, C. H. War — Or Scientific
Taxation, 252-256.
International agreements: Guaranty of
transit in bond by, 226-227; nature
and necessity of sanction in, 218-219;
support of moral sanction to, 219.
clearing house, London, the seat
of the, 60-61.
commission, estabhshment of a
permanent, 221-222.
conference, results of, held at
The Hague in 1900, 276.
control, object of, 225.
Council, creation of an, 244.
International Court, an, an Inter-
national Sheriff and World
Peace. Talcott Williams, 274-275.
International credit relations, effect of
European war, on, 61-62.
dependency, extent of, 60.
development, public opinion and,
229.
guaranty of peace, importance of,
236.
inquiry, submission of disputes to,
223.
law: Duty of United States with
regard to violated principles of, 232;
effect of a court of justice on, 277.
liberty, importance of, 220-221.
naval force, the United States and
her share in the, 244.
organization: Development in,
218; duty of the, 226.
peace, steps necessary in estab-
lishing, 229.
polity: Developments possible
under an, 225; foundation for devel-
opment of, 223-224; objects of, 217-
218; purpose of, 225.
right of inquiry, contributions to
building up of, 222.
rights: Fundamental, of nations,
220-221; importance of safeguard-
ing development of, 217.
International Trade, Commercial
Isolation Versus. Moritz J. Bonn,
60-65.
International treaties, value of, 222.
Index
315
Internationalism: Foundation for con-
structive, 224; the European war as
a factor in the advancement of, 218.
Internationausm, the Basis of
Constructive. W. G. S. Adams,
217-229.
Italian business houses, number of, in
Buenos Aires, 58.
immigrants, number of, in 1914,
30.
Jackson, John Price. Some Indus-
trial Lessons of the European War,
45-50.
Johnson, Alba B. America's Indus-
tries as Affected by the European
War, 1-3.
Johnston, Franklin. American Ex-
port Pohcies, 51-59.
Kellor, Frances A. Unemployment
and Immigration, 40-44.
KiRCHWEY, George W. How America
May Contribute to the Permanent
Peace of the World, 230-234.
Labor, adjustment of negro, after
Civil War, 193-194.
difficulties, cause of large percent-
age of, 133.
exchanges: Attempts to establish
a federal system of, in the United
States, 145; national system of, in
Great Britain, 139-140; usefulness
of, 140.
Labor Exchanges, A National Sys-
tem OF, in its Relation to Indus-
trial Efficiency. John B. Andrews,
138-145.
Labor force: Degree of permanency
in the, 117-118; fluctuations in the,
96; result of fluctuation in, on income
of workers, 97.
market: Condition of the, in the
United States, 140; effect of immi-
gration on, 22; organization of the, 41.
movement: Attitude of members
of, in time of war, 7; value of the,
9-10.
organizations, value of, to wage-
earners, 7.
turn-over: Advantages resulting
from reduction in, 136; cause of high,
134; causes for a large percentage of,
116; definition of, 116, 128; disad-
vantages of a large, 122; effect of, on
human resources, 128; efforts to
solve problem of, 122-123; ignorance
of industrial estabUshments as to
their high, 129, 131; improvement
in the, 150; means of reducing the,
131-137; reduction of, in one in-
dustrial establishment, 131; results
of the reduction of, 131 ; study of, in
several industrial estabUshments,
128-129.
Labor Turn-over, The, and the
Humanizing of Industry. Joseph
H. WiUits, 127-137.
Latin America: Desirability of closer
relations between United States and,
232-233; drawback to the extension
of our trade with, 73; effect of Euro-
pean war on German trade with, 67;
influence of governmental poUcy on
development of commercial inter-
course between United States and,
68; reasons for refusal of long credits
to, by United States, 73-74.
Latin America, What can the
United States and. Do for Each
Other? Charles M. Muchnic, 71-80.
Latin American trade: Finance as
first fundamental necessary for, 81-
82; record of, for 1913, 51; trans-
portation a fundamental necessity
for, 82.
Latin American Trade, Transpor-
tation Facilities Needed Fob.
Welding Ring, 81-85.
League of peace, four stages in the
conception of a, 281-282.
London, the scat of the international
clearing house, 60-61.
316
Index
Machines, inventions of new, a cause
of unemployment, 154-155.
Manufacturers, Simplified Cost Ac-
counting FOR. Walter B. Palmer,
165-173.
Manufacturing at a loss, discussion of,
87-88.
departments, lack of balance be-
tween different, 156.
Marburg, Theodore. World Court
and League of Peace, 276-283.
Meeker, Royal. Some Recent Sur-
veys of Unemployment, 24-29.
Men, the New Profession of Han-
dung. Meyer Bloomfield, 121-126.
Merchant marine; Efforts to estabhsh
an American, 84; handicaps in the
estabUshment of a, 84; reason for
non-existence of a, 76-78.
Monroe Doctrine, enforcement of, by
Americans, 264.
Motion study, laboratory investiga-
tions in, 214.
Muchnic, Charles M. What Can
the United States and Latin America
Do for Each Other, 71-80.
Municipal Employment Bureau, es-
tablishment of a, in New York City,
13.
Municipal Government, Develop-
ment OF Standards in. Henry
Bru^re, 199-207.
Mimicipal inefficiency, principal cause
of, 204.
National conscience, of what it consists,
25S.
NationaUty, importance of strengthen-
ing right of, 226.
Navigation laws, objections to the
present, 79.
Neutral powers: Duties of United
States as a leader of the, 232;
necessity of cooperation among, 232;
United States as leader of, 240.
Neutrality, poUcy of, 225.
New York City: Amount of unem-
ployment in, in 1914, 25; census
method of ascertaining unemploy-
ment in, 25-26; concern of, in prob-
lem of unemployment, 13-14; effect
of standardization of supplies in,
203-204; establishment of a Munici-
pal Employment Bureau in, 13;
major lines of activity in standardiza-
tion in, 202; necessity of organizing
a committee to deal with unemploy-
ment in, 14; percentage of unem-
ployment in, 26-27; problems to be
dealt with by committee on unem-
ployment in, 14-15; total number of
unemployed in, 15-16; work accom-
plished by committee on unemploy-
ment in, 15-16.
Ocean transportation, effect of develop-
ment of, on immigration, 33.
Organization, importance of fitness of
employee for, 105.
Organized labor movement, work of,
in United States, 7-8.
society, effect of European war
on, 4.
Output: Effect of light on, 175, 177;
relation of accident prevention to,
181.
Palmer, Walter B. Simplified Cost
Accounting for Manufacturers, 165-
173.
Panama, sanitary work accomplished
in, 259.
Peace: Business of congress establish-
ing a permanent, 236; disarmament
as a means of bringing about, 246;
importance of an international guar-
antee of, 236; importance of United
States maintaining a pohcy of, 231-
232 ; international guarantee of, 236 ;
international police force as a means
of securing, 246; of world, methods
by which United States may contrib-
ute to permanent, 233; organization
of a congress for the estabhshtnent of
Index
317
a permanent, 235-236; possibility of
constructive, 274; reasons for failure
of previous leagues of, 280; resolu-
tions embodying economic pressure
as a means of conserving, 272-273;
service demanded by perpetual and
constructive, 275.
Peace, America's Possible Contri-
bution TO A Constructive. Morris
Hillquit, 239-242.
Peace, Economic Pressure as a
Means toward Conserving. Her-
bert S. Houston, 270-273.
Peace, How can America Best Con-
tribute TOWARD Constructive and
Durable? Charles W. Eliot, 243-
244.
Peace, World Court and League of.
Theodore Marburg, 276-283.
Peace conference, results of second,
held at The Hague in 1907, 277.
Peace of the World, How America
May Contribute to the Perma-
nent. George W. Kirchwey, 230-
234.
Pennsylvania, efforts of, to relieve un-
employment, 45-46.
Persia, population of, 36.
Poles, number of, in United States, 31.
Polish immigrants, number of, in 1914,
30.
Political relations of Central and South
America with the United States,
6tMi7.
Porto Rico, effect of discovery of hook-
worm disease in, 259-260.
Production : Frequent changes in stand-
ard, a cause of unemployment, 156;
increase in, 174; of wealth, impor-
tance of continued, 88-89; results
of large-scale, 174; unemployment, a
problem or irregularity in, 135.
Profit sharing, as a spur to efficiency,
186.
Public employment offices: Extension
of, 12; provision of federal system of,
18.
Publicity, as an efficient safeguard of
j)roper conditions in a factory, 160.
Ring, Welding. Transportation Facil-
ities Needed for Latin American
Trade, 81-85.
Roumania, population of, 36.
Russian immigrants, number of, in
1914, 30.
Salaries, standardization of, 204-205.
Scientific employment, importance of,
103.
management: A means of provid-
ing cooperation among conservers,
215; accomplishments of, 212-213
aims of, 208; definition of, 208
functions of management under, 107
necessity of standardization under,
109; possibilities of greater agricul-
tural efficiency through, 194; rela-
tion of, to industrial p)osition of a
country, 209; results of, 152-153;
standardization and, 212.
Scientific Management Applied to
the Steadying of Employment,
AND ITS Effect in an Industrial
Establishment. Richard A. Feiss,
103-111.
Scientific M.\nagement as a Solu-
tion OF the Unemployment Prob-
lem. Morris Llewelljm Cooku, 14ft-
164.
Scientific Management, What,
Means to America's Industrial
Position. Frank B. Gilbreth and
LilUan Moller Gilbreth, 208-216.
Scientific methods, application of, to
material element in certain indus-
tries, 211.
Seasonal demand, a cause of unem-
ployment, 153-154.
Self-sufficiency, policy of, 63-64.
Selling price, adoption of a fixed, 86.
Servia, population of, 36.
Sherman law, application of, to export
trade, 54-56.
318
Index
Shipping facilities between North and
South America, 7G-79.
Shuster, W. Morgan. Acquisitive
Statesmanship, 245-251.
Source-organization, various forms of,
125.
South America: European control of
railways in, 74; extent of European
capital in, 74; interruption of busi-
ness in, 82-83; necessity for repre-
sentation in, 75; opportunity pre-
sented United States for establishing
trade with, 80; reason for decrease
in commerce with, 79 ; shipping f aciU-
ties between North and, 76-79.
South America, the Relations op
Central and, as Affected by the
European War. Luis F. Corea, 66-
70.
South American business, system of
credits in, 72-73.
Spanish business houses, number of, in
Buenos Aires, 58.
Standard specifications for suppUes,
steps necessary to prepare, 203.
Standardization: In city government,
199, 206; major lines of activity
in, in New York City, 202; meaning
of, 199-200; necessity of, in private
business, 201; necessity of, under
scientific management, 109; of jobs,
desirabihty of, 115; of salaries, 204-
205; of supplies, effect of, in New
York City, 203-204; of supplies
specifications, 203-204; opportunity
for, in city government, 206; origin
of, in cities, 201-202; reasons for lack
of, 212; scientific management and,
212; various methods of, 200-201.
Standards: Definition of, 199; evolu-
tion of, in fields of private adminis-
tration, 201; methods employed in
developing, 201; value of, in promot-
ing eflSciency in government, 200.
Standards, Development of, in Muni-
cipal Government. Henry Bru^re,
187-198.
Statesmanship, Acquisitive. W.
Morgan Shuster, 245-251.
Stock: Lack of, a cause of unemploy-
ment, 156; taking of, a cause of un-
employment, 156-157.
Surplus, distribution of the earned, 185.
Taxation: Of land values, advantages
of, 255-256; un justness of, 253.
Taxation, War — or Scientific. C.
H. Ingersoll, 252-256.
Taxes, scientific system of levying, an
insurance against war, 255.
The Hague: Results of international
conference held at, in 1900, 276; re-
sults of second peace confference held
at, in 1907, 277.
Transportation, a fundamental neces-
sary for Latin American trade, 82.
Transportation Facilities Needed
FOR Latin American Trade.
Welding Ring, 81-85.
Turkey: Immigration to United States
from, 32; population of, 36.
Unemployed: Rehef provided the, 19-
20; total number of, in New York
City, 15-16.
Unemployment: A continuous condi-
tion, 21; a problem of industrial
disarrangement, 11; a problem of
irregularity in production, 135;
amount of, in New York City in
1914, 25; an industrial and social
problem, 21; as a risk of business, 41;
as an industrial problem, 41 ; average,
of, in United States, 40; causes of,
22, 90-91, 147, 149, 150-151, 153-
158, 159-161; causes of, in boot and
shoe manufacturing industry, 162-
163; causes of ineffectiveness of deal-
ing with, 11; census method of as-
certaining, in New York City, 25-26;
concern of New York City in prob-
lem of, 13-14; conditions of produc-
ing, 18; dfdta on, in fifteen cities of
United States, 28-29; effect of, upon
Index
319
income, 99; efforts of Germany to
relieve, 46-47; efforts of industry
to prevent, 21; efforts of Pennsyl-
vania to relieve, 4&-46; elements of
problem of, 16; evidences of govern-
ment interest in, 12-13; extent of
knowledge of, in United States, 24;
extent of knowledge of causes of, 21;
failure of state and national govern-
ments to consider measures respect-
ing prevention of, 21; government
interest in, 12-13; importance of
information as to, 27; in United
States in 1913-14, 11; inadequacy of
temporary expedients for, 21 ; increase
in, as a result of European war, 6; in-
fluence of, on standards of wages, 94;
losses from, 135; means of solving
problems of, 164; means taken to
relieve, 45; measures advocated to
prevent, 101; measures necessary to
cure, 21-22; methods established to
prevent, of the immigrant, 42-43;
methods of improving, in boot and
shoe manufacturing industry, 163;
necessity of cooperation in handling
problem of, 28; necessity of organiz-
ing a committee to deal with, in New
York City, 14; need of national
agency to cope with problem of, 22-
23; notes regarding, in boot and shoe
manufacturing industry, 162-164;
organization of societies to study
problem of, 159; percentage of, in
New York City, 26-27; problems to
be dealt with by committee on, in
New York City, 14-15; recommenda-
tions of committees on, 12; remedies
for, 19; results of, 146-147; some
causes for, in this country, 27; some
suggestions for deaUng with prob-
lem of, 20, 40-^1 ; work accomplished
by committee on, in New York City,
15-16; work of cities in the relief of,
21.
Unemploymknt and Immiqration.
Frances A. Kellor, 40-44.
Unemployment, Some Recent Sur-
veys OF. Royal Meeker, 24-29.
Unemployment, the Effect of, on
THE Wage Scale. Mary Van
Kleeck, 90-102.
Unemployment insurance, establish-
ment of, 18.
Unemployment Problem, America's.
Henry Bru^re, 11-23.
Unemployment Problem, Scientific
Management as a Solution of
THE. Morris Llewelljm Cooke, 146-
164.
United States: As leader of neutral
powers, 240; attempts to estabUsh a
federal system of labor exchanges in
the, 145; average of unemployment
in, 40; balance of trade of, 2; com-
mercial relations between Central
and South America and, 67-69;
condition of the labor market in the,
140; criminal rate in the, 258; data
on unemployment in fifteen cities of,
28-29; deaths caused annually by
typhoid fever in the, 257; desirabihty
of closer relations between Latin
America and, 232-233; duties of, as
a leader of the neutral powers, 232;
duty of, in establishing world peace,
237; duty of, with regard to violated
principles of international law, 232;
effect of European war on social and
industrial life of, 239; establishment
of a large army and navy in the, 251 ;
exportation of arms by, to belliger-
ents, 240-241; exposed frontiers of
the, 263; first effects of European war
on industry and commerce in, 6;
growing intimacy between Central
and South America and the, 66;
immigration to, from Turkey, 32;
importance of the, maintaining a
ix)licy of peace, 231-232; indebted-
ness of, 61 ; influence of governmental
policy on development of commercial
intercourse between Latin America
and, 68; interdependence existing
320
Index
between Great Britain and the, 268 ;
methods by which, may contribute
to permanent peace of world, 233;
moral influence of, on European war,
241; number of deaths caused
annually by industrial accidents in,
257; number of industrial accidents
annually in, 257; number of Poles in,
31; opportunity presented, for es-
tablishing trade with South America,
80; poUtical relations of Central and
South America with the, 66-67; the,
and her share in the international
naval force, 244; unemployment in,
1913-14, 11; work of organized labor
movement in, 7-9.
United States and Latin America,
What Can the, Do for Each
Other? Charles M. Muchnic, 71-80.
United States, the Relations of
Central and Sooth America with
the, as Affected by the European
War. Luis F. Corea, 66-70.
United States army: Accomplishments
of, in Cuba, 258-259; as advance
guard of civilization, 261; eUmina-
tion of deaths from typhoid in, 260;
work of, in elimination of yellow
fever from tropics, 259.
Uruguay, growth of our exports to, 52.
Van Kleeck, Mary. The Effect of
Unemployment on the Wage Scale,
90-102. See also 146, 153.
Vocational guidance, assumption of
responsibility by firms for intelligent,
133.
Wage-earners: Effect of European war
on, 5 ; maximum and minimum num-
ber of, employed at one time, 93.
Wage Scale, the Effect of Unem-
ployment ON the. Mary Van
Kleeck, 90-102.
Wages: Advantages of paying high,
162; factors entering into determina-
tion of, 92; influence of unemploy-
ment on standards of, 94.
War: Analogy between industry and,
127-128; scientific system of levying
taxes on insurance against, 255.
I] See Economic Access, Economic
Pressure, Internationahsm, America,
United States, European War.
War — OR Scientific Taxation. C.
H. Ingersoll, 252-256.
War, the, and Immigration. Frank
Julian Wame, 30-39.
Warne, Frank Julian. The War
and Immigration, 30-39.
Wars, cause of, 247.
Williams, Talcott. An International
Court, An International Sheriff and
World Peace, 274-275.
WiLLiTS, Joseph H. The Labor Turn-
over and the Humanizing of Indus-
try, 127-137. See also 161.
Wood, Leonard. The Constructive
Work of the American Army, 257-
262.
Work, intermittent char,acter of, a
cause of unemployment 154.
Workers: Ability of, to protect them-
selves, 9; effect of dust upon, and
their output, 180; effect of environ-
ment upon, 175; effect of proper
light on, 175, 177.
Working Conditions Necessary for
Maximum Output. Norris A.
Brisco, 174-182.
World Court and League of Peace.
Theodore Marburg, 276-283.
World peace, duty of United States in
establishing, 237.
World Peace, An International
Court, an International Sheriff
AND. Talcott WilUams, 274-275.
World's Peace, How Can America
Best Contribute to the Main-
tenance OF the? G. Lowes Dick-
inson, 235-238.
CUMULATIVE TOPICAL INDEX
Below is a list of references to the articles in previous issues of The Annai^
which also treat of the special subjects discussed in this volume. A cumulative
index will appear in each succeeding issue of The Annals. Through these cumu-
lative indices, the vast amount of valuable material that the Academy has pub-
lished during the twenty-five years of its existence can be efficiently correlated
and effectively used. — The Editor.
Efficiency in Business Organiza-
tion
Previous volumes:
Business Management, Vol. XXII,
November, 1903; Business Manage-
ment and Finance, Vol. XXV, Jan-
uary, 1905; Industrisd Education,
Vol. XXXIII, January, 1909;
American Business Conditions, Vol.
XXXIV, November, 1909; Risks in
Modern Industry, Vol. XXXVIII,
July, 1911; Industrial Competition
and Combination, Vol. XLII, July,
1912.
Articles in other volumes:
Some Features of the Labor System
and Management at the Baldwin
Locomotive Works, John W. Con-
verse, Vol. XXI, January, 1903, p.
1; The Cause of Business Stagna-
tion: An Inquiry into the Interre-
lation of the Industrial and the
Financial World, Hugo Bilgram, Vol.
XXV, January, 1906, p. 87; Child
Labor Legislation — A Requisite for
Industrial Efficiency, Jane Addams,
Vol. XXV, May, 1906, p. 128; In-
dustrial Output and Social Efficiency,
Charlee Ervin Reitzel, Vol. LIX,
May, 1916, p. 126.
Employment Bureaus
Articles in other volumes:
Employment Bureau for the People
of New York City, Edward T. De-
vine, Vol. XXXIII, March, 1909,
p. 1; Statutory Provisions for and
Achievements of Public Employ-
ment Bureaus, Henry G. Hodges,
Vol. LIX, May, 1915, p. 165; Pub-
lic Bureaus of Employment, Charles
B. Barnes, Ibid., p. 185.
Employment — Permanency in
Articles in other volumes:
Seasonal Occupation in the Building
Trades, Luke Grant, Vol. XXXIII,
March, 1909, p. 129; Casual and
Chronic Unemployment, Morris
Llewellyn Cooke, Vol. LIX, May,
1915, p. 194.
Farm Management and Agricui/-
TURAL Efficiency
Previous volumes:
The New South, Vol. XXXV, /<m-
uary, 1910; Country Life, Vol. XL,
March, 1912.
Articles in other volumes:
Gro^^'th and Management of Ameri-
can Agriculture, Frank T. Carlton,
a2i
322
Cumulative Topical Index
Vol XXII, November, 1903, p. 79;
The Agricultural Bank for the Philip-
pine Islands, J. W. Jenks, Vol. XXX,
September, 1907, p. 38; Scientific
Farming and Scientific Financing,
Leonard G. Robinson, Communica-
tion, Vol. XLVI, March, 1913, p.
167; Effect of Farm Credits on In-
creasing Agricultural Production and
Farm Efficiency, Homer C. Price,
Vol. L, November, 1913, p. 183; The
Importance of Research as a Means
of Increasing Agricultural Produc-
tion, M. B. Waite, Vol. LIX, May,
1915, p. 40; Agricultural Education
and Agricultural Prosperity, A. C.
True, Ibid., p. 51; The Efficiency
Movement in its Relation to Agri-
culture, W. J. SpiUman, Ibid., p. 65;
The Scientific Study of Marketing,
Selden O. Martin, Ibid., p. 77.
Foreign Trade — Development op
ArticUs in other volumes:
The Manufacturer's Need of Rec-
iprocity, A. B. Farquhar, Vol. XIX,
March, 1902, p. 21; Our Trade with
Cuba and the Philippines, Clarence
R. Edwards, Vol. XIX, May, 1902,
p. 40; Our Trade with Hawaii and
Porto Rico, O. P. Austin, Ibid., p.
47; Some Agencies for the Exten-
sion of our Domestic and Foreign
Trade, George Bruce Cortelyou, Vol.
XXIV, July, 1904, V' 1; Present
Condition in International Trade,
John J. Macfarlane, Vol. XXXIV,
November, 1909, p. 7; Financing our
Foreign Trade, Frederick I. Kent,
Vol. XXXVI, November, 1910, p. 14;
Shipping Facilities between the
United States and South America,
William E. Humphrey, Communica-
tion, Vol. XXXVIII, September,
1911, p. 303; Reciprocity, Clifford
Sifton, Vol. XLV, January, 1913, p.
20; Canada and the Preference,
Canadian Trade with Great Britain
and the United States, S. Morely
Wickett, Ibid, p. 29; Rate Agree-
ments between Carriers in the For-
eign Trade, P. A. S. Frankhn, Vol.
LV, September, 1914, P- 155; The
Attitude of Business Towards For-
eign Trade, Edward Ewing Pratt,
Vol. LIX, May, 1915, p. 291; Branch
Banks and Our Foreign Trade, Wil-
Ham S. Kies, Ibid., p. 301; South
American Markets, Charles M. Pep-
per, Ibid., p. 309; The United States'
Opportunity to Increase its Foreign
Trade with South America, Lorenzo
Daniels, Ibid., p. 316; Cooperative
Pioneering and Guaranteeing in the
Foreign Trade, Edward A. Filene,
Ibid., p. 321.
See cumulative and volume index of
The Annals, July, 1915.
Immigration
Previous volumes:
Chinese and Japanese in America,
Vol. XXXIV, September, 1909.
Articles in other volumes:
The Immigration Question, J. H.
Senner, Vol. X, July, 1897, p. 1;
Problems of Immigration, Frank P.
Sargent, Vol. XXIV, July, 1904, V-
151; Selection of Immigration, Ehot
Norton, Ibid., p. 159; Immigration
in its Relation to Pauperism, Pres-
cott F. Hall, Ibid., p. 167; Australa-
sian Methods of DeaUng with Immi-
gration, Frank Parsons, Ibid., p. 207;
Proposals Affecting Immigration,
John D. Trenor, Ibid., p. 221; The
Americanization of the Immigrant,
Grover G. Huebner, Vol. XXVII,
May, 1906, p. 191; The Influence of
Immigration on Agricultural De-
velopment, John Lee Coulter, Vol.
Cumulative Topical Index
323
XXXIII, March, 1909, p. 149; The
Italian as an Agricultural Laborer,
Ibid., p. 156; The Jewish Immigrant
as an Industrial Worker, Charles S.
Bemheimer, Ibid., p. 175; Immi-
grants and Crime, William S. Ben-
net, Vol. XXXIV, July, 1909, p. 117;
Immigration and the American La-
boring Classes, John Mitchell, Ibid.,
p. 125; Race Progress and Immigra-
tion, William Z. Ripley, Ibid., p.
130; Our Recreation Facilities and
the Immigrant, V. Von Borosini,
Vol. XXXV, March, 1910, p. I4I;
Immigration — A Central American
Problem, E. B. Filsinger, Vol.
XXXVII, May, 1911, p. 165; Immi-
grant Rural Communities, Alexan-
der E. Cance, Vol. XL, March, 1912,
p. 69; Immigration and the Mini-
mum Wage, Paul U. Kellogg, Vol.
XLVIII, July, 1913, p. 66; The
Negro and the Immigrants in the
Two Americas, Jas. B. Clarke, Vol.
XLIX, September, 1913, p. 32; Jus-
tice for the Immigrant, Frances A.
KeUor, Vol. LII, March, 1914, p.
159; The AUen in Relation to our
Laws, Gino C. Speranza, Ibid., p.
169.
Latin American Relations
Previous volumes:
International Relations of the United
States, Vol. LIV, July, 1914.
WHcUs in other volumes:
The International Commercial Con-
gress, Wilfred H. Schoflf, Communi-
caHon, Vol. X V, January, 1900, p. 69.
See cumulative and volume index of
The Annals, July, 1915.
Scientific Management
Articles in other volumes:
Importance of Cost-Keeping to the
Manufacturer, Conrad N. Lauer,
Vol. XXII, November, 1903, p. 47;
Attitude of Labor Towards Scien-
tific Management, Hollis Godfrey,
Vol. XLIV, November, 1912, p. 59;
Motion Study as an Increase of Na-
tional Wealth, Frank B. Gilbreth,
Vol. LIX, May, 1915, p. 96.
UnEMPLOYME NT
Articles in other volumes:
Future Problem of Charity and the
Unemployed, J. G. Brooks, Vol. V,
July, 1894, p. 1; The Problem of
Unemployment in the United King-
dom, Sidney Webb, Vol. XXXIII,
March, 1909, p. 196; Taxation of
Land as a Remedy for Unemploy-
ment, Bolton HaU, Vol. LIX, May,
1915, p. 148; Socialism as a Cure for
Unemployment, John Spargo, Ibid.,
p. 157.
World Peace and Constructive
Internationalism
Previous volumes:
The United States as a World Power^
Vol. XXVI, July, 1905.
Articles in other volumes:
International Arbitration, Eleanor
L. Lord, Vol. II, January, 1892, p.
39; The Doctrine and Practice of
Intervention in Europe, W. E. Lin-
gelbach. Vol. XVI, July, 1900, p. 1;
Protection, Expansion and Interna-
tional Competition, W. G. Lang-
worthy Taylor, Vol. XXIII, Jan-
uary, 1904, p. ^6.
PUBLIC BUDGETS
®()e Annate
f>. Volume LXII
November, 1915
Editok: CLYDE LYNDON KING
Assistant Editob: T. W. VAN METRE
Editob Book Dept.: ROSWELL C. McCREA
Editobial Council: J. C BALLAGH, THOMAS CONWAY, Jr., 8. S. HUEBNER, CARL
KELSEY, CLYDE LYNDON KING, J. P. LICHTENBERGER, ROSWELL C.
McCREA. SCOTT NEARING, E. M. PATTERSON, L. S. ROWE,
ELLERY C. STOWELL, T. W. VAN METRE,
F. D. WATSON
Editor in Charge of this Volume:
PROF. A. R. HATTON,
Western Reserve University
fl'
/*:.*
.^■^
The AiflBHicAN Acadbmt of Political and Socul Scibncb
36th akd Woodland Aybnub
Philadelphia
1016
Copyright, 1915, by
Ambbican Academy of Political and Social Science
All rights reserved
EUROPEAN AGENTS
England: P. S. King & Son, Ltd., 2 Great Smith St., Westminster, London, S. W.
France: L. Larose, Rue Soufflot, 22, Paris.
Germany: Mayer & Miiller, 2 Prina Louis Ferdinandstrasse, Berlin, N. W.
Italy: Giomale DegU Economisti, via Monte SaveDo, Palazzo Orsini, Rome.
Spain: E. Dossat, 9 Plaza de Santa Ana, Madrid.
/«'
CONTENTS
Page
FOREWORD vii
The Editor.
PART I— THE BUDGET IDEA AND THE NATIONAL BUDGET
BUDGET MAKING AND THE WORK OF GOVERNMENT 1
Henry Jones Ford, Professor of Politics, Princeton University.
EVOLUTION OF THE BUDGET IDEA IN THE UNITED STATES. 16
Frederick A. Cleveland, Director, Bureau of Municipal Research, New
York City.
THE BUDGET AND THE LEGISLATURE 36
Rufus E. Miles, Director of the Ohio Institute for Public Efficiency,
Columbus, Ohio.
PART II— STATE BUDGETS
THE PROPER FUNCTION OF THE STATE BUDGET 47
S. Gale Lowrie, Professor of Political Science, University of Cincinnati.
THE BUDGETARY PROVISIONS OF THE NEW YORK CONSTI-
TUTION 64
Charles A. Beard, Professor of Political Science, Columbia University.
CALIFORNIA'S STATE BUDGET 69
John Francis Neylan, Chairman State Board of Control of California.
THE ILLINOIS BUDGET 73
Finley F. Bell, Secretary, Illinois Legislative Reference Bureau.
BUDGET METHODS IN ILLINOIS 85
John A. Fairlie, Professor of Political Science, University of Illinois;
Director, Efficiency and Economy Committee, State of Illinois.
STATE BUDGET MAKING IN OHIO 91
W. O. Hefifeman, Former Budget Commissioner of Ohio.
FINANCIAL ADMINISTRATION OF THE COMMONWEALTH O^
MASSACHUSETTS 101
Ernest H. Maling, Secretary, Massachusetts Commission on Econ-
omy and Efficiency.
PART III— PUBLIC BUDGETS AND EFFICIENCY IN THE PUBLIC
BUDGETS
TAXATION AND THE MUNICIPAL BUDGET 113
Milton E. Loomis, New York University, School of Commerce, Ac-
counts and Finance.
lii
\
iv Contents
SOURCES OF REVE;NUE 125
Herbert S. Swan, Expert Investigator, Committee on the City Plan,
New York.
ACCOUNTING BASIS OF BUDGETARY PROCEDURE 136
WillB. Hadley, Chief Accountant, Department of City Controller,
Philadelphia.
UNIT COSTS IN RECREATIONAL FACILITIES. 140
Paul T. Beisser, Fellow, New York School of Philanthrophy.
SOME SUGGESTIONS FOR PREPARING A BUDGET EXHIBIT. . 148
J. Harold Braddock, Vice-President, American City Bureau, New York.
BUDGETARY PROCEDURE UNDER THE MANAGER FORM OF
CITY GOVERNMENT 163
Arch M. Mandel, Dayton Bureau of Municipal Research.
THE BUDGET AS AN ADMINISTRATIVE PROGRAM 176
Henry Bru^re, Chamberlain of the City of New York.
PART IV— DEVELOPMENT OF BUDGETS AND BUDGETARY
PROCEDURE IN TYPICAL CITIES
THE GERMAN MUNICIPAL BUDGET AND ITS RELATION TO
THE GENERAL GOVERNMENT 192
Karl F. Geiser, Professor of Political Science, Oberhn College.
THE BUDGET PROCEDURE OF ENGLISH AND FRENCH CITIES 204
D. C. Baldwin, A. B., Student, Graduate School, University of
Pennsylvania.
THE MOVEMENT FOR IMPROVED FINANCING AND ACCOUNT-
ING PRACTICE IN TORONTO 211
Horace L. Brittain, Director, Toronto Bureau of Municipal Research.
COUNTY BUDGETS AND THEIR CONSTRUCTION 223
Otho Grandford Cartwright, Director of Westchester County Research
Bureau.
BUDGET MAKING FOR SMALL CITIES 235
Lent D. Upson, Executive Secretary, National Cash Register Company.
THE PREPARATION OF ESTIMATES AND THE FORMULATION
OF THE BUDGET— THE NEW YORK CITY METHOD 249
Tilden Adamson, Director, Bureau of Contract Supervision, City of
New York.
BUDGET MAKING IN CLEVELAND 264
Mayo Fesler, Secretary of the Civic League of Cleveland.
BUDGET MAKING IN CHICAGO . 270
Charles E. Merriam, Professor of Political Science, University of
Chicago; Member of Chicago City Council.
Contents v
BIBLIOGRAPHY
SELECT LIST OF REFERENCES IN NATIONAL, STATE, COUNTY,
AND MUNICIPAL BUDGETS IN THE UNITED STATES 277
Harry A. Rider, Library of Research in Government, Western Reserve
University.
BOOK DEPARTMENT 288
INDEX 311
CUMULATIVE INDEX 323
BOOK DEPARTMENT
GENERAL WORKS IN ECONOMICS
Brooks — Markets and Rural Economics — C. L. King 288
DuRAND — The Trust Problem— E. Jones 288
HoBSON— T^i^ Export of Capital— R. Riegel 289
Moore — Economic Cycles: Their Law and Cause — B. D. Mudgett 289
PsDDix — First Principles of Produciion — ^A. A. Osborne 289
MONET, BANKING AND FINANCE
DoRAiswAMi — Indian Finance, Currency and Banking — ^E. M. Patterson . . 291
Haig — A History of the General Property Tax in Illinois — E. M. Patterson . 291
Herrick — Rural Credits — ^E. M. Patterson 291
Higgs — The Financial System of the United Kingdom — E. M. Patterson . . . 291
Ma — The Finances of the City of New York — E. M. Patterson 290
Proceedings of the Eighth Annual Conference under the Auspices of the Nalional
Tax Association held at Denver, Colo.^ September 8 to 11, 1914 — E. M.
Patterson 292
Tangorra — Traitato di Scienza delta Finama — ^E. M. Patterson 292
Wbbbr — Deposiienbanken und Spekulationsbanken — E. M. Patterson 292
SOCIOLOGY AND MODERN SOCIAL PROBLEMS
,Blackmar and Gilun — Outlines of Sociology — J. G. Stevens 292
POLmCAL AND GOVERNMENTAL PROBLEMS
^OVD—The Natural History of the State— R. G. Gettell 297
[ateb— Public Utilities: Their Fair PreserU Value and Return— C. L. King 293
iow^— The Modem City and Its Problems— L. S. Rowe 294
jTiiCB—The FacU of Reconstruclicn—J . C. Ballagh 296
[DRTLEFF and Olmsted — Carrying Out the City Plan — C. L. King 298
TouiMiN— The City Manager— C. L. King 298
Updykb— r/wj Diplomacy of the War of 1812— T. W. Van Metre .296
Usher — Pan-Americanism — L. S. Rowe 297
vi Contents
INTERNATIONAL QUESTIONS
Anqell — America and the New World — W. L. Abbott 299
Hutchinson — The Panama Canal and Intemaiional Trade Competition — G.
G. Huebner 300
NiEMEYER und Strupp — Jahrbuch des Vdlkerrechts — J. C, Ballagh 301
Seton- Watson, Wilson and Zimmern — The War and Democracy — B. D.
Mudgett 299
MISCELLANEOUS
Harrington — The Works and Life of Walter Bagehot — R. C. McCrea 308
Buck — The Granger Movement — G. G. Huebner 308
DE Constant — America and Her Problems — R. C. McCrea 309
Goethals — Government of the Canal Zone — E. R. Johnson 301
GoRGAS — Sanitation in Panama — E. R. Johnson 301
Pepperman — Who Built the Panama Canal — E. R. Johnson 301
Bennett — History of the Panama Canal — E. R. Johnson 301
Kirkaldy — British Shipping: Its History, Organisation and Importance —
T. W. Van Metre 304
Lewis — Getting the Most Out of Business — H. W. Hess 309
Ross — South of Panama — C. E. Reitzel 305
Russell — The Review of American Colonial Legislation by the King in Coun-
ciZ— T. W. Van Metre 310
Stokes — Memorials of Eminent Yale Men — ^E. F. Smith 306
FOREWORD
No matter what theory — be it individualistic or socialistic —
may now or hereafter underlie our political thinking, scientific
budgetary procedure will always be a matter of prime importance.
Government is defensible only as an organization for action in the
common interest — as a means for doing those things for the com-
mon good which it is conceived may be better done collectively
than individually.
But governments do not furnish their own motive power.
They always have and they always will produce results only through
the application of human effort which would otherwise be exerted
to satisfy individual wants. This is equally true whether the
government attains its ends by the expenditure of money derived
from taxes or by commandeering the labor of citizens as is some-
times done in rural communities for the construction and repair of
roads. Taxes represent individual effort applied to community
tasks as truly as does the labor of citizens directly enforced.
The budget provides a means through which citizens may as-
sure themselves that their effort which has been diverted to com-
munity ends is not used for private gain, is not misused nor frittered
away, but is applied to the accomplishment of those purposes which
the community approves and is made to produce the maximum of
results for the effort expended. Thus viewed the budget is some-
thing more than a method of checking or reducing the tax rate,
more than any scheme of accountants and efficiency experts.
Above and beyond its relation to economy and efficiency in public
affairs it may be made one of the most potent instruments of
democracy. Given at least manhood suffrage, any government so
organized as to produce and carry out a scientific budget system
will be susceptible of extensive and intelligent popular control.
On the contrary those governments, whatever their other virtues,
which fail to provide adequate budget methods will neither reach
the maximum of efficiency nor prove to be altogether responsible
to the people.
A new spirit in American pofitics is manifesting itself in the
vii
viii Foreword
powerful movement for the reform of govermnental organization
and procedure in the interest of popular control and efficiency.
There are naturally many features in the program for the accom-
plishment of this twofold object. No single change would add so
largely to both democracy and efficiency as the introduction of
proper budget methods. The papers in this volume are published
in the hope that they may contribute in some degree to the prog-
ress of this fundamental reform.
Augustus R. Hatton,
Editor in Charge of the Volume,
Western Reserve University.
BUDGET MAKING AND THE WORK OF GOVERNMENT
By Henry Jones Ford,
Professor of Politics, Princeton University.
When one consults the writings of the framers of the Constitu-
tion there appears to be singularly little on budget making, although
it was perceived clearly enough that it involves the whole character
of constitutional government. Nothing could be more emphatic
than the utterances in The Federalist as to the power of the purse.
And yet this full recognition of its importance does not seem to have
been accompanied by any solicitude as to procedure. Apparently
that was regarded as a matter which would take care of itself. All
that the Constitution has to say about procedure is that **no money
shall be drawn from the treasury but in consequence of appropria-
tions made by law; and a regular statement and account of the
receipts and expenditures of all public money shall be published
from time to time." Mention of the subject could hardly have
been more vague than that. It seems to have been assumed as a
matter of course that the administration would formulate proposals
as to ways and means for the consideration of Congress. There is
much about taxation in The Federalist but it is concerned with show-
ing that there was no occasion for fear lest it should be unfair or
burdensome. In No. 36, which is a detailed statement of the pos-
sible scope of internal taxation, Hamilton incidentally remarks:
Nations in general, even under governments of the more popular kind, usually
commit the administration of their finances to single men or to boards composed
of a few individuals, who digest and prepare in the first instance the plans of
taxation which are afterwards passed into laws by the authority of the sovereign
or legislature.
This observation occurs in a manner that makes it the more
significant. He is refuting an objection to the effect that a power
uf internal taxation could not be exercised with advantage by the
national government from want of a sufficient knowledge of local
circumstances. An obvious answer might have been to say that
the taxes would be laid by the representatives of the people who
would naturally have knowledge of local circumstances. But
1
2 The Annals of the American Academy
forthwith he proceeds to admit that in practice the plans would be
digested and prepared in advance for the consideration of the legis-
lature, and then he points out that those charged with the duty-
would doubtless avail themselves of the information possessed by
representatives from various localities. He argues that this will
suffice to keep those administering the finances duly informed of
local conditions, and he then dismisses the point with this appeal
to precedent:
Inquisitive and enlightened statesmen are deemed everywhere best qualified
to make a judicious selection of the objects proper for revenue; which is a clear
indication, as far as the sense of mankind can have weight in the question, of the
species of knowledge of local circumstances, requisite to the purposes of taxation.
There can be no doubt that English budget practice was in
mind and that it was assumed to be the normal practice, to which
American usage would naturally conform without express provision
to that effect. No other supposition was likely to occur to the
framers of the Constitution. English parliamentary procedure
had remained without change since the reign of Charles II and it
presented all the appearance of being the settled form that con-
stitutional government would naturally assume wherever estab-
hshed. As a matter of fact parliamentary procedure in England
remained without substantial change until the middle of the nine-
teenth century, but in the United States radical divergence began
soon after the national government got under way. Certain fea-
tures of the Constitution adopted without intending to alter its
nature soon effected a profound alteration of type, and tendencies
were developed that were in no wise anticipated. The consequences
are particularly marked in budget making which in no respect now
corresponds to the intentions and expectations of the framers of the
constitution.
It is clear from the debates of the constitutional convention
and from the explanations of The Federalist that the framers antici-
pated for the House of Representatives a position of authority sim-
ilar to that of the House of Commons. The risk to be guarded
against was then thought to be too great stringency of control by
the House tending to starve the government through inadequate
appropriations. In The Federalist it is argued that the greatest
circumspection and propriety of behavior would have to be dis-
played by the Senate to enable it to maintain its constitutional
Budget Making and Work of Government 3
position in its relations with the House. Hence it was deemed
desirable to fortify the Senate by giving it the express right to pro-
pose amendments to revenue bills. The compromises made to
conciliate the smaller states tended to aggrandize the Senate in
which the states had equal representation, and to this circumstance
rather than to the intentions of the federal leaders are due some
provisions that have deeply affected the character of the govern-
ment and have shaped budget procedure in ways that no one fore-
saw. The subordination of appointments to the approval of the
Senate was a feature not contained in the original draft and it
entered the Constitution as part of the compromises. This feature
of the Constitution has exerted a powerful influence in destroying
the proper function of the House of Representatives as an organ
of control and making it a scuffle of local agency. The great con-
centration of authority in the Senate alienated Mason of Virginia
who declined to sign the report of the convention, and it was the
subject of adverse comment in some of the state conventions when
the adoption of the Constitution was pending, but nowhere was
there due appreciation of the consequences. It is explained in The
Federalist that the advisory function of the Senate cannot involve
any actual exertion of choice.
Thus while the framers of the Constitution intended to per-
petuate the type of government with which they had been familiar-
ized by English history, they admitted changes whose effect was to
produce a radical divergence and to initiate organic changes that
have yet to run their course. Procedure regarded by the founders
of the government as so stereotyped by tradition and precedent as
I to require no special provision has been abandoned, and its place
18 taken by makeshift arrangements which exhibit no settled plan
or constitutional design, and which change their shape from time
to time in accordance with Hamilton's maxim that ''the public
business must in some way or other, go forward.*' As every con-
|Btitutional system centers in the management of the public finances,
j budget conditions all through our history have been a reflex of the
conditions under which the work of the government is carried on.
The relation is constant and is plainly discernible when actual
practice is considered.
The Constitution makes no particular mention of budget
estimates. Administrative function in connection therewith was
4 The Annals of the American Academy
included in the duty of the President to ''give to the Congress
information on the state of the Union, and recommend to their con-
sideration such measures as he shall judge necessary and expedient."
There is nothing as to the form in which he shall present his measures
or the mode by which he will get them before Congress. It was
assumed that the administration would possess the customary
initiative existing under the English system. At the outset events
followed the traditional course, the various enactments by which the
organization of the government was completed being prepared for
Congress by the federal leaders. Hamilton was busily occupied in
drafting the regulations for the treasury department and digesting
his financial plans before his appointment as Secretary of the
Treasury. Examination of the details of his arrangements shows
that he was influenced throughout by English precedents. Con-
gress also conformed to English precedents. The House of Repre-
sentatives resolved itself into a Committee of the Whole on Ways
and Means in considering revenue measures just as in England.
There were no standing committees to intervene between the recom-
mendations of the administration and the action of the House.
Any matter on which the House desired information, whether a
claim, a petition or a memorial, would be referred directly to the
head of the proper department, and reports from the heads of
departments supplied the subjects of legislation. The House exer-
cised its functions of criticism and control through the Committee
of the Whole. When the sense of the House was ascertained, a
select committee would be appointed to prepare the bill, which
usually meant that the select committee's work would be done for
it by the department interested in procuring the legislation. The
original budget procedure is plainly indicated by this record upon
the House journal for January 10, 1794:
The House went into Committee of the Whole on the statements and esti-
mates of appropriations for the current year. Resolved, on certain appropria-
tions, and moved that a committee should be appointed to prepare and bring in
a bill for that purpose.
The resemblance to English procedure is plain and it should be
added that the cabinet officials assumed direct relations with Con-
gress after the manner of an English ministry. In the beginning
all the branches of the government were bunched together in their
quarters so that intercourse was ready and easy without formal
Budget Making and Work of Government 5
arrangements, and the brief notices of the direct presence of cabi-
net officials appearing in the records give an inadequate notion of
the real extent of the intimacy. It was by direct, personal admin-
istrative initiative that the government was set in operation. Only
by such agency could the finances have received the radical treat-
ment by which Hamilton almost at a stroke lifted the nation out of
bankruptcy, established its credit and secured its revenues. His
plans were marked by a boldness of conception and an unity of design
that would stamp them unmistakably as an individual product even
if there were not abundant direct evidence of that fact. They sur-
passed popular comprehension and affronted popular prejudice to
an extent that would have made them impracticable in an assembly
without other means of action than its own varied impulses. It
was because he was in a position to formulate his measures in their
entirety and to press them directly upon Congress, unhindered by
any committee system with its parcelling of influence, that he was
able to carry his measures. Indeed, even then his success was
made possible only by adroit management in which he utilized the
controversy over the site of the national capital to secure the
necessary votes. His personal initiative transcended even the
function of an English Chancellor of the Exchequer on which it
was distinctly modelled, for he had no compact party following on
which he could depend. It is rather comparable to the parliamen-
tary diplomacy of the German Imperial Chancellor, working with
discordant factions and piecing together a combination of the
requisite strength.
The system broke down as soon as the government became
firmly established and new party divisions began to take place.
Then the actual divergence of the American system from its English
prototype was revealed. There is nothing to indicate that, by the
provision prohibiting officeholders from serving as members of Con-
gress, the framers of the Constitution had any idea of striking down
the English system of government. The clause adopted a reform
that had been much agitated in England and it is commended in
The Federalist as a safeguard to the independence of Congress. It
was not perceived that it would interfere with administrative initia-
tive, nor does it necessarily do so. The Swiss constitution makes
a similar provision and administrative initiative is in no wise
impaired thereby, but mindful of American experience the framers
6 The Annals of the American Academy
of the Swiss constitution conferred upon the cabinet officials the
express right of appearing before the Congress with their proposals.
This provision has profoundly differentiated the Swiss system from
the American system notwithstanding a close resemblance in the
general constitutional scheme. By virtue of it, the Swiss adminis-
tration has developed as the agency by which all legislation is
planned and drafted, even the amendments voted by the Congress
being entrusted to the care of the administration for incorporation
in the text of the bill. By a natural extension of the procedure it has
become the practice to publish in advance of the meeting of Congress
the text of the government measures that will be proposed for its
consideration. The practical effect of the administrative initiative
has been to give such precision and definiteness to legislative pro-
cedure that the Swiss Congress is able to transact the business of
a session in a few weeks. Meanwhile there is never any anxiety
as to the possibilities of its action as the system thoroughly matures
all measures and apprises the public of their exact nature before
enactment. But the dependence of the Constitution of the United
States on mere tradition and custom as to the mode of administra-
tive recommendation gave an opening to party violence, the con-
sequences of which were soon experienced and have gone on ever
since with steadily increasing volume.
An English parliamentary faction, however bitter against a
cabinet official, has no way of silencing him. He is a member of
the House and has a right to the floor which cannot be denied him.
He can confront his enemies, and they cannot avoid the risk that
he may confute their arguments and repel their calumnies to their
own discomfiture. The constitutional right to the floor of Con-
gress vested in the Swiss heads of administration gives them a like
protection. But the constitutional right and duty of the President
of the United States to recommend to Congress "such measures
as he shall judge necessary and expedient'^ is neither defined nor
protected. Actual procedure has varied from time to time and
is still unsettled, but whatever the method that is actually employed,
budget making is powerfully affected by it.
Although Hamilton's opponents were never able to defeat him
openly, they were able to shut him off from direct access to Congress
and terminate the direct initiative originally possessed by the
administration; but this was done at the expense of the control
Budget Making and Work op Government 7
exercised by the House through the Committee of the Whole. To
this day there is no Committee of Ways and Means or of Appropria-
tions in the English House of Commons except the whole house
sitting in Committee of the Whole to consider taxes and suppHes.
Our House of Representatives started with the same system but on
December 16, 1796, it was resolved that a Committee on Ways and
Means should be appointed and on January 7, 1802, it was estab-
lished as a permanent standing committee. At that time there
were only five standing committees but the parcelling of legislative
initiative among committees once begun the process went on rapidly
and motions to increase the number were made at every session.
The effect in impairing the collective weight and dignity of the
House was soon manifested. In 1797 Fisher Ames, a Federalist
member of Congress, wrote to Hamilton:
The heads of departments are chief clerks. Instead of being the ministry,
the organs of the executive power, and imparting a kind of momentum to the
operation of the laws, they are precluded even from communicating with the
House by reports. In other countries they may speak as well as act. We allow
them to do neither .... The eflSciency of government is reduced to a
minimum .... Committees already are the ministers, and while the
House indulges a jealousy of encroachment in its functions, which are properiy
dehberative, it does not perceive that these are impaired and nullified by the
monopoly as well as the perversion of information by these committees.
Similar testimony is given by Justice Story. He was a political
adherent of Jefferson who in 1811 appointed him an associate
justice of the supreme court. His Commentaries were published
in 1833, and he was speaking from personal knowledge of conditions
in Washington when he wrote:
The heads of departments are, in fact, thus precluded from proposing or
vindicating their own measures in the face of the nation in the course of debate,
and are compelled to submit them to other men who are either imperfectly
acquainted with the measures or are indifferent to their success or failure. Thus
that open and public responsibility for measures which properly belongs to the
executive in all governments, and especially in a repubhcan government, as its
greatest security and strength, is completely done away. The executive is com-
pelled to resort to secret and unseen influences, to private interviev^'s, and private
arrangements to accomplish its own appropriate purposes, instead of proposing
and sustaining its own duties and measures by a bold and manly appeal to the
nation in the face of its representatives.
Story's characterization of the actual government as one of
"secret and unseen influences" well describes the system that took
8 The Annals of the American Academy
shape during Jefferson's administration. He broke with the prac-
tice of direct oral communication between the executive and Con-
gress which Washington's administration had taken over from the
English system and substituted a written message. He based his
relations with Congress upon the standing committee system. It
became party usage to allow the administration to pick the chair-
men of important committees, which practically meant that the
legislative proposals of the administration instead of going openly
into Congress by the front door slipped in secretly by committee
backstairs out of the public view. The system avoided administra-
tive responsibility. As Story pointed out, ''one consequence of this
state of things is that there never can be traced home to the executive
any responsibility for the measures which are planned and carried
at its suggestion." Nor could responsibility be justly imputed to
the executive since it was not free to determine the form and char-
acter of the measures promoted, that being a matter which had to
be arrived at by arrangement with the House committees in which
concessions naturally had to be made as in all diplomatic negotiation.
This system of directing legislation by private arrangement between
the administration and the standing committees lasted until John
Quincy Adams' administration when it broke down completely.
Senator Benton of Missouri, although himself a participant in the
Jackson movement that caused this rupture, made an observation
upon it which shows that the original tradition of administrative
initiative still survived. In his Thirty Years View he remarked:
The appointment of the majority of the members in all committees, and their
chairmen, in both Houses, adverse to the administration, was a regular conse-
quence of the inflamed state of parties, although the proper conducting of the
pubUc business would demand for the administration the chairmen of several
important committees as enabling it to place its measures fairly before the House.
With this breakdown disappeared from our system all recogni-
tion of the legislative initiative of the President as President. Ad-
ministrative experience is so naturally and inevitably the source of
legislative initiative that it cannot in practice be separated from the
executive office, but ever since the Jacksonian period it does not
inhere in the office but attaches to it through the development of
party machinery peculiar to the United States. Nominating con-
ventions, party platforms and all the complex machinery of party
discipline and management have been evolved to fill the gap between
Budget Making and Work of Government 9
the executive and the legislature. The President possesses an
actual initiative of masterful authority but he derives it from his
position as head of his party and its national leader, and he exercises
it through party agency. The connecting link between the execu-
tive and Congress is the party caucus.
As the President has no access to Congress for his measures save
by the favor of his party associates, it is incumbent upon the party
managers to keep their followers in an acquiescent temper. The
system of indulgence thus introduced has caused the monstrous
development of the pay and perquisites of Congress that makes it
by far the most expensive assembly the world has ever known.
To the same general cause is due the conversion of Congress into a
legislative mill, tens of thousands of proposals being made every
session whereas in the British parliament, with the affairs of an
empire to control, the number of bills introduced during a session
never exceeds a few hundred, and in recent sessions amounts to
much less than a hundred. As part of the same train of conse-
quences buncombe speechmaking is substituted for deliberation,
the distribution of time for debate being treated as an individual
perquisite to be utilized in any way the favored member may choose,
irrespective of the subject nominally before the House. An inciden-
tal effect is to convert the Congressional Record into an electioneer-
ing dump. Executive appointments to office are included among
Congressional perquisites and the ability of the President to obtain
consideration of the public business is so strictly conditioned upon
his surrender of the appointing power that the practice has been
systematized and it is regarded as a violation of senatorial preroga-
tive to make an appointment in a state save at the instance of the
Senators from that state. This extension of the concurring power
of the Senate, coupled with the Senate's ability to make any changes
in revenue and appropriation bills it sees fit, has reduced the House
to a position of really abject inferiority. There could be no greater
contrast than that which exists between its present position and
that anticipated for it in The Federalist. The constitutional posi-
tion of the House as an organ of control over the government in
behalf of the pKJople has been altogether destroyed. There are
numerous committees on expenditures in the various departments
of the government provided by the rules of the House but in practice
they are merely a part of the Congressional patronage fund, and
10 The Annals of the American Academy
exercise no real control or supervision. Their futility in these
respects was strikingly revealed in consequence of the Acts of 1870
and 1874, passed through the insistence of Mr. Dawes and Mr. Gar-
field, requiring all unused appropriations to be covered back into
the treasury. It then appeared that unexpended balances had
accumulated in the departments to the aggregate amount of
$174,000,000, and in a single bureau there was an unexpended bal-
ance of $36,000,000, the accumulation of a quarter of a century.*
The conversion of the House from an organ of control into a con-
course of particular agency has caused its part in the government to
become more and more that of an instrument for registering party
determinations of policy arrived at outside of the House. The
deliberative functions of Congress now hardly survive except in the
Senate.
All these consequences, which affect every part of the govern-
ment, are experienced with convergent force in budget procedure.
Something in the nature of system existed for many years through
the concentration of taxation in the hands of the Committee on
Ways and Means. For the first forty years of the government all
the appropriations were made in one bill. In 1865 revenue and
expenditure were disconnected by the creation of the Committee on
Appropriations. In 1880 the Agricultural appropriation bill was
turned over to a standing committee. The River and Harbor bill
was reported independently of the Committee on Appropriations
for many years before 1883 when a standing Committee on Rivers
and Harbors was authorized with the power of reporting appropria-
tions of that class. In 1885 special exigencies of party management
caused changes that destroyed the last vestiges of budget system.
Mr. Randall, who was then chairman of the Committee on Appro-
priations, was opposed to the tariff policy of the administration.
To break down his influence with members, the rules were amended
so as to distribute seven of the regular appropriation bills among
separate committees. There are now fourteen regular appropria-
tion bills distributed among eight different committees of the House.
Seven of these committees have jurisdiction over but one appropria-
tion bill, the other bills remaining in the custody of the Committee
* Instructive details are contained in an address by Theodore E. Burton,
delivered in the House, March 15, 1904.
Budget Making and Work of Government 11
on Appropriations. The consequence of the distribution was thus
described by Chairman Tawney in 1909:
Each of those committees which has jurisdiction of but one appropriation
biU naturally becomes the partisan representative of the department for which
it recommends appropriations rather than the representative of the body to
which its members belong When the jurisdiction of the Committee
on Appropriations was thus divided, Mr. Randall and Mr. Cannon, then members
of that committee, predicted that this division of jurisdiction would cost the
people of the United States not less than $50,000,000 annually. They were not
far out of the way, as our experience has proven.
The collapse of all budget system in 1885 had a curious result
in developing a method of control that to some extent counteracted
congressional incapacity. But the new control was not constitu-
tional but was absolutist. It was maintained through an autocratic
power exercised by the Speaker with undisguised baldness. The
process was simplicity itself. If he did not wish a bill to be passed
he would not recognize any one to move its consideration. It
became a regular practice for members to visit the Speaker to explain
the purpose for which they desired recognition and get his consent.
In addition, through a small Committee on Rules of which he was
a member with such colleagues as he chose to appoint, he virtually
controlled the time of the House. The Committee on Rules always
had the right of way, and at any time it could bring in a special
order fixing the time at which any matter should be taken up by
the House and also the period to be allotted to its consideration;
and nothing else could be considered until action had been taken
on the report of the committee. A necessary incident of the
method was the handling of patronage and appropriations to main-
tain party discipline, so the method involved increasing pressure
upon the appropriation bills. But when the extravagance reached
lengths that might make trouble for the party in the elections, the
autocratic power of the Speaker could be exercised to reduce the
aggregate by holding up appropriation bills. The bills usually
attacked for this purpose were what are known in congressional
slang as the pork barrels Public Buildings and Rivers and Harbors.
The distribution of district '^pork'* would be made as usual but
when the bill was ready for passage the Speaker would not allow it
to be considered, even although petitioned by a majority of the
House. The application of party discipline to keep members
quiescent under this arbitrary rule was facilitated by the fact that
12 The Annals of the American Academy
the privation was general and a member could explain to his district
that although he had not been able to land local appropriations no
one else had had any better success. The following item from the
Pittsburg Dispatch of January 24, 1897, illustrates this curious situa-
tion which is probably without a parallel in constitutional history :
Congressman Ernest F. Acheson was in Pittsburg yesterday. He said he
had been forced to agree with Speaker Reed in refusing to give a place to the
Omnibus bill, providing appropriations for seventy public buildings, three of
which were to be located in Wilkesbarre, Altoona, and his own town of Washing-
ton. Speaker Reed showed that the deficit for the month current was already
$8,107,118, and for the fiscal year $46,009,514. And thus it was he refused to
grant a petition signed by 308 members of the House.
The development of this autocratic power, which was not the
work of any on Sepeaker and which went on no matter which party
was ascendant, tended to displace the initiative which the President
exercised as a party leader. There was a period when the chief seat
of authority in the administration was not the presidential office
but was a group of undertakers embracing the Speaker and some
leading chairmen of committees in both Houses. During this
period an extraordinarily naked display of the way in which the
appropriations may be used to dictate public policy was made in the
House. There was a strong sentiment adverse to the policy which
the oligarchy was pursuing in respect of currency legislation but a
committee chairman quelled revolt by the blunt announcenient :
"I have the report on the Public Buildings bill in my pocket.
I am going to keep it there until a satisfactory currency bill is
This rule of oligarchy was quite dependent upon advantages of
position and it excited such antagonism that it was suddenly over-
thrown by the parliamentary revolution of March 19, 1910. A
schism in the party to which the Speaker belonged carried over to
the opposition votes enough to defeat him on a point of order.
This victory was followed up by the passage of a resolution increas-
ing the membership of the Committee on Rules from five to ten
members, no longer to be appointed by the Speaker but elected by
the House, and it was expressly provided that the Speaker should
not even be a member. This exclusion of the Speaker from his old
post of managing director of the House has been since confirmed by
2 Ck)ngressional Record, May 30, 1908, pp. 7629, 7690 et seq.
Budget Making and Work of Government 13
further changes in the rules. Nominally the House now elects all
the committees, but by a rule adopted in the Democratic caucus,
January 19, 1911, the actual selection is vested in the Committee on
Ways and Means. The practical effect is to make the chairman of
that committee the leader of the House and to make the caucus
the seat of party direction and management. The Committee on
Rules now acts under caucus direction in reporting the special orders
under which important legislative business is necessarily transacted.
It has been calculated that it would take over sixty years to con-
sider in regular order the bills poured into Congress at every session.'
These changes have invigorated the initiative attaching to the
office of the President as the national leader of his party, but he has
effective access to the House for his measures only through the
party caucus. The task devolving on the party management of
keeping the caucus in an acquiescent temper has tended to expand
Congressional perquisites and to increase the pressure on the appro-
priations. In this respect the situation is now worse than in the
days of the autocratic rule of the Speaker. It has become a matter
of acute anxiety with members who feel their national responsibility.
The present chairman of the Appropriations Committee has repeat-
edly urged without success that the House should return to the
former system of control through the concentration of the appro-
priations in the hands of a single committee.'* In a speech deUvered
in the House, February 6, 1915, he suggested more radical treat-
ment. He said:
When the burdens finally become so great as to be intolerable then the
nevitable rising will take place. One thing that is essential to accomplish in this
body — and it will be done some day — is to deprive the individual member of
Congress of the right to initiate expenditures.
The present situation, with its entire lack of budget system, is
admitted by thoughtful Congressmen to be indefensible and some
reform is becoming practically inevitable. The beginning of a new
system was incited by section 7, of the Sundry Civil Appropriation
bill of March 4, 1909, putting upon the President the duty of revis-
ing the department estimates so as to co6rdinate them with the
« Congressional Record, Vol. 43, No. 17, Jan. 7, 1909, p. 611 et acq.
* A comprehensive account of committee conditions is given in the speech of
Chairman Fitzgerald, June 24, 1913. Congressional Record, vol. 50, part 3, 63d
Congress, first session, p. 2154 e( Beq.
14 The Annals of the American Academy
revenues. Under President Taft's administration an executive
commission made a thorough study of the subject with a view of
devising an exact and comprehensive form of budget statement,
but a spirit of antagonism developed in Congress and a clause was
inserted in an appropriation bill prohibiting any change in the form
in which the estimates are transmitted to Congress. Nevertheless,
forms were devised that will be of service whenever Congress moves
in the matter. But such is the relation between budget making
and the work of government that no change will be sufficient that
does not give the administration access to the House as a matter of
right and not of favor. So long as the administration is dependent
upon any sort of mediation in presenting its budget estimates and
legislative proposals to the consideration of Congress, sound and
economical management of the public finances is unattainable.
EVOLUTION OF THE BUDGET IDEA IN THE
UNITED STATES
By Frederick A. Cleveland,
Director, Bureau of Municipal Research, New York City.
Difficulty in tracing the evolution of the "budget idea'^ in the
United States lies not so much in the historical material to be
mastered as in decision as to what "idea" is to be discussed.
What is the ''Budget Idea"?
Most controversies grow out of the failure of parties contestant
to make clear what they are talking about. Words in ordinary use
make expression of thought difficult whenever exactness is required.
It is for this reason that science has gone entirely outside the com-
mon language for its terms. The word "budget" is a term used in
so many different ways that no one can write on any aspect of budg-
ets or budget practice without risk of controversy about the facts un-
til he has taken the trouble to tell what he conceives a budget to be.
Writers, therefore, not infrequently begin with a definition. It is
an interesting fact, however, that nearly all these definitions are so
indefinite that the reader is still left in doubt.
Definition of Budget as Herein Used
In this essay the term "budget," is used to mean a plan for
financing an enterprise or government during a definite period, which is
prepared and submitted by a responsible executive to a representative
body (or other duly constituted agent) whose approval and authorization
are necessary before the plan may be execvied.
In order that no room may be left for inference, each of these
clauses may be enlarged on and the reason given for its use:
(1) The idea "budget" is classed as a "plan" instead of a
"document" or a "statement" for the reason that it is in the nature
of a definite proposal calling for approval or disapproval with such
details and specifications attached as are thought to be useful to the
approving body or agents in arriving at a decision.
(2) It is differentiated from other plans by the phrase "for
16 The Annals of the American Academy
financing an enterprise or government during a definite period."
This includes the first idea of Leroy-Beaulieu's definition. But if
it stopped here it would be just as defective; anyone might make a
plan for financing an enterprise or a government. For this reason
it is further differentiated by the requirement that to be a budget
it must be "prepared and submitted by a responsible executive."
(3) One other essential is added, viz., that it must be submitted
to "a representative body (or other duly constituted agent) whose
approval and authorization are necessary before the plan may be
executed." Each of these qualifying phrases is so full of meaning
and each so necessary to a budget practice that it is deserving of
further comment.
The Budget as a Plan of Financing
The one thing that has been conspicuously lacking in our gov-
ernmental business, federal, state and municipal, has been the ele-
ment of careful, understandable, responsible planning. The lack of
careful, understandable, responsible planning has been an incident
of "invisible" or "irresponsible" government. Each year in every
jurisdiction we have had "estimates" both of revenues and expendi-
tures. But "estimates" in themselves do not constitute a budget.
They only serve the purpose of laying the foundation for work
plans and financial plans.
These estimates must be of two kinds, viz: (1) there must be
estimates of needs, and (2) there must be estimates of the financial
resources that may be availed of to meet needs. To be of value the
estimates must be made by a great many persons. The estimate
of needs must be made by persons who are familiar with the re-
quirements of each kind of work to be done, or each service to be
rendered — with the operating requirements, the maintenance re-
quirements, the capital requirements. Then one or more persons
must make up estimates of needs for certain things that are common
to all services — those which are general, such as requirements for
interest, sinking fund requirements, the requirements for payment
of maturing obligations for which no sinking funds are provided,
requirements for purchase of common lands and the conduct of common
business transactions such as advertising, printing, etc. Then again,
estimates of the financial resources which may be availed of to meet
estimated financial needs, to be of the highest value, must be made
(
Budget Idea in the United States 17
up by a number of other persons who are familiar with present
financial conditions; they must also be able to forecast probable
revenues derivable under existing law; they must have knowledge
of the present and probable future condition of appropriations and
funds, having in mind present and proposed financial policies they
must have the abihty to forecast probable financial conditions of
surplus and deficit at the beginning of the period to be financed
and of probable surplus and deficit at the end.
Plan Must Be Made by a Responsible Executive
All these various estimates of expenditures, of revenues, and
of financial condition must be brought together; they must be
considered by someone who can think in terms of the institution
as a whole; they must be brought to a conclusion; and conclusions
must be stated as a definite proposal and a basis for action by some
one person or agency that can be held to account. The only
person who can be held to account is the one who is to execute
the plan proposed. This executive therefore is the only one who
can be made responsible for leadership.
The estimates and conclusions must be presented to the repre-
sentatives of the people whose approval and action are required
before spending officers are authorized to go ahead. They must be
presented as a definite plan or prospectus which will show what is
proposed to be undertaken. This plan must not only show what
undertakings are proposed but what will be the probable cost on the
one hand and how the cost is to be met. The financial plan must deal
with great questions of pubHc policy — must set forth how much is to
be met by revenue, how much is to be met by borrowing, and how
much, if any, is to be met from surplus. The plan must show what
authorizations should be given to the executive to enable him to
carry on the business efficiently and meet obligations as they mature.
Not only is it necessary that the *' estimates" be prepared by persons
familiar with the facts, but it is quite as essential that the plan of
work and of financing be proposed and submitted by the same person
who is to be held accountable for directing the execution of the plan.
This means the executive. To have a plan — in other words the
"budget" — made by persons who have no responsibility for carry-
ing on the business would be destructive of the very purpose of
representative government.
18 The Annals of the American Academy
The representative character of a government is to be found
in its legislature and in its electorate. As has been pointed out, the
constitutional or institutional purpose of a budget is to make the
executive responsible and responsive to the people through their
representatives and through the electorate. No plan or proposal
can serve this purpose which comes from individual representatives
any more than it could if it came from individual electors. In the
first place it is incompatible that the proposer should also be the
disposer of public funds. In the second place the proposal should
not reflect the interests of a single individual or a single district —
but the interests of the whole community of associated interests
which are composed in the state or nation.
The one who submits the financial proposal should be respon-
sible to all — he should be accountable for the management of the
affairs of the whole government. Since the several parts of the
government are interdependent, no legislative committee can pre-
pare a budget unless the business of the government is to be man-
aged by this committee as in a commission government, or in New
York City where the executive power is in its Board of Estimate
and Apportionment. But they must act together. Responsibility
should be attached to some one man, or some group of persons acting
as one man, who can be continued or retired as one man. It was for
this reason that Great Britain did not succeed in establishing a true
budget system till after 1800 when the principle of solidarity of re-
sponsibility was forced on the cabinet. Even then the budget could
not be made effective until a means was provided for enforcing this
responsibility through a truly representative parliament — until the
reform acts of 1837 which made parliament in effect the people in ses-
sion. In discussing the evolution of the budget idea in the United
States, therefore, what is meant is the development of the idea of "a
plan for financing the government during a definite period, which is
prepared and submitted by a responsible executive to a representa-
tive body whose approval and authorization are necessary before
the proposed plan may be executed."
Budget Control by the Representative Body
As it is the institutional and constitutional purpose of the
budget to serve as a means both of exercising control over what the
government shall do and how it shall be financed and also for making
Budget Idea in the United States 19
the executive responsible and responsive to the people through their
chosen representatives and through the electorate, the budget cannot
be more than a proposal or request. Actual authorization must
come from the representative or electorate body before a dollar
can be raised or spent. Or if some latitude is given to the executive
to spend without such action first obtained, the expenditures so
made must come to representatives and the electorate for approval.
A budget can have no force. A budget, as such, can convey no
authority. It is only the "act" of appropriation, the revenue or
the borrowing "measure" which gives authority to the executive.
Therefore, the "act" and "enacted measure" must be clearly dis-
tinguished from the "plan" or "proposal" of the executive.
How Legislative Control May be Made Effective
If the executive is to be held responsible for results, the legis-
lature must do three things: viz.: (1) It must provide a means of
enabling representatives to find out whether the executive has acted
within his past authorizations and conducted the business efficiently;
(2) it must provide a means of enabling representatives to inquire
into the requests for future grants; (3) since the purpose of a repre-
sentative system is to make the government responsible and respon-
sive to the people, it must provide a means of reaching the people,
of letting the people know what has been done and what is proposed
and of getting controversies between a majority of representatives
and the executive before the electorate for final decision. With
provision made for these three things the representative system is
adapted to the ends and purposes of a democracy; without provision
for these three things the representative system is not adapted to
the ends and purposes of a democracy.
How Legislative Inquiry May he Made Effective
The collateral means which have been found effective for keep-
the executive within authorizations are the creation of an agency
>r independent audit and report on all transactions, the establish-
lent of an independent judiciary for the settlement of legal con-
Persies, and the authority of the legislature to make independent
inquiries. But these are collateral means. The method which has
been found to be most effective for enabling representatives to in-
quire into requests for future grants, and obtain exact information
20 The Annals of the American Academy
about what has been done as well as what is proposed, is to require
the executive to appear personally before the representatives of the
people at the time he makes his request for funds to answer ques-
tions and details.
How the Electorate May he Reached
The method which has been found to be most effective for
keeping the people in touch with public affairs and for having
questions in issue settled by the electorate, is to make provision
whereby each representative can openly question the executive and
every item can be separately debated and voted on. And in case
the executive is not supported to make fm-ther provision, the elec-
torate may promptly retire either the executive or the opposing
majority. What this means is, that a budget which is to serve its
constitutional purpose must not only be an executive proposal sub-
mitted to a representative body, but it must be submitted under
such rules of procedure that each representative may have a right
to personally and publicly make inquiry of the executive concern-
ing any matter or detail of the business in hand and also have the
right openly and publicly to oppose any part of the plan which, in
his opinion, is against the general welfare of the state. And the only
procedure which has been found effective for doing this is to require
that the estimates and the budget be considered and discussed in
committee of the whole house with the executive present.
Furthermore, the financial plan which is to be considered as a
budget must be laid before representatives of the people, in such a
way that it will at all times be the measure of the responsible execu-
tive, and when approved or disapproved, the action taken must
stand as the decision of sovereign power — must be the will of the
people to support this responsible head of the government. The
budget must be considered as the most important measure of any
government.
Action on the Budget an Act of Popular Sovereignty
The passing of a budget, as the term budget is used in this
discussion, is an attribute of sovereignty. When, as in a democ-
racy, sovereignty is in the people, the authority given to the execu-
tive by the ''acts'' passed in response to executive request must
come jlirectly or indirectly from the people; therefore, the procedure
Budget Idea in the United States 21
to be effective must make the people an integral part of the action.
This is what is meant by Leon Say in the statement that "Every
member of the society or nation exercises a share of the prerogative
of the budget which corresponds to the share of the sovereignty
which is vested in him." It is on this idea of a budget that the theory
that the "act" of appropriation and the revenue and borrowing
"measures" are in the nature of contracts made between taxpayers
on the one hand and the executive in power. But the "acts" or
"measures" are quite a different thing from the plan or, as it is here
called, the "budget" of the executive.^
The "budget idea" whose evolution in the United States is here
traced bears little relation to the estimates presented by an irre-
sponsible executive or to the devices by which financial legislation is
passed in a scheme of invisible government, with no means provided
■'for bringing executive and legislative action to the test of appro v^al
or disapproval by the electorate. Those methods, which do not
make for responsible government, are not the subject of this essay.
The view adopted is the only one that is compatible with the evolu-
tion of constitutional law where "control over the purse" has been
effectively used to bring the institution and practices of a representa-
tive system into harmony with the ideals of democracy and popular
sovereignty.
Taken as a whole it may be said that until within the last few
years the "budget idea," as the term is here used, has had no evo-
lution whatever in the United States. Our citizenship, our legis-
lators, and our constitution makers have until recently been as
innocent of such an idea as an unborn babe. True, President
Wilson had written a masterly treatise calling attention to the
devolution of our government — to the gross departure made from
the ideals of the constitution as it was understood by the fathers —
* There are two special treatises on what the authors have chosen to call
budgets in this country, viz.: Eugene E. Agger's The Budget in the American Comr
numwealth, 1907; and S. Gale Lowrie's The Budget, 1912. Both of theee proceed
from the notion that the documents which have been developed in American
practice to carry out the various constitutional inhibitions and the devices used
to control expenditures are budgets. WTiile these works are highly meritorious
expose of American methods, the practices described are so far afield from what
is here described as the "budget idea" that the contrast should be noted. And
this distinction should be drawn if we are to consider the merits and dements of
these two widely differing practices.
22 The Annals of the American Academy
and in this pointed to the fact that the administration was gradually-
drifting over into the hands of some forty odd irresponsible congres-
sional committees. True, President Lowell and other students of
foreign government had also written volumes on the gradual devel-
opment of the principle of executive responsibility under representa-
tive systems abroad, and pointed to the part that the "budget idea"
had played in this development. But these writings were unnoticed,
except in academic discussion. The "practical'* man complacently
turned a deaf ear, or, if he did not refuse to listen, patronizingly
put an end to all suggestions and arguments with the bold assertion
that the idea was "undemocratic" and "un-American." When
a single Congress authorized a billion dollars of expenditures and
the party in power was attacked for extravagance, the answer was
that "this is a billion-dollar country." But increases in expendi-
tures went on until within a few years we had a "two billion-dollar
Congress." It was the uncontrolled and uncontrollable increase
in the cost of government that finally jostled the public into an
attitude of hostility to a system which was so fondly called the
"American system." This growing hostility to doing business
in the dark, to "boss rule," to "invisible government," became the
soil in which the "budget idea" finally took root and grew. Ques-
tions raised by Mr. Tawney, as chairman of the committee on ap-
propriations, with respect to the system of raising and spending
money were not new. It was only the circumstance of the "two-
billion-dollar Congress" that caused the public to be disturbed.
The bold assertion of Senator Aldrich that if he could run the federal
government as he would a private business he could save $300,000,-
000 a year did more to upset complacency and bring about a demand
for change in the methods of doing business than all the treatises
that had been written on defects in the organic law. But this
dramatization of waste had a constructive value. It caused men
to ask for a remedy. It caused people to read and reread what had
been written by President Wilson in 1885; it caused editors and
writers to consider the methods employed in other countries which
had succeeded in making their governments responsible; it provided
an occasion for editorial comment; it made an audience for Professor
Ford's book, 2 which pointed to the fact that what had been so patron-
izingly characterized as un-American in methods of political control
*The Cost of our National Government, by Henry Jones Ford, 1910.
Budget Idea in the United States 23
in England, continental Europe, Bermuda, Australia, and Japan
were the methods used in the management of private business, and
what had been so much lauded as the American system could be
nothing else but wasteful and subversive of the very purposes of
democracy.
Efforts Made to Apply the Budget Idea in the Federal Government
This brings us up to Presicfent Taft's administration. During
President Roosevelt's two administrations, the ship of state had
been rocked and tossed about by storms of abuse. In this both the
President and Congress took an active part, but nothing towards
constructive legislation was undertaken which had a distinct bearing
on the methods of controlling the national finances. For a period
of six months after March 4, 1909, these storms subsided only
to break again with renewed force. But the storm center was not
the cost of government; it was the tariff, "standpatism", "govern-
ment for the privileged classes." From the viewpoint of those who
were interested in the development of the "budget idea," this was
unfortunate, for President Taft had seriously undertaken to use the
great powers and the influence of his office to foster that idea.
The PresidenVs Inquiry into Methods of Doing Business
President Taft's answer to the demand for economy was to
ask Congress in December, 1909, for an appropriation of $100,000
"to enable the President to inquire into the methods of transacting
the public business .... and to recommend to Congress
such legislation as may be necessary to carry with effect changes
found to be desirable that cannot be accomplished by executive
action alone." As soon as this appropriation had been made avail-
able the President instructed his secretary, Mr. Charles D. Norton,
to make plans for the organization of the work. A preliminary
inquiry was begun on September 27, 1910. The first task of Secre-
tary Norton was to organize within each department a committee
which would cooperate with the White House staff in developing
a definite plan of work. Speaking on the magnitude and difficulty of
the task, the President in his first report to Congress said:
I have been given thia fund to enable me to take action and to make speoifio
recommendations with respect to the details of transacting the businaM of an
organization whose activities are almost as varied as those of the entire busmeai
24 The Annals of the American Academy
world. The operations of the government affect the interest of every person
living within the jurisdiction of the United States. Its organization embraces
stations and centers of work located in every city and in many local subdivisions
of the country. Its gross expenditures amount to nearly $1,000,000,000 annually.
Including the personnel of the military and naval establishments, more than
400,000 persons are required to do the work imposed by law upon the executive
branch of the government.
This vast organization has never been studied in detail as one piece of admin-
istrative mechanism. Never have the foundations been laid for a thorough con-
sideration of the relations of all of its parts. No comprehensive effort has been
made to list its multifarious activities or to group them in such a way as to present
a clear picture of what the government is doing. Never has a complete descrip-
tion been given of the agencies through which these activities are performed. At
no time has the attempt been made to study all of these activities and agencies
with a view to the assignment of each activity to the agency best fitted for its
performance, to the avoidance of duplication of plant and work, to the integration
of all administrative agencies of the government, so far as may be practicable, into
a unified organization for the most effective and economical dispatch of public
business.
The Organization of the President's Commission on Economy and
Efficiency
One of the conclusions reached as a result of the preliminary
inquiry is the following i^ "A very conspicuous cause of inefficiency
and waste is an inadequate provision of the methods of getting
before Congress a definite budget, i.e., a concrete and well-considered
program or prospectus of work to be financed."
The Need Jor a Budget one of the first Subjects of Inquiry
When the Commission was organized suflficiently to permit of
collective consideration of work to be done by it, a program of
work was formulated which provided for five fairly distinct sub-
jects to be handled, as follows: (1) The budget as an annual
financial program; (2) The organization and activities of the
government; (3) Problems of personnel; (4) Financial records and
accounts; (5) Business practices and procedure.
In the preliminary inquiry one of the first steps taken had been
to ask the several departmental committees cooperating with the
*See report on the preUminary inquiry under authority of the civil act of
June 25, 1910, prior to the organization of the President's Commission on Eco-
nomy and Efficiency, covering the period September 27, 1910 to March 8,
1911 — circular No. 29 of the commission.
Budget Idea in the United States 25
President to reanalyze the estimates in such manner as to show the
different kinds of things that were being purchased by the govern-
ment and the amounts spent and estimated for each. As a result
of this inquiry the President for the first time had brought before
him a summary of such facts as the following: The amounts spent
by each bureau, by each department, and the government as a
whole analyzed to show what part was for such things as personal
services; services other than personal; materials; suppHes; equip-
ment, etc. For the first time it became known that the government
was spending nearly $400,000,000 for salaries and wages (the digest
of appropriations made it appear that only $189,000,000 was for
this purpose); that the government was spending $12,500,000 for
the transportation of persons; that it was spending $78,000,000 for
the transportation of things; that it was spending $8,000,000
for subsisterice of persons and, in addition, was spending $18,-
500,000 for provisions, and $5,500,000 for wearing apparel, etc.
Among the first things undertaken by the commission after its
organization was to continue the analytical work with a view of
preparing a report on the need for an annual budget. In July, 1911,
forms were drafted. These were discussed with department heads,
and on August 1 were submitted to the President for his approval.
On August 7 the President sent these forms to the departments and
requested that they reclassify the data which was being obtained
for the purposes of official estimates then in preparation. The
forms asked for information on three subjects: (1) Expenditures
for fiscal year ending June 30, 1911; (2) Appropriations for the
fiscal year ending June 30, 1912; (3) Estimates for appropriations
for the fiscal year ending June 30, 1913. A different form was pre-
pared for reporting on each of these subjects and a fourth form
for a recapitulation. Each of these forms was so drawn as to pro-
vide for showing the amounts expended, appropriated or estimated:
(1) By each organization unit; (2) For each class of work to be
done; (3) By character of expenditure, such as current expenses,
capital outlays, fixed charges, etc; and, (4) By the amount which
had been expended, appropriated or estimated under each act or
lass of acts of appropriation — whether by annual appropriation,
i)crmanent legislation, etc. The heads of departments were asked
to have these returns in by November 1, but it was not until after
t he first of the next year that they were made available to the Presi-
26 The Annals of the American Academy
dent. This was due to the fact that the forms required by Congress
were along entirely different lines, and it was necessary for the heads
of departments to have the official estimates in the hands of the
treasury and before Congress on a prescribed date.
The report of the commission on "the Need for a National
Budget" was sent by the President to Congress with his approval
on June 27, 1912.^
The President Urges Congress to Accept the ^^ Budget Idea^'
In his letter of transmission President Taft pointed to the fact
that the Executive is charged by the Constitution with the duty of
publishing "a regular statement of receipts and expenditures" and
"that he is also enjoined from time to time to give Congress in-
formation on the state of the union and to recommend for considera-
tion such measures as may be deemed expedient." With these
constitutional prescriptions President Taft held that the President
had the power to prepare and submit to Congress each year "a
definite, well-considered budget with a message calling attention
to subjects of immediate importance." The President stated,
however, in his message that he did not assume to exercise this
power except in cooperation with Congress; and he urged the neces-
sity of repealing certain laws which were in conflict with the pro-
posed practice.
The purposes of sending the report to Congress as described
by the President were :
* This was printed as house document No. 854 of the 62d Congress, second
session (568 pages). The members of the commission who participated in the
preparation and signed the report, besides the chairman, were : Frank J. Goodnow,
for twenty-six years professor of administrative law in Columbia University, now
President of Johns Hopkins University; William F. Willoughby, for more than
twenty years connected with the government service in various capacities, now
constitutional advisor to the Chinese Repubhc; Walter W. Warwick, for many
years connected with the comptroller's office and auditing service of the federal
government, now the comptroller of the treasury; and Merritt O. Chance, for
twenty-six years connected with various departments of the government, now
postmaster at Washington. From June, 1911, to January, 1912, Mr. Harvey S.
Chase was also a member of the commission, but due to illness he was not able
to be in Washington during the time that the budget report was being prepared
and therefore did not share in authorship or join in signing the report. The
subsequent use which Mr. Chase has made of the report, however, indicates that
he is in general accord with the recommendations of the commission.
Budget Idea in the United States 27
To suggest a method whereby the President, as the constitutional head of the
administration, and Congress may consider and act on a definite business and
financial program;
To have the expenditures, appropriations and estimates so classified and
summarized that their broad signifinance may be readily understood;
To provide each member of Congress, as well as each citizen who is interested,
with such data concerning each subject of interest as may be considered in relation
to questions of public policy;
To have these general summaries supported by such detailed information
as is necessary to consider the economy and efficiency with which business has
been transacted;
In short, to suggest a plan whereby the President and Congress may cooperate,
the one in laying before Congress and the country a clearly expressed adminis-
trative program to be acted on — the other in laying before the President a definite
enactment for his judgment.
This was the first time that any responsible officer of the national
government had advocated the ''budget idea." This report not
only contained a descriptive and critical report on the past practices
of the national government with constructive recommendations,
but supported these recommendations with an appendix of forms
and a digest of the practices of thirty-eight other countries, in most
of which the "budget idea" had already been incorporated and
made a part of the public law.
Immediately following the submission of this report to Congress
(July 10), President Taft issued an order to the heads of depart-
ments to depute some officer with the duty to see that estimates of
summaries for the next fiscal year would be prepared in accordance
with the recommendations contained in his message of June 27, and
in a letter directed the secretary and treasurer
to print and send without delay to Congress the forms of estimates required by
it; also to have sent to him (the President) the information asked for
This will be made the subject of review and revision and a summary statement
in the form of a budget with documents will be sent to Congress by a special
message as the proposal of the administration.
Report and Recommendations Pigeon-holed
At the time that this order was issued, Congress had not yet
passed all of the annual appropriation bills — some of the bills as
passed having been vetoed by the President. When on August 24
the sundry civil bill became law it contained one clause modifying
the form of the estimates to incorporate some of the suggestions of
the commission, and another clause requiring the heads of depart-
28 The Annals of the American Academy
ments to submit the estimates in the form and at the time re-
quired by law to be submitted and at no other time and in no
other form. Following this, when it came to the attention of
President Taft that heads of departments expressed some doubt
as to what were their duties in the matter, on September 9 the
President sent a letter to each member of the cabinet, in which
each was instructed to follow the orders both of the President
and of Congress. With both houses of the legislature organ-
ized against the executive and making demands on the depart-
ments for information, the retiring chief executive had difficulty
in obtaining the information desired. About February 1, however,
all the data had been brought together and, on February 26, Presi-
dent Taft submitted to Congress a budget with a message, which
was referred to the committee on appropriations and ordered to be
printed with accompanying papers.^ And there it lay without
consideration, action or report.
Acceptance of "Idea^^ hy the Public
The budget proposals of President Taft, however, were not
pigeon-holed by the public. They were taken up by the press
throughout the country. Almost unanimously they had the
support of public opinion. This opinion was further registered in
a referendum which was taken on the subject by the Chamber of
Commerce of the United States. Furthermore, many leading men,
and even some of the members of Congress who, at the time ex-
pressed themselves as being opposed to an executive budget, from
time to time since then have come out strongly for the ''budget idea."
One of those who has been emphatic in his opinion, is Congressman
John J. Fitzgerald, chairman of the appropriation committee, who
at the time the budget was referred to his committee opposed the
act as executive interference. But Mr. Fitzgerald, speaking before
the committee on state finances at the constitutional convention at
Albany, June 26, 1915, said:
We ought to have some way in the system of our government to fix direct
responsibility, and you cannot fix responsibility if the power is too greatly scattered.
I would put it with the Executive. I would make him responsible
at the outset Some persons object that we should not deprive the
representatives of the people of the right to loosen up the purse strings, but the
^Senate document 1113, 62d Congress, 3d session.
Budget Idea in the United States 29
universal condition of this country today is not that we noust safeguard the rights
of the people to get money for things. The whole curse of our condition is
that everybody is doing his utmost to get it and succeeds; and the evil to be cor-
rected is the evil of excessive expenditure Now if there were some
way by which that could be stopped .... it would do what is done in the
governments where they had a responsible government with the budget system.
If my constitutents were keenly interested in some matter that required an ex-
penditure of pubUc money, I would be compelled to present the matter to the
department that had charge of it. They would make their investigations. They
would determine whether it was one of those things that should be included, and
they would have to take responsibility for requesting it.
Outlook for a Federal Budget
With President Wilson's long standing advocacy of a budget
system, with Secretary McAdoo's reported determination to work
for the introduction of a budget procedure; with the chairman of
the appropriation committee outspoken in his belief as quoted above,
it is confidently expected that something may be done in the next
Congress to adapt the laws of the federal government and the pro-
cedure of Congress to a practical relation whereby the country may
have the benefit of executive leadership and the voting of money
may rest on a plane of openhanded dealing.
The Budget Idea in State Government
The provisions in the state constitutions as they were originally
drawn having to do with the relations of the executive to the legis-
lative branch follow very closely those of the federal constitution.
At present, however, they differ very materially, due to the fact
that the federal constitution, with few exceptions, is as it was orig-
inally drawn while the state constitutions have been frequently
changed. With the federal government there has been a gradual
departure in practice from the spirit and expression of the constitu-
tion as drawn. This was pointed out very clearly by President
Wilson in his treatise on congressional government. In the state,
the changed attitude of the people toward the government is found
in the gradual decimation of executive power on the one hand and
the increasing number of limitations placed on the legislature on
the other.
Requirements of State Constitutions
It is of interest to note the duties that are imposed by state
onstitutions on the governor having to do with matters of money
30 The Annals of the American Academy
raising and accountability for expenditure. In every state in the
union some such provision as this is made : That the governor shall
''from time to time" or "at every session" or "at every regular
session" give the legislature information on the condition of the
state and make recommendations. In four states — Colorado,
Idaho, Illinois and Kansas — it is required that he shall "recommend
measures." As a matter of practice, however, these requirements
have been construed in the same manner as the similar provision in
the federal constitution. The governor has not been assumed to
have any standing whatever before the legislature until a bill is
passed. He has not been assumed to have any right personally to
introduce any bill or to appear for or explain or defend any measure
openly. Nine of the constitutions ^ require that the governor shall
present at the commencement of each regular session estimates of the
amount of money to be raised by taxation for all purposes. These
provisions, however, have not been so construed as to lay upon the
governor the requirement of preparing and submitting a "budget,"
nor has any procedure been developed that is based on such an
assumption. As a matter of fact, the constitutional provisions
have been either perfunctorily complied with by subordinates or
have been dead letters, as is pointed out in the report of the Com-
mittee on Efficiency and Economy of the state of Illinois.^ Al-
though the governor was specifically directed by the constitution to
lay before the legislature the estimates of money required, the
committee states that so far as they could ascertain no attention
whatever had been paid to it. This, however, has only to do with
the amount of money required to be raised by taxation; it does not
lay upon the governor the duty of submitting estimates of proposed
expenditure.
In the constitution of Maryland it is made the duty of the
comptroller to prepare and submit estimates of revenues and
expenditures. Other constitutions require that one or more other
state officers shall prepare such estimates. In states where no
constitutional requirement has been laid on the governor, or state
officers, statutes have been passed providing that certain officers
individually or acting as a board ex-officio shall prepare and submit
estimates.
«Ala. V, 123; Colo. IV, 8; Ida. IVA; 111. V, 77; Mo. V, 10; Mont. VII,
10; Nebr. V, 77; Tex. IV, 9; W. Va., VII, 6.
''See report of the Economy and Efl&ciency Committee of Illinois, p. 22.
Budget Idea in the United States 31
Boards of Control
The futility of efforts to establish a budget procedure without
some means whereby the executive may be responsible for its pro-
posal and in which the executive will be required to explain and
defend the financial measure of the administration is shown by the
experience in each of the forty-nine instances where it has been
tried. In 1912 Wisconsin undertook to provide a means whereby
a budget might be developed as a joint measure of the legislature
and of the administration. It was in support of this idea that the
report written by Dr. Lowrie was submitted through the State
Board of Public Affairs. While this may be a desirable adaptation,
as long as we are to assume that the governor is not to be a chief
executive and that the government is to be divided up into various
small jurisdictions over which there is no control other than that
of the legislature, it is not a method which is consistent with the
"budget idea."
New York undertook to interject into its budget procedure a
means of central control by the same method.* The purpose of this
board was to make a budget as the term was understood by the
legislators. The board was made up of the governor, lieutenant
governor, the president pro tempore of the senate, the chairman of
the finance committee of the senate, the speaker of the assembly,
the chairman of the ways and means committee of the assembly, the
comptroller, the attorney general, the [commissioner of efficiency
and economy — and four members ex-officio of the legislative branch
and five members ex-officio of the executive and administrative
branches. The first year that the estimates came before this board
it was unable to come to any conclusion and made no report except
such as was submitted through two officers of the board upon each
of whom was laid the responsibility independently for submitting
estimates with reports thereon.®
The unsatisfactory operation of the laws governing the admi-
*See laws 1913, ch. 281 — An act to establish a state board of estimate.
•The commissioner of efficiency and economy was required to make a careful
study of each office, examine the accounts, prescribe the form of submitting de-
partmental estimates and examine these statements, and make recommendations.
The comptroller was also required by law to prepare and submit to the legislature
estimates of revenues and expenditures. Both of these officers'perfonned the
duties required by law, but the "board of estimate" were unable to come to any
conclusion. Both of these officers were also members of the board of estimate.
32 The Annals of the American Academy
nistration of various states, within the last few years, has been the
subject of much popular unrest. In recognition of this dissatis-
faction several states have appointed commissions or committees of
inquiry for the purpose of ascertaining wherein the methods of
conducting business may be changed with a view to increasing
efficiency and economy. In 1912, Massachusetts and New Jersey
each appointed such a commission. In 1913, New York, Pennsyl-
vania, Minnesota, Iowa, Illinois and California appointed com-
missions or committees with instructions to report. Most of these
commissions have pointed to the irresponsive character of our state
governments; all of them have made recommendations.
Under the federal constitution the President is made responsible
to the electorate for the executive departments. It was the opinion
of President Taft, set forth in a special message to Congress, that
the President had the power, under the federal constitution, to pre-
pare and submit a budget, although, without constitutional change
or legislation, his proposals might receive no consideration. In the
states, however, the executive branch has been so far carved up into
independent jurisdictions that the governor could not obtain the
information or cooperation required to make an executive budget
effective. The only remedy is constitutional revision, which looks
toward executive reorganization as well as a definite prescription for
a budget.
New York, through its constitutional convention — the one
which has just adjourned — is the first state that has ever undertaken
to frame the financial measures of its constitution around the
''budget idea." The extent to which the convention succeeded in
injecting this idea into the constitution will appear from a reading
of the draft which in November will be submitted to the electorate
for their approval.
Budget Ideas Applied to Municipalities
The political consciousness of the duties of citizenship was first
awakened in the government of our municipalities. There, attention
was first given to matters of electoral reform and charter reorganiza-
tion. Later, through the organization of independent civic agencies
with staff equipment to inquire into matters of public business,
attention became centered on methods and results. Among the
first conditions which came to attention, after these agencies of
Budget Idea in the United States 33
citizenship began to direct their attention to details, was the fact
that the accounts did not provide the information needed to show
what the government was doing, how it was doing it, what results
were being obtained and what was the cost of results — whether good,
bad or indifferent. Furthermore, it was found that responsibility for
these conditions could not be located. The whole administration
had been carved up into little jurisdictions and the business put into
pigeon-holes and pockets in each of which some officer or subordi-
nate came to have what was regarded as a proprietary interest or
right to control. As a means of breaking down these many petty
jurisdictions and requiring information on standard hnes to come to
a central office where it could be summarized and coordinated, the
cities were led to adopt the same general method that had been
employed in the national government — namely, that of sub-dividing
appropriation accounts to such an extent as to force administrative
agencies to account in detail to the legislative committee charged
with the consideration of the appropriation bill. This detailed sub-
division of appropriation accounts has come to be called a "segre-
gated budget" — an evident misnomer. What the cities did which
developed a new appropriation procedure from the viewpoint of
enforcing accounting requirements was to confuse the "act of
appropriation" with a "budget." Since these legislative com-
mittees had no means of limiting administrative action in any other
way, they substituted a highly detailed appropriation for control
through a responsible executive by use of a "budget" under gen-
eral law requiring detailed accounts to be prepared and submitted
in support of the requests of a chief executive. This was only one
more step in the direction of government by limitations instead of
a step in the direction of responsible government with powers and
a means of enforcing accountabilities.
But in another respect this experience has been misleading.
The "budget idea" as it is here used assumes a responsible execu-
tive— in other words, such an idea cannot obtain in any jurisdiction,
municipal, state or national unless there is some one who is respon-
sible for executing the plans — for doing the things for which appro-
priations and revenue grants are requested. Where no such pro-
vision was made^to definitize and locate responsibility and where no
means was provided for enforcing efficiency and economy in admin-
istration what was called the "segregated budget" gained advocates
34 The Annals of the American Academy
through preventing officers from doing harm. The cities which
have adopted this means have been able to exercise control but they
have not been able to establish responsibility — in fact, the method
is one which stands in the way of enforcing responsibility for that
discretion in management which will make for efficiency.
Municipalities that have been attempting to make budgets
have suffered as much from charter provisions, passed on the theory
that the purpose of a charter was to keep officers from doing harm,
as have the states in their constitutions. For example, the city of
Philadelphia, which has done much toward working out the forms
and procedures of budget control, has not been able to make this
effective because, although it has a highly centralized executive
organization, the mayor is not made the responsible leader before
councils in securing measures for better administration — the comp-
troller is the only one who by charter is permitted to submit to the
board of aldermen the estimates and no one is required to assume
responsibility for a definite financial plan or proposal for the next
fiscal period. The finance committee on councils stands in the same
relation to the administration in this respect as does the committee
on appropriations of the national government. It is not until the
finance committee has completed its work that there is anything
officially before councils for consideration.
The charter of the city of New York constitutes a board of
eight members as the chief executive of the city, made up of the
mayor, the president of the board of aldermen, the comptroller,
and the five borough presidents. In this there is no provision for
the principle of solidarity of responsibility. Although the constitu-
tion requires that this board prepare and submit each year to the
board of aldermen a budget, it has never done so in the sense in
which the term ' 'budget" is here used. What it has done is to pre-
pare and submit each year in November an appropriation bill which
when enacted by the board of aldermen determines expenditures for
another year. Following the budget principle the board of alder-
men is not permitted to make any change except to reduce and in
this respect the charter has gone farther than in some other cities.
It is some months later that the revenue proposals come before the
city authorities. In any event the board of estimate and appor-
tionment of the city of New York never has prepared and submitted
to the board of aldermen a financial plan which will bring before the
Budget Idea in the United States 35
city a prospectus of what is proposed nor a statement of affairs
which will enable citizens or the board of aldermen to know what
is the financial condition at the time that a vote is asked for.
Conclusion
In conclusion it may be said that the "budget idea" is just
beginning to take hold of the American mind; that for a period of
one hundred and twenty-five years American political institutions
have been drifting steadily away from conditions which made the
successful operation of a budget principle possible — away from
responsible government; that the condition which is making possible
the introduction of this idea into our political system has been a
reaction against the results of irresponsible government, the political
boss, log-rolling methods, pork barrel legislation; that the "budget
idea" has finally come to be thought of as a constitutional principle
— one which has been used effectively for the purpose of developing
representative government and keeping it in harmony with the
highest ideals of democracy.
While this idea has but recently been made a part of American
political thinking it is one that is becoming rapidly absorbed and
made a part of our political philosophy. More than any other
principle of control, it is commanding the confidence and respect
of those persons in the nation whose influence is being felt in legis-
latures and constitutional conventions, and other assemblies
charged with the responsibility of redrafting our public law.
THE BUDGET AND THE LEGISLATURE
By Rufus E. Miles,
Director of the Ohio Institute for Public Efl&ciency, Columbus, Ohio.
Under the governmental institutions existing in this country,
the legislative branch of government has ultimate authority over
the public purse strings. Without its sanction in some form, no
taxes may be imposed or other revenue raised; while on the other
hand it may place such restrictions as it deems advisable upon the
purposes for which expenditures may be made, or the amounts
which may be expended for any particular purpose.
In many of our governmental units, this power of the legis-
lative body is exercised in a haphazard, hit-or-miss fashion, little
or no effort being made to take under systematic consideration the
financial policy as a whole. Regular appropriations, special appro-
priations, supplementary appropriations, deficiency bills, etc.,
follow one another in confusing sequence, with little thought of
where the money is to come from, the result being that nobody in
the community, not even the officials themselves who are presum-
ably responsible, have any intelligent idea of the existing financial
status or of the policy which is being followed.
Reduced to its lowest terms, budgetary procedure is coming to
signify a means through which this power may be exercised in a
systematic and intelligent manner, taking all factors into considera-
tion at the same time, or with relation to one another, and enacting
or determining upon, so far as possible, all legislation at once for a
given period.
The present article is not an attempt to add new contributions
of a technical character to existing discussions of the subject. If
it can by restatement present the main principles in such a way as to
be helpful to a wider understanding of them and of their application,
the writer's object will have been achieved. ^
^For more extended and technical discussions, the reader is referred to such
documents as Nos. 58, 59 and 62 of Municipal Research, published by the New
York Bureau of Municipal Research, the report 6f President Taft's Commission
on Efficiency and Economy entitled, The Need for a National Budget, and more
formal treatises.
36
Budget and the Legislatttre 37
The greater part of the following discussion is stated in some-
what general terms, being in the main intended to apply broadly to
all governmental units, whether federal, state, or local. Where
particular instances are cited, they will be chosen from conditions
with which the writer happens to be familiar, and for that reason
only.
It is a familiar fact that the financial operations of the govern-
ment are the reverse of those of private enterprise in one respect;
instead of regulating its expenditures by its receipts, government
to a considerable degree first determines upon its expenditures and
afterwards upon the methods of securing the funds with which to
meet those expenditures. Thus the budgetary procedure addresses
itself to two main questions:
1 How much money is needed for ascertain period?
2 How shall it be raised?
The advantage, if not the necessity of considering these two
questions together is readily understood. No matter how much
money is needed, there may be practical limitations to the possibility
of getting it. Such limitations may be legal, political, or financial.
MunicipaHties may be subject in their tax levies to the Hmita-
tions of a state law; elective officials, even when convinced of the
advisability of increased expenditures, may hesitate to raise the
tax rate because of its possible reaction on their political futures; in
spite of a desire to proceed with public improvements, financial
conditions may not be such as to enable the ready or advantageous
marketing of the necessary bonds.
On the other hand, if money is plentiful, '* needs" show them-
selves capable of expansion ad libitum or ad nauseam, according to
the point of view. Like an individual, government can at some
times and under some conditions "afford" to enter upon under-
takings which at other times and under other conditions it can not.
Other considerations may be instanced. Taxpayers may be
willing to agree to additional amounts for certain purposes, but not
for others. Where referenda on extra levies are involved, such pref-
erences may be decisive. Taxpayers have nearly always responded
favorably to appeals for the support of schools, but have only
recently begun to appreciate health needs. Legal limitations some-
times differ with reference to the purpose of expenditure. Thus it
often becomes necessary to specify what a proposed expenditure is
88
The Annals op the American Academy
for, in order to ascertain whether the money can be secured. To
some extent, therefore, the consideration of income and expenditures
simultaneously is unavoidable.
On the other hand, difficulties may be encountered in trying to
make this simultaneous consideration of income and expenditures
for a given period entirely complete. Emergencies of various kinds
may occur which it was genuinely impossible to foresee. The
procedure in connection with public improvements, especially where
assessments on benefited property are involved, does not always
lend itself readily to the same method of handling as the procedure
relating to current purposes. As far as possible, however, a com-
prehensive review of the whole financial situation and policy at
once is desirable, including both receipts and expenditures for both
current purposes and for public improvements.
The following diagram may serve to illustrate the logical rela-
tions of the main parts of budgetary procedure, although the chrono-
logical sequence may be different:
OxjTLmB OP Budget Scheme
Expenditure
Income
Budget
Proposal of kind and a-
mount of work to be done
and of amount of funds
needed therefor
Proposal of method of secur-
ing money with which to
finance proposed work
Legislative action
Act of appropriation (a)
authorizing and (b) limit-
ing expenditures
Revenue and borrowing
measures providing funds
for meeting expenditures
In the meaning most usefully employed, the budget itself is
primarily a proposal which leads to, or forms the basis of, legislative
action. To be; complete, the proposal should relate to both ex-
penditures and receipts, as contemplated. The legislative action
is thereupon directed on the one hand to the authorization and
limitation of expenditures, and on the other to providing the neces-
sary funds.
What shall the[]proposaI, or budget, contain? Who shall for-
mulate it? What shall be done with it in order to bring about
Budget and the Legislature 39
legislative action best calculated to promote an efficient public
service?
The contents of the budget should be determined by the use
to which the budget is to be put. If the budget is considered as a
proposal to be presented to the legislative body as a basis for legis-
lative action, then the budget should contain two kinds of material:
(1) The proposal proper, or request, as it may be called for
convenience, which indicates a tentative course of action for which
legislative sanction is desired, together with the facts upon which
it is directly based.
(2) Collateral information which will aid in the consideration
of the request and in the determination of how far it should be
granted.
In current practice, it is common to find only the former, and
even that in the barest outline. Mere letters dealing with expendi-
tures only, and saying in effect, "We want $ " with little
or no explanation or detail, are not infrequent.
Included as part of the proposal proper, or request, should be
data setting forth:
(1) What kinds of work are proposed to be done.
(2) What quantity of results of each kind of work are proposed to be accom-
plished.
(3) What quantities of personal service, supplies and materials, etc., are
estimated to be necessary to accomplish these results.
(4) The estimated necessary expenditures for these quantities of personal
service, supplies and material, etc.
(6) When the proposed expenditures, if authorized, will probably be made.
(6) The available sources of revenue.
(7) The estimated amounts which will or can be derived from each source.
(8) The purposes to which the amounts from these sources are applicable.
(9) When the amounts from each source will be available.
The collateral information should be such as to show:
A. Relating to past performance:
(1) What kinds of work have been done.
(2) What quantity of results of each kind of work have been accomplished.
(3) What quantities of personal service, supplies and materials, etc., have
been used in the accomplishment of these results.
(4) The actual expenditures for these quantities, etc.
(6) When* the expenditures were made.
(6) The sources from which revenues were obtained.
(7) The amounts actually derived from each source.
40 The Annals of the American Academy
(8) The purposes to which the amounts from these sources were devoted.
(9) When the amounts from each source were available.
B. Relating to present condition:
(10) What is the stage of progress of the work, and —
(11) What is the financial condition, both at latest convenient date and on
corresponding previous dates, with comparisons indicating changes.
C. Relating to future needs:
(12) What are the kind and extent of needs which should be met during the
coming period.
The degree of effectiveness which can be reached in marshaling
such material in close working relations is greatly influenced by the
periods for which the data are assembled and by the time at which
the budget is formulated.
It is obvious that the more recent the information as to past
experience, the greater is its value. It is an advantage, therefore,
when the date of formulating the budget follows closely upon the
end of an operative period.
On the other hand, it is equally obvious that the shorter the
interval between the formulation of the budget and the beginning
of the future period covered by its proposals, the more accurate its
estimates are bound to be.
It is the view of the writer that the maximum of effectiveness
might be reached if the budget could be formulated immediately
after the close of an operating period, the interval up to the time
when the new legislative action takes effect being bridged by an
authorization to expend on account, or to continue pro rata as during
the preceding period. Under such an arrangement, annual or
biennial reports will be pressed into immediate service, and demands
will be made upon them in the way of definiteness and accuracy
which will vastly improve their form and content.
It is readily seen that to provide the data above indicated for
budget purposes, systems of accounting and of service records are
required. Without such systems properly designed, the necessary
data can not be secured. It is not, however, within the scope of this
article to enter upon a discussion of these further than to remark
that they should be so devised as to enable expenditures and results
to be matched accurately for given periods.
Of direct bearing upon the usefulness of the information pre-
Budget and the Legislature 41
sented in the budget is the classification of accounts. If the classi-
fication of expenditures employed fails to make distinctions between
current operation and maintenance and those for capital outlay, it
will be impossible to pass inteUigent judgment upon the budget
proposals. It is important also that the classification employed be
flexible in appHcation, ranging from extreme condensation to ex-
treme detail and uniform for all departments.
The following classification of expenditures recently adopted
by the State Bureau of Accounting of Ohio is of interest as being
one of the latest developments in this direction.
Classification of Accounts
In order that the expenditures chargeable to the governmental
functions or organization units may exhibit the information desired
for administrative, statistical and other purposes, the expenditures
are classified according to character of transaction and subclassified
according to objects of expenditure.
Under each function or organization unit, the following cap-
tions denoting character of transaction are employed, the figures at
the left of each serving as a code designation:
010 Operation.
100 Maintenance of Lands.
200 Maintenance of Structures and Improvements.
300 Maintenance of Equipment.
400 Contingent.
450 Debt Service.
500 Outlay for Lands.
600 Outlay for Structures and Improvements.
700 Outlay for Equipment.
990 Refunds.
Under each of the accounts in the above classification, in order
that the object of expenditure may be denoted and separately
charged under a specific caption, the following group of accounts
may be used. The letters at the left of each serve as a code designa-
tion.
A. Personal Service.
B. Supplies and Material.
C. Contractual Service.
D. Contributions, Gratuities and Awards.
Suitable subdivisions in detail are provided for each of the
accounts, but cannot be given hero for lack of space.
42 The Annals of the American Academy
In brief, then, the budget should contain such material as will
in extent and form best enable it to present a definite working and
financial program for a coming period, supported by adequate data
for obtaining its approval by the legislature.
The question of who shall formulate the budget has been the
subject of no little discussion, into which this article can hardly
enter at any length. The views herein given are those of the writer,
and are offered without argument for what they may be worth.
From its character as a body of information leading up to and
supporting a proposed working and financial program, it would
appear that the budget should originate where the work is being
done and where the information is available, viz., in the various
departments of the executive branch. This seems not to be in
controversy.
By whom, however, shall the departmental data be reviewed,
modified, correlated, and united into a homogeneous whole?
Among the considerations in favor of placing this function in the
hands of the chief executive may be mentioned the following :
(1) By reason of the manner of his election, he represents the
entire citizenship and not merely a section of it.
(2) There is now an increasing tendency in city, state, and
nation, to hold the chief executive responsible for the policy of the
government as a whole.
(3) It is a part of the regular duty of the chief executive to
understand, correlate and supervise the work of the various admin-
istrative departments, which constitute the bulk of governmental
work.
(4) It would be loose organization to have such departments
dealing with the legislature independently of their chief, who is
responsible for them.
(5) When the program contained in a budget formulated by the
chief executive is approved by the legislature, the most definite and
concentrated responsibility possible is placed upon him to carry
out that program as set forth therein.
For such reasons, briefly stated, the writer agrees with those
who hold that the budget should be formulated by the executive
and be by him presented to the legislature.
In order that the budget may be kept within proper limits,
the departmental proposals should at one or more points be search-
Budget and the Legislature 43
ingly examined in the light of the supporting data, to see that a case
has been established, the burden of proof being considered to be on
the proposals. Who should conduct this examination and how?
The scrutiny should be made from two standpoints — one, that
of administrative efficiency; the other, that of general policy.
In view of the increasingly technical character of much of the
public service, it seems necessary that the examination into admin-
istrative eflficiency, to be effectual, should be conducted by a tech-
nically trained stafif. That such a staff is an indispensable adjunct
to the chief executive for the proper performance of his general
administrative duties is coming to be more frequently urged. If
such a staff constitutes a part of the executive's immediate organiza-
tion, and if the executive is charged with the formulation of the
budget as a single unified whole, the examination into the adminis-
trative technique of departmental proposals would most naturally
take place at that stage. In such event, the main responsibility
will come to rest upon the chief executive for ensuring that the
proposals embodied by him in the budget are sound so far as admin-
istrative method and plan are concerned.
With respect to proposed general policies, the chief executive
and the legislature may be expected to concern themselves almost
equally, the one as initiator and the other as critic. It is too often
the case that, for one reason or another, the action of one or the
other is little more than perfunctory. Both, however, should
conduct a thorough and systematic scrutiny of the proposals sub-
mitted to them. Their action thereon by way of approval or rejec-
tion will clearly locate official responsibility for the results.
So far as possible, the practice should be developed of the
executive and the legislature coSperating in their consideration of
problems calling for the action of both. Thus it would commonly
prove advantageous for the investigations and data of the executive's
technical staff to be rendered available to the legislature. Joint
sessions of the executive and the finance committee or committees
might well be found to expedite the consideration of the budget.
The chief executive should have an opportunity, if he desires, to be
heard, personally or by representative, in the legislative discussion
of his proposals.
The submission by the executive to the legislature of the bud-
get as a working and financial program raises several questions.
44 The Annals of the American Academy
Is it advisable to limit the powers of the legislature in dealing with
the budget? What shall be the form of the act of appropriation?
What conditions should be attached to the authorization conveyed
in the act?
It is urged that in dealing with the proposals contained in the
budget, the legislature be restricted to a reduction or elimination
of items, the argument being that there is a strong tendency to
''log-rolling" and "pork barrels" arising in large degree from the
sectional representation in the legislature.
The force of this argument would probably vary somewhat in
its application to different constituencies. It would apply, for
example, with less force to municipalities with councils or commis-
sions elected at large than to state governments. In the commission
manager type of city government, where the city manager is an
appointee of the commission and the commission is the legal pos-
sessor of all powers, such a regulation would be still less in point.
In the larger governmental units, however, it may well be found
desirable. A restriction which clearly should be imposed upon the
legislature in dealing with the budget is one preventing the imposi-
tion of ''riders."
When the legislature comes to act, the form of its appropriation
should be such as to impose only the restrictions necessary to ensure
the proper application of public funds, while placing the fewest
possible obstacles in the way of efficient administration. The
combination is not easy to arrive at, and is perhaps not the same at
all times or for all conditions.
Recent emphasis on the importance of the so-called budget,
meaning thereby the appropriation, has apparently led many to
suppose that everything can be accomplished through it. Func-
tions have accordingly been imposed upon it which it is not suited
to perform, and which should be performed by other instrumentali-
ties, such as a proper financial reporting system, standardization of
services and purchases, etc. Thus appropriations in minute detail,
while fulfilling the purpose of securing the proper application of
public funds, may and often do defeat the efforts of administrative
officials to achieve efficiency and economy. The abuses of "lump
sum" appropriations arose not only from the form of appropriation,
but also from the absence of proper accounting and reporting meth-
Budget and the Legislature 45
ods which would substitute facts in place of guesses as a basis for
discussing official policies.
From the standpoint of administrative efficiency, the presump-
tion is in favor of a wide freedom to get results, subject only to the
restrictions which experience has shown to be necessary to prevent
specific abuses such as pay roll padding, indiscriminate salary
increases, favoritism in appointments and promotions, closed or
vague specifications, purchases without due competition, etc. To
prevent such abuses, specific devices should be worked out which
will offer a minimum of interference with administration freedom.
The much longed for efficiency in government cannot be
obtained by securing experts and then tying them hand and foot.
The two courses are largely inconsistent. We have been led into
the tying method because we have not had experts with expert
standards; to prevent our tyros from making excessive blunders, we
have hobbled them. If now we propose to employ experts, as we
should, we must cut away the hobbling devices andjjenforce their
accountability by other and more grown-up means.
Nothing has thus far been said about the participation of the
pubUc in budget-making. The recent development of this factor
has been marked, and should be encouraged up to the hmit of
practicability. It goes without saying that full publicity should
characterize the budget proceedings from start to finish. Further
than that, however, the interchange of views between officials, both
executive and legislative, and the public as to the policies which
should be embodied in the program should prove of increasing value
to both, as the intelligence of the public, and especially of civic
organizations of various types, grows with reference to governmental
activities.
As has been pointed out in this connection, the right of petition
is as fundamental and valuable a citizen's prerogative as the fran-
chise and its systematic use as a factor in producing better govern-
ment should be encouraged. The more extensively improved
budget-making methods are put into operation, the better will be
the public's understanding of governmental policies, and the more
effective their participation is capable of becoming.
Much as has been said and written during the past few years
about the budget, we have not even yet come to a full realization of
its central importance. On the one hand, as advocates of social
46 The Annals of the American Academy
progress are continually reminded by experience, forward steps are
more frequently halted or delayed by alleged inability to finance
them than by direct objections to their merits. For social workers
and others favoring the extension of governmental functions an
understanding of the budget as the financial program thus becomes
essential. On the other hand, the extension of governmental func-
tions may well be looked upon with concern unless more effective
instruments of control are developed than are now in operation.
The contention that until government can do well what it does do,
it should not receive greater responsibilities, is too near the mark to
be ignored. Expansionists and conservatives alike, therefore, may
well turn their attention to the budget as the medium through
which to attain their objects; for the power to raise and spend money
is in practice the central power of government.
I
I
I
THE PROPER FUNCTION OF THE STATE BUDGET
By S. Gale Lowrie,
Professor of Political Science, University of Cincinnati.
The history of the development of representative government
is the record of a struggle for popular control of the public purse.
There is no principle upon which our political institutions are more
firmly based than that the public finances, both with respect to the
raising of revenues and the expenditure of state funds, should be
regulated by those upon whom levies are to be made. The great
land-marks of our constitutional history, the Magna Charta, the
Model Parliament, the Declaration of Independence, the formation
of the Union — all had their inception in the desire for a reform in
fiscal management. No nation has made a more constant effort
than have we to escape the perils of bureaucracy and to keep repre-
sentative the offices charged with the management of the affairs
of government, particularly those involving expenditures. Never-
theless, we stand almost alone among modern governments in that
neither our federal government, nor any state, has as yet installed
the most necessary device for regulating our public expenditures, —
a modern budget system. With the tremendous growth in the cost
of government, which the past decade has witnessed, caused chiefly
by the ever widening scope of our governmental activity, there has
been no little alarm because of the increased demand for revenues.
Most of our states have begun to take serious thought of the need
for new budgetary methods and we have ventured to hope that an
adequate fiscal system may be installed in our federal government.
Though attention has been drawn to the desirability of this reform
and several states have proposed changes, looking toward a better
control over public grants, no wholly adequate method has yet
been adopted. In fact we have hardly begun to think clearly
enough on the subject to know what may and what. may not be
accomplished through an adequate budget plan, or to know just
what sort of a budget plan is desirable.
The budget is the fiscal plan of the government. It embraces
an estimate of the receipts which are expected during the period
47
48 The Annals of the American Academy
imder consideration and of the expense of carrying out the program
of work contemplated. A most essential feature of any budget is a
budget balance — a close correlation between the state's receipts
and disbursements. Should the revenues of the government exceed
the authorized expenditures, a surplus will accumulate in the pubUc
treasury which not only represents an economic loss in taking funds
needlessly from commercial channels, but which, as the experience
of our federal government particularly has shown, invites extrava-
gance upon the part of succeeding legislative assemblies. On the
other hand, should the income of the state prove inadequate for
the program adopted, the governmental functions must be inter-
rupted and grants authorized be denied, or the services must be
carried on through borrowings which must be repaid with interest
at some future time. To establish a proper balance between esti-
mated receipts and disbursements requires the most intelligent
planning by persons possessed of the fullest information of the fiscal
affairs of the state. It is no sUght evidence of the skill with which
the British budget is prepared that in normal times, the discrepancy
between actual receipts and disbursements seldom exceeds IJ per
cent. Not only must a balance be established between income and
expenditure but a most careful scrutiny must be made of the work
to be undertaken to see that the available funds are distributed
wisely among the various state services. This can be accomplished
only where the planning body has an intelligent understanding of
the many phases of the state's activity and a definite program in
view.
The first essential of any adequate budget plan is the prepara-
tion of estimates. This is a highly technical duty and must be per-
formed by those most famiUar with the facts. For this reason the
best qualified officer to estimate the receipts is the auditor or other
person whose duties give him the fullest information respecting
state funds. The proper officers to prepare estimates of needed
appropriations are the department chiefs. They are the govern-
ment's experts in their respective fields. They have the most
intimate knowledge of the work in their charge and of the appro-
priations needed for their proper development. Consequently
every modern budget plan is based upon departmental estimates of
funds required, together with the estimates of anticipated income
from the official who best knows what the state will probably receive.
Function of State Budget 49
The accumulation of these data, however, is but the commencement
in the preparation of the state budget. From these recitals of
departmental requests, a state-wide plan must be evolved, wherein
one need is weighed against another, and the entire scheme of
expenditure compared with the plan for raising revenues, so that a
well-rounded program may result.
There has been some difference of opinion as to what officer or
body should receive the departmental estimates and prepare the
state budget. Some have considered it a duty which should be
performed by the chief fiscal officer, the auditor. Others have
thought it to be the function of the chief executive, while still others
hold that a committee, upon which these officers and members of
the legislature are represented, should discharge this service. There
is little doubt, however, in the minds of those who have given the
matter most serious consideration, but that the chief executive is
the proper officer for this task. The budget embodies the govern-
ment's fiscal policy. It is a definite proposal for legislative action.
It must be prepared by one thoroughly familiar with the govern-
ment's plan of activity, and familiar with the needs of the state
in its various branches. None other than the chief administrative
officer possesses the information necessary for the construction of a
proper plan, nor is any other official or body commissioned to pro-
pose legislative policies. Consequently, one can scarcely question
that it is the duty of the Governor in our states, and of the President
in our federal government to execute this task. But while it has
become an established practice in our cities for the Mayor to propose
the municipal budget, the practice has not as yet been followed in
our state or federal governments. The requirement that the Gov-
ernor prepare and transmit a budget is one of the most excellent
features of the proposed constitution for the state of New York.
It is made the function of the Governor of Ohio by statute, but as
yet fear of usurping a legislative prerogative has prevented the execu-
tive of this state from properly discharging this duty.
But, however wisely and carefully the budget may be prepared,
unless it is received by the legislative assembly in a spirit of codpera-
tion, little good can result. The appropriating body may disregard
<he expert estimates submitted to t and proceed on its own motion
') prepare a statement of what it believes to be the departmental
needs. This practice is followed in France and is the cause of much
60 The Annals of the American Academy
of the difficulty experienced with the system of appropriations of
that country. Or the state budget, instead of being considered in
its entirety as a great plan for the whole government, may be sep-
arated into parts and referred to distinct committees. This is the
practice in our federal congress, where in the lower house alone,
appropriation bills are considered by eight different committees.
It is also a vice of the French system. Whether the legislative body
be unicameral or bicameral, whether it sit as a committee of the
whole or act through sub-committees, it is essential for any well-
rounded plan that all phases be considered together. No in-
telligent plan embracing the entire state can be formulated or
approved unless all the anticipated receipts and all the contem-
plated expenditures are viewed at the same time by the joint legis-
lative assembly, or by a single joint committee.
The practice which has been followed in our federal govern-
ment, and in our states, has signally failed because the most essential
feature of state-wide planning has been lacking. It has been
assumed that it is the function of the legislative assembly to propose
the appropriation measures. In some way, it has been thought
that this method assured a control of expenditure more in keeping
with popular desire and that a check on the extravagance of admin-
istrative officials might thus be maintained. But our experience
with the plan of legislative initiation has not been a happy one.
The reason is simple — the preparation of the budget requires a
minute insight into the affairs of the state departments, which the
legislature does not have, and a skill in planning for the development
of these agencies which the members can not easily acquire. By
its very form, the legislature must be an approving, rather than an
initiating body. Initiation must be an individual act. To require
legislative initiation is to demand that some delegated member pro-
pose a plan for approval, and no member of the legislative assembly,
with the machinery at his disposal and with his hmited experience,
can prepare a proper fiscal program.
The first step then in the making of a budget is the formation
and submission of a plan by the executive for the support of the
state service for the fiscal period. This is effected by the trans-
mission of estimates prepared by the various departments and so
adjusted as to make a harmonious plan for the whole state. The
second step is the criticism and approval of these plans by the
Function op State Budget 51
appropriating body, keeping in mind always the resources and the
entire demands to be met by the public treasury. The third step is
the passage of the appropriation act, which is the authorization of
the legislative body to spend. When this has been granted, the
evolution of the budget is nearly completed. There remains but
the function of the auditor in determining that the actual expendi-
tures have been used for services authorized by the legislature.
One of the reasons we have made so little progress in
budgetary matters in this country is that we have not had a clear
idea of what a budget system really involves and just what we may
reasonably expect to accomplish through its use. In fact the
question might well be raised as to whether we have not done more
to promote ignorant, corrupt and inefficient government through
the adoption of ill-devised appropriation systems than to establish
economical and intelligent government by the adoption of rational
methods of granting funds. It is therefore as important to note
what a proper budget plan should not include, as to mark its chief
essentials.
An appropriating law which specifies in great detail the pur-
poses for which alloted funds may be used, does not, by virtue of
this feature, become a budget system; nor does the incorporation
into the appropriation bill of restrictions as to the use of funds make
a state budget; nor the inclusion of provisions that grants are to be
available but for one year produce this magic device for efficiency,
though many administrations have boasted the installation of a
modern budget system because of the inclusion of one or more of
these most undesirable elements. A budget is an orderly arrange-
ment of data embod)nng the estimated needs of governmental
services for the fiscal period, accompanied by a request, preferably
in the form of a bill, for authorization to spend public funds in
accordance with the plan set forth. A proper budget contains all
the information which the legislature can use in order to enable it
to come to a proper understanding of the government's needs. The
departmental estimates revised by the submitting authority to fit
the requirements of the state-wide plan, records of previous costs
for like services and such other data as will justify the requests will
all be contained in these documents. The appropriation law is not
the budget, but is the authorization to spend granted by the legis-
52 The Annals of the American Academy
lative authority after a perusal of the information contained in the
budget.
A common difficulty found in our appropriating systems as
they are operated in our American states arises from the fact that
too many things are expected of the appropriation law. Not only
does the legislature attempt in this act to present a plan of work for
the administrative departments, but to correct payroll abuses, pre-
vent improper purchases, provide a reporting system and what
is thought to be a more efficient organization of administrative
departments. All this is attempted by conditioning the grants
so that funds are available but for certain purposes which are speci-
fied in considerable detail. To take an illustration from the last
general appropriation law of the State of Ohio, we read:
DEPARTMENT OF PUBLIC INSTRUCTION
♦Personal Service:
A 1. Salaries —
Superintendent $4,000 .00
Assistant superintendent 2,500 .00
2 high school inspectors 4,000 .00
6 high school inspectors half time 6,000 .00
Chief clerk 1,750.00
Examination clerk 1,800 .00
2 stenographers 1,440 .00
Filing clerk 900 .00
Statistician 1,500 .00
Messenger and shipping clerk 840 .00
88 county superintendents 85,000 .00
450 district superintendents 270,000 .00
72 normal school supervisors 72,000 .00
Total $451,730.00
♦106 Ohio Laws (1916), 699.
Such detail can contribute nothing but confusion when in-
serted in an appropriation law. It substitutes for expert services
comparative ignorance in the organization of departments. The
state's experts in their respective fields are the heads of the depart-
ments. They are the ones best fitted to judge of the machinery
necessary for their work. Certainly the members of the legislature
who sit through but a short session, and are comparatively un-
acquainted with the duties of the departments, can not safely be
Function of State Budget 53
trusted to provide an organization for accomplishing the needed
work. The assembly can decide what funds are available for the
department or service, it can decide what functions it considers
of greatest importance, but it is in no position to determine whether
fewer inspectors or more equipment are required. This is an ad-
ministrative, not a legislative, question, and can not be properly-
solved by a legislative body.
The itemizing of the appropriation law is productive of many
difficulties: (a) It divides responsibility. The head of a department
should alone be accountable for the economical and efficient conduct
of the affairs of his office. Within the appropriation allowed him,
he should perform the duties required by law to the best of his
ability. He can do this only when he has free rein in the organiza-
tion of his force for the work it must do; (b) It does not properly
care for emergencies. Our state legislatures do not follow the
practice of meeting at frequent intervals. The appropriation bills
once passed must stand for one or two years just as they are made.
No matter how skillfully the estimates may be prepared, unlooked
for developments are certain to make some adjustments desirable.
But a detailed appropriation law contemplates no such contingency.
When difficulties arise funds must be forthcoming from some central
contingent account or the state service must suffer because an
important function is neglected. In Ohio, the detail with which
appropriation laws have been made has required a frequent resort
to the contingent fund. Services denied adequate support by the
legislature have sometimes been given grants in this way; (c) It
produces extravagance. When a saving in one service can be util-
ized for another purpose, an incentive to economy is provided.
When funds must be expended lest balances lapse, there is little
motive for economy. But the greatest danger is that an inadequate
appropriation will force a department to discontinue an important
service. A plan which allows administrative officers to use the
funds allotted them with but slight legislative restraint through
the appropriation law, but which requires careful planning by the
department and a compliance with that plan, is in the long run the
most economical.
A reason frequently urged for the insertion of detail in appro-
priation laws, is that it is necessary to prevent deception on the part
of administrative officers. It is apprehended that funds may be
54 The Annals of the American Academy
secured from the legislature by urging the needs for one service, but
that the grants when allowed may be diverted for other purposes.
It has been this practice which has done more than any other to
fasten a system of detailed appropriations in our fiscal system.
Were it necessary to rely wholly upon the appropriation law
to control administrative officers, the argument for detail in appro-
priation might rest on firmer ground. But it is one of the poorest
methods that could be devised for this purpose, because this gives
legislative control of what is essentially an administrative function.
The best budgetary plans we have in this country are found in
connection with private businesses, but who knows of a successful
corporation which employs expert administrators and so hedges
about their movements that their skill can not be used to advantage?
Our cities furnish our most perfect examples of public budget sys-
tems, yet the best models of appropriation ordinances, as found in
such cities as New York, Philadelphia, Cincinnati and Dayton,
contain no such detail. Reliance is placed rather upon other agen-
cies designed through administrative guidance to effect these econo-
mies. The question of the best organization of departments can
better be settled through an efficiency bureau cooperating with a
civil service commission. A properly conducted purchasing depart-
ment will check abuses in the purchase of supplies and utensils;
and the budget itself rather than the appropriation law is the proper
place to exhibit the government's plan.
When the legislature has determined what the state can afford
to expend for a given service, the question of planning the most
economical use of these funds to accomplish the work which the legis-
lature wishes performed, can best be done by administrative officers.
Administrative officers should be required to submit a working
program showing with considerable detail how they propose to
employ appropriations granted, nor should expenditures be ap-
proved for purposes not on this sanctioned program. In case of
emergency, it should be possible for the administrative officers to
amend their program, if they can show that the funds at their
disposal can under new circumstances which have arisen be used
to greater advantage in a different way. Administrative safe-
guards should, however, be thrown about such changes to insure
the continued use of these grants within the general purpose of
their allotment. Such a plan will encourage rather than prevent
Function of State Budget 55
the use of expert planning for the most judicial expenditure of
public funds and locate responsibility upon administrative oflBcers
for the wise use of appropriations.
Such a budget system will provide in the first place for proper
planning; a planning which for each department will provide a
program and, when departmental estimates are assembled, will pre-
sent for the state as a whole a comprehensive outline for the year's
work. It will show a correlation between revenue and expenditure
and the amount it is proposed to use for one service in comparison
with the sums available for other purposes. It will be a plan made
out and approved by the state's experts, those who have had ex-
perience in the actual administration of the state's affairs and are
most familiar with the public needs. Secondly, such a budget
system will give the legislature and the general public full informa-
tion as to the fiscal affairs of the state and will be a means whereby
the administrative officers may be called upon to justify their ad-
ministrative acts and give an account of their stewardship. Plans
for the coming year must be presented and approved and submitted
to the closest public scrutiny.
It centers responsibility because the administrative oflficials who
must carry out the plan are charged with its preparation. The
working plan is one prepared by the responsible administrative
oflficial, not by a legislative committee which has nothing to do
with carrying out the functions for which funds are provided and
may be in ignorance of the machinery most needed for this work.
It provides for emergencies. A detailed appropriation law restricts
closely the use of funds for a period, sometimes thirty months after
the law is passed. It is difficult for even the most skilled adminis-
trative officers to plan with such accuracy for so long a period.
With new state services, certain planning is impossible. A proper
budget system allows a change in the detailed use of funds to meet
emergencies as they arise without changing the purpose for which
the legislature has allowed the grant. Such a budget system does
not allow the legislature to do administrative work, such as
providing for the organization of departments, the amount of sup-
plies or material, or specifying kinds to be utilized. It establishes
the legislature as a body of approval, rather than of initiation, which
determines governmental policies, rather than engages in the work
of carrying them out.
I
56 The Annals of the American Academy
The proper budget plan should provide for the established
services of the state. The appropriation law should not be utiUzed
for reorganization purposes. When the legislature has established
a service or organized a department by the passage of a law through
the action of both houses of the legislature and the approval of the
executive, such a service should be maintained as long as it is the
law. It should not be competent for the executive or one branch
of the legislature to destroy the service by failure to provide for its
proper maintenance. But an appropriation system which requires
the concerted action of the Governor and each house of the legisla-
ture at each session to maintain state services is faulty, in that it
places the most important legislative functions under the control
of any group which can influence the Governor or can control a
majority in either house, or in states which require a two-thirds
vote on appropriation laws, more than one-third of the membership
of either house. Under such a system, the Governor of Wisconsin
could have re-organized the state services by the abolishment of the
Legislative Reference Bureau, which has done such valuable work
in that state. But that this was not the will of the people of the
state or their representatives is indicated by the fact that this pro-
posal received the support of but eight of the one hundred and thirty-
three members of the two houses. Yet under the system of annual
appropriations, where the Governor proposes the budget and the
legislature may not provide for services he neglects, or under the
plan in vogue in many states with annual appropriations where the
Governor may veto items, this department would have been entirely
aboUshed. The plan of annual appropriations places the presump-
tion upon the discontinuance of services, rather than upon their
maintenance, but when the regularly constituted law-making author-
ities create departments, or allot functions, it is reasonable to sup-
pose that it is the popular will that these services be adequately
cared for until the law is changed. To carry out such a plan,
however, a system permitting continuing appropriations is essential.
Probably the greatest evil resulting from the periodical appro-
priation plan has not been the abolishing of state departments or
services, but the political control which is exercised over them by
the threat of such action. There are in our state services many
departments designed to be independent of the legislature or the
chief executive. The judiciary is supposed to be such an independ-
Function of State Budget 57
ent branch. Frequently the controller is chosen by election in
order that his actions may be free from executive restraint. Other
devices are installed to free semi-judicial and administrative depart-
ments from executive dominance. We create bi-partisan or non-
partisan boards, provide that the terms of their members shall
expire at different times, in order that no administrative ofi&cer shall
control these departments by virtue of his appointments. It is
customary to organize civil service commissions, public utility
commissions, public health boards and boards for the control of
the state institutions in this way. However, the independence
which we wish these departments to exercise is lost in a system
where the favor of the chief executive or of a faction strong enough
to control one legislative branch must be cultivated. In fact the
most insidious form of corruption is found under such a system,
because it is so little understood, and influence can be exerted of
which the public is ignorant. The virility of the departments given
police functions is taken away, because these agencies are afraid
to make enemies lest the limited funds placed at their disposal
weaken them to such an extent that their usefulness will pass and
the justification for their continuance be lost. A public service
commission fears to incur the enmity of the railroads or public
utility corporations which usually maintain lobbies in our legislative
halls strong enough to jeopardize the appropriation upon which the
commission is dependent. In a similar way, the activities of agri-
cultural commissions or organizations charged with the enforcement
of pure food laws, or departments having other phases of public
health work to do, must be shaped so as not to incur the ill-will
of those who may be in a position to retaliate through the use of
their influence with the executive or the legislature. We have
constantly endeavored to keep our universities and larger public
institutions of the state "out of politics," but when these institutions
uust fight for their lives at every session, they are forced into
politics in order to maintain themselves. Yet the appropriation
systems of many of our states require annual or biennial grants
and two-thirds of them attach to this plan the power of the Gov-
ernor to veto items in appropriation bills, which power ex-Presi-
dent Taft, with his general knowledge of political agencies, thinks
"might be made an instrument of very considerable influence."
A system of annual appropriations is faulty again, in that it
68 The Annals of the American Academy
does not permit planning over a period of years. The ordinary
budget calls for a plan for one or two years. We are learning slowly
in this country that great political organizations require, as do great
industrial organizations, careful planning over a long period of
years. We are awakening to this fact in our cities and are providing
for city planning commissions. Every one familiar with the prac-
tices of industrial corporations knows that improvements are con-
sidered and held in mind forming a program covering a num-
ber of years. The expense of administering our large public in-
stitutions and the wastefulness due to what appears to be short-
sighted policies can be largely attributed to this lack of planning.
Consequently an adequate appropriation system must allow those
in charge of these institutions to know with some certainty what
funds will be available in the near future for the development of con-
templated projects.
The objections which are most frequently raised to a system of
permanent appropriations are that the permanent appropriations
are not taken into consideration when the legislature considers the
immediate appropriations of the state, and that appropriations
established by permanent laws are too difficult to change. The
first objection arises because of the popular error of confusing the
appropriation law with the budget, and trying to use this statute as
a fiscal plan. The error of such a method has already been pointed
out. When the fiscal plan is presented as it should be through the
budget documents, no difficulty can be found in noting in this plan
what appropriations are already provided for and what still require
legislative sanction in order to put the program of expenditures into
effect, or where amendments to the permanent appropriation statutes
are required. The difficulty of change is more a virtue than a
fault, and it is not unreasonable to assume that when the legislature
and executive have been convinced of the uselessness of further
appropriations, the law authorizing the grant may be amended or
repealed as easily as it was enacted in the first instance. Certainly
the presumption should be that a state service created by law should
be maintained until the law is changed. It should not be competent
for any body with less authority than the legislature to nullify the
law by refusing appropriations.
This is not a unique or untried plan which is advocated. It
obtains in many of our states, it is followed for some appropriations
Function of State Budget 59
of the federal government and is to be found in certain services
provided for by that model of modern budgetary systems, the British
budget. The British budget has a number of items, which are
permanent charges upon the consolidated fund, and annual grants
by parliament are not required. Among such services, we find the
interest and sinking fund of the national debt, and salaries and pen-
sions of judges. The existence of such a system in Wisconsin has
contributed as largely as any factor in making that state a model of
administrative government. The Wisconsin Railway Commission
could not have done its effective work had it been subject at each
session to the control of those who constitute a minority among the
people in the state, but who were frequently powerful enough to
control one house of the legislature, or who have been supported by
the Governor. Except for the system of permanent appropriations
this Commission would many times during the comparatively few
years since its creation have been abolished or rendered powerless to
perform its functions. The University of Wisconsin could not have
maintained its enviable position were ,it dependent upon annual
grants; and the service, which it has so admirably rendered to that
state, as well as to the entire country, would have been greatly
curtailed. Examples of the evils of the annual appropriation
system occur to every one who has been at all familiar with legis-
lative practices in states following this method. We can scarcely
expect strong and independent administrative organizations imtil
we can provide some method for supporting them, which will
guarantee their maintenance as long as the people of the state are in
sympathy with their work.
It is unfortunate that the new constitution of the state of
New York, while providing so acceptably for the submission of an
executive budget, denies the legislature the right to appropriate
funds for a period longer than fifteen months, and gives the Gov-
ernor so complete control over the actual shaping of the appro-
priation measure. When such power is centered in one official, a
system of permanent appropriations for established services is even
more essential to prevent the chief executive from assuming legis-
lative prerogatives through his control over public grants.
In our attempts to better our state government, we have been
prone to apply the lessons we have learned in the government of
cities. This is a very natural and in many respects a commendable
60 The Aiwals of the American Academy
practice, because the municipalities of this country are far in the van
in the crusade for efficient government. They are almost alone
among our public bodies in being provided with budget systems,
central purchasing agencies, standardizing bureaus and similar
devices designed to secure a better government at less cost. But
when institutions which have proved effective in cities are imitated
in the state, it is important that differences between city and state
governments be noted. The constituency of the city administra-
tion being much more contiguous than that of the state, can more
easily inform itself of the actions of the executive and legislative
officials and pass an intelligent judgment upon them. These public
servants become more responsive to public opinion because pubUc
opinion is more definite and ascertainable. Opportunity for con-
ferences between citizens and officers is greater and adjustments
more easily made. The city council meets frequently, usually
weekly and can be summoned for extra sessions within forty-eight
hours with little additional expense. In most of our states the
state legislature meets but once in two years and adjournment is
usually taken after a short session for a two month period. Special
sessions are inconvenient and expensive. The legislative body of an
American city is with few exceptions unicameral and though this
form has been considered for our state governments, it has as yet
been nowhere adopted.
But what is possibly a more important distinction between state
and municipal government lies in the widely different powers which
the legislative departments of these governmental units possess.
The legislature of a state is concerned, perhaps chiefly, with the
enactment of laws affecting the rights of individuals in their rela-
tions with each other, or with the state. Secondly, it possesses the
power, within the restrictions of the constitution, of organizing the
administrative departments of the state and establishing machinery
for the performance of governmental functions and determining
what program of activity shall be followed. Thirdly, it provides
for financing state services, decides by what method public funds
shall be raised, how much is needed and the purposes for which the
public money shall be used. The authority granted a city council,
or other legislative organ of a municipality, is much more restricted.
Its power to pass ordinances affecting personal rights is of too re-
stricted a character to be comparable with the power lodged with a
Function of State Budget 61
state legislature and is chiefly administrative in character. The
city council usually has relatively little to do with the administra-
tive organization of the municipality. The only limitations on the
state legislature are those found in the constitution; the city council
is restricted by the city charter and by state laws. These latter
with considerable more minuteness provide for the administrative
organization of the city and confer powers and duties on these
departments for which no action by the legislative authority of the
municipality is required. Only state law, or, in most cases with
home-rule charters, action by the people, can effect a change.
When, therefore, an executive officer presents to the state legislature
a budget, the body from which appropriations are asked is the one
which can adopt policies changing completely the form of adminis-
trative organization or the functions of the departments, it can take
away or add to their powers and duties. Until the extent of the
change in administrative organization and functions is determined,
accurate budget planning must wait. But with the preparation of
the city's fiscal program such a difficulty is seldom confronted and
budgetary procedure becomes far less complicated. Consequently,
in endeavoring to shape systems of state organization from our
municipal experience care must be taken that institutions be prop-
erly adapted.
The last administration in the state of Ohio came into power
with an extensive program for legislation calling for adminis-
trative re-organization. The functions of many isolated depart-
ments dealing with agriculture were focused in a newly created
agricultural commission. An industrial commission was organized
to deal with affairs affecting primarily industrial relations. The
Public Utility Commission was re-organized and given greater
powers, and the Civil Service Commission was created pursuant to
constitutional amendment. Even though his influence over the
legislature was very great, the Governor was not entirely successful
in prosecuting some of his original re-organization plans, and it was
uncertain until the legislative days drew to a close just what form
some of the administrative re-organization laws would take.
The present administration had an extensive program for re-
organization. It wished to change the form of the Civil Service
Commission, the Agricultural Commission and the Liquor License
Commission. Yet the fate of the measure organizing this last Com-
62 The Annals of the American Academy
mission was determined the last day of the session, and the re-
organization plans for the other departments were pending until
late. In Wisconsin, the Governor had plans for combining all
educational institutions under a single board of education, and
of radically changing the Tax Commission, yet he was unable to
secure legislative approval of this program. It should not be
competent for the Governor to force such a re-organization by his
method of compiling the budget, nor should he be given such power
over legislation as this control over appropriations accords him.
We have justified an increase in executive power, because we
believe that in this way, we can locate responsibility, and that
knowledge of this fact will deter officers from the commission of
acts which will not meet with popular approval. We have admired
the parliamentary system of government because it is "responsible.'*
For every official act, censure or praise may be definitely located.
But the responsibility of the British government goes farther than
this. In case any act is contemplated by the British government,
which it is thought may not meet with popular approval, the
question is determined immediately' by an election. Should it
eventuate that the proposed action of the government is not
supported by the people, this fact is at once apparent and the new
government which results will shape its course on this very
question in conformity with the popular will. The people are
thus provided with machinery to prevent the government's ac-
tion and so avoid the consequences of what it is believed will
prove an unfortunate policy.
In our government, however, location of responsibility means
fixing of blame. We cannot determine, except in some instances
through the use of the referendum, what will be the popular judg-
ment on any issue. We must wait until a periodic election presents
opportunity for approval or censure of official acts. Then the
judgment expressed is not a judgment formed upon any single issue,
but an estimate of the actions of the executive of which we ap-
prove and of those which we censure. We form our judgment by
determining the relative weight of these issues. Irreparable
damage may have been done before the person *' responsible" may be
checked and the accounting to which he is subjected is usually
limited to jeopardizing the chance of his reelection should he again
stand as a candidate before the same constitutency. A business
organization could not operate under such a system. While it holds
Function of State Budget 63
its officers responsible, it does not give them power to administer
corporate affairs in violation of the desires of the stockholders. A
control is exercised in time to prevent abuses. Dependence is not
placed on possible punishment for mistakes.
The development of most of our poHtical institutions has come
about by an adaptation of governmental devices which seem to ope-
rate elsewhere in an acceptable manner. But we should incorporate
these innovations only after a careful study convinces us of their
acceptability, and a close analysis of our own institutions proves
them capable of being patterned after the model we admire. We
cannot safely rely on temporary appropriations in this country even
though that practice may be followed in certain countries which
have responsible ministries. Nor can our officials be made respon-
sible in that same sense until we make a rather complete change in
our plan of government. But it is possible to install in our state
and federal governments, systems which will perform adequately
the proper functions of a modern budget without subjecting us to
the dangers of such ill-advised reforms as have been noted.
There is no more important reform than the installation of an
adequate budget system in our state governments. Only in this
way can the affairs of government be conducted efficiently, eco-
nomically and in a way to permit of an orderly development. That
a budget system will prevent the constant increase in the cost of
government, in accordance with a belief frequently expressed, few
who observe the constantly expanding functions of government
dare hope. It will, however, require that these developments be
made in accordance with a well considered plan; a plan prepared
by those most familiar with the government service and approved
by the representatives of the people acting with full information
and with the entire program of the state's needs in view. But
these advantages will be secured at too dear a price if we confer
initiative powers on our law-making bodies, or fail to protect the
great institutions and services of our states from those who, repre-
senting a minority of the people, would seek to coerce them by con-
trolling their funds. We must guard against these dangers while
endeavoring to secure the advantages which may accrue through a
reform in our fiscal plan. The proper function of the budget is not
the reorganization of the state%er vices, but the presentation and
adoption of a plan in fiscal affairs which will insure the most judicial
use of the resources of the state for the purposes most desired by the
citizens of the state.
THE BUDGETARY PROVISIONS OF THE NEW YORK
CONSTITUTION
By Charles A. Beard,
Professor of Political Science, Columbia University.
It may be truly said that the New York Constitutional Con-
vention of 1915 marks a new epoch in the history of budgetary
procedure in the United States. The general subject of financial
administration has, of course, received serious consideration at
various times and places, and public attention has occasionally been
aroused by particular fiscal scandals such as those which were
attacked by Governor Tilden of this state more than a generation
ago. Sometimes, also, a constitutional convention has bestowed a
passing glance upon the fiscal problem while wrestling with the
mighty matter of the separation of powers; but never before has
the whole question of financial administration in all its ramifications
and in all of its implications received a thoroughgoing and syste-
matic consideration at the hands of a constituent assembly. Never
before has there been a responsible citizens' agency, like the Bureau
of Municipal Research in the city of New York, equipped with a
staff of men trained in finance, accounting and administration and
prepared to make for a convention long and searching investigations
into all of the intricacies involved in budget procedure. In other
words, the conditions surrounding the formation of the New York
constitution of 1915 were such as to guarantee a more thoughtful
review of finances than ever before in the history of state constitu-
tion-making in the United States.
Those who are famihar with European budget practice, who
have read their Lowell, Stourm and Duguit, know very well that
the budget is no simple matter of bookkeeping — that as Gladstone
said — "budgets are not merely affairs of arithmetic, but in a
thousand ways go to the root of prosperity of individuals, the
relation of classes, and the strength of kingdoms." The budget
is the very heart of the governing process; it involves fundamental
problems in administrative organization, in public policy, in legis-
64
Budgetary Provisions of New York Constitution 65
lative responsibility, and in political leadership. Sound budgetary
procedure cannot be injected into the hopelessly disorganized
governments of American commonwealths. It requires a thorough-
going reconstruction, even of the very elemental parts of the govern-
ment framework.
It was in recognition of this fact that the Bureau of Municipal
Research in preparing to make recommendations to the New York
Constitutional Convention not only took into consideration the
problems of appropriations, debt, sinking fund, deficits, and taxa-
tion, but also began at the same time the most painstaking and
minute study of administrative structure that has ever been made
in this country. This administrative study was undertaken in
connection with the state Department of Efficiency and Economy
and resulted in the publication of a truly monumental description
of the organization and functions of the New York government.
This volume, which was prepared for the state Constitutional
Convention Commission, was issued early in 1915.^ After its
publication, the Bureau of Municipal Research prepared a critical
''appraisal" of the system from the point of view of efficiency,
economy, responsiveness and responsibility in government. In this
second work the Bureau pointed out the necessity of establishing any
sound budgetary law and practice upon a legislative and executive
organization which would secure official responsibility for public
pohcies and public work.^
Having thus laid both the fact and the philosophic basis for a
scientific budget system, the Bureau prepared a series of bills em-
bracing the following features:
1. The appointment of the heads of the great administrative departments
by the governor, although several officers, owing to poHtical exigencies, are left
elective;
2. The estabhshment of a governor's cabinet, composed of the executive
heads of the administration under the governor as chief executive;
3. The organization of a governor's staff to serve as a research and investi-
gating agency for the chief executive;
* The volume is entitled Government of the State of New York; A Starvey of Its
Organization and Functions. A limited number of copies may be secured from the
Bureau of Municipal Research for $1.00.
•Published under the title of "The Constitution and Government of the
State of New York. " May, 1915, issue of Municipal Research. Can be procured
from the Bureau for $1.00.
66 The Annals of the American Academy
4. The initiation of the budget by the governor;
5. The right of the governor and his representatives to appear before the
legislature to submit, explain and defend administrative measures;
6. In case of the refusal of the legislature to pass such measures, the right of
the governor to dissolve the legislature and submit the issue to the voters;
7. A constitutional procedure for locating responsibility and for giving
pubhcity to the discussion of all issues which arise, whether they pertain to admin-
istrative measures or the bills of members. In other words, to do away with
invisible government by establishing visible government.
These measures, the representatives of the Bureau supported
at the hearings before the Constitutional Convention committees
and the principles thus laid down, were with some exceptions,
elaborated and defended by a number of gentlemen eminently
qualified to speak upon financial administration.^
It was not expected that the Convention would accept this
somewhat radical program in its entirety, but Article V of the new
state constitution, while omitting two or three fundamental matters,
includes such a large part of it that it may be justly said to constitute
the beginning of a new era in state fiscal administration, whether
adopted or not. This article falls into five main divisions.
In the first place, it vests the initiation of certain parts of the
budget in the governor. It expressly excludes from his control,
however, the legislative and judicial appropriations. This much
is clearly set forth but there is considerable difference of opinion as
to the exact limits of the remainder of the state appropriations
which are to be initiated )3y the governor. The opening paragraph
of the article in question provides that the head of each department
of the state government shall submit to the governor
itemized estimates of appropriations to meet the financial needs of such depart-
ment, including a statement in detail of all moneys for which any general or special
appropriation is desired at the ensuing session of the legislature, classified according
to relative importance and in such form and with such explanation as the governor
may require.
Whether this provision would cover all of the appropriations
coming under the general jurisdiction of the several departments,
including special and local appropriations as well as those for purely
departmental purposes, is now a matter of hot debate. The friends
' The records of these hearings have been pubhshed by the Bureau of Munic-
ipal Research in two volumes — "Budget Systems " and "State Administration, "
Nos. 62 and 63 of Municipal Research, to be secured from the Bureau at $1.00 each.
Budgetary Provisions of New York Constitution 67
of the proposition contend that under it the governor is responsible
for covering in his budget substantially every item which does not
specifically fall within the province of the legislative or judicial
appropriation.
In the second place, Article V provides that the governor shall
take the estimates (which are to be prepared for him by the depart-
ments on or before the fifteenth day of November in each year),
hold public hearings thereon, revise them according to his judgment,
and then submit to the legislature, on or before the first day of
February, a budget containing a complete plan of proposed expendi-
tures and estimated revenues. In addition, it must contain all
estimates so revised or certified and shall be accompanied by a bill or bills for all
proposed appropriations and reappropriations, clearly itemized; it shall show the
estimated revenues for the ensuing fiscal year and the estimated surplus or
deficit of revenues at the end of the current fiscal year, together with the measures
of taxation, if any, which the governor may propose for the increase of the revenues.
It shall be accompanied by a statement of the current assets, liabilities, reserves
and surplus or deficit of the state; statements of the debts and funds of the state;
an estimate of its financial condition as of the beginning and end of the ensuing
fiscal year; and a statement of revenues and expenditures for the two fiscal years
next preceding said year, in form suitable for comparison. The governor may,
before final action by the legislature thereon, amend or supplement the budget.
In the third place the measure provides for a system of inter-
pellation to be elaborated by legislative action. The constitution
stipulates that the governor and the heads of all departments shall
have the right, and it shall be their duty, when requested by either
house of the legislature, to appear and be heard in the matter of the
budget and to answer all inquiries relevant thereto.
In the fourth place the legislature may not alter an appropria-
tion bill submitted by the governor except to strike out or reduce
items therein. When the bill has been passed by both houses, it
becomes a law without further action by the governor, except that
appropriations for the legislature and judiciary (which are included
by the governor in his budget as a matter of form) are subject to his
veto in the regular course.
In the fifth place, the power of initiating ''further appropria-
lions" is vested in the legislature, but it is provided that such
appropriations shall not be considered until the governor's entire
budget is disposed of. Moreover, it is stipulated that further
appropriations shall be made by separate bills each for a single work
68 The Annals of the American Academy
or object, and that such bills shall be specifically subject to the
governor's veto.
In the sixth place, as a means of checking somewhat the time-
honored practice of log rolling, section 21 of Article III dealing with
the legislative power provides that:
No public moneys or property shall be appropriated for the construction or
improvement of any building, bridge, highway, dike, canal, feeder, waterway or
other work until plans and estimates of the cost of such work shall have been filed
with the secretary of state by the superintendent of public works, together with a
certificate by him as to whether or not in his judgment the general interests of the
state then require that such improvement be made at state expense. This section
shall not apply to the contributions of the state to the cost of eliminating grade
crossings or to items in the budget for the construction of highways from the
proceeds of bonds authorized under section 4 of Article IX of this constitution, or
section 4 of former Article VII thereof as in force on the first day of January, 1910.
It is by no means clear what this provision implies and how far
it will act as a means of control over the ''pork barrel. "
Naturally these provisions of the new constitution are hotly
attacked, particularly by those who believe that every state officer
(including probably the janitor of the state capitol) should be
elected by popular vote. It is contended on their behalf that this
measure makes the governor a czar. Other opponents of the
constitution, however, take the ground that Article V will be futile
because it gives to the legislature full freedom of initiation after the
governor's budget has been acted upon. The representatives of
this group hold that the governor can thus escape responsibility
and that pork barrel politics will flourish as of old. Most of the
friends of the provision in question freely admit that it does not go
far enough and that it does not assure absolute responsibility, but
they do hold that taken in connection with a reorganized state
administration, the new article makes possible the establishment of
a degree of responsible government hitherto unknown in American
politics.
CALIFORNIA'S STATE BUDGET
By John Francis Neylan,
Chainnan, State Board of Control of California.
There is no provision in California's constitution for a budget.
There was no big campaign made to bring about this reform. It
just came quietly and unobtrusively. The man who would at-
tempt to abolish it now and return to the old log-rolling system of
making appropriations would be adjudged politically insane in
California.
Governor Johnson took office in January, 1911, the legisla-
ture convening simultaneously. In March a mass of appropria-
ion bills was placed before the Governor. Following his usual
custom he took up each bill, read it carefully and asked for the data
showing the need of the particular appropriation. He also asked
for a statement of the state's revenues, and a comparative state-
ment showing to what the revenues were being devoted. He wanted
a list of all appropriation bills introduced; in fact he wanted to
know all about the state's needs and the state's revenues.
The Governor wanted a great deal of information but he did
not get it. Because nothing of that kind had ever been compiled
the chief executive was forced to blindly put his name to millions
of dollars' worth of appropriations.
''Such a proceeding as this is a disgrace to the people of an
intelligent commonwealth," was the Governor's comment. "It
most certainly will never occur again."
It has not occurred since.
In June, 1911, the newly created State Board of Control, vested
with far greater powers than other boards of control in different
states, took over the general supervision of the business and finan-
ial affairs of the state. This board had absolute control of the
expenditure of the appropriations made by the legislature for the
forty-three state departments and twenty-three state institutions.
With its ample powers and close contact with all parts of the
Kovernment the State Board of Control studied the financial needs
69
70 The Annals of the American Academy
of each in the ordinary course of business. In July, 1912, the first
step was taken towards putting this study into practical use.
The Board of Control notified all state departments and insti-
tutions to make a careful estimate of their needs for the next two
fiscal years, California's legislature meeting biennially. These esti-
mates were forwarded to the Board of Control. They were checked
carefully with data accumulated by the Board of Control through
the operation of what is known as its ''preaudit system," which is
nothing more or less than a monthly departmental budget system.
The Board of Control then invited the cooperation of the State
Controller and proceeded to give each department and institution
a hearing on its particular needs and estimates. All estimates for
support of hospitals, for instance, were before the board so that
comparisons could be readily instituted. So also in the case of
normal schools, prisons, reform schools and other institutions. The
estimates of departments also showed comparative salaries paid
and so forth.
Members of the Board of Control visited the institutions and
departments to secure first hand information. In the matter of
buildings the State Engineering Department was called upon for
estimates.
All financial needs of state institutions and departments were
assembled in the Board of Control office prior to November 15,
1912. A statement of estimated revenue was then secured, and
the Board of Control with the State Controller sat down to draw
California's first budget.
This budget was finished and placed in the hands of the Gov-
ernor on December 15, two weeks before the legislature convened.
Copies were sent broadcast throughout the state to libraries, civic
and commercial bodies and the public generally.
Announcement was made that the budget was a statement of
the financial program of the administration to be taken i;p at the
coming session of the legislature, and that if anyone had objection
it should be urged before the legislature.
The legislature convened and for the first time in the history
of the state its members had a chance to vote intelligently on appro-
priation measures.
The accepted method of securing appropriations under old
conditions in California as elsewhere was particularly vicious.
California's State Budget 71
Under the old system the legislature met and simultaneously the
heads of departments and institutions left their posts and traveled
to Sacramento. Here they stayed throughout the legislative ses-
sion, begging, wheedling and whining for money enough to properly
transact the public business. Of course they promised jobs to
friends of legislators in return for votes; of course they promised
to aid some constituent of a senator who happened to be in the
flour or coal business; of course they neglected their work for three
months or as much longer as the legislature lasted.
During the 1913 session of California's legislature the head of
each state institution and department came to Sacramento when
called to appear before the finance committee of the senate and
ways and means committee of the assembly. They usually ar-
rived in the afternoon, appeared before the committee in the even-
ing to answer any particular questions which had been raised on
the budget recommendations and left Sacramento the following
morning for their respective residences. No Promises of Jobs
OR of Anything Else Were Made for the Simple Reason that
THE Governor and Board of Control Had Assumed Respon-
sibility FOR THE Entire Budget and the Heads of Depart-
ments AND Institutions Realized that the Securing of Proper
Appropriations Was no Longer a Contest in Trickery and
Ward Heeling Strategy.
When the time came for appropriation bills to be passed to the
executive for action, Governor Johnson made California's budget
a permanent institution. He said:
Those appropriations which have been studied and approved by the Board
of Control and State Controller, acting as a budget commission, will receive exec-
utive sanction. Those which have not been approved by the budget commis-
sion will fail. Of necessity no Governor could personally in the time at his dis-
posal examine the justice of all these financial bills. Common sense demands a
business-like and scientific budget. We have one, and, mark well what I tell
you, the time will never come again in your lifetime or mine in California when
any politician will dare put this government back on the old log-rolling basis.
At the 1915 session of the California legislature further steps
were taken to advance the budget idea, and perfect the machinery
of presenting it.
At the present time while the Governor and Board of Control
assume full responsibility for the budget, it is presented only indi-
72 The Annals of the American Academy
rectly by the Board to the legislature, — that is, through the medium
of committees. It would not be surprising at the next session of
California's legislature to see the Board of Control appear before
each house of the legislature in committee of the whole and in its
entirety and in detail there defend the budget which it will have
introduced.
The acceptation of the budget in California was so prompt
that all budget discussion has been confined to matters of method
in compilation and presentation of data.
One objection is frequently heard. That is that there is no
budget provision in California's constitution. This is a defect
which undoubtedly will be remedied in the near future. However,
for the present we have a budget sustained by a public opinion that
would brook no interference with its operation.
THE ILLINOIS BUDGET
By Finley F. Bell,
Secretary, Illinois Legislative Reference Bureau.
While budgetry has been quite extensively discussed in Illinois
during the last few years, it may still be said that there is a paucity
of information on the subject. Much good, however, has resulted
from the discussion, and the expenditure of public money is being
studied by administrative officials, members of the legislature and
the public with greater care than ever before.
The detailed budget as submitted to the legislature by the
Legislative Reference Bureau at the convening of the Forty-Ninth
General Assembly of Illinois was a distinct step forward. It met
with the approval of the individual members of the legislature and
its usefulness was manifested from the outset. Room for improve-
ment, however, is plainly recognized. The demand for the budget
authoritatively recommended by the executive that will embody
all of the financial requirements of the state's service, and that can
he enacted into law before the week of adjournment of the session
eems general.
The Old Methods
To discuss a budget understandingly, some thought should
first be given to the methods of making appropriations formerly
employed, and indeed not entirely discarded at the last session of
he Illinois legislature. Heretofore, the heads ol the several depart-
ments, including constitutional officers, heads of boards, bureaus,
etc., and even such quasi-public officials as have jurisdiction over
the several agricultural agencies, submitted their fiscal needs
' lirough the members of the legislature. When the appropriations
committees were appointed, they took up the matter oi appropria-
tions with the department heads and sought to ascertain what
moneys were required to conduct the departmental affairs until
the expiration of the next biennium. The estimates as given by
the department heads were generally based upon the amounts
appropriated by the previous session and the experience of the
73
74 The Annals of the American Academy
department. Little, if any, thought was given the question of
how the money was to be actually spent. No classification of the
amounts asked for was sought or disclosed. In most instances
salaries were included in lump appropriations, generally containing
but one or two items for the entire two years' work of each depart-
ment. The requests usually were in excess of the amount appro-
priated by the preceding legislature, although the purpose of such
an increase was seldom disclosed, except possibly that in a hearing
before the appropriation committee the head of the department
might personally explain why advances were necessary. The hear-
ings were rarely attended by all the members of the committee and
no record of the proceedings was kept which would afford the
members of the committee who happened to be absent any specific
information as to why changes were made. The disadvantages of
the system consisted not only in the matter of granting unnecessary
advances in appropriations in some cases but also in cutting down
or in failing to advance allowances in other cases, due largely to
whether the department head in presenting his request was per-
suasive and forceful in manner.
The Practice as to the Charitable Institutions
The Board of Administration, which has control of the elee-
mosynary institutions of the state, twenty in number, filed with the
Appropriations Committees a statement of the requirements of
the several institutions based on the per capita cost, together with
requests for additions and betterments in the way of new buildings,
acquisitions of land, etc. For the purpose of such statement a
member of the Board of Administration, known as the Fiscal Super-
visor, would, before the convening of the General Assembly, visit
all the institutions and check up, so to speak, the estimates of the
department heads, approving or disapproving according to the
general policy of the board. The original estimate, however, of
the department head, together with the fiscal supervisor's recom-
mendation and the approval or disapproval of the Board of Adminis-
tration would, after the convening of the General Assembly, be filed,
and the needs of each institution set forth on a per capita basis.
There were no detailed statements, such as scientific budgetry
embodies, contained in the Fiscal Supervisor's report. Later on the
appropriations committee would afford each institutional head a
Illinois Budget 75
hearing. Many times the superintendents of the institutions for
the insane and the charitable wards of the state were obliged to
leave the work of administering the affairs of these institutions to
their subordinates and spend days and sometimes weeks waiting to
appear before the appropriations committee in Springfield. These
hearings were always informal and it will be conceded more or less
perfunctory. Nothing in the way of uniform statements were
required and frequently when details were offered, what would
appear as indispensable for one institution might be lightly passed
over as unnecessary when found in another report on account of
the manner in which the request was made.
To quote a very eminent physician who for many years had
charge of one of our hospitals, ''the matter of securing adequate
appropriations was a constant struggle, the best mixer got the
best appropriations, but not until the legislature had adjourned
would we really know what had been awarded the institutions."
Owing to geography or other circumstances, the requests of some
institutions were allowed even when the Board of Administration
and the fiscal supervisor had disapproved of certain items, while
other allowances were not granted even when the approval of the
board and the sanction of the fiscal supervisor had been given.
The same discomforts that the institutional heads had to undergo
were more or less the experience of the heads of most of the other
departments. Their requests were frequently presented to the
appropriations committees, or at least found embodiment in the
omnibus bill, as the general appropriation bill is popularly known,
through the good offices of a friendly representative. Under such
a system expenditures were not, of course, compared with the
probable revenues that would accrue for the same period for which
appropriations were to be made. Such conditions naturally tended
to increase expenditures and were ill-calculated to guard against
unnecessary appropriations. Lack of responsibility, or rather a
failure to place responsibility, was the chief weakness of the system.
Logical ResuU
Considering the very meager data that the appropriations
committee was able to assemble and the still more meager informa-
tion it was able to impart to the members of the legislature, and
realizing that the completed bills were seldom presented until the
76 The Annals of the American Academy
closing days, more often the closing hours of the session when the
members were tired out from sittings lasting perhaps six months
it is not strange that there was little inclination to question the
recommendations of the committee. In fact, the general attitude
of the assembly necessarily was manifested in a strong desire to wind
up its affairs, pass the appropriation bills and go home. The logical
and inevitable result was unsatisfactory appropriations. The riot-
ous scenes that were sometimes pictured in the press as marking
the closing days of the session, when millions of dollars were appro-
priated amid scenes of levity, were largely the result of this lack of
system. The method in vogue encouraged the members to leave
the adjustment of the state's fiscal difficulties to the next general
assembly which would in turn continue to make appropriations
upon the same haphazard basis, ending by imposing a similar
burden upon the succeeding general assembly. The appropriations
as passed by the Forty-Eighth General Assembly in 1913 were
$39,045,457.93 of which the Governor vetoed $1,130,000. The
amounts appropriated by the Forty-Ninth General Assembly which
has just adjourned were $48,336,297.52, the Governor vetoing
$2,322,096.42.
The Budget Movement
In the movement for system in governmental expenditures
federal and state executives have urged the adoption of the budget
system and pointed out the desirability of having the fiscal condition
of the state fully presented to the legislatures when they convene.
They have also urged that responsibility for the budget be placed
upon some certain officer, usually the Governor, or appropriate
department so that all of the fiscal data necessarj^ might be collated
and submitted to the legislature with adequate explanations and
recommendations. The advantages of such a system may naturally
be expected to flow more from the proper direction and application
of the public funds than from the reduction of appropriations.
Liberal, unrestricted appropriations make for extravagance while
systematic application and administration of the same funds
would produce valuable results and prevent useless expenditures.
There may never come a time in this or in any other commonwealth
when the cost of maintaining its institutions will permit a reduction
in the appropriations, but this state and all other states will, no
a
i
Illinois Budget 77
doubt, find means of getting more for their money. It is not so
much the amount of money spent but rather the manner and purpose
of such expenditures that is important. If this information, to-
gether with a fairly accurate estimate of the income of the state, be
placed before the legislature, appropriations may be made on a
scientific basis. As officers and departments become familiar with
the system their requests when based upon an audit which will
disclose conditions, and an accounting that will exhibit the cost of
maintenance, should require but little modification other than the
fitting of expenditures to income.
The Illinois Situation
The method of financial legislation in Illinois previous to the
Forty-Ninth General Assembly was as full of confusion and as
unsystematic as that of most of the other states. The difiiculty
was so well recognized that the previous legislature adopted an act
creating the Legislative Reference Bureau and assigning to that
bureau the duty of preparing, printing and distributing a detailed
budget for the use of the General Assembly. This budget was to
be made up of the requested appropriations which the officers of the
several departments of the state government reported to the bureau
as required for the biennium for which appropriations were to be
made, together with a comparative statement of the sums appro-
priated by the preceding general assembly for the same purposes.
Several months before the legislature convened, the bureau set
about to comply with the new enactment. So far as a comparative
statement was concerned, this was a rather difficult matter for
the reason that most of the previous appropriations had been in
ump sums or limited to very few amounts. There was no itemiza-
ion as to personal services and the moneys that were placed at the
disposal of the Board of Administration for the conduct of the
charitable institutions of the state were upon the basis of ordinary
operating expenses, ordinary repairs and improvements, and ordi-
nary care and improvements of grounds with a special appropriation
of over two and one-half millions for a variety of items. These
were principally in the nature of additions and betterments, such as
an employees' building at the Elgin State Hospital requiring $26,000,
a cow barn at Kankakee, $15,000, a contagious disease building,
$10,000, a coal shed at Jacksonville, $6,000, a building for women
78 The Annals of the American Academy
employees at Watertown to cost $50,000. There were no supporting
statements in itemized form showing just how these amounts were
arrived at and no means that the legislature could conveniently
employ to ascertain the necessity for these expenditures or, for
that matter, to know that these amounts were adequate for the
purpose intended. It should be said, however, that the General
Assembly made no mistake in complying with the requests of the
Board of Administration, whose efficient management of the different
state institutions under its direction is generally recognized.
The Babel of Bills
There were ninety-three appropriation bills enacted by the
Forty-Eighth General Assembly. One, known as the "State Offi-
cers' Roll," was in the amount of $2,600,000, to pay the salaries of
the state officers and the officers and members of the next General
Assembly. Under the constitution this bill must contain no
other appropriation or provision. As to this particular bill members
of the legislature may or may not have known how the amount was
arrived at, who were the state officers or what the rates of compen-
sation were. A bill in chancery is now pending in the Circuit Court
of Sangamon County raising some of these questions. The omnibus
bill, to provide for the ordinary and contingent expenses of the state
government, carried appropriations for ninety-seven different de-
partments and purposes with only a meager itemization of the
amounts for salaries, equipment, supplies, etc., and the appropria-
tions were generally made in a lump sum. Comparison, therefore,
of estimates as required for the present fiscal period with appropria-
tions for the same purpose made two years before was virtually
impossible.
The task of constructing a budget was further complicated by
the fact that accounting in the different departments and institu-
tions of the state was not conducted on any uniform basis. The
methods employed were generally evolved with the economic and
financial development of the different departments and institutions.
While it would perhaps be impossible to find a single department
head who would admit that the method employed in his department
produced inefficiency, permitted dishonesty or tended to waste, —
and possibly, the means employed were adequate for the individual
department, — the fact remains that accounts were not standardized.
Illinois Budget 79
There was no standard system of keeping accounts and no uni-
formity,— at least none was disclosed that would enable the members
of the legislature, during the short period of a legislative session,
to ascertain costs and become famihar with classifications and other
matters necessary to intelligent action.
The Visiting Committees
In order to familiarize themselves to some extent with the
conditions at the state institutions, the expedient was adopted of
appointing a committee of legislators to visit the different institu-
tions. Such tours of inspection were necessarily hurried and while,
no doubt, valuable as a matter of regulation, were, perhaps, not
very satisfactory as a method of arriving at financial needs. Such
visits and the hearings alluded to were, however, the only means
of information the legislators had.
The New Way
Illinois, by the act of 1913, providing for the preparation of a
budget, has enabled the legislature to avoid the difficulties above
mentioned, to have estimates examined with care and deliberation
and to become conversant with the necessity for and purpose of
appropriations as well as to make at least some comparison between
expenditures and income.
It is not to be inferred that the General Assembly has abdicated
or surrendered any of its powers over appropriations. It has simply
perpetuated its activities. The Legislative Reference Bureau is
merely an arm of the legislature designed to pursue part of its work
even though the legislature be not in session. Heretofore, with the
exception of the case of special committees or commission, the
legislature died with sine die adjournment. Now it has perma-
nence and perpetuity in the Legislative Reference Bureau which is
composed of the chairmen of the appropriations and judiciary
committees of each house with the Governor as chairman. Much
of the work of collecting, compiling, classifying and comparing
appropriations that heretofore devolved upon the appropriation
committees and had necessarily to be hastily done, admitting of but
superficial examination may now be done with care and deliberation
by appropriate agents or representatives authorized to act as a
bureau for that purpose.
80 The Annals of the American Academy
Of course, the General Assembly is in no way bound by the
bureau. It is at liberty to ignore anything or everything done by
it, but it is equally at liberty to make use of all or any part of the
bureau's work and of any and all data, kept on file by the bureau.
On all obscure or controverted points such data within immediate
reach of the legislature is obviously of great value.
The Budget in the Making
In taking up the work, the Legislative Reference Bureau pre-
pared a budget classification and rules of procedure for the con-
venience of the officers and heads of the several departments in
filing estimates of appropriations which their departments required.
Classification under the following general heads was suggested:
"Salaries and Wages," "Supplies," "Equipment," "Material,"
"Contract and Open Order Service," "Additions and Betterments,"
and "Fixed Charges and Contributions."
In trying to effect the standardization of salaries so far as
appropriations were concerned, it was endeavored to have the esti-
mates show the present rates of salaries, to distinguish between new
positions, to show, where possible, the classification of the state
civil service commission as it effected salaries and wages, to include
full or partial maintenance at institutions if allowed, and to indicate
whether compensation was on a per diem basis or of a temporary
nature.
"Supplies" was subdivided into food supplies, veterinary sup-
plies, fuel supplies, office supplies, etc.
"Equipment," into office equipment,^ household equipment,
medical and surgical equipment, live stock equipment, general
plant equipment, etc.
"Material" was construed to include articles of every nature
used in the reconstruction or repair of property.
"Contract or open order service," to include repair items,
transportation, traveling expenses, expressage, communication, etc.
"Additions and Betterments," to include such estimates as
were for new buildings or permanent improvements, etc.
" Fixed Charges and Contributions " was intended to cover appro-
priations to the different agricultural agencies such as the horticul-
tural societies, beekeepers' associations, etc., and also to premiums
for state fairs; rewards for the apprehension of fugitives from justice.
Illinois Budget 81
Classification, Difficulties
From the first it was apparent that the classification would
have to be very general and that the matter of obtaining anything
approaching an accurate estimate of the requirements of the differ-
ent departments would have to be worked out with much patience
and care and with the active cooperation of the different department
heads. The estimates were filed with the bureau sixty days prior
to the convening of the General Assembly.
In instances modification and re-classification were necessary
and much correspondence with the departments and institutions
was required before the estimates could be sent to the printer.
Nevertheless, the budget was ready in time for the legislative session
and every member of both houses had a complete copy for use during
the entire session. While the law imposed no specific duty as to
showing receipts or probable income for the period for which appro-
priations were to be made, such a statement was included. How
nearly the budget compared with the actual appropriations may be
seen from the following figures:
The total amount of departmental estimates was $45,404,602.30;
the total amount appropriated was $48,336,297.52; of this amount
s shown before, the Governor vetoed $2,322,096.42, leaving the
net appropriated amount $46,014,201.10.
Much difficulty was experienced in trying to induce the depart-
ment heads to adopt the classification submitted, especially the
item as to salaries and wages. Some of the departments have on
their present rolls, clerical and stenographic help, the salaries for
which have been fixed by statute, and the custom has been to include
such employees in the so-called state officers' pay roll. In the
itemization of these positions, in some instances, increases in sal-
aries were requested, and although it was obvious that no change
<'ould be made in the rate of compensation, unless authorized by
law, nevertheless estimates were filed providing for these increases.
The printed budget or detail of estimates specifically revealed this
complex situation. Sometimes several lines were necessary in order
to make the exhibit intelligible, and as for comparison with previous
appropriations, which were usually made in lump sums, that was
almost impossible.
Our classification, as above stated, was very broad. We pre-
umed that many articles would be shown in the estimates, not
82 The Annals of the American Academy
covered by our classification, but not in a single instance do I recall
that any items were submitted other than those enumerated in the
classification. Requests for supplies, material, equipment, etc.,
required considerable revision in the bureau before submission to
the legislature but for a first attempt a very good showing was
made. Additions and betterments, or estimates for new buildings,
contained practically no information as to why the expenditure was
necessary or how the amount requested was arrived at and there
were no supporting statements or drawings from architects or
engineers.
Most of the department heads seemed to fear that if the appro-
priations were made upon the basis of the estimate as filed, a great
hardship would be heaped upon them and that they would be unable
to exercise properly the functions of their several offices. They felt
that no elasticity would be permitted and that the system was too
rigid ; that it was impossible to predict the needs of the departments
for a two year period, and that inasmuch as no voucher classification
scheme had ever been adopted, there were no means of comparing
the estimates with past expenditures. Later when hearings of the
appropriation committees were held this argument seemed to hold
good because the appropriations were enumerated in the bills in a
lump fashion, or many of the items were grouped, which permitted
the elasticity so much desired by the departments.
Budget Disclosures
The budget, however, did have the effect of revealing the lack
of uniformity, both in compensation that existed in the different
departments and in matters of accountancy. It also disclosed the
lack of co-relation in the different departments, particularly the
duplication of functions.
Included in the budget or detailed estimates was a statement
showing the income for the last fiscal year and the probable income
for the next biennium. This was based upon the revenue that
would accrue from the present property valuation and tax rate and
also from sources other than the general property tax, such as fees,
licenses, etc.
A summary of the estimates for each department was also
included. Where an itemization for salaries and wages did not
follow the classification which we submitted, the monthly pay roll
was printed as a matter of information. All in all, the legislature at
Illinois Budget 83
its convening had for the first time a fairly adequate idea of the
fiscal needs of the state.
In his message to the Assembly, the Governor, while urging
strict economy, called attention to the budget or detailed estimates
that would be filed by the Legislative Reference Bureau. It was
the first attempt made by any Governor to comply with the con-
stitutional provision which requires that he shall, at the commence-
ment of each regular session of the General Assembly, present
estimates of the amount of money required to be raised by taxation
for all purposes. Perhaps this was more or less impossible heretofore
especially with a new Governor, but the organization of this bureau
seems to be ideal so far as this situation is concerned.
Many suggestions might be offered in the way of betterment,
but most of the improvement that may be attained will have to be
worked out along conservative lines with much patience and educa-
tion, avoiding at all times usurping the prerogatives of the com-
mittees of the General Assembly, composed of the duly elected
representatives of the people. Any assistance that the bureau may
render in the way of preparing a scientific budget should always be
considered as information furnished, never as a policy or in the
spirit of dictation or suggestion.
Centralized authority is being generally advocated in the
matter of submitting estimates and locating responsibility for
appropriations. The Illinois method seems to provide both. This
bureau is practically a continuing committee of the legislature. The
Secretary and employees of the bureau are mere clerks for the General
Vssembly, engaged during the recess period in accumulating data and
information for the use of that body when in session, and for the indi-
vidual members, state departments, and the public, upon request.
Under this system the Governor, the Assembly, and the bureau
can cooperate with the result that estimates may be submitted with
harmony and a complete understanding. The guessing element
liat so largely enters into the making of appropriations should be
liminated as much as possible. There can be no scientific budget
; hat is formulated upon mere speculation. The department heads
should know, if there is any one that can know, just what the needs
of their departments will be. When that knowledge is properly
presented there should be no desire upon the part of the legislature
• ) change the estimate, if the fiscal condition of the state will permit
ilie expenditure.
84 The Annals of the American Academy
With very little change in the present statute the work of the
appropriations committee of both houses can be greatly reduced.
The budget submitted by the bureau can truthfully be said to have
originated in the General Assembly. Hearings on appropriations
are unnecessary, unless the appropriations are questioned, or where
some unlooked-for contingency may arise. Public hearings on the
budget are desirable and this with the proper presentation of esti-
mates should make for economy and promote efficiency in every
department. Perhaps there will never come a time when the cost
of state government can be materially reduced. The greatest sav-
ing that can be attained will necessarily have to come through
efficient management.
Limiting expenditures to an itemized appropriation is one way
of attaining efficient administration, providing that the itemiza-
tion is based upon an accurate statement of the needs of the depart-
ment. It might require years, especially in institutions, to work
out such details scientifically. In the meantime perhaps only an
itemization of salaries and wages should be insisted upon while sup-
plies, material, etc., should not be too minutely itemized. For
additions and betterments such as new buildings, etc., full details
should be required.
The question of funding the budget is not provided for at
present, excepting the constitutional requirement imposing upon
the Governor the duty of presenting estimates of the amount of
money required to be raised by taxation for all purposes. A scien-
tific budget should include a carefully prepared statement of esti-
mates properly classified with supporting statements for all items
that need consideration. A comparison of estimates should be
made with past expenditures; the lapses and the balances in every
fund should be included, and these data coupled with a statement
as to the probable income should furnish adequate information to
the legislature. With the exception of the state officers' roll, which
in Illinois must be in a separate bill, all of the needs of the different
departments might be provided for in one bill.
It is one thing to theorize on how to spend public money and
safeguard the public interest, but it requires a practical understand-
ing and much experience in order to effect even a small saving.
Some desirable things have already been accomplished in Illinois;
with diligence and patience much more will be attained.
BUDGET METHODS IN ILLINOIS
By John A. Fairlie,
Professor of Political Science, University of Illinois; Director, Efficiency and
Economy Committee, State of Illinois.
Although the state of Illinois ranks third in the Union in popu-
lation, wealth and industrial activity, the expenditures of the state
government, until the past few years, have been relatively low, in
comparison not only with the financial transactions of the national
and municipal governments but also with those of the other large
industrial states. But this situation has been rapidly changing
during the last decade. The biennial appropriation made by the
general assembly, which had been about $6,000,000 in 1875 and $10,-
000,000 in 1895, increased to $16,000,000 in 1905, to $20,000,000 in
1907 and 1909, to nearly $30,000,000 in 1911, to $38,000,000 in 1913
and to $46,000,000 in 1915. This increase has been due partly to
the expansion of older state activities, such as charitable and edu-
ational institutions, and partly to the inauguration of new func-
tions, such as state roads and a great variety of new executive
offices, boards and commissions.
As a result of this increase in the amount and importance of
state expenditures, attention has been attracted to the methods of
authorizing and controUing the state finances, some improvements
have been introduced, and proposals have been formulated and
presented for a comprehensive budget system. It is the purpose
of this paper to discuss the former and existing methods, the recent
( hanges, and the proposed plans, which may aid in the general dis-
cussion of budget methods in the United States.
The fundamental requirements of the present system are to
l)e found in the state constitution. The first constitution (of 1818)
prohibited expenditures unless authorized by appropriations, and
required a report of receipts and expenditures to be pubhshed with
he session laws. The present constitution (of 1870) contains
more detailed provisions which, if carried out fully, would provide
more adequate methods than in practice have been followed. The
power and responsibility for making appropriations and raising
85
86 The Annals of the American Academy
revenue are vested, as is usual in this country, in the state legislature,
subject to various restrictions. But a definite basis for an executive
budget exists in the provision that the governor, at the commence-
ment of each session of the general assembly, shall present ''esti-
mates of the amount of money required to be raised by taxation for
all purposes." Moreover, all state officers and institutions are
required to report to the governor before each session of the legis-
lature; and the governor may at any time require information in
writing from the officers of the executive department.
No governor appears to have carried out the provision of the
constitution as to estimates;- and an act of 1913 providing for a com-
pilation of appropriation requests ignores the constitutional pro-
vision and places this function on the legislative reference bureau.
Before this bureau was established, requests for appropriations were
submitted informally by each office, department or board; and
separate bills were prepared by the several departments and in-
stitutions, and introduced by individual members of the general
assembly.
Appropriation bills are referred to a single committee in each
house. But these committees are large and unwieldy. In the
General Assembly of 1913 the house committee had 44 members
(out of 153) and the senate committee had 37 members (out of 51).
Sub-committees are appointed to visit the state institutions; and
joint hearings of the committees of both houses are held to hear the
state officers in reference to the appropriations required.
Except for deficiency and emergency appropriations, the
appropriation bills are not reported to either house until nearly the
close of the session. At this stage there is no opportunity for ade-
quate discussion; and the committee recommendations are rarely
changed. But not infrequently the bills passed by the two houses
differ; and in such cases conference committees are appointed,
whose reports are accepted as a matter of course.
After passing both houses, appropriation bills go to the gover-
nor, who may disapprove any bill or any appropriation item within
ten days. A considerable number of appropriations are usually
disapproved, and in some cases items are reduced, by the governor,
and by this means the total amount is somewhat reduced.
As a result, instead of a carefully prepared budget, there are
passed a large number of separate appropriation acts, with an absiu'd
Budget Methods in Illinois 87
range of variation in the amounts appropriated and the extent and
character of the items. Thus at the session of 1913, there were
passed 94 appropriation acts, which cover 116 pages in the volume of
session laws. One act for the pay of members of the general
assembly was for a lump sum of $2,600,000, — the amounts payable
to each person being regulated by statutory provisions. Appro-
priations for the state university ($4,500,000) and for the ordinary
expenses of the state charitable institutions ($8,000,000) were made
in a few large items. On the other hand, appropriations for build-
ings and improvements in the charitable institutions were specified
in 131 items; appropriations for the five normal schools were in one
act, with 33 items; appropriations for the penitentiaries and re-
formatory were in five separate acts; and the "omnibus bill" for
the great number of state offices, boards and commissions was in 96
paragraphs, with more than a thousand items. For one office there
were such small items as $75 a year for rubber stamps, and $75 a
year for twine. ^
Some improvements in methods have been made in the last few
years. The management of the state charitable institutions was
centralized, by an act of 1909, under a single state board of admin-
istration, one of whose members is fiscal supervisor. This board
has presented carefully prepared estimates of the needs of these
institutions. The result has been to put an end to the former
scramble and rivalry between the several institutions; and the
acceptance by the general assembly of the estimates presented by
the board.
At the session of 1913 a detailed compilation of the amounts
requested by the various state officers, boards and institutions was
prepared, after the legislative session had begun, with a comparison
of the appropriations made two years before. But this was neces-
sarily prepared in the form presented by each of the state agencies;
and while of service to the appropriation committees of that year,
was perhaps of more importance in demonstrating the need for more
careful preparation of the estimates before the general assembly
convened. At any rate, an act of that session establishing a legis-
lative reference bureau imposed on this bureau the unusual duty of
» George E. Frarer: A Report on the Accounts of the Slate of Illinois, prepared
for the Efficiency and Economy Committee.
88 The Annals of the American Academy
receiving, compiling and preparing the requests for appropriations
from the several state officers, boards and institutions.
Under this act, the legislative reference bureau prepared and
had printed soon after the opening of the session of 1915 a volum-
inous compilation of appropriation requests, itemized in minute
detail under a general scheme of classification. This work seems to
have been carefully done and marks an important step towards a
budget system. But it must be recognized that this fell far short
of an adequate system. Necessarily the new classification made
impossible in most cases a detailed comparison with previous ap-
propriations; nor had the bureau been authorized to make an analy-
sis of expenditures under the new classification, as a basis of com-
parison. To the writer the mass of detailed items has seemed too
numerous, and more likely to bewilder than to enlighten the mem-
bers of the appropriation committees.
But the most serious weakness of this undertaking was the
lack of any responsible recommendations for the estimates as a
whole. The bureau had no authority to make recommendations;
and while it is supposed that the governor exercised some super-
vision over the requests from departments and institutions under
the management of his appointees, the aggregate estimates amounted
to more than $45,000,000, — an increase of twenty per cent over
the appropriations of two years before.
Large reductions in these estimates were made by the appro-
priations committees and confirmed by the general assembly. But
these were offset by important additions for purposes not included
in the estimates, — notably to pay for cattle destroyed to suppress
an epidemic of foot and mouth disease — ; and the total appropria-
tions from ordinary revenue, after deducting the items vetoed or
reduced by the governor, were $8,000,000 more than in 1913.
An expenditure of $5,000,000 was also authorized from the proceeds
of a bond issue for the construction of a waterway in and along the
Illinois river, making a total increase of thirty per cent in authorized
expenditure over that made two years before.
Many of the increased appropriations were perhaps justified.
But the need for more far-reaching reforms in connection with
appropriations can be shown by some of the methods used and some
of the appropriations made by this general assembly. The ''omni-
bus bill," appropriating $15,662,296, was introduced in the house
Budget Methods in Illinois 89
on June 1, read a second time on June 2, and passed on the 3d.
On second reading (the last opportunity for amendment) members
complained that printed copies were scarcely obtainable. In the
senate, this bill was introduced on June 8 and passed on the 10th.
There were 88 appropriation acts, 6 less than two years be-
fore. Many of them were in much greater detail than at previous
sessions, and the appropriation acts as a whole cover 232 pages in
the session laws, or twice as much as in 1913. The general salary
appropriation was itemized; and the appropriations for the normal
schools and penitentiaries were made in accordance with the classi-
fication in the estimates. But there were, as formerly, too many
separate bills, and no approach to a uniform system of classifying
items, while the detailed enumeration of petty items was extended.
On August 28, an injunction was issued by the circuit court to
restrain the payment of salary items in the omnibus bill amounting
to $262,348, as unconstitutional; and at the same time an act mak-
ing an appropriation (of $26,270) to pay railroad fares of members
of the general assembly was also held to be unconstitutional. Bills
appropriating $92,601 for the relief of individuals, $458,802 for
deficiencies, and for certain committee expenses, are also being
attacked in the courts as in conflict with the state constitution.*
The need for a new budget system has been urged and a definite
plan has been prepared and was submitted to the general assembly
this year by a joint legislative committee established two years
before to investigate all departments of the state government and
recommend a plan to reorganize and centralize the administrative
-ystem wi^h a view to economy and efficiency. This committee
made a comprehensive study of the existing state administrative
authorities, and proposed a general reorganization into ten executive
departments, including a department of finance with provisions for
preparing a comprehensive budget.
In its report, the committee called special attention to the
absence of any satisfactory budget of estimates as a basis of appro-
priations, and to the provision of the state constitution requiring
the governor to present to the general assembly estimates of the
amount required to be raised by taxation :
In the opinion of tho committee the constitutional provision ....
contemplates that the governor shall present to the general assembly a detailed
* See Report of the CiHmu* AtaociaUon of Chicago, September 9, 1915.
90 The Annals of the American Academy
budget of appropriations recommended by him for the coming biennium, to-
gether with an estimate of the revenues of the state from sources other than
direct taxation during the biennium, and a statement of the amount to be met by-
taxation. The careful preparation of tjuch a budget would be a potent factor in
securing economy and efficiency throughout the executive departments.^
A satisfactory budget statement should include a classified analysis of reve-
nues as well as proposed expenditures, which should be subject to close scrutiny
by competent and responsible officials charged with authority in the administra-
tion of the state finances, and submitted to the general assembly with the defi-
nite recommendations of the governor.*
The plan for organizing a department of finance proposed that
there should be a state comptroller, appointed by the governor,
who should be charged, among other things, with the preparation
of a budget of revenues and expenditures for submission to the
governor.
In summing up the results to be expected from the plan of
administrative reorganization presented, the committee urged that:
The proposed reorganization wiU also aid in the preparation of a proper
budget of estimates as a basis of appropriations. Each department will be able
to formulate a careful estimate of needed appropriations, considering the relative
demands of its several bureaus and services; and these departmental estimates
will be compiled and analyzed for submission to the governor, who will recommend
the aggregate budget of items approved by him to the general assembly. This
will place on the governor the responsibility for the total amount requested; and
the general assembly will hesitate to increase the appropriations recommended
by the governor.'
Neither the finance bill nor the other bills prepared by the
efficiency and economy committee to carry out its plan of admin-
istrative reorganization were enacted, — with the exception of a
revision of the law relating to printing and other contracts, which
should effect a considerable economy. But the recommendations
are still before the people of the state; and a prominent candidate
for governor at the election in 1916 had definitely announced
that he favors and will urge a reorganization of the state adminis-
tration and the introduction of business methods and a budget
system in the state government.
^Report of the Efficiency and Economy Committee, State of Illinois, 1915, p. 22.
*Ibid, p. 34.
^Ibid, p. 75.
STATE BUDGET MAKING IN OHIO
By W. 0. Heffernan,
Ex-Budget Commissioner of Ohio.
Original Statics of Financial Procedure in Ohio
Senate Bill No. 227, entitled an "Act to Establish a Budget
System for the State Officers, Departments, and Institutions,"
was passed on April 11, 1913, and approved by Governor James M.
Cox on May 6, 1913. Nothing was done towards carrying out the
provisions of this act until after August 6, as a referendum was
threatened against it, and it was deemed wise to wait until the
referendum period of ninety days expired before going into its
organization.
The law provided that on or before the fifteenth day of Novem-
ber, biennially, in the even numbered years, all state activities
requiring appropriations should submit to the Governor a statement
of their wants for the next biennium. It also provided that the
Auditor of State should furnish the Governor a statement showing
the balance standing to the credit of the several appropriations for
each department, institution, commission, and office of the state,
for each and every current purpose of the state government at the
end of the last fiscal years in which appropriation accounts had
existed; a statement showing the monthly average of such expendi-
tures from each of the accounts for the fiscal year and also the total
monthly average from all of them for the last four fiscal years. It
was further provided that all of the departments, institutions, com-
missions, and officers of the state, upon request, should furnish to
the Governor any information desired in relation to the affairs of
their respective departments, institutions, or officers.
The information, or rather the statements which the Auditor
was supposed to furnish, were very unsatisfactory. It took weeks
and months to get them because there were no available records in
the Auditor's office from which figures for purposes of comparison
could be taken. In other words, there were no comparative records
kept up to the time of the installation of the Budget System.
91
dd The Annals of the American Academy
The budget act also provided that, at the beginning of each
regular session of the General Assembly, the Governor should sub-
mit to the General Assembly the estimates of the departments, insti-
tutions, commissions, and offices of state together with his budget
of current expenses of the state for the biennial period beginning on
the first day of July next thereafter. The act carried the usual
appointive power and gave to the Governor the power to examine,
without notice, the affairs of any departments, institutions, or
public works, commission, or office of the state for the purpose of
ascertaining facts, and to make findings and recommendations rela-
tive to increasing the efficiency and curtailing the expenses therein.
The Governor or his appointees had the power to compel the attend-
ance and testimony of witnesses, administer oaths, and examine
such persons as they deemed necessary, and to compel the produc-
tion of books and papers. The orders and subpoena issued by the
Governor or his Budget Commissioner in pursuance of the Authority
in them vested by the provisions in this act, could be enforced upon
the application of the Governor by proceedings in contempt in any
court of common pleas.
I assumed office on November 1, 1913. The Governor was
then considering convening the Ohio legislature in extraordinary
session for the purpose of passing much needed school legislation and
to repeal the 1914 appropriation act if sufficient reductions could be
made to warrant this action. My first duty was to take the old
1914 appropriation act, which became available on the sixteenth of
February, 1914, tear it apart, analyze it, and report to the Governor
whether or not sufficient reductions could be made to warrant his
calling a special session. About the middle of January, I reported
to him that a million dollars could be lopped off the 1914 appropria-
tions without in any wise affecting the efficiency of the various
departments. The new budget was presented to the extraordinary
session of the legislature and passed with a reduction of some $900,-
000. There was hardly any change made by this legislature in the
figures which I presented to them for their consideration.
Under the old scheme of things in Ohio, we had an appropria-
tion year beginning February 16 and ending February 15. We had
a fiscal year beginning November 16 and ending November 15.
Several of our other institutions and departments ran on different
years, and this made all of the records useless for purposes of com-
Budget Making in Ohio 93
parison. A bill was then passed fixing the year for all activities of
the state government to begin on July 1 and end June 30. This
change in years necessitated the four and one-half months budget
from February 16 to June 30, the interregnum between the old and
the new year.
The old state emergency board was empowered to authorize va-
rious departments when appropriations ran short to borrow money
from the banks. This was changed by giving to the state emergency
board an appropriation sufficient to prevent the carrying forward of
deficits. On an average of S2o0,000 is given to this board each year,
which is quite sufficient to care for any emergencies that may arise
within the budget period. It was found that the old emergency
board was authorizing the borrowing of money when we were
blessed with a plethoric treasury, and a plethoric treasury without
budgetary control is a curse to any state.
Towards the end of the 1914 appropriation year, despite the
wails and howls emitted by the heads of departments affected by
the cuts heretofore mentioned, a study of the balances resulted in
the lapsing to the general revenue fund of almost $1,000,000. This
was accomplished through the supervision of expenditures, admoni-
tions to the officials, and holding down the outgo far below that to
which these departments were accustomed.
So long as there were no figures available for comparison with
previous years the adoption of a system of classified expenditures,
without which there could be no budget, was prevented. Under
the old regime the legislature usually had before it in considering
financial matters only the ex-parte testimony of interested persons,
whose statements and statistics in support of their alleged needs
it was nobody's business to examine critically, and which, in the
absence of reliable and exact information, could not be readily
futed.
I found nothing of immediate value in the state reports. The
obvious lack in these reports were as follows:
1. Improper classifications and segregation of accounts for the
purpose of reporting financial transactions of the department.
2. Inadequate classifications by objects of expenditure.
3. Amounts of expenditure for specific objects not specifically
classified.
94 The Annals of the American Academy
4. Amounts showing expenditures by objects containing
amounts representing inventory on hand.
5. Amounts of expenditure shown in report containing amounts
and specific appropriations, which unbalanced any comparison
which one might wish to make.
The obvious, helpful reports suggested were :
1. A division of accounts in accordance with budget classifica-
tions.
2. A schedule which would show the number of employees and
salaries paid to each, to be incorporated in the report so that a
comparison could be made as to the number of employees in each
of the departments and institutions; and this same system to show
the per-capita expenditures for salaries for each of these depart-
ments and institutions. This item could be sub-divided further,
but it might not be desirable.
3. That all of the Ohio State Reports be incorporated in two
volumes and be known as the ''Ohio State Reports."
Under the system which formerly prevailed in this state the
heads of departments, boards and commissions were requested to
submit to the Auditor of State, upon blanks furnished by him, their
estimate of funds necessary to run their departments until the next
biennium. These requests were then returned to the Auditor of
State, who tabulated their wants and submitted them without
comment to the incoming legislature. Hearings before the finance
committee of the house were held behind locked doors and drawn
blinds, and the men who were the best talkers got the most money.
It was not a case of need so much as it was a case of "you scratch
my back and I will scratch yours. " All of the house appropriations
were made in two ways, either in lump or inflexible specific appro-
priations. The lump sum scheme seems to have predominated in
appropriations during the last decade, though many examples of
specific appropriations occurred during this period. A thoroughly
efficient and honest administrative official can oftentimes get better
results if he has a free hand in the use of funds, and circumstances
sometimes arise which make it desirable to use funds for purposes
which the legislature could not foresee. But on the other hand, the
same kind of an appropriation in the hands of dishonest or incompe-
tent officials are so easily misused that they have proven generally
unsatisfactory and often vicious. Specific appropriations were the
Budget Making in Ohio 95
natural ends towards which legislative bodies reacted after having
found the lump sum inadequate. The fact that the money appro-
priated specifically, could be used for no other purposes and no
other money was available, made it necessary to allow a wide margin
for any contingency that might arise. Usually the maximum
amounts provided were not required, but the official thinking that
he must allow the money to lapse or spend it for the purposes as
specified, was apt to be too free in spending.
Not until the budget was established in 1914 was any attempt
made to combine the virtues of the two systems and eliminate their
vices. In order to avoid the evils of both lump sum and sp>ecific
appropriations, appropriations were made specifically but were
provided with the necessary degree of flexibility. This was done
by means of the transfer system which made it possible to appro-
priate, instead of maximum estimates, those slightly above the
minimum. Provided with the privilege of transfer, departmental
oflScials could reduce their estimates on each item knowing that
according to the "law of probability" all projects would not cost
the maximum, and that the small margin of safety could be trans-
ferred from those which cost the minimum to the few that actually
approach the maximum. The result of following this plan was
economy and smaller appropriations for specific items, and in con-
sequence a smaller budget. Along with this a check was provided
on expenditures for the reason that the request for a transfer invited
investigation by the emergency board, and required a statement of
explicit reasons why the fund to which transfer was sought was not
adequate.
During the early history of Ohio, the state was poor. Funds
for expenses were largely raised by direct taxation and the pinch of
taxes could be expected to react upon officials and check their waste
and extravagance. With tremendous increase in wealth these
checks became less effectual and there came a tendency to resort to
indirect taxation for funds with which to run the government.
Scandalous waste and ineflficiency resulted. In 1914 a book of
budget classifications and rules of procedure was distributed in all
of the departments at the same time that the blanks for their esti-
mates were requested. According to this classification ail known
departmental wants were itemized to the penny. The fact that the
original requests had to be itemized reduced considerably the total
96 The Annals of the American Academy
of the estimates. The word ''Contingencies," which had appeared
in divers places in all past appropriation bills was entirely ehminated.
It had been the custom to request under this head large sums of
money, and what few records there were showed that it was dis-
bursed for all sorts of things from "Personal Services" to ''Addi-
tions and Betterments."
The old appropriation bills, because of the appropriations of
"Receipts and Balances" year after year, were absolutely beyond
the comprehension of any person who tried to digest or analyze the
financial acts of any session. In fact, with these words appearing
in the bill, no one knew how much money was being voted from the
state treasury. So long as this practice continued attempts at
retrenchments were largely nullified by these blind appropriations
and it was urged upon the legislature that this practice be discon-
tinued. A survey showed that all departments receiving these
blind appropriations of "Receipts and Balances" were guilty of
the greatest extravagance. Detailed classifications checked these
extravagances, because the General Assembly would not counte-
nance the granting of money for purposes not entitled to state aid.
Under the old scheme hearings on the appropriation bills were
had by the Committee on Finance of the House of Representatives,
and then the whole thing was duplicated by the Senate Committee
on Finance. This practice was not only expensive but it prolonged
the session indefinitely.
Suggestions Made
The budget is not new. Primarily it balances income against
outgo, prevents extravagance, and forces attention to fundamentals
long recognized in English finance and administration. In Eng-
land the ministry stakes its tenure of office on the passage of the
budget substantially as prepared. There it is not merely a recom-
mendation by the executive, but it is the fiscal program of the ruling
powers in both the legislative and executive branches. It is effect-
ive because under this arrangement it has behind it all the force
of the party organization. In Ohio the budget is merely an execu-
tive recommendation, and the most persuasion that can be given it
is its preparation by expert talent.
In the installation of a budget it is quite obvious that certain
reorganizations are necessary. The budget officer should report
Budget Making in Ohio 97
directly to the Governor, and should give to him economy and eflS-
ciency reports on each and every function of state government.
Some scheme should be evolved whereby the legislative and execu-
tive functions may be brought closer together in the process of
budget making. For instance, Wisconsin provided during the last
session of her legislature, that the Governor might sit with the
budget authorities during a certain period of its preparation.
The Governor should have the selection of the officials who
are to be his advisors, and most of the appointments now referred
to the senate for confirmation should be left to him alone. On the
other hand, it should be understood that the acceptance of budget
recommendations by the legislature does not deprive it of power to
originate legislation, and the preparation of the budget does not
involve the acquiescence of the legislative majority in advance.
It was recommended to the Ohio legislature that public hear-
ings be had on all estimates — under the old scheme hearings being
held behind locked doors. This was designed to bring about citi-
zen cooperation, cooperation of the people who are interested in
various projects, and the body voting the appropriation.
The attention of the legislature was also invited to ways and
means for shortening their session. It was pointed out to them that
unduly protracted sessions increased the cost of each law — this
cost now being $269 in Ohio, with only New York and Illinois higher.
Emphasis was placed upon the recommendations that the quality
of laws must not be lowered, and that time should not be saved
through the sacrifice of quality of their work. I wanted the adop-
tion of a rule prohibiting the introduction of any bill in either house
carrying an appropriation unless the request for money was classi-
fied according to budgetary form. I also asked for the adoption of
a rule keeping committees up to their work and penalizing them
when absent or tardy. This suggestion, which savored strongly
of discipline, went unheeded by the last session of the legislature.
If retrenchment was to be brought about, some radical changes
in the state governmental machinery were necessary in the interest
of both economy and efliciency. The following consolidations were
recommended:
Building and Loan Department with the Department of Banks
and Banking.
98 The Annals of the American Academy
The State Library, the Traveling Library, the Library Organ-
izer with Ohio State University.
The Adjutant General's Department with the Ohio National
Guard.
The Medical Board, the Pharmacy Board, the Embalming
Examiners, the Dental Board with the State Examining Board.
The Lima State Hospital, Reformatory for Women, the Sol-
diers and Sailors Orphans Home with the Board of Administration.
The Bureau of Vital Statistics with the State Board of Health,
and
The State House and Grounds with the Board of Public Works.
Also I recommended the following abolishments:
Commissioner of Soldiers Claims, Public Printer, State Bind-
ery, Armory Board, Flag and Relic Room, Extension Work by
Educational Institutions, not specifically authorized by the General
Code, the Naval MiUtia, and Cavalry in the Ohio National Guard.
None of these recommendations was even considered.
The total request of the budget for the period beginning Feb-
ruary 16, 1915, and ending January 30, 1917, was $50,128,000.
The total recommendations for the same period were $39,927,000.
There was a free and unincumbered balance in the state treasury
on the day before the budget bill became a law, of $3,000,000. The
estimated revenues over my budget recommendations were $1,273,-
000; this provided a liberal margin for shrinkage in revenues in
this period, and kept the expenditures within the revenues. Add-
ing to this excess of revenues over my recommendations the balance
of $3,000,000, which was a heritage to the new administration, there
was $4,273,000 more than was actually needed, according to the
budget recommendations, for maintenance of the state's activities.
The total appropriations for this period, as finally passed,
reached the stupendous sum of $46,298,000 or an excess over the
budget recommendations of $6,371,000. The appropriations ex-
ceeded the estimated revenues by $5,098,000.
Advance Secured
The Governor of Ohio during 1913 and 1914, although pilloried
as an enemy of state progress, is here given unstinted tribute for
making possible the modern fiscal system Ohio enjoyed during
these years. The budget system was first condemned as being
Budget Making in Ohio 99
autocratic and a dangerous power in the hands of the Governor.
It was declared to be so vicious that it must and would be abolished
upon the accession of his opponents to power; that it was not a
function of the Governor and would be transferred to the State
Auditor's office.
In spite of this misrepresentation and lung thinking in the last
campaign, the whole system was kept right where it was placed at
the beginning. The campaign conducted last year in Ohio, mainly
on the contention that the Governor should not have so much
power, was won by those who said that they would limit his power.
We have seen that this fear of executive power was merely pretense.
During the summer of 1914 a special session of the legislature
was called for the first time in its history to reduce taxes. They
were in session one day which I believe is the record for a session of
any legislature in this country. This session cost approximately
$3,500 and resulted in a horizontal cut in taxes approximating
$2,200,000.
The increased demands from the various state departments
due to growth of population and developments of the state in gen-
oral, which necessitated larger expenditures for activities then being
performed, and the clamor by the people for state departments to
undertake new functions, all tended to swell the budget estimates
and make the job of paring down much harder. There were a num-
ber of demands for new activities and increased expenditures that
could not be well denied. It was my opinion that a rigid curtail-
ment should be made in the allotments to such departments as
were performing service of doubtful value.
I found many activities long established and yet appropriated
for, which had absolutely no reason for continuing to receive state
appropriations. Expenditures begun at a time when conditions
were different were often continued year after year when the neces-
sity for them no longer existed. No legislator could be expected
to familiarize himself with ninety different departments and the
burden of proving that the necessity for an appropriation no longer
obtained was on the person suggesting the change. Now the sys-
tem is reversed.' If after careful inquiry the budget commissioner
refuses to recommend an appropriation, his recommendation is
* Copies of the Ohio 1915-1917 Budget Report may be had by addressing Mr.
W. O. Hefferman, of The National Caah Re^sier Company, of Dayton, Ohia
100 The Annals of the American Academy
prima facie evidence that the money should not be spent. The
budget of 1914 provided for the General Assembly a means of ob-
taining an impartial statement of facts, which were obtained by
diligent research and submitted by a department which had no axes
to grind and was biased by no consideration of prejudice or favor.
FINANCIAL ADMINISTRATION OF THE COMMON-
WEALTH OF MASSACHUSETTS
By Ernest H. Maling,
Secretary, MassachusettpS Commission on Economy and Efficiency.
Introduction
The state government of Massachusetts is financed by revenues
appropriated annually by the legislature, by revenues expended
under standing statutory provisions and without appropriation, and
by loans.
A budget, in the sense of a comprehensive financial plan with
recommendations for all classes of expenditures and a plan of financ-
ing them, has never been prepared. For such departments and
work as are financed from revenues annually appropriated, the
departmental officials submit estimates to the state auditor who
tabulates them, without modification, for the use of the legislature,
governor and the Commission on Economy and Efficiency, an
agency to conduct investigations for both the legislature and the
governor. In addition to the departmental estimates, numerous
petitions for appropriations are introduced into the legislature with
the result that the auditor's tabulation cannot be accepted as com-
plete, and no other tabulation of proposed expenditures is made.
The departmental estimates and other proposals for expendi-
ture are acted upon exclusively by the legislature and its agent,
the Commission on Economy and Efficiency. The governor takes
no part in the preparation or revision of estimates, his action in
appropriation matters being limited to the approval or veto in its
entirety of each supply measure passed by the legislature. The
law provides that the auditor's tabulation of estimates shall be
submitted to the governor-elect approximately three weeks prior to
the convening of the legislature, but such a practice has little sig-
nificance since the law makes no other specific provision for the
governor's participation in budget making and no facilities for the
preparation of a budget are furnished him.
The present law governing the preparation of departmental
101
102 The Annals of the American Academy
estimates was enacted in 1912 and supplanted an act passed in 1910
which provided that the auditor's tabulation of departmental es-
timates shall be submitted to the governor and council "for exam-
ination, and the governor shall transmit the same to the general
court with such recommendations, if any, as he may deem proper."
With respect to estimates for ** special purposes," i.e., in addition
to those covered by regular, annual appropriations, the law of 1910
further provided that the governor ''shall make recommendations as
to how much should be raised by the issue of bonds and how much
should be paid out of current revenue."
The purpose of the act of 1910 was to place the responsibiUty
for a budget upon the governor. It was claimed by proponents of
the law that under its provisions the governor "must exercise control
and be responsible for increase in expenditures and in the debt as
well." The law became fully operative in 1911 and it soon became
evident that the governor and council had neither the authority
nor the faciUties for investigating the administration of the depart-
ments in order to determine the reasonableness of the estimates.
The law contemplated that the auditor's office would furnish such
data as might be needed, but no increase in the personnel of that
office was authorized. The auditor furnished data relative to re-
ceipts and payments but had no means for assisting the governor in
determining whether the departments were in genuine need of the
amounts contained in the estimates. At the request of the governor,
the legislature authorized him to investigate the departments and for
this purpose public accountants, engineers and other investigators
were temporarily engaged. On the basis of the reports of his in-
vestigators, the governor submitted from time to time throughout
the legislative session, recommendations on practically all of the es-
timates. Material reductions in the estimates of some departments
were recommended by the governor, but the legislature was in-
fluenced to only a small degree by the governor's messages and pro-
ceeded with its appropriation bills in much the same manner as
formerly.
Although the law of 1910 did not prove satisfactory, it cannot
be regarded as a failure of the principle of an executive budget.
The intent of the law was to place responsibility for the estimates
upon the governor, but the legislature in fact never relinquished its
prerogatives and did not give the governor adequate means for in-
Financial Administration of Massachusetts 103
vestigation and preparation of a budget. Moreover, it is extremely
doubtful if a genuine executive budget procedure can be adopted
so long as the state government remains in its present status of
decentralization with over 100 distinct units of organization con-
trolled by some 335 officials and members of boards. Another ob-
stacle in the way of an executive budget is the annual election of
the governor.
In order to correct one of the defects in the law of 1910, the
legislature created in 1912 a permanent investigating body, the Com-
mission on Economy and Efficiency. At the same time, the gover-
nor's authority and responsibihty for recommending appropriations
were abolished and the whole function of budget making was taken
back into the legislative branch. The 1912 law provides that the
Commission on Economy and Efficiency shall examine the depart-
mental estimates and "shall report thereon to the general court,"
thus making the commission a legislative agency so far as the inves-
tigation of estimates is concerned. On other subjects, however, the
commission is required to investigate sometimes for the governor
and at other times for the legislature.
Further changes in the methods of handling estimates and mak-
ing appropriations have been advocated recently. In his last
inaugural address. Governor Walsh made a recommendation for
again placing upon the governor the responsibility of submitting
estimates to the legislature. A special committee on legislative
procedure at the last session recommended several changes in
methods of preparing estimates and drafting appropriation acts.
No changes resulted from these recommendations, which are here
referred to as evidence of the efforts being made to effect improve-
ments in the state's appropriating machinery.
At present, different methods are followed in administering
the revenues subject to annual appropriation, the revenues expended
under standing statutory provisions, and loans. The procedure for
each class will be described in some detail.
Revenues Subject to Annual Appropriation
The principal classes of revenue subject to annual appropria-
tion are a general property tax, known as the "state tax," corpora-
tion taxes, inheritance taxes, licenses, and departmental revenues,
together with assessments on Boston and neighboring cities and
104 The Annals of the American Academy
towns in the "metropolitan" district to reimburse the common-
wealth for the costs of acquiring, constructing and operating water
and sewer systems and parks for those municipalities. With the
exception of the state tax and the metropolitan assessments, the
revenues are assessed and collected at established rates. The state
tax is fixed annually by the legislature at that sum which with the
estimated receipts from other revenues will equal the total amount
appropriated by the legislature.
Each important stage in making annual appropriations is
briefly described in the following outline, and a more detailed de-
scription of the preparation and investigation of estimates and of
the form of appropriation acts is then given. First, however, it
may be well to explain that the fiscal year for the state ends on No-
vember 30; the governor is elected annually in November and is in-
augurated on the first Thursday in January; and the legislature con-
venes on the first Wednesday in January of each year.
Outline of Appropriation Procedure
The appropriation procedure may be summarized as follows:
(a) Preparation of estimates by department officials and sub-
mission to state auditor not later than November 15 of each year.
(b) Tabulation of departmental estimates, without revision or
change, by auditor and submission of tabulation to governor-elect
and to State Commission on Economy and Efficiency not later than
December 15.
(c) Publication by auditor of departmental estimates, together
with his estimates of revenue for ensuing fiscal year, in a report
submitted to the legislature on the first Thursday of January.
(d) Report and recommendations of Commission on Economy
and Efficiency to legislature "as to any or all of the appropriations
requested or the method of raising money for the same, as it may
deem expedient,'' submitted "annually on or before the first Thurs-
day in January, and at such other times as it may see fit."
(e) Preparation by House Committee on Ways and Means of
appropriation bills for meeting ordinary, recurring expenses. As
a rule a separate bill is prepared for each department or institution
but in some instances two appropriation bills are drafted for a
single department. The bills are reported to the House in what-
ever order they may chance to be prepared. The bills are based
Financial Administration of Massachusetts 105
on the estimates tabulated by the auditor, supplemented by informa-
tion obtained at committee hearings or submitted by the Commis-
sion on Economy and Efficiency.
(/) Legislature's action on appropriation bills for ordinary
expenses. These bills, when reported out by the House commit-
tee, follow the usual course of legislation and almost without ex-
ception are enacted in the form reported by the Committee on
Ways and Means.
(g) Governor's action on appropriation bills for ordinary ex-
penses. One or more separate bills for each department or institu-
tion, as enacted by the legislature, are laid before the governor for
his action from time to time throughout the legislative session.
These bills are invariably approved by the governor.
(h) Legislature's action on appropriations for ^'special" pur-
poses to be met from revenue. Requests for "special" appropria-
tions submitted by departmental officials are included in the audi-
tor's tabulation, but other requests for *' specials" are submitted
directly to the legislature. All requests are first referred by the
legislature to the committee concerned with the activity or function
for which a special appropriation is sought. For each special
appropriation which is approved, the committee reports an author-
ization in the form of a "resolve" or "special act," which is then
referred to the House Committee on Ways and Means for a report.
In contrast to the favorable action taken on their appropriation
bills for ordinary expenses, the Ways and Means Committee's re-
ports on "specials" are frequently not accepted by the legislature.
(i) Governor's action on measures authorizing "special" ap-
propriations. The separate resolve or act authorizing each "spe-
cial" appropriation is submitted to the governor who not infre-
quently vetoes such mesisures.
ij) Preparation by House Ways and Means Committee and
enactment by legislature of appropriation bills for such "specials"
as have been authorized, ail "specials" being included in three or
four bills.
(k) Preparation by House Ways and Means Committee of a
bill fixing the " state tax" and apportioning it among the cities and
towns of the commonwealth. The act fixing the state tax is passed
near the close of the legislative session and in the form drafted by
the Committee on Ways and Means.
106 The Annals of the American Academy
Preparaiion and Invesiigaiion of Estimates
In part, the form of the estimates is determined by Chapter 719
of the Acts of 1912 which requires departmental officials to submit
to the state auditor "statements showing in detail the amounts
appropriated for the current fiscal year, estimates of the amounts
required for the ensuing fiscal year, with an explanation of the reason
for any increased appropriation, and with citations of the statutes
relating thereto, and the expenditures for the current year and for
each of the two years next preceding." The law further requires
that separate statements of estimates for any "special purposes or
objects ... in addition to the ordinary running expenses"
shall be submitted "in detail" to the auditor.
For many years, the statutes have required the submission of
estimates to the auditor for tabulation and presentation to the legis-
lature. In carrying out this provision of law it has become cus-
tomary for the auditor to draft forms to be used by the departments
in submitting their annual estimates. For the 1915 estimates the
forms were revised so as to require more information and a more
nearly standard classification than formerly.
In each of the two tabulations of estimates required by law,
the auditor incorporates the estimates for current expenses and
those for "special purposes" in separate reports. For many de-
partments and offices, the estimates for current expenses are
presented in practically the same detail as that used in the appro-
priation acts, but for each institution the estimates are given in from
seven to ten items while the act grants a lump sum appropriation.
Additional details as required by the estimate sheets sent out by the
auditor's office are not tabulated but are available for use by the
Ways and Means Committee and the Commission on Economy and
Efficiency. In addition to the estimates for current expenses, the
tabulation shows the appropriations and expenditures for the pre-
ceding year, together with the unexpended balances at the end of
the year.
The tabulation of estimates for "special purposes," which is
presented in a separate report, shows the departmental estimate for
each proposed building or project together with brief explanatory
statements of the officials' reasons for requesting an appropriation.
The detail in these estimates is usually the same as that appearing
in the resolves providing for such of the work as is authorized by the
Financial Administration of Massachusetts 107
legislature. Neither the tabulation of current items nor that of
"specials" contains any summary or recapitulation of the total
requests to be financed from revenue.
The second tabulation of estimates made by the auditor is sub-
mitted in the form of two legislative documents (House Documents
Nos. 1 and 2), one containing the estimates for current expenses
and the other, the estimates for special purposes. The estimates
are presented in the same form as in the tabulation for the governor-
elect and the Commission on Economy and Efficiency. The second
report differs, however, in that it presents expenditure figures for
the last three years and omits the data on unexpended balances. In
his second tabulation, the auditor also shows his estimate of the
amount which will be received from each principal class of revenue
subject to annual appropriation.
In addition to the estimates submitted to and tabulated by the
auditor, large appropriations are requested by petitions submitted
directly to the legislature. In the session of 1915, approximately
200 petitions requesting over $2,500,000 in appropriations to be
met from revenue were submitted directly to the legislature and
thus omitted from the auditor's tabulation. Of this amount, only
a negligible sum represented requests which could not have been
submitted in time for tabulation by the auditor. With few excep-
tions, the appropriations requested in the legislative petitions were
for departmental and institutional purposes of the same nature as
the "specials" tabulated by the auditor. The "specials" in the
auditor's tabulation amounted to $2,630,103 or a little over one-
half of the total requests of this class. Bond issues of over $8,-
000,000 were also requested in petitions to the legislature. None
of these was included in the auditor's tabulation, since that state-
ment, as previously explained, is limited to revenue appropriations.
Those requests for appropriations submitted as petitions can-
not be considered by the governor, the Commission on Economy
and Efficiency or others interested in budget making until the peti-
tions have been referred to the several legislative committees and
printed. With such a practice in force, it is impossible for a genu-
ine budget to be prepared.
Supplementing the estimates submitted to the auditor, plans
and specifications for the construction of proposed buildings at
state institutions must, by provision of law, be submitted by the
108 The Annals of the American Academy
institutional officials to the state board having supervision over
their institution, or in the case of institutions not under the super-
vision of a state board, to the committees of the legislature by whom
the request shall be considered. The procedure required by this
law has assisted in improving the character of construction as well
as giving the legislature a basis for considering and granting appro-
priations for new buildings and other improvements at state insti-
tutions. In one respect, however, the procedure under this law
should be radically changed, so as to avoid paying architects large
sums for plans which are used only in making unsuccessful attempts
to procure appropriations.
The Commission on Economy and Efficiency has investigated
estimates for both ordinary expenses and "special purposes" and has
presented its material and conclusions partly by means of confer-
ences with the House Committee on Ways and Means and partly by
written reports. In its studies, the Commission has made a
special effort to collect facts relative to the work conditions and
needs of the state institutions whose requests constitute a large pro-
portion of the total sum asked for "special purposes." In addition
to the returns made to the auditor and to the plans and specifica-
tions for new buildings submitted in compliance with law, the insti-
tutional officials have furnished to the Commission on Economy and
Efficiency further data on proposed construction together with
statistics on the physical plant, such as accommodations for pa-
tients and employees, etc. The information has been furnished in
response to a questionnaire designed to develop facts which would
furnish the means for testing and interpreting the figures on esti-
mated and actual expenditures submitted to the auditor.
Form of Appropriation Acts
As a rule, a separate appropriation act is passed for the ex-
penses of each department and state institution. Exceptions occur,
however, and in some instances several appropriation acts are passed
for a single department while a small number of acts (four in 1915)
are passed for "sundry miscellaneous expenses." The larger part
of the appropriations in these miscellaneous acts are for work or pur-
poses authorized by the legislature then sitting, including the con-
struction of institutional buildings, public improvements and other
"specials" which do not properly come within the title "expenses."
I
Financial Administration of Massachusetts 109
The acts granting appropriations are in a variety of forms, and
the only factors commonly specified are (a) the revenue from which
money is appropriated, as "ordinary revenue" or some special class
of revenue as the assessments on the Metropolitan Park District,
and (b) the period in which the appropriation is available for use.
The appropriations for some departments and institutions are made
in lump sums and for others in detail, but with no logical reason for
the differences.
Some acts designate the department or official authorized to
expend the appropriation while others contain no reference to any
department or official. In the latter case no practical difficulty
arises as to authority since appropriations are granted only for such
work or purposes as have been previously authorized by a statute
which designates the department or official to perform the work.
In many instances, the salaries of officials and employees are
fixed by law and, as a rule, the acts appropriate separately for such
salaries, while allowances for other salaries are grouped or are
merged with other objects of expenditures. In those acts which
appropriate in some detail for a single department, half or more of
the items frequently specify the amount allowed for salaries which
are fixed by statute. For example, in 1915 the appropriation act
for the office of the treasurer, an elective official, contains 19 items
of which 15 are for the salaries of individuals, from the treasurer
down to a messenger at $1,000.
Some appropriation acts specify the amounts to be expended on
distinct functions and sub-activities, some of which are unimpor-
tant, and other acts specify the amounts for the several organization
subdivisions of a department.
The appropriations for "special" purposes, principally con-
struction work, are included in the acts for "sundry miscellaneous
expenses," as previously explained. The amount granted for each
institution or undertaking is stated as a lump sum in the appropria-
tion act but a reference is given in each instance to the legislative
resolve, which specifies the sum appropriated for each principal
piece of construction or job.
The four acts for so-called "sundry miscellaneous expenses"
in 1915 contain 138 distinct items of appropriation, the number of
items in a single act ranging from 9 to 54. The total amount car-
ried by each of these four acts is not stated therein, neither are the
110 The Annals of the American Academy
items classified or arranged according to any system nor are they
listed in the index to the session laws, for the reason that these
appropriation acts are considered as perfunctory measures, being
made up largely of items for which separate resolves were passed by
the legislature. With slight changes in methods, the amount
appropriated to meet the requirements of new legislation might be
clearly shown in a single appropriation act. This information may
be obtained from a statement issued by the state auditor shortly
after the close of each legislative session, but unfortunately this
statement receives little attention.
The number of appropriation acts passed in each month of
the legislative session of 1915 and the amount appropriated in each
month are shown in the following statement :
Month Number of acts Amount
January 18 $1,194,907 .44
February 34 5,795,018 .85
March 61 10,594,275 .59
April 16 2,986,295 .04
May 5 1,372,058 .00
June 2 786,623 .31
Total 136 $22,729,178.23
Revenues Utilized Under Standing Statutory Authority
The revenues which are not subject to annual appropriation
but are expended under standing statutory authority comprise
several classes of imposts, as motor vehicle fees, highway assess-
ments levied on counties, assessments on cities and towns for har-
bor improvements, etc., together with the earnings of institutional
industries and other undertakings, and the interest from invested
funds. The amount of revenue collected from these sources and
expended without specific appropriation could be ascertained only
by extended investigation, but in 1914 the chief sources of such rev-
enue, exclusive of interest from investments, produced over $2,240,-
000 or approximately 10 per cent of the receipts from revenue subject
to annual appropriation. Practically all this sum is used for meet-
ing expenses of operation and maintenance and construction costs
of the same nature as those met from revenue subject to annual
appropriation.
The statutes governing the expenditure of revenues not subject
Financial Administration of Massachusetts 111
to annual appropriation indicate in general but not in detail, the
purposes or objects for which they may be used. No information
concerning these revenues is presented in the auditor's tabulations
of estimates for the legislature, and in fact, neither that body nor
the governor have any important part in the administration of
these public funds. In the auditor's annual report, detailed state-
ments of the receipts and expenditures of non-appropriated funds
are given but they are understood by very few persons other than
the officials who administer them.
Loans
Although Massachusetts has for many years expended large
sums of current revenue for new work, bonds have been issued ex-
tensively, principally for construction of armories, institutional
buildings, additions to the State House, highways, harbor develop-
ments, and war expenses. Bonds issued for these purposes are
known as "direct debt" of the state. State bonds have also been
issued to finance the construction and development of parks, water
systems and sewer systems in the so-called Metropolitan districts.
These latter, known as the ** contingent debt" of the state, are to
be met by assessments levied on the benefited cities and towns.
By a law enacted in 1912, all state bonds must be issued on
the serial payment plan. With the exception of a few loans for
indefinite periods, the statutes specify the period for which the
bonds may run. The statutes usually name only the general pur-
pose for which the proceeds of the loans are to be used, but occasion-
ally the law specified in some detail the work to be financed. Many
issues are authorized for a stated sum with provisions that a speci-
fied portion of the total may be issued each year for a term of years,
on the recommendation of the department expending the loan, but
with a provision that any proposed issue of a portion of the bonds
must be approved by the governor and council. Some bond acts
require a similar approval before the expending department can
execute contracts for construction or other work.
Legislative bills for bond issues originate from recommenda-
tions of state officials, from petitions of members of tho legislature or
of citizens interested in the development of some l)ranch of state
work. The bill or petition follows the same course as that described
for appropriation bills for *' special purposes," being referred to the
112 The Annals of the American Academy
committee concerned with the proposed work. If that committee
reports in favor of a bond issue, its bill is referred to the House Ways
and Means Committee. Each proposed bond issue is considered
separately, no attempt being made to prepare a loan budget, nor to
study the loan measures in their relation to revenues devoted to the
same general purposes as are contemplated in the loan bills. A sepa-
rate act or resolve is enacted for each approved bond issue, thus
placing each loan project before the governor for his approval or
veto. In 1915, 20 separate bond issues were authorized by the
legislature, of these 9 were "direct debt" loans aggregating $3,076,-
000, and 11 were "contingent debt" loans for $697,000.
While the bond issues of Massachusetts appear to have been
authorized for carefully considered purposes or projects, it is ques-
tioned whether the state has succeeded in granting funds to its
several departments and institutions in proportion to their genuine
needs. The method of administering the finances makes difficult
such an allotment of moneys. With some of the largest spending de-
partments financed in part from revenues annually appropriated,
in part from revenues expended under standing or continuing
statutory provisions and in part from bonds which may be issued
annually for a term of years, on the recommendation of the depart-
mental officials, it is exceedingly difficult to secure well balanced
grants of public funds.
TAXATION AND THE MUNICIPAL BUDGET
By Milton E. Loomis,
New Yoric University, School of Commerce, Accounts and Finance.
The relation of the revenue side of municipal finance to budget
administration is a subject that has not attracted a great amount
of public attention. The development of the municipal budget in
American cities during the last few years has been almost wholly
in the direction of a more effective control of expenditures. In
fact, the term "budget" is generally used to refer solely to a more
or less detailed estimate of future expenditures. The fact is lost
sight of that the budget properly includes an estimate of probable
income as well as of outgo. This failure to recognize the full mean-
ing of the budget has been due, in part, to the circumstance that
frequently the administration of the revenue-raising function has
been in the hands of a set of officials entirely distinct from those
charged with the duty of supervising expenditures. Moreover, in
many cases the tax ordinance is passed at a time so far distant from
the time when future expenditures are determined that it is difficult
to associate the two acts as part of the same procedure — the passing
of the budget. Finally, American cities have been given so little
independent authority in regard to the objects and methods of local
taxation that the process of raising revenue to meet estimated needs
has been largely reduced to the formal administration of a previously
enacted law or constitutional provision. The revenue system has
not been open to substantial improvement through local action, and
has, therefore, lost its position as a complementary element in the
development of budget administration.
The fact remains, however, that the nature of the revenue
system may have an important bearing upon the effective carrying
out of a scientific budget plan. From the standpoint of successful
budget administration a good revenue system should possess at
least two salient characteristics — ready adaptability to changing
demands for revenue, and certainty and regularity of yield.
Unless the revenues can be adjusted to meet the estimated ex-
113
114 The Annals of the American Academy
penditures without causing serious disturbance in the economic and
social organization of the community, the city administration may
be handicapped in putting into effect a constructive budget program.
Municipal expenditures are steadily increasing. This increase must
be met by a corresponding increase in revenues. The revenue
system should be so adjusted to take care of the necessary annual
increase with the least strain on the tax-paying pubhc.
Certainty is as important as flexibility. If it is not possible
to estimate with reasonable accuracy the amounts that the various
sources of revenue will yield during the coming year, it will obviously
not be possible to construct and carry out an intelligent plan of
expenditure. There should be no marked fluctuations in the
amount of income from year to year, or at least no fluctuations not
due to readily foreseen and assignable causes.
The following brief discussion will deal exclusively with these
two characteristics of American municipal revenues — flexibility and
certainty of yield — consciously omitting all considerations of a more
fundamental nature touching the substantial justice of taxation.
/. Adaptability to Revenue Demands
Theoretically, the administration of the budget calls for a
revenue system composed of certain main sources which are rela-
tively stable and dependable, and which do not require adjustment
or change from year to year. Additional revenues should be ob-
tained, as needed, by adjusting the rate of return from minor
sources. In this way, conceivably, revenue increases could be made
possible with little or no disturbance of existing conditions. As a
general thing, municipal expenditures do not increase from year to
year at a rate exceeding 10 per cent. In theory, the most satisfac-
tory way of handling such an increase would be to increase the yield
of one or more of the less important sources of income without
tampering with the principal source.
In American practice no such rule is followed. Up to the
present time cities have been depending largely upon increasing the
returns from the general property tax, either by raising the rate, or,
if that was not legally possible, by raising the basis of assessment
to some point nearer the true valuation. Other sources of revenue
are only occasionally considered as available to meet the require-
ments for more money. In fact, it is only when the general prop-
erty rate has been increased to the legal limit, and the basis of assess-
Taxation and the Municipal Budget 115
ment raised to 100 per cent, that the cities begin to look around for
other sources of additional revenue. The city is thought to be in
rather desperate financial straits when the administration is forced
to consider anything but the general property tax as a means of
raising more revenue.
The general property tax, which is thus made the principal
equalizing element in the revenue system, is, at the same time, the
main dependence of American cities. Taking the cities of the
country as a whole, the general property tax produces over 60 per
cent of the annual municipal revenue. As the tax is administered
in most cities, it amounts practically to a tax upon real property,
since the yield from the personal property tax constitutes a small
and decreasing proportion of the total income. The result is that
the owners of real property, paying more than half of the total
income of the city, bear in the first instance the direct burden of
every increase in expenditure. In most large cities the land-owning
population constitutes from a sixth to a third of the voting popula-
tion. The number of real property taxpayers is, therefore, relatively
small. The burden of increased budgets thus falls upon a small
element in the community, who, because they contribute so largely
to the financial support of the city, not unnaturally feel that they
are being unjustly treated.
Moreover, in most cities the real estate fraternity is strongly
and compactly organized, and consequently in a position to hamper
plans for administrative development that call for added expendi-
tures. Taxpayers* organizations which undertake to criticise the
work of city administrations perform a useful public service. But
when the sole standard by which the acts of the local government
are judged is the amount of immediate expenditure that will be
involved, the result is likely to be mere obstruction, regardless of
ultimate public benefit. It is highly desirable that an administra-
tion, on extravagance bent, should be effectively checked, but, by
the same token, the administration that is sincerely attempting to
promote the best interests of the community should not be hindered
and restrained through fear of arousing the taxpayers' ire by reason
of an increased tax rate. The fact that practically every American
administration is subjected to just this fear is due, in part at any
rate, to a lack of flexibility in the revenue system. It does not
respond properly to legitimate demands for expansion.
116 The Annals of the American Academy
The remedy is easily effected — on paper. It is only necessary
to establish the general property tax at a flat rate, which could be
retained year after year without change. Increased revenue from
the general property tax would then arise only through an increased
property valuation. The needed increased revenue from year to
year could be obtained by increasing the rate of some other tax, or
by levying a tax upon some new class of objects. In this way the
real property owners would be able to estimate for a reasonable
period of time in advance exactly what their contribution to the
public treasury would amount to. They would not be subjected
to the harrowing experience of discovering each year that the tax
rate had been raised, and that they were required to shoulder an
even larger share of the city's financial burdens. The constricting
influence of the property owners on the plans of the administration
would be somewhat lessened, and an elasticity given to the city's
finances that would open the way for constructive programs of
public improvement that would be of lasting benefit to the com-
munity.
Given complete local autonomy in matters of finance, a
program similar to the one suggested above might be practicable.
The general property rate could be fixed at some point near the
customary rate, and held there during a period of years. The
problem of raising needed additional revenue would then probably
have to be solved by the imposition of some new tax. There is no
tax or source of revenue, other than the general property tax, in
the systems of most American cities that lends itself readily to
annual adjustment and manipulation in the interests of additional
income. The most important sources of revenue, aside from the
property tax, are the proceeds of special assessments and the earn-
ings of public service enterprises. Naturally the latter consist
chiefly of the income from water rents, and this revenue is in most
instances devoted directly to the support and extension of the water
supply system, or in other ways sequestered, and not available for
general purposes. Special assessments, from the nature of the case,
expand and contract as the need for them demands, and cannot be
considered as part of the general revenue system. Taxes other
than the general property tax, usually various license and business
taxes, are not wholly adaptable t© the purpose of annual adjust-
ment, because it does not necessarily follow that an increased rate
Taxation and the Municipal Budget 117
will result in increased revenue. Moreover, in a considerable
number of instances, the chief of these special taxes, the liquor
tax, is imposed by the state, and the administration of the tax is
either in the hands of state agents, or directly under the control of
the state legislature. State subventions and grants are, of course,
wholly out of the question. The other sources of municipal revenue
yield such a trifling proportion of the total income that they could
not be used successfully to produce the required amounts of addi-
tional revenue.
It is not possible within the limits of this discussion to consider
all the possible new sources of city revenue. It is suggested, how-
ever, that as an equalizing element in the construction of the
revenue side of the budget, a local income tax would be probably
as satisfactory as any other. From the restricted viewpoint of
budget administration, the income tax would prove an admirable
balance-wheel. It would not be necessary to use the tax to raise
large sums. It would be resorted to only for the excess revenue
not provided for in other ways. The tax would probably never
have to produce over 10 per cent of the total revenue. For this
reason a rate could be fixed so low that it would not be a serious
burden to anyone. At the same time the exemption limit could be
placed sufficiently low to include a considerable proportion of tjie
income-earning population, so that the burden of a slight increase
in the rate from year to year could be distributed among a compara-
tively large number of persons. A change in the rate of a tax such
as the income tax could be depended upon to bring about a corre-
sponding change in the revenue derived. Moreover, a change could be
effected without seriously upsetting the established economic and
social order. These considerations commend the adoption of the
income tax to provide the needed element of flexibility in the local
revenue system.
It is recognized, of course, that the adoption of the income tax,
or for that matter of any other new source of revenue, as a generally
accepted element in American municipal finance is hardly practica-
ble. The chief obstacle is found in the legal fetters that bind the
cities in matters of finance. An objection fully as powerful, as far
as an income tax is concerned, lies in the fact that the American
public is not prepared to accept the income tax as a proper source of
municipal revenue. The proposal for a municipal income tax is
118 The Annals of the American Academy
therefore not offered as an immediately practical solution of
the present illogical practice of calling upon the general property
tax for every needed increase in revenue. However, it is doubtless
a fact that this practice is the only thing that can be done with
conditions as they actually exist. But this does not change the
fact that the system is illogical, nor necessarily act as a bar to the
consideration of possible remedies.
//. Certainty of Yield
The second important characteristic of a good tax or source of
revenue from the standpoint of the budget is certainty of yield.
The budget is an estimate of expenditures, and an estimate of
revenues. If these estimates, either on the side of income or outgo,
are not borne out by future results the budget system will fail,
since the city administration will be burdened with financial embar-
rassments which it is the function of the budget to obviate. It is,
therefore, of great importance that estimated revenues actually
accrue.
In formulating the basis for an estimate, the most dependable
indicator is past experience. If the income from a certain source
has, in the past, been steady and regular, it is fairly safe to assume
that it will remain so, and that the amounts realized in past years can
be counted on for the future. The same confidence could be
reposed in the estimate if there had been a reasonably steady in-
crease or decrease, or if past fluctuations could be traced to causes
the future operation of which could be foreseen. In this connection,
it may be worth while to examine in more detail some of the more
important sources of municipal revenue, actual or possible, in regard
to their adaptability to an accurate estimate of future results.
1 . The General Property Tax. In the strict sense of the word,
the revenue from the general property tax is not estimated in Amer-
ican municipal budgets. The income from all other sources is
estimated, and it is then assumed that the property tax will yield
the necessary amount to make up the remainder. Thus, when it
is determined how much can be expected from other sources, the
remainder is divided by the total property valuation, and the
resulting tax rate imposed. The revenue budget is then complete,
on the assumption that the property tax yield will be 100 per cent
of the levy.
Taxation and the Municipal Budget
119
In the case of the tax on real property, this assumption is not
wholly unjustified. For reasons that it is not necessary to consider
here, it is the usual experience that a large proportion of the real
property tax is actually collected during the year of the levy, or is
collectible soon after. The experience of the city of New York
may be cited as an illustration of the relative certainty of the
revenue from the real property tax. The following statement
shows, for the period of five years, 1909 to 1913 inclusive, the per-
centage of the original levy remaining uncollected at the end of
1913, the percentage that had been written off on account of dis-
counts, cancellations, or deductions, and the percentage of the net
collections:^
Percentage of
UncoUected
balance
Deficiencies
written off
Net
collections
1901)
1.16
3.08
4.09
5.60
15.18
2.99
1.83
1.30
0.86
0.93
95 85
1910
95 09
1911
94.61
1912
93 54
1913
83.89
These figures indicate quite a remarkable stability of yield.
The average percentage of net collections to total levies for the four
years previous to 1913 was, at the end of that year, almost 95.
There is, of course, a steady decHne as the final date is neared, but
the difference between 1909 and 1912 was only 2.31 per cent.
There is a sharp faUing off in 1913, but it should be borne in mind
that the second half of the property tax is not due till November 1,
and to have collected over 80 per cent two months after the last
installment was due is not a bad record.
The experience recorded above is fairly typical, and upon this
evidence may be based the general conclusion that the real property
tax is fairly satisfactory from the standpoint of an accurate forecast
of future results.
> Figures taken from report of Department of Finance and Bureau of Munici-
pal Research, New York, 1916, on Reotnuu and Expmdiixtret, 1910 to 1914, in-
clusive. Page 222.
120
The Annals of the American Academy
As has been pointed out many times elsewhere, the personal
property tax is not a satisfactory tax as regards the budget esti-
mates. Whatever certainty there may be in relation to this tax is
a certainty that it will not produce as much as the levy calls for.
Properly speaking, an estimate of the yield would be in effect an
estimate of how great the deficiency would be. It has universally
proved practically impossible to collect a respectable percentage
of the total levy. In this connection, the experience of New York
is interesting, though not wholly typical. New York exempts large
classes of personal property which, if an attempt were made to levy
and collect taxes on them, would materially increase the percentage
of the deficiencies. As a general indication, however, figures sim-
ilar to those just cited for the real property tax are given here for the
personal property tax:^
Percentage of
UncoUected
balance
Deficiencies
written off
Net
coUeotions
1909
31.96
22.43
23.67
29.23
35.30
7.31
7.47
5.51
0.96
0.65
60 73
1910
70.10
1911
70.82
1912
69.81
1913
64.05
These figures show that for the three middle years, 1910-1912,
there was a fairly consistent collection of about 70 per cent of the levy.
The year 1909 was a poor year, with only 60 per cent collected five
years after the levy had been made. But the results seem to show that
70 per cent is about all that can be expected. If this assumption
should be made, and the inevitable deficiency made up in some
other way each year, the results might not be so serious. But as a
matter of fact, it is assumed each year that the whole amount will
be collected, and the uncollected balance is either added to some
later budget or made up by the issuance of bonds. The combined
real and personal tax deficiency in the city of New York for the
years 1899 to 1913, inclusive, was $77,478,043.99. Of this total,
$41,259,855.04, or 53.2 per cent, was personal tax deficiency, in spite
* Op. cit.
Taxation and the Municipal Budget 121
of the fact that the total personal levy for the same period was only
8.4 per cent of the total levy, for personal and real property combined.
These facts serve to emphasize the fact that in comparison with the
real property tax the personal property tax is an undesirable tax
when considered in relation to budget administration because of
the uncertainty of the yield and the diflBculty of collection.
2, Other Revenues. Of the other sources of revenue resorted
to by American cities, special assessments and state subventions
may be dismissed without comment. The only other important
revenue, from the point of view of the amount of the yield, is the
revenue of the water supply system, and other public service enter-
prises. In regard to these revenues, it should be noted that only
in exceptional instances do they yield a real income to the city,
over and above the actual cost of carrying on the enterprises. It is,
nevertheless, necessary and important that the income from these
sources be accurately estimated. As a matter of fact, there should
be no serious difficulty about this. Once an enterprise is firmly
established it should be possible to estimate the revenue from it
with a sufficient degree of accuracy for all practical purposes. The
income from water rents, for instance, is steady and dependable.
To be sure, the early financial officers of New York made serious
miscalculations in regard to this revenue when they diverted it in
perpetuity to the support of the sinking funds, with the result that
enormous amounts of money have been and are being tied up, and
have only recently been released by a virtual evasion of the law.
Such an error, however, was due directly to lack of experience,
and would not have resulted seriously had it been possible to correct
it when the actual situation was realized. Once a basis of experi-
ence is established, there is nothing inherently difficult in estimating
the probable revenue from any public service enterprise. The vol-
ume of business is not subject to marked fluctuations on account of
economic conditions, the gross revenue can be forecast without
difficulty, the costs of operation soon become standardized, and the
net revenue is therefore easily deducible.
The importance of the various minor municipal revenues does
not warrant an extended discussion. It may be interesting, how-
ever, to review the experience of the three years, 1912 to 1914
inclusive, in New York with certain of the more important of the
minor revenues of that city. The revenues included are the bank
122
The Annals of the American Academy
tax, mortgage taxes, county clerk's fees, county register's fees, and
interest from overdue taxes. The following table shows the amounts
estimated at the beginning of each year compared with the amounts
actually collected during that year for each of the sources of
revenue:
Bank tax
Mortgage taxes
County clerk's fees
Total
Per
cent
differ-
ence
Total
Per
cent
differ-
ence
Total
Per
cent
differ-
ence
Estimated Revenue. . .
1912 Collected Revenue . . .
$3,500,000.00
3,489,313.67
- 10,686.33
0.3
$1,200,000.00
1,290,479.75
+ 90,479.75
7.5
$120,000.00
131,387.80
+ 11,387.80
9.5
Estimated Revenue . . .
1913 Collected Revenue
3,400,000.00
3,600,728.73
+ 200,728.73
5.9
1,100,000.00
1,518,694.77
+ 418.694.77
38.1
205,000.00
197,202.98
- 7,797.02
3.8
Estimated Revenue , . .
1914 Collected Revenue
3,500,000.00
3,629,408.92
+ 129,408.92
3.7
1,000,000.00
1,130,545.28
+ 130.545.28
13.1
190,000.00
200,559.36
+ 10,559.36
5.6
County register's fees
Interest on overdue taxes
Total
Per
cent
differ-
ence
Total
Per
cent
differ-
ence
$310,000.00
310,279.90
+ 279.90
0.1
$1,600,000.00
1,967,473.34
+ 367,473.34
1912 Collected Revenue
23.0
Estimated Revenue ....•..•••...
305,000.00
286,887.76
- 18,112.24
5.9
1,700,000.00
2,703,489.91
+1,003.489.91
1913 Collected Revenue
Difference
59.0
300,000.00
270,854.97
- 29.145.03
9.7
2,300,000.00
1,819,587.19
-480.412.81
1914 Collected Revenue
20.9
The greatest percentage of variation from the estimate appears
in the cases of the mortgage tax and the revenue from interest on
overdue taxes. The yield of both of these sources showed rather
marked fluctuations from year to year, as might have been expected,
since they both depend, 'in a measure, upon general business and
economic conditions. In the case of the other taxes and revenues,
Taxation and the Municipal Budget 123
the percentage of difference between the estimate and the yield was
never greater than 10 per cent. The returns from the bank tax and
the register's fees were regular and fairly dependable, the former
steadily increasing, and the latter steadily decreasing.
It is interesting to note the apparent effect of each year's experi-
ence upon the estimate for the next year. In the case of the inter-
est returns, for instance, the large excess of receipts over the estimate
in 1913 (59.0 per cent), was doubtless in part responsible for the
increased estimate in 1914, which, coupled with a sharp falling off
in receipts made a deficiency of over 20 per cent. This is an excel-
lent illustration of the difficulty with an uncertain revenue. If the
estimate for 1913 had been continued in 1914 the results would have
been much more satisfactory. But there was no certain way of
predicting the marked decline in returns in 1914, and the estimate
was a guess, based in part on 1913 results, which did not materialize
the next year.
The results with the bank tax were more satisfactory. In 1912
the yield was a trifle below the estimate. The estimate in 1913
was reduced by $100,000. At the same time the collections in-
creased so that there was an excess of over $200,000. This experi-
ence justified a return in 1914 to the 1912 estimate, and the tax,
not being subject to violent fluctuations, continued to yield more
than $100,000 in excess of the estimate.
As a general rule, it is probably better to have the results exceed
the estimates, as a whole, than to have an appreciable deficiency.
But the margin between estimates and collections should not be
great in either direction. Moreover, the discrepancy need not be
great with a properly constructed tax system. The operation of a
tax should not be uncertain. If a large deficit is created by reason
of the failure of certain sources of revenue, it must be made up,
frequently by issuing bonds, to the detriment of future taxpayers.
On the other hand, a substantial surplus may lead to extravagance.
In actual practice, however, as in the case of New York, a general
surplus in any one year would be applied to the reduction of taxes
for the following year, so that there would be no danger of an
accumulating surplus. Moreover, as a matter of fact, the difference
between estimated expenditures and revenues and actual expend-
itures and revenues is not sufficiently great in any one year to cause
serious embarrassment. As has been noted, however, the cumu-
k
124 The Annals of the American Academy
lative deficiencies in the collection of the general property tax has, in
New York, required the resort to long term bonds to cover at least
part of the loss.
It is fair to conclude that the revenue systems of American
cities, as a general rule, have proved more satisfactory from the
standpoint of certainty of return, than from that of flexibility.
The typical municipal revenue system needs the greater flexibility
which might be obtained by the introduction of some form of
taxation the rate of which might be varied from year to year with-
out causing either great economic disturbance, or widespread
popular opposition. On the other hand, the real property tax, the
backbone of the system, has proved reasonably satisfactory with
regard to the sureness with which results can be counted on, and
the various minor revenues can be forecast with sufficient accuracy
to avoid serious discrepancies between budget estimates and actual
collections.
SOURCES OF REVENUE
By Herbert S. Swan,
Expert Investigator, Committee on the City Plan, New York. Formerly Ex-
pert Investigator, Commission on New Sources of City Revenue.
Real Estate Tax. The backbone of the revenue system of
American cities is the tax on real estate. In the average city the
tax levy on ordinary land and buildings is more than four-fifths
of the general tax levy and yields more than half of the total revenue.
These proportions, of course, vary in different cities. In Augusta,
Georgia, for instance, the levy is but three-fifths of the general
levy and yields only one-fourth of the total revenue. In New York,
on the other hand, the levy on ordinary land and improvements
constitutes nine-tenths of the total property levy and produces
two-thirds of the entire revenue.
As the real estate tax is the most important source of revenue,
the method of its assessment and levy merits the most serious
attention. The scientific assessment and taxation of real estate is
obviously the first step to be taken by a city in any attempt to
improve its financial condition.
Limitations on Tax Rate. The tax rate should always be fixed
by budgetary requirements, not by statute. If the fixed tax rate
is larger than that required by a city, it will result in extravagance
and waste. If it is too small, it will result in the throttling of
necessary expenditure; or in the tapping or retention of undesirable
sources of revenue; or in the borrowing of money for current
account. A congressional committee recommended the repeal of
the fixed tax rate in Washington in 1912.
A limited tax rate is only less harmful than a fixed tax rate.
The cities of Ohio are at present having serious financial difficulties
on account of the statutory limitations imposed on the tax rate.
The limitations on the tax rate in Massachusetts were found so
ineffective in their design and so irksome in their operation that
they were repealed in 1913. The only city in the state that has
a limited tax rate at present is Boston.
125
126 The Annals of the American Academy
Semi-Annual Collection of Taxes. Taxes should be collected
semi-annually, the first installment at the commencement of the
fiscal year and the second six months later. This policy has three
advantages: (1) it effects a large saving in the interest paid on
temporary loans issued in anticipation of taxes; (2) to the extent
that such loans are reduced the market for long term borrowings
is improved, — the capital available for investment in city bonds is
increased ; (3) it diminishes tax delinquencies by permitting property
owners, unable to pay their whole tax, to pay half and to go into
arrearage for the other half.
Tax Discounts. No discount should be allowed for the pay-
ment of taxes. The best way to secure prompt payment of taxes
is to charge a high interest rate on those remaining unpaid after
a fixed date. If a discount is granted, the tax budget will have
to contain an appropriation equal to the amount of the discount.
If all taxpayers could take advantage of the discount to the same
extent, the result would be nil — the rebate allowed each property
owner would exactly offset the amount of his additional tax. But
all property owners cannot avail themselves of the discount. The
result is that the taxpayers availing themselves of it are favored
with a differential tax rate at the expense of those who don't.
Full Value Assessments. All real estate should be assessed at
full value. With true value as the basis of assessment, over-
assessments and underassessments are more apparent and, there-
fore, more easily corrected. - An accurate assessment based on a
percentage of true value entails a greater amount of work on the
assessor than a full value assessment. He must first ascertain the
full value and then proceed to calculate the percentage of assess-
ment. A full value assessment saves this computation.
Assessment at part value, moreover, gives a low tax rate the
appearance of a high one. This artificial stimulation of the tax
rate results either in the non-performance of much necessary work,
or in its payment out of borrowed money when it should really be
charged to current revenue. The borrowing power of cities has as
a consequence of this policy been seriously abused. When assess-
ments are at, say 20 per cent of true value, as they are in many
cities, the temptation to borrow for current purposes is almost
irresistible. A 1 per cent levy on true value when translated into
terms of a rate on such an assessment becomes a 5 per cent tax.
Sources of Revenue 127
Annual Assessments. Assessments should be made annually,
not biennially or triennially. An annual assessment of real estate
greatly improves the administration of the assessing department.
The assessors being practically the whole time in the field become
experts in valuation. This secures uniformity of assessment. The
annual assessment of real estate, moreover, increases the revenue
of a city in that the increment in land value is intercepted every
twelve months instead of every two or three years. It is also true
that if real estate is not assessed annually, land of a declining value
will be over-assessed a large part of the time. Biennial and tri-
ennial assessments necessitate large and abrupt increases in the
assessment of property rising in value. This excites much dis-
satisfaction among owners. Annual assessments to a large extent
overcome this difficulty in that the increases are smaller and more
gradual.
Separate Assessment of Land and Buildings. It is most impor-
tant that land and buildings be assessed separately. Unless this
is done a scientific assessment of real estate is impossible. Land
tends to appreciate in value; buildings to depreciate. This fact
makes it necessary to assess the two by different standards. To
value both together inevitably results in an unequal assessment of
property.
Not more than half of the cities with a population exceeding
30,000 assess buildings and land separately.
In the cities that do make separate assessments the greatest
divergency is found in the per capita land and building values.
Taunton, for instance, has a per capita land value of only $147.
San Diego has a per capita land value of $2,130. In Manhattan
the per capita land value is $1,258, and in New York as a whole only
$840. In Atlantic City it is $1,089; in Los Angeles, $1,100; and
in San Francisco, $1,380. These cities illustrate the extreme. In
the average city it is less than $400.
The assessed building value per capita ranges from $140 in
Perth Amboy to $750 in Newton. In the average city it is between
$300 and $500.
Methods of Assessment. An improved parcel scientifically as-
sessed will usually not be assessed at a higher figure than its capital-
ized rental unless the land value alone exceeds this sum. Its
assessment, moreover, will ordinarily not be raised on account of an
128 The Annals of the American Academy
increasing land value, except where such increased value results in
a larger rental.
No building should be assessed at more than the difference
between the value of the land and the aggregate value of the land
and building. The value of new buildings should be computed by-
applying appropriate factors of value per square foot of floor space
to the entire floor surface. The factor chosen in any particular
case should be adjusted among other things with reference to the
kind of building, the height between floors, the state of depreciation
and obsolescence, and the per cent of lot area covered.
Land Value Maps. Land value maps should be published
annually. These maps show the value per front foot of inside lots
on grade and of standard depth on each side of every block in the
city. In the case of unplotted land they show the acreage value.
Maps of this character aid: (1) the assessor in making equitable
assessments by presenting him with a view of all his territory with
comparable figures on every street; (2) the board of review in
passing upon applications for a reduction of assessments; and (3)
the public in judging the fairness of the assessments.
Land value rules should be utilized in computing the assess-
ments of lots of irregular depth and shape. Such rules are used
by Cleveland, Newark and New York.
Tax Maps. Tax maps showing the boundaries and dimensions
of every lot are indispensable to an accurate assessment of land.
Without their aid it is impossible to be certain whether all real
estate has been assessed. Where they are not used considerable
property escapes all assessment and taxation.
Tax maps are not found at present in most of the smaller cities
and towns.
Exemption of Buildings. There is a movement on foot in
many cities at present to exempt improvements from taxation.
The policy has so far been adopted in part by only two cities,
Pittsburgh and Scranton.
Exemption can be most readily effected in cities with a rapidly
increasing land value and a small improvement value as compared
with the total real estate value. Given this condition the untaxing
of buildings would mean only a slight increase in the present tax
rate on land values and this could be done without seriously incon-
veniencing either the city's finances or private property rights.
Sources of Revenue 129
This is especially true of such western cities as Berkeley, Los
Angeles, Oakland, Sacramento, San Diego, San Francisco, Seattle,
Spokane and Tacoma. In all these cities the assessed land value is
almost double or more than double the assessed improvement value.
In San Diego for instance, improvements are assessed at but 17
per cent of the total real estate. The land tax, therefore, produces
almost five times as much income as the building tax. The improve-
ment levy yields less than 8 per cent of the total municipal revenue.
The land levy yields 35 per cent of the total revenue. San Diego is,
however, an extreme case. In the other cities named above the
improvement levy yields from 15 to 20 per cent of the total revenue,
and the land levy from 30 to 40 per cent of the total revenue. It
is doubtful whether any city in the United States derives less revenue
from the taxation of improvements than San Diego. This city is,
therefore, the logical place in which first to exempt improvements
from taxation. In no city, however, do land values contribute a
greater share of the total revenue than in New York. That city
derives 41 per cent of its total revenue from the tax on ordinary land
values. The tax on improvements contributes 25 per cent of the
total income.
The relation of land value to total real estate value varies
enormously in different cities. Generally speaking it fluctuates
between one-third and one-half of the real estate value. But in
Chelsea, Everett, Pawtucket, Taunton, West Hoboken, and Woon-
socket, the assessed improvement value is twice or more than twice
the assessed land value. Taunton, for instance, derives only 11
per cent of its revenue from the taxation of land values while it
derives 25 per cent from the taxation of building values. West
Hoboken, Chelsea, Woonsocket, and Everett derive 13, 15, 17 and
19 per cent of their revenue respectively from the taxation of land
values; and 29, 30, 34 and 38 per cent respectively from the taxation
of improvement values.
Cities deriving such a large percentage of their revenue from
I improvements would obviously have great difficulty in exempting
them from taxation. Exemption wherever effected will, as a rule,
have to be very gradual or the municipal finances will be seriously
embarassed.
Special Assessments, Some cities derive as much revenue from
special assessments as from the general property tax. They are
I
130 The Annals of the American Academy
most freely resorted to in western cities. There the limitations on
the debt incurring power are frequently so stringent as to render
loans for improvements impossible and the tax limit so low as to
make their payment out of the tax budget out of the question.
Assessment of Street and Park Openings. Any public improve-
ment conferring a local benefit should be assessed. The assessment
should be limited only by the cost of the improvement and the
amount of benefit. No part of the cost should be assumed by the
city where the local benefit is sufficient to pay the whole expense.
Assessments for street openings are more general than those
for park openings. In the acquisition of parks, however, Kansas
City assesses the entire cost. Denver, Indianapolis, and Minne-
apolis assess a substantial part of the cost. Before 1855 it was the
practice in New York to assess the entire cost of park openings.
During the next twenty-five years from one-third to one-half of the
cost was assessed. Since 1880 the city has assumed practically the
entire cost. Only within the last few years has an attempt again
been made to assess the cost of parks.
The best procedure governing assessments for street openings
is probably found in New York.^ The Board of Estimate and Appor-
tionment has the power to fix the benefit area. The benefits may
be apportioned between districts of special benefit, one or more
boroughs, or'parts of boroughs, and the city at large. Levies against
one or more boroughs or the city at large are in the nature of flat
rate assessments and collected with the annual real estate tax. The
rules controlling the benefit area and the apportionment of assess-
ments in street openings are most elaborate. Lack of space for-
bids a detailed account of them here.
Assessment of Physical Improvements. The cost of local im-
provements, pavements, sidewalks, water and sewer mains, etc.,
should be assessed only in those cases where the work adds to the
city's capital account. In other words such assessments should be
limited to the original improvement unless a subsequent improve-
ment is of a higher standard than the original. Then the cost of the
subsequent improvement, in so far as it is of a superior grade than
the first, might be assessed.
Only the first improvement confers a local benefit; the subse-
1 Nelson P. Lewis, Paying the Bills for City Planning^ Proceedings, Fourth
National Conference on City Planning, 1912.
Sources op Revenue 131
quent improvements, unless they are of a better quality, merely
maintain the benefit conferred by the first. If this principle is not
acted upon, assessments for local improvements will in effect have
to be made a regular source of city revenue. This would be most
unfortunate. It would result, as it were, in the creation of as many
special taxing districts as there are separate improvements. The
land values in the central part of the city are due quite as much to
the activities of the people living in the suburbs as to those living
in the heart of the city. It is consequently only just and fair that
the cost of subsequent improvements should be provided for in the
annual budget. In a large city the amount of work required each
year is fairly regular. Its payment in this manner would conse-
quently not impose any greatly fluctuating charge on the tax rate.
To have the contractor act as the collector of assessments
increases the cost of improvements as in making his bid he must
discount the probability of the less valuable properties being unable
to bear their assessments.
The contractor should be paid during the construction of the
improvement as the work progresses. To defer payment until the
improvement's completion obliges the contractor to include an
added amount for interest charges in his bid. This practice also
reduces competition for city work. Contractors unable to com-
mand sufficient credit to finance the work to its completion are
eliminated from the bidding.
Payment should be made, not in warrants or assessment bonds,
but in cash. Paper issued to contractors is usually not sold at par.
The amount of discount, which varies from 5 to 10 per cent, is, of
course, added to the prices bid.
The maintenance of a revolving fund, replenished by assess-
ments as they are collected, is probably the best method to enable
the city to pay cash for its physical improvements.
Excess Condemnaiion. Every city should acquire the right of
excess condemnation in undertaking public improvements, especially
in the laying out of new streets and in the widening or extension
of old ones.* The financial advantage that will accrue to the city
from the exercise of this right will be found quite as much in the
• For an exhaustive discussion of excess condemnation see the report prepared
by the present writer for the National Municipal League, and published by the
New York Committee on Taxation, 1915.
132 The Annals of the American Academy
increase of the taxable values due to the economic replotting of
areas adjacent to such improvements as to the profits derived from
the resale of surplus land. The land adjacent to a street is generally
divided into plots the shape and size of which are adapted, as well
as might be to the street's present use and condition. Widening a
street, or laying out a new one in a built-up quarter disturbs this
equilibrium. Not only are the existing buildings destroyed, but
the abutting lots, after the work's completion, are frequently left
so distorted in shape and so dimunitive in size as seriously to impair,
if not utterly to destroy, the proper use and development of the
thoroughfare. For such a street to attain its natural importance
it is necessary that the land fronting upon it should be wholly
rearranged and replotted.
There are many instances in our cities where street improve-
ments have appropriated all but ten or twenty square feet of large
lots. Remnants of such size are not only useless themselves, but
they also keep other lands to the rear of them from being utilized
to their best advantage. The present practice in making street
improvements instead of enhancing the values of adjacent land
frequently militates against its best economic use as actually to
depreciate the taxable values.
Under excess condemnation, the city might, in addition to the
land requisite for a thoroughfare, appropriate these small parcels,
obUterate the existing lot lines, and replot the frontages of the street
in a manner conducive to its most wholesome development. The
city would be in a far better position than the private owners to
replot these injuriously affected plots. The cost, moreover, of
acquiring the additional land would be negUgible. When so much
of a lot has to be taken as to leave the remainder practically worth-
less, the price that must be paid for the appropriated part is, as a
rule, as great as the market value of the whole.
New York, Massachusetts, Ohio and Wisconsin have adopted
constitutional amendments to enable their cities to exercise excess
condemnation.
The Unearned Increment Tax. The unearned increment tax
is the most fruitful new source of revenue that can be adopted. ^
' For a more complete discussion of this tax see the article by the present
writer, entitled "The Unearned Increment Tax," in the National Municipal Re-
view, April, 1914.
Sources of Revenue 133
The scheme worked out by the New York Commission on New
Sources of City Revenue for the taxation of the unearned increment
is at once a model of simplicity and applicability to American condi-
tions.
Briefly stated, this plan proposed to assess and tax annually
all increment accruing in the future in the same manner as existing
site values are now assessed and taxed. No heed is paid to sale or
transfer of title in the imposition of the tax. The site value, as
determined by the assessor for the year the tax goes into effect,
is made the standard by which to measure all future increment, the
assumption being that the valuations fixed by this department
fairly reflect the current market values. Taxation of the increment
in no wise exempts or relieves a parcel from payment of the ordinary
real estate tax, the new tax being an addition thereto, although
imposed only on that portion of the site value accumulated after
the basic year.
If the assessed site value of a parcel, for instance, should be
increased SI 0,000 above the assessment of the basic year, the owner
would pay an annual surtax on the amount of this increment in
addition to the regular tax on the total value of his site.
Increment arising from improvements, such as grading, sewer-
ing, paving, etc., the cost of which has been borne by the owner,
is, to the extent of such cost, deducted from the increment assessed.
The increment assessed in any particular year is, therefore, the
difference between the site value assessment for that year and the
site value assessment for the basic year, after deducting the cost of
improvements made during the interim. To illustrate: if the value
of a piece of land should rise from $100,000 in the basic year to
$110,000 after the basic year, and the owner could show that he had
spent $4,000 in permanent improvements, either upon his own ini-
tiative or in payment of special assessments levied by the munici-
pality, he would be taxed on an increment of only $6,000; and the
base value of the land for the future assessment of increment would
thenceforth be $104,000 instead of $100,000.
Examined from every point of view, the tax recommended by
the Commission on New Sources of City Revenue is an infinite
improvement over the English or German method of taxing the
increment in site values. It differs most radically from the tax in
either of these countries. In England and Germany the state in
134 The Annals of the American Academy
consideration of a lump sum payment parts forever with its right
to appropriate these unearned values. Under the/ suggested plan
the state would retain a rent charge in perpetuity on all increment.
As a revenue measure, the proposed tax has a vast advantage
over the English or the German tax. As applied in these countries
the revenue produced by the tax is almost entirely dependent upon
the real estate market, and, therefore, subject to the most violent
fluctuations.
The tax recommended by the commission would produce a
revenue which in its amount would be easily calculable from year to
year. Its yield, moreover, in addition to being steady, would in-
crease in amount. The Department of Taxes and Assessments
estimates that site values in New York City increase at the rate of
4 per cent per annum. The proposed increment tax at a rate of 1
per cent would reduce this increase to about 3| per cent. Assuming
this rate of increase to continue, the proposed tax would in thirty-
two years yield a revenue equal to a 2 per cent tax on the present
assessment of ordinary land values.
Personal Property Tax. The personal property tax should be
abolished. In some cities this could be done immediately without
any great financial inconvenience. Personal property in New York,
for instance, constitutes only 3 per cent of the general property
assessment and yields only 2 per cent of the total revenue. Most
cities, however, derive a much larger income from personal property,
the levy in such cities as Chicago, Cincinnati, Cleveland, Detroit,
and Minneapolis, constitutes between 25 and 35 per cent of the total
general property levy. In these cities the abolition of the tax would
probably have to be effected very slowly.
No increased revenue is to be expected by taxing personalty at a
low rate. The experience of Connecticut, Iowa, and Minnesota
proves this.
y Business Taxes. The imposition of business taxes as a source
of revenue is not to be commended. If large in amount they are apt
to affect the business of a city most unfavorably, even to the extent
of completely driving it away. They are also undesirable in that
they confer a monopoly advantage upon those able to pay the tax
by rendering certain businesses inaccessible to the poorer classes.
Licenses. Licenses should be confined to such businesses as
require inspection and regulation under the police power. The
Sources of Revenue 135
cost of necessary supervision should fix the amount of the fee charged.
A fee in excess of the cost of regulation would be very much in the
nature of a tax.
Permits, Privileges and Concessions. All permits, privileges
and concessions should as a general rule be let at public auction.
No free privileges should be granted. The fee should be of a fixed
amount and collected periodically. It should not be based on the
net or gross receipts of the business. This plan has been tried in
different cities and is thoroughly discredited. A city to administer
it successfully would have to employ a large staff of accountants
and detectives.
Departmental Fees. Fees charged for departmental services
should not exceed the amount necessary to make their respective
departments self-sustaining.
Municipal Enterprises. Municipal enterprises, waterworks,
electric light plants, gas plants, etc., should not be operated for
profit. The rates charged should conform to the cost of service,
including of course, the interest and amortization charges. To
charge more than this results in unequal and inequitable taxation.
ACCOUNTING BASIS OF BUDGETARY PROCEDURE
By WillB. Hadley,
Chief Accountant, Department of City Controller, Philadelphia.
An accounting system to properly supplement budget proced-
ure must provide for such an analysis of actual and estimated
expeijditures and receipts that the ofl&cial and the citizen may pass
judgment upon the plans proposed for the new year by a comparison
of actual expenditures and receipts in past years with the estimated
expenditures and receipts for the coming year.
Such an accounting system has been developed in Philadelphia
by City Controller Walton, who began January 1, 1911, to analyze
expenditures by fund, organization unit, function (or activity),
character and object. These classifications are indicated in the
following outline:
Fund — General, Loan, Special and Trust.
Organization Unit — City Treasurer, Bureau of Water, Sheriff, etc.
Function — Fire Fighting, Isolation of Contagious Diseases, Construction of
Sewers and Inlets, etc.
Character — Expenses Incurred and Payment of Funded Debt:
Administration,
Operation,
Maintenance,
Debt Service and
Other Expense.
Property Acquisitions.
Net Changes in Working and Current Assets:
Stores,
Postage and transportation,
Reductions in Current Liabilities,
Abatements of Revenue and
Expenditures on Account of Prior Years.
Object — Personal Services,
Services Other Than Personal,
Materials,
Supplies,
Equipment,
Structures and Non-structural Improvements to Land, Land,
Rights, Obhgations and Payment of the Funded Debt,
136
Budgetary Procedure 137
Fixed Charges and Contributions, and
Pensions and Retirement Salaries,
Losses and Contingencies
The above sub-head titles are complete under fund, character
and object. Under organization unit and function only illustra-
tions are given as the complete list of these two classifications would
take considerable space. They are both given in full in City Con-
troller Walton's budget statement for the year 1916.
Probably interest centers more closely upon the expenditure
side rather than the receipt and income side of budget accounting.
Expenditure classifications for budget purposes should cover at least
a three-year period, namely: (1) the expenditures of the last com-
pleted year, (2) the appropriations of the current year, (3) the
expenditures of the current year to as late a date as obtainable,
(4) the estimated expenditures for the remainder of the current year,
and (5) the departmental estimates for the coming year for which
the budget is being prepared. These several groups of figures must
be subjected to a common classification in order that they may be
comparable. When so presented the eye can readily follow the
changes from one year to another and can note the changes in the
object of expenditure, in the character of expenditure, in the func-
tion (or activity), in the organization unit and in the fund. Any of
these changes may be significant.
In the object classification, for example, an increase in personal
services, materials and supplies and a decrease in services other than
personal would mean that more of the city's work was to be done
by administration and less by contract. A decrease in rentals and
an increase in property acquisitions would indicate expenditures for
permanent properties to replace leased properties, thereby reducing
the fixed charges for rentals.
In the character classification a marked falling off in mainte-
nance may indicate that properties and equipment are not being
properly maintained. Large expenditures for property acquisitions
should be reflected in increased maintenance expenditures to pro-
vide for the upkeep of the newly-acquired properties. Increase in
operation may be the result of an expansion of the existing functions
(or activities) or the taking on of new functions not previously per-
formed by the city government.
The relative use of loan moneys for current expenses and reve-
188 The Annals of the American Academy
nue moneys for permanent improvements and property acquisitions
is clearly set forth in the fund expenditure classification. The
classification by organizatidn unit shows the expenditure for each
department and bureau and the classification by function (or activ-
ity) shows the expenditures, actual or estimated, for each one of
the many functions of the government of the city.
In order to have available for budget purposes the actual
expenditures for the last completed year, it is necessary to keep
expense, stores and property ledgers, together with a complete
analysis of expenditures by the foregoing classifications. These
analyses can be best secured by punching the information upon
cards and sorting and tabulating the results thus obtained by means
of machines. What would ordinarily be a very tedious task, if
done upon analysis sheets, thus becomes a very simple one and the
results are secured in a minimum of time.
General account receipts are presented in the budget in a state-
ment which shows the actual receipts of past years and the esti-
mated receipts of the coming year for which the budget has been
prepared. In the budget for the city of Philadelphia referred to
above, the estimated general account receipts are presented in two
ways, viz.: (1) the departmental estimates of what will be received,
the purpose of which is to show any discrepancies in the five-year
average, (2) the five-year average made by the city controller as
required by act of assembly, which estimate limits the amount of
general funds which may be appropriated by city councils. In
addition to this annual estimate there is usually a fund surplus
available at the closing of the year's books, arising from an excess
of the actual receipts over the estimated receipts and from merging
balances of appropriations. These are the only sources from which
general funds may be secured for appropriation, with the exception
that city councils may authorize a temporary loan not exceeding
$1,200,000 redeemable in four months.
The amount of loan funds that becomes available for appro-
priation each year depends upon the increase in the assessed valua-
tion of taxable property, upon changes in the gross amount of funded
debt outstanding, upon the increase in the amount of city loans held
as investments by the commissioners of the sinking fund and upon
changes in the status of other liabilities of the city.
Special and trust funds become available for appropriation
Budgetary Procedure
139
through the receipt by the city treasury of money for special and
trust purposes, being appropriated then only for those specific
purposes, for which it was received.
In addition to classified statements of expenditures and receipts,
a budget to be complete should include comparative balance sheets,
with actual and estimated figures, and comparative operation and
surplus accounts with actual and estimated figures. Such balance
sheets, operation and surplus accounts may be found in City
Controller Walton's budget statements for 1915 and 1916.
Budget accounting is a source of information by means of
which the citizen can fairly judge the results secured by officials and
their programs for future accomplishments. I say "fairly judge"
because I do not believe that the great majority of American citizens
want to judge unfairly or in ignorance, if the basis for fair and intelli-
gent judgment is presented in the budget. It serves a second
purpose in that it is a bulwark of defense for the honest official.
With it he can defend his past performances and explain the various
increases asked for.
UNIT COSTS IN RECREATIONAL FACILITIES
By Paul T. Beisser,
Fellow, New York School of Philanthropy.
Of the $17.34 per capita paid in 1912 in cities of over 30,000
for all governmental costs, sixty-four cents per capita represent
the expenditures for recreational facilities.^ That is, of the total
expenditures for governmental expenses 3.7 per cent went to recrea-
tional purposes, including museums, art galleries, bathing beaches,
playgrounds, parks and all other recreational facilities. The total
spent for recreation in 1910 was $16,108,808.00, or fifty-nine cents
per capita; while in 1903 only thirty-four cents per capita
were appropriated for this purpose. The per capita expenditure
of the thirtj^-three " cities'' of Massachusetts in 1908 was
eighty-seven cents.^ The 1914 Year Book of the Playground
and Recreation Association of America shows 342 cities maintain-
ing 2,402 playgrounds and recreation centers at a total expenditure
of $5,700,223.81 for the year 1913. The Detroit Recreation Com-
mission shows for the coming year a carefully drawn budget of
forty items amounting to $169,299.00.
These facts indicate that recreational facilities are beginning
to figure as items in the municipal budget. While the appropria-
tions are as yet inadequate they are sufficiently large to be taken
carefully into account, and they are rapidly increasing. A further
indication of the growing importance of this item in the budget is
the fact that the usual practice is to establish such facilities under
private initiative, playground and recreation associations and the
like, and when they have proven successful to have them taken over
by the cities. This means that in the future the cities are likely to
take over many of the burdens now resting on private shouklers.
There is cropping up also a tendency to take many recreational
facilities out of the ''commercialized amusement" class and run
> Financial Slatislica of Cities Having a Population of Over 80,000. United
States Census Bulletin, 1912.
* The Cost of Municipal Government in Massachusetts. 1908, p. 17.
140
^
Unit Costs 141
them in the interest of good morals, sound amusement and efficient
citizenship rather than in the interest of profit. The municipal
dance halls of Chicago and the municipal swimming centers of
Philadelphia are good examples of this trend. This movement
toward public cooperation in recreational facilities is natural and
inevitable, for the social conscience is waking to the need for whole-
some recreation for all. Furthermore only in this way can adequate
facilities be provided within reach of all and at small individual
cost.
The logical conclusion is that there is imperative need for care-
ful analysis and standardization of the costs of these facilities. In
order to plan improvements wisely, to estimate budget items, to
compare the results which are secured in various cities, some bases
of judgment and comparison are essential. In the matter of cost
accounting most cities, as most recreation leagues and associations,
are woefully lax. Cities run their playgrounds and recreation cen-
ters under the Department of Parks, or the city owns the parks or
playgrounds and a private association equips them and directs their
activities; or the Board of Education and the Bureau of Recreation
handle the problem jointly. Some cities do not keep separate the
attendance records of the various centers, some keep no records.
At times the cost of operation is not separately kept for each center;
again the costs of operation and of improvement are not separated.
Frequently, when reasonably good figures are given, no careful
description is given of the extent and character of the equipment
and activities of the particular center. Even the terminology is
varied and confusing. Thus this can as well be a plea for greater
care and uniformity in reports and records as an analysis of available
figures.
The reports of Chicago and Philadelphia contain much that
is lacking in other reports and an analysis of them is more valuable
than generalizations from less complete reports.
Parks
The following table was compiled from the report of Chicago's
South Park Commissioners, February 28, 1914;
142 The Annals of the American Academy
Table No. 1
Park
Improve-
ment* >
Coat of
operation,
1913
Attend-
ance,
1913
Area,
acres
Cost per
capita,
1913
Cost per
$1,000 of
improve-
ments
Cost
per acre,
1913
Jackson Park
$2,995,573.46
$169,640.75
871,878
542.89
$0.19
$56.29
$312.47
Washington Park.
1.418,474.93
144.915.28
590,465
371
.24
102.16
390.60
Marquette Park. .
336,400.38
17,770.16
53,810
322.68
.33
52.82
55.07
Calumet Park
20,001.24
9,729.02
76,343
66.19
.127
486.45
146.97
Sherman Park
491,176.88
44,282.61
732,741
60.60
.061
90.16
730.73
Ogden Park
503,277.74
44,209.59
685,758
60.54
.064
87.84
730.25
Palmer Park
302,529.05
41.702.87
433,647
40.48
.096
137.85
1,030.20
Hamilton Park...
247,146.92
35,025.24
529,149
29.95
.066
141.72
1,202.84
Bessemer Park . . .
329,615.97
35,677.33
510,635
28.88
.069
108.24
1,235.36
Russell Square
167,800.67
29,078.84
433,004
11.47
.069
173.29
2,535.13
Mark White
Square
257.374.23
35.564.97
606,726
10
.058
138.18
3,556.49
Fuller Park
510,554.07
39.722.01
781,887
10
.05
77.80
3,972.20
Davis Square
214,486.25
36.033.61
610,380
10
.059
168.00
3,603.36
Armour Square . . .
181,496.70
31,374.80
434,720
10
.072
172.87
3,137.48
Cornell Square . . .
174,459.53
30,337.07
527,857
10
.057
173.90
3.033.70
> "Improvement" includes all equipment and improvements.
These parks naturally divide themselves into two groups,
Jackson, Washington, Marquette and Calumet Parks, which are
especially large, and the remaining eleven all of which have prac-
tically the same equipment and improvements. These consist of
gymnasiums for men and women both indoor and outdoor, a field
house, playgrounds for children, shower baths, swimming pools,
tennis courts, ball fields and skating ponds. Jackson Park, the
largest of all, contains some of the old World's Fair buildings, a
yacht harbor, boating and fishing lagoons, facilities for baseball,
tennis and ice skating, and two golf courses. Washington Park
contains facilities for sports, a conservatory and rose garden and
the administration building of the park commissioners. Marquette
Park, in addition to facilities for sports, has a field house with a
dance hall and the nurseries of the park commissioners. Calumet
Park, though large, has few improvements except a public bathing
beach along Lake Michigan with ample dressing facilities for
bathers.
The most useful comparison, then, is between the last eleven
parks, since these are very similar in equipment. The total im-
provements vary considerably. A study of the other columns
reveals the fact that the cost of operation per acre varies inversely
I
Unit Costs 143
with the acreage; also that the cost of operation per $1,000 of im-
provement varies inversely with the improvements and the acreage.
In other words, the greater the acreage the less is the cost of opera-
tion per acre, while as the acreage and the improvements increase
the less is the cost of operation per $1,000 of improvement.
In the case of these parks, attendance does not provide as
useful a comparison as might be wished, since it is only the record
of those participating in specific activities, and does not include
those who may have been benefited by the park as a place for rest
or an airing. However, it is interesting to notice that the cost of
operation per unit pf attendance varies comparatively little. The
average cost of operation per unit of attendance upon activities for
these eleven parks was .065 cents. It is estimated that the facilities
of Jackson Park and Washington Park were enjoyed by 11,334,-
716 and 11,650,000 visitors, respectively, during 1913. This
would give a cost per unit of attendance of $0,015 for Jackson
Park and $0,012 for Washington Park.
It is worth}^ of note that the cost of administration for all these
parks was 5.19 per cent of the total cost of operation.
Playgrounds
The following table was compiled from the figures given by the
Chicago Special Park Commission for the playgrounds under their
charge during 1914.'
The equipment of these grounds varies from a single plaj^field
to a separate athletic field, sand house and shelter platform, base-
ball and foot ball field, and indoor gymnasium. There are from
twenty-five to forty pieces of apparatus on each playground. The
playgrounds are open all the year, have a skating pond for winter
and at each there is at least one director and one attendant in charge
throughout the year.
The figures show at what low cost playground facilities can be
furnished. The average cost per unit of attendance for all the
playgrounds was $0.0159. Here again the cost of operation per
$1,000 of equipment and the cost per unit of attendance decreases
with the increase of equipment.
^Report of Special Park Commiancn, Chicago, December 31, 1914.
144 The Annals of the American Academy
Table No. 2
Playground
Equip-
ment »
Cost of
operation.
1914
Attend-
ance,
1914
$16,000
$3,815.06
348,020
10,000
3.322.98
308,685
10,000
3.205.39
196,750
9,000
3.335.92
212,350
9,000
2.910.26
254.284
8,000
3.139.66
215,545
8,000
2,993.77
200,351
8,000
2,722.44
114.958
8,000
2,098.84
173,476
7,000
2.416.41
188,875
7,000
2,239.05
110,162
7,000
3.203.42
217,991
7,000
2,186.82
98,750
7,000
2,101.25
115,172
6.000
3,060.52
201,235
5.000
2,320.34
175,261
5.000
2,176.41
169,420
4,000
2,363.45
144,970
4.000
2,135.26
59,919
Area,
square feet
Cost per
$1,000 of
equip-
ment
Wrightwood ....
Beutner
Holden
McCormick
Corkery
Fiske
Christopher
Conunercial Club
Audubon
Moseley
Drake
Sampson
McLaren
Adams
Hamlin
Dante
Washington. . . . ,
Northwestern . . .
Orleans
361 X 454
258 X 546
116 X 696
125 X 275
265 X 164
264 J. 174
125 X 275
f 120 X 123 1
\ 125 X 200 ,
138 X 264
200x200
181 X 194
125 X 215
185 X 175
102 X 288
300 X 598
235 X 95
128 X 174
70 X 350
126 X 136
$23.84
33.23
32.05
37.06
32.33
39.24
37.42
34.03
26.23
34.52
31.98
45.76
31.24
30.01
51.01
46.40
43.53
69.08
53.38
» Approximate.
The per capita cost here is much smaller, naturally, than that
for the parks, since in the jfirst place there are many more expenses
such as policing, care of lawns, landscape gardening, etc., in the
case of parks, and secondly, the complete record of attendance at
the parks is not secured. If we take the per capita cost based on
the estimated attendance at Jackson and Washington Parks we find
that the figures $0,015 and $0,012 respectively compare well with
the average per capita cost of the playgrounds, $0.0159. However,
the additional expenses which the park features entail are cause
for the fact that the cost of operation per $1,000 of improvement
for parks is much higher than that for playgrounds. In the case
of the playgrounds, salaries and wages amounted to 86.53 per cent
of the cost of operation.
The figures for playground costs in Philadelphia are given in the
following table:*
* Compiled from report of Board of Recreation, January 1, 1914.
Unit Costs
Table No. 3
145
Playground
Coat of
operation, 1913
Attendance,
1913
Cost per
capita, 1913
Months
open
Athletic Park
Kingsessing Park
Chestnut St. Pier
Coxe
Disston Park
Tunfield
Happy Hollow
Point Breeze
Race St. Pier
Sherwood Park
Shot Tower
Starr Garden
Viaduct
Waterview
Weccacoe
Westmoreland
Womrath
East GermantouTi ....
Friends' Meeting House
Parkway
Belfield
Pomona
$4,769.28
5,323.84
6,379.46
1,603.34
4,539 . 12
6,600.49
7,237.72
600.90
3,342.91
13,120.49
1,116.09
13,420.10
3,102.37
3,303.43
2,731.15
1,454.10
459.09
538.14
473.77
225.50
547.64
624.79
113,822
131,341
133,371
87,483
202,826
355,043
162,054
21,999
48,630
291,146
82,332
360,269
164,889
57,687
66,314
73,816
13,975
42,151
17,453
10,859
36,579
6.382
•$0,041
.04
.047
.018
.022
.018
.044
.027
.068
.044
.013
.037
.018
.05
.041
■ .019
.032
.012
.027
.02
.015
.097
2
9
12
10
12
12
12
6
4
12
8
12
12
7
8
7
4
5
2
2
4
4
The average cost of operation per capita for these playgrounds
was $.0341 as compared with Chicago's figure of $.0159. A com-
parison between these averages is hardly fair, for in the first place
Chicago's playgrounds were open all the year while most of Phila-
delphia's were not. Taking those that were, Chestnut Street Pier,
Disston, Tunfield, Happy Hollow, Sherwood, Starr Garden and
Viaduct, we find an average cost per capita of $.033. Five play-
grounds open only four months show an average cost of $.044, while
the five grounds open from six to eight months show an average
cost of $.03. Thus, irrespective of the length of the playground
term, Philadelphia is spending more per unit of attendance than
Chicago. It also seems evident that keeping the playgrounds open
during the winter months does not increase the per capita cost of
operation, indicating that they are used to an extent which makes
it worth while to run them all year.
146
The Annals op the American Academy
The difference between Chicago and Philadelphia might be
explained by the fact that a comparatively lower attendance raises
the per capita cost. However, we find that while Philadelphia has
a somewhat lower average attendance, 114,110 for 1913, compared
with Chicago's average of 172,956, its average cost of operation per
playground, $3,705.31 is much higher than Chicago's figure, $2,-
618.28. Evidently, then, the difference is caused by a compara-
tively higher cost of operation.
The proportion of salaries and wages to the total cost of opera-
tion is 77.81 per cent as compared with 86.53 per cent for Chicago.
Bathing Beaches and Swimming Pools
For bathing beaches and swimming pools Chicago again has
the best available figures as shown in the table below.
Table No. 4
Pool or Beach
Cost of
operation
Attendance,
one year
Cost per
capita
Rocky Ledge Beach^
$3,029.59
1,744.52
2,710.78
1,988.57
921.74
2,253.95
1,134.21
1,269.66
1,125.12
1,765.27
1,658.64
1,491 .23
1,428.78
1,983.59
7,496.67
3,232.29
111,565
152,708
51,717
85,218
55,399
66,066
48,738
36,611
92,525
105,838
70,942
79,889
60,334
59,993
176,751
82,211
$0,027
Ohio Street Beach^
.011
Washington Heights Pool^
.052
Mark White
.023
Armour
.016
Fuller
.034
Cornell
.023
Russell
.034
Sherman
.012
Ogden
.016
Bessemer
.023
Palmer
.018
Davis
.023
Calumet Beach
.033
Jackson Beach
.042
McKinley •
.039
* From Special Park Commissioners' Report, December 31, 1914. All others
are for 1913 from Report of South Park Commissioners, February 28, 1914.
The four bathing beaches, Rocky Ledge, Ohio Street, Calumet
and Jackson show an average cost per unit of attendance of $.028.
There is little difference in the case of the twelve swimming pools,
which had an average cost of $.026. These pools and beaches were
Unit Costs 147
open for the months June to September, inclusive. The slight cost
of operating a beach like Ohio Street beach, or a pool like Sherman
Park pool, a little over one cent per unit of attendance, is the most
effective argument for municipal recreational facilities.
In Philadelphia, fourteen municipal swimming centers during
ten weeks gave 26,533 swimming lessons at a total expenditure of
$2,739.33, or a cost of 10.3 cents per lesson.
Miscellaneous
Philadelphia conducted supervised play during July and August
1913, under the Board of Recreation, in 106 school yards. The
average cost per yard was $385.51 or a cost of $.041 for every time
a child used the school yard. Their home and school gardens had
an attendance of 173,307 during six months with an expenditure of
$11,138.86, making a cost of $.064 per unit of attendance.
The playground in Reading, Pa., had in 1914 an attendance of
204,107 at a cost per capita of $.023. This compares favorably
with the average cost for Chicago's playgrounds of $.0159.
The municipal dance halls of Chicago are able to sell two
admissions for twenty-five cents, with free checking service included.
Jackson Park, Chicago, has one nine-hole and one eighteen-hole
golf course. During 1913 more than 300,000 persons played over
these courses at an average cost of a little over five cents each.
What one small city can do is told by a correspondent of the
Playground Magazine.* Amherst, Nova Scotia, with a population
of 10,000, had a recreation campaign during the summer of 1913.
The high school grounds and one other plot were used as centers.
Three experienced workers were employed at a cost of $310.00 and
$169.00 were spent on work and equipment. It is estimated that
the children's games, athletics, ball games and other sports were
participated in by 1,700 different persons at an average cost of $.27
per person for the summer. The total attendance at all activities
was more than 17,000 or about $.027 per unit of attendance.
This analysis shows the comparatively .low cost of recreational
facilities furnished by public co6peration. It is not pertinent or
necessary here to discuss their importance. Recreation is an item
in the city budget and is rapidly growing larger. The need now is
for careful cost and attendance records and greater care and uni-
formity in reports.
• Playground Magazine, February, 1914, p. 445.
SOME SUGGESTIONS FOR PREPARING A BUDGET
EXHIBIT 1
By J. Harold Braddock,
Vice-President, American City Bureau, New York.
Primarily the function of the budget exhibit is to bring public
opinion to support public officials who have visions as to what might
be accomplished toward social well-being and to counteract the
indifference of the passive many and the selfish interests of an
active few who hamper the work of civic progress. The budget
exhibit accelerates the forward movement by pointing out graph-
ically the need for municipal improvements and helps communities
approach these higher standards by guiding them in the actual"
work of carrying out the recommendations indicated. Thus the
budget exhibit is a potent factor in the social education of the public,
the connecting force between the educational agency and those
intent upon active civic advance.
An efficient budget exhibit, accordingly, is educational in its
nature and shows to the taxpayer such facts as:
A. The work accomplished by the department or bureau asking for
money
How much spent last year
How much wanted for the next year
What is to be done, and the reasons for the increase or decrease
B. The cost of such work per imit, with the comparison of the cost of
such work in other comparable cities
C. Relative eflficiency of the work done as compared with that of other
comparable cities
D. Work that might be done effectively and estimate of the cost of such
work with a comparison of conditions in other comparable cities
E. Opportunities for saving in the conduct of the city's business by the
introduction of scientific management
^ It is the purpose in this paper to deal with no phase of the budget exhibit
other than the details for charts. For treatment of other phases, see "The
Efficiency Value of the Budget Exhibit," The Annals of the American Acad-
emy of Political and Social Science, May, 1912,. page 151; "How New York
Views Its Budget Exhibit," the Twentieth Century Magazine, November, 1911,
page 21 ; " The Significance of the Dobbs Ferry Idea, " The American City, August,
1912, page 106.
148
Preparing a Budget Exhibit 149
To avoid confusion, the functional method of display is adopted,
with coordinate displays by departments as arranged in the budget,
unless the budget is functionalized.
1. General charts for the city as a whole give the area, popula-
tion and death rates, marriage rates, tax rate, miles of highway, etc.,
with a comparison of these with another comparable city.
2. The system of government is illustrated by charts showing
the general plan of the system and of regular departments and
offices.
3. The "cube" scheme for showing budget totals usually is
adopted, classifying both by departments and by functions, to-
gether with cubes showing the city debt as compared with other
comparable cities.
4. The city budget as a whole is shown on two charts. The
first is departmentalized as follows:
General administration
Fire protect ion
Police protection
Health
Sewerage
Garbage
Sidewalks, cross-walks and parks
Street lighting
Street sprinkling
Assessments and collection of taxes
Public library
City court
Etc.
The second shows the following classifications:
Salaries and wages
Repairs and replacements
Fuel
Fornge
Shoeing horses
Telephone
Light, heat and power
Water
Advertising and printing
General supplies
Contingencies
Etc.
5. General administration — Chart showing present expendi-
150 The Annals of the American Academy
tures and estimates for next year with increase or decrease, and
reasons.
6. Fire protection — The exhibit to show the following charts:
a. Expenses last year and estimate for next year, with increase or de-
crease as to
Salaries of permanent men
Salaries of call-men
Supplies
Alarm system
Telephone
Uniforms
Apparatus
Etc.
b. Fires per month for ten years
Number of fires per month per 1,000 population
Number of fires per month per 1,000 population in comparable cities
c. Number of men employed
Permanent
Call
Number of men employed in proportion to population; compare with
other cities
d. Property loss through fires for ten years; compare with other cities
e. Equipment of department Equipment of department in other
cities
No. value No. value
Engine houses Engine houses
Hose Hose
Engines Engines
Etc. Etc.
Total Value Total value
/. Increase of property valuation last ten years
Increase of appropriation for fire protection last ten years, with rela-
tion to property valuations
7. Police protection exhibit on same lines as above, emphasizing
possibility of saving, and showing needs.
8. Health exhibit on lines as above.
9. Sewage exhibit showing:
a. Complete chart of expenses and estimate for next year with increase
or decrease
b. Chart of present system and extensions desired, with cost
c. Work accomplished
d. Cost of sewers and operation
e. Cost of different kinds of sewers, pipes, drains, etc.
Preparing a Budget Exhibit 151
/. Cost of cleaning sewage basins per basin with number cleaned last
year, force employed, and number of cubic yards removed per basin with
comparison of cost in other cities
g. Same for sewers
h. Method of disposal of sewage
i. Show better method of disposal, etc., and cost of installation of better
system of improvements
j. Budget appropriation for maintenance of sewers, with number of
miles of sewers and appropriation per mile
A;. Number of employees
10. Garbage.
a. Complete chart of garbage expenses last year, with estimate of cost
for next year, and increase or decrease
h. Portions of city covered, with cost per cubic yard of material removed
and per capita of population and comparison with comparable city
c. Cost of extending to other sections of city
d. Methods used and better methods possible, with cost
e. Number of employees
/. Equipment and value of same
11. Sidewalks, cross-walks and parks.
a. Complete chart of expenditures and estimate for next year, with
increase or decrease
6. Map of square yards of new walks laid, with kind of walk and
needs for next year
c. Repairs made, and the cost per square yard of repairing various kinds
of walks
d. Cost of cleaning snow per cubic yard for walks, with snow falls in
square yards, and cubic yards cleaned and per capita cost. Cost in com-
parable city
c. Number of parks, acreage, and location by map
/. Cost of up-keep of parks per acre
g. Number of employees
12. Street lighting — similar exhibit.
13. Street sprinkUng — similar exhibit.
14. City court.
a. Chart of expenditure and estimate for next year, with increaee or
decrease
h. Number of persons held and final disposition during year
c. Cases of various sorts for ten years, comparative statement
d. Charts classifying persons held by nativity, age, color, marital con-
dition, etc.
e. Needs and cost comparisons with other cities
152 The Annals of the American Academy
15. Finance.
a. Charts showing cost of administering finances of city and estimate
for next year, with increase or decrease
6. Total city debt showing increase for ten years. Total and propor-
tional debts of other comparable cities
c. Comparative budget totals for ten years, with estimated total for
next year
d. Increase in budget compared with increase in population, showing
per capita expenditures
e. Sinking fund
/. Bonds issued last year
g. Proposed for bond issues next year
16. Assessment and collection of taxes.
a. Charts showing cost of assessing and collecting taxes, and estimate
for next year with increase or decrease
b. Work done in last year
c. Income from various taxes and estimate for next year, and per capita
rate
In some instances it is desirable to have a more complete
exhibit for a particular department. For example, the exhibit for
the department of street cleaning shows for a number of years and
for comparable periods, the following standard facts.
A. Average cleaning cost per thousand square yards cleaned by all
methods, all pavements
B. Average carting cost per cubic yard of all refuse removed
C. Average disposal cost per cubic yard of garbage disposed of
D. Average disposal cost per cubic yard of ashes, sweepings, and
rubbish disposed of
E. Average stable cost per horse day working
But it is desired to go further in the exhibit of this department.
Accordingly, such facts as the following are shown:
1. Map of city with appended statistics as to
a. Population
b. Density of population
i. Maximmn
ii. Minimum
iii. Average
c. Area of city
d. Length of streets
i. Paved
ii. Macadamized
iii. Unpaved
Preparing a Budget Exhibit 153
e. Area of pavements
i. Rough (Block, cobble, granite)
ii. Smooth (Asphalt, wood block, brick)
iii. Macadam (Tarred, oiled, plain)
iv. Unpaved
2. Organization chart of department.
3. Digest of statutes, charter provisions, city ordinances,
health regulations, police regulations and department rules relative
to street encumbrances, street cleaning, carting, disposal of refuse,
etc.
4. Arrests for violations, with number fined, amount of fines,
number of fines, number imprisoned, number discharged.
5. Expenditures for the following:
a. Salaries
b. Wages
c. Apparatus, machinery, vehicles, harness, etc.
d. Furniture and fittings
e. Repairs and replacements
/. Telephone service
g. Automobiles, purchase and maintenance
h. Horses — purchase
t. Horses — maintenance
j. General supphes
k. Contracts
Etc.
6. Salaries and wages — Number at each price, number of days,
and total paid for each class of labor.
7. Revenues from sale of garbage, trimming dumps, etc.
8. Equipment of each sweeper.
9. Square yards cleaned each day per sweeper, per sweeping
machine, per flusher, per flushing machine, per squeegee.
10. Samples of receptacles on streets.
11. Monthly work of department by loads and by cubic yards
in carting street sweepings, ashes, garbage, rubbish, snow and ice.
Etc.
These statistics are not required for every city, nor are they
available in most cities. They serve to indicate, however, the
variety of matter possible to place in the exhibit of a department
which is studied intensively.
The budget exhibit, then, shows by means of photographs and
154 The Annals of the American Academy
charts how much the city spends each year and what it gets for its
money. Expenditures, accounts and annual reports are compared
with expenditures for similar purposes in other towns. On the
physical side, the best that the city has is compared with the worst
that it has, with a view to pointing out what the city needs as to
parks, repairing of streets, cleaning of streets, sidewalks, trees,
artistic electric light poles, underground electric wires and city
planning. Public amusements are compared with provisions made
by other towns for playgrounds, entertainment halls, game rooms
and public baths. In the matter of health, is set forth what the
city does and what other towns do to control the quality of milk,
water, ice, foods, plumbing, nuisances, tenements and contagious
diseases. Similar figures show school attendance, absences, non-
promotion, and elimination, medical and physical inspection and
treatment of school children, ventilation, decoration, equipment,
ungraded classes for retarded pupils, manual training, domestic
science, vocational guidance and wider use of the school plant. In
each instance the best things in the city are set forth, thus lauding
the city for its accomplishments. Where both good and bad con-
ditions exist, the best are set forth, and alongside are shown the
worst, with the question as to whether the best is any too good for
all of the city.
In every instance it has proved essential to procure the coopera-
tion of city officials in charge of each of the city departments for
which an exhibit is planned. Usually city officials are glad to show
the public what they are doing with their appropriations and what
they would like to do if they had larger appropriations. The same
thing can be done with the private organizations engaged in phil-
anthropy and civic welfare work. In fact, it is profitable to arrange
for heads of departments to cooperate with the executives of private
agencies in getting up exhibits covering their mutual fields. For
instance, the anti-tuberculosis league and the organization in charge
of milk stations cooperate with the health officer; the associated
charities cooperate with the superintendent of the poor, etc. If
each department head will endeavor to show how much money
was appropriated at the beginning of his term or at the beginning of
the year, how much was expended and what services were rendered
for the money spent, a pretty clear picture will be given of the
results of that department's activity. Have this tied up to what
Preparing a Budget Exhibit 155
the executive would like to have accomplished, and there is the
basis for increased public interest.
Throughout the exhibit there are shown photographs. For
illustration, at one budget exhibit there were shown such pictures
as the following:
1. The best looking house and home site in the village, cost or rent of
which was not over a certain specified amount
2. Vistas looking over the surrounding country
3. The first village playground
4. Schoolhouae, closed and not used; with complementary picture
showing children playing in the street
5. Aqueduct not used and available for playground
6. Abrupt ending of main street, with complementary picture of monu-
' ment or fountain in similar location
7. Ugliness of poles and wires on streets, with complementary picture
indicating remedy
8. New engine house, a model of its kind
But the strength of the exhibit in attracting the public at large
lies in the number of active exhibits or working models. For this
purpose the following devices have been useful:
1 . Fire department exhibit — real alarms turned in at fire alarm box, and
firemen in full regalia spring to their places on fire apparatus
2. Street lighting department — lights flashed to show tests made on arcs
3. Street cleaning department — model of two-storied fire department
headquarters building, beside which stands a pile of street sweeping^
three times as large, indicating comparison of amount of street sweeping^
removed each year
4. Health department — laboratory showing saving of babies from im-
pure milk
6. Building department — charts, pictures and models showing how to
build and how not to build houses or tenement*
6. Purchasing department — piles of all kinds of groceries, coal, engi-
neering supplies, etc., purchafied by city in one year, with prices on them
and gilded cubes indicating amount of each purchase annually. Elach cube
connected by colored ribbon to central chart containing saUent figures and
information about the department
7. High-pressure water system — miniature sky-scraper aflame, with a
stream from a hydrant, one from an engine, and one from a high-pressure
hydrant, contrasted with the 320 feet to which a stream can be raised by a
modem high-pressure system
8. Education department — 1,000 feet of film show fire drills, etc.
9. Schools — examples of articles made by pupils in vocational training
departments, both boys and girls
156 The Annals of the American Academy
10. Purchasing department — pictures showing trees growing through
machinery and tools cast away in store yards and disorder in store rooms,
contrasted with sample shelving and bins for keeping supplies in order,
together with perpetual inventory records
1 1 . Health department — dental clinic, examining teeth of school children
12. City laboratory — testing apparatus for determining heat units in
coal
13. Model of farm yard well, showing facility with which water is con-
taminated from barn-yard filth
14. Large bottle with electric light flashing, labeled and designed to
show danger of patent medicine
15. Model showing six small dolls in cradles passing across table top into
a door marked ''Entrance to Second Year," with a seventh small doll
covered by a grave and stone before it enters this gateway; indicating
graphically the infant death rate.
Limitless ideas suggest themselves to those actively engaged
in the preparation of a budget exhibit. For those whose facilities
for putting their ideas into practice are limited, there is always
available the cooperation of the Educational Exhibition Company,
of Providence. A number of the models and devices suggested in
the preceding paragraph were designed and made by this company
of young men.
Each successive budget exhibit witnesses a broadening of the
scope. Early exhibits gave attention to few subjects other than
those included strictly within municipal activities. Later social
welfare became an important theme in budget exhibits. Then
came commerical facts relative to the city, with charts giving such
information as the following:
1. Assessed valuation for past ten years
2. Building permits
3. Post office receipts
4. School enrollment, public and private
5. Public library, volumes and circulation
6. Industrial activity, number of factories and number of employees
7. Building and loan associations, total membership, borrowing members,
assets
8. Bank capital and surplus
9. Savings deposits
10. Bank loans and discounts
11. Total bank deposits
12. Bank clearings
13. Value of products
14. Capitalization of industries
Preparing a Budget Exhibit 157
15. Cost of materials used
16. Value added by manufacture
17. Salaries and wages
18. Miscellaneous e-xpenses
19. Imports and exports
20. Port arrivals and clearances — coastwise, foreign, tonnage
Meanwhile there has been growing up a group of men through-
out the United States who have a vision of the intimate relationship
between sewers, streets, tunnels, and the administrative and com-
mercial activities of cities. Sewer systems built without provision
for community growth required money which should be available
for other city needs. In contrast, the telephone companies in most
cities have their trunk lines planned and built upon the certainty of
future growth. On the one hand, an exorbitant over-tax is laid
upon every person living or doing business in the city, with resultant
loss in efficiency and waste of funds. On the other hand, a process
of conservation brings a potential benefit to every citizen. Con-
sequently, the relationship between city planning and community
development and actual administrative efficiency has taken con-
crete form in a visualization of the principles involved — in the
American and Foreign City Planning Exhibition, as it is' called, of
the American City Bureau.
This city planning exhibition, which has been shown in con-
nection with municipal exhibits, budget exhibits and government
expositions in the United States, Canada, and Chili, marks the
most recent step in the evolution of the budget exhibit. Beginning
with such prosy municipal subjects as sewers, pavements, streets
and switching yards, it leads upward to the highest interests of
humanity. It is designed graphically to analyze the city into ele-
mental parts, to show their structural relationship and the scientific
method of city planning. It is part of the great movement typified
by the budget exhibit, a movement which is sweeping across the
land and transforming our municipal life. That transformation is
to be from waste to economy, from confusion and congestion to
order. It means that the great distributive function of our economic
life is to be articulated with the other great function, production, in
agreement with the dominant principle of the day — efficiency.
158
The Annals of the American Academy
EXHIBITS
Properly
Displayed
PAY
Exhibits slxKiklcorv
tain llie proper readinj^
mattei.-reducetl toa min-
imum . with the long ver-
bose statements cut ait
the lettering dearaixl
the important words
emphasized soycu can
readata^ance what
tho storv iSL (In every
wii>'diffeT^ent from
this card.) 5uch
Exhibits f%
Illustration of difference between two styles of display charts.
Hold this page at arm's length to see which
is more readable.
A Graphic Method op Showing the Money Cost op Leaky Faucets.
Under Average Water Rates and Pressures This is the Way That Leaks
Run into Money.
Each 1-64 inch leak wastes 2 gallons per hour and costs
Each 1-32 inch leak wastes 8 gallons per hour and costs
Each 1-16 inch leak wastes 34 gallons per hour and costs
Each 1-8 inch leak wastes 137 gallons per hour and costs
Each 1-4 inch leak wastes 514 gallons per hour and costs
Each 1-2 inch leak wastes 2057 gallons per hour and costs
Ic per day
. 5c per day
. 21c per day
. 86c per day
$3.21 per day
$12.84 per day
Preparing a Budget Exhibit
159
Next, here are all the sources of revenuc-^from general
taxes and speciaJ license taxes.
Where every dollar of public revgnuc
collected in St Louis comes from-
160
The Annals of the American Academy
That completes the story of the increased tax rate. There
are some significant poiixts in our fiscal system which, how-
ever, need attention in connection with an increasing tax rate.
First, let's see how the money is distributed.
Where every dollar of public revenug
collected in St Louis goes to-
CITY GOV'T
70 ♦
Preparing a Budget Exhibit
161
One reason uihg 5f Louis bears an unfair share of 1he states expenses.
Producfivtf farmlands in IDissouri
(excluding all unproducfivc lands)
paq faxes on 25% ossesscd
vdluofion of propcrit^.
St. Louft poK^s iaxcs on
66 Va % attested valuo-fion
of proper+y.
If all property in Missouri were assessed at 66 2-3 per cent of its true value,
the state would have plenty of money and St. Louis would not bear an unjust
share of the state's burden.
162
The Annals of the American Academy
Our City Will Grow
No Matter Who's Elected
Will it ever grow as fast as its
From 1903 to 1913 the budget' grew l}i times faster than
the city-s population.
A graphic cartoon.
BUDGETARY PROCEDURE UNDER THE MANAGER
FORM OF CITY GOVERNMENT
By Arch M. Mandel,
Dayton Bureau of Municipal Research.
Forty-five cities have at the present writing adopted the com-
mission manager form of government, which is modeled upon the
organization of private corporations, and which plan, more than any
other, it is believed by its adherents, lends itself most readily to the
development of an eflficient administration of city business. It is
logical and rational because it recognizes the fact that managing a
municipality is a specialized profession and cannot be left to mer-
chants, manufacturers or mechanics.
What have these cities under the manager plan of government
accomplished in the way of efficiency and economy? Scanning a
list of achievements enumerated by Richard S. Childs in the July
number of the National Municipal Review, it is found that Dayton,
in 1914, by an increase of $77,709 in its operating expense over the
year 1913, gave $140,000 worth of new service under the new regime;
Springfield reduced its operating expense by $50,000, wiped out a
floating debt of $100,000 and was getting more service than before;
La Grande reduced $110,000 of outstanding warrants by $35,000
during the first year; Manistee saved $20,000 on a budget of $104,000
and at the same time increased the service; Cadillac reduced its
annual operating expense by $6,000, at the same time improving
the service.
Such results give evidence not only of adherence to the funda-
mental principle in city business — keeping expenditures within the
income — but also of having planned expenditures so as to produce a
maximum of returns. In private business the expenditures deter-
mine the income. Under normal conditions, every dollar spent
means a dollar plus of returns. On the other hand, the income of a
city is limited to a definite amount, while the needs as a rule seem
infinite. It is, therefore, essential under these conditions to prepare
a budget by which one benefit can be weighed against another and
163
164 The Annals of the American Academy
the money apportioned according to benefits to be derived. This
seems to have been done by the commission-manager cities, but
whether in a scientific manner or not is another question. At least
it was done in an effective manner.
Data were received from the following cities :
Manistee, Mich 12,381 $90,453 .00
Titusville, Pa 8,533 58,819 .79
La Grande, Ore 4,843 103,800 .00
Abilene, Kans 4,118 36,169 .00
Hickory, N. C 3,716 65,320.00
Montrose, Colo 3,252 23,615 .00
Morris, Minn 1,685 37,000 .00
River Forest, 111 2,456 20,640 .23
Dayton, Ohio 123,800 1,303,467 .ll^
* For current operating expenses only.
Taking the budgetary provision of the charters as a basis, the
cities enumerated above may be divided into two groups — Dayton
comprising one and the remaining cities the other. In the cities
of the second group the charters provide merely that at a certain
time each year the commission shall cause to be prepared or that
the manager shall prepare a list of receipts from all sources and
detailed estimates setting forth the necessary expenditures for all
purposes for the ensuing year. Neither the nature of the informa-
tion desired, nor the extent of the detail required, are specified.
However, from information gathered, it is found that the city
managers base their requests upon detailed information of expendi-
tures during past and current periods. Furthermore, because of
the small size of the cities and the correspondingly small amounts
involved, the managers and even the appropriating bodies have
intimate and detailed knowledge of work done and work proposed,
of the need and the cost. An example of this is furnished by Morris,
Minnesota, where " unit costs of all work and a statement of expendi-
tures are made bi-monthly. The progress and plan for all work is
discussed at the weekly commission meeting. "
Appropriations are made for each department, without being
functionalized and not according to a uniform classification. Al-
though the budgets are unscientific in form, they seem to work out
satisfactorily in practice. In formulating the budget, the executive
Budgetary Procedure 165
in every instance obtains all the information necessary for the
presentation of sound estimates and intelligent recommendations.
It is evident from the results achieved that not only was an
adequate relationship between receipts and expenditures established
and maintained, but that expenditures were made according to a
well considered program. While such informal methods apparently
proved satisfactory from an administration standpoint and did not
hinder willing officials from operating efficiently, it must be remem-
bered that city oflficials are not alone interested in ^he budget. The
public also is vitally interested in how its money is being spent and
it is therefore incumbent upon those preparing the budget to present
to the public in a concise and clear manner such statements as will
assist the layman in comprehending intelligently how and why
funds are being apportioned in the specific manner in which they
are. Comparative summaries of receipts and expenditures of past
and current periods should be prepared, the financial status should
be explained through a debt statement and balance sheet, and appro-
priations should be made in such manner as to make clearly evident
the definite purposes for which the funds will be spent. This in-
formation is essential for efficient financial control in small as well
as large cities.
Dayton, Springfield, and Sandusky operate under similar budg-
etary provisions in their charters, but because of the size of the
city and the fact that all department heads are appointed, by the
manager, the success or failure of Dayton's government has a special
significance and its budget is of a correspondingly peculiar interest.
In the smaller municipalities, where the managers know every
minute of the day the status of all activities, noteworthy economy
seems to have been effected even with unscientific budgets. In
Dayton, however, with a budget of $1,303,000 for current operation
only, the manager cannot without a formal system of budgetary
procedure determine intelligently the amounts necessary for the
various functions, nor can he without a functionalized work-pro-
gram judge the efficiency of his department heads. Furthermore,
a painstaking and concise exposition of the finances of the city
must be made for the information of the public.
Prior to January 1, 1914, under the federal plan of government,
Dayton operated under an inadequate and unscientific budget and
I the result was government by deficit. Twice a year, the finance
166 The Annals of the American Academy
committee of the council prepared a six months' budget based upon
requests from department heads. These requests were not suffi-
ciently detailed, nor did they contain adequate supporting data of
past expenditures to substantiate the new demands. The finance
committee based its recommendations upon the last appropriations
without knowing how efficiently the money was spent, and council
then made its appropriations in more or less aggregate sums. These
appropriations were not necessarily kept within the estimated in-
come and as a result for six successive years a deficit of $60,000 per
year was created. Public hearings upon the budget were not held.
Since January 1, 1914, Dayton has been operating under a
commission manager charter of which the provisions governing the
appropriations are as follows:
The fiscal year of the city shall begin on the first day of January. On or before
the first day of November of each year the city manager shall submit to the city
commission an estimate of the expenditure and revenues of the city departments
for the ensuing year. This estimate shall be compiled from detailed information
obtained from the several departments on uniform blanks to be furnished by the
manager. The classification of the estimate of expenditm-es shall be as nearly
imiform as possible for the main functional divisions of all departments, and shall
give in parallel columns the following information:
a. A detailed estimate of the expense of conducting each department as
submitted by that department.
b. Expenditures for corresponding items for the current fiscal year, including
adjustments due to transfers between appropriations plus an estimate of expendi-
ture necessary to complete the current fiscal year.
c. Expenditures for corresponding items for the last two fiscal years.
d. Amount of supplies and materials on hand at the date of the preparation
of the estimate.
e. Increase or decrease of requests compared with the corresponding appro-
priations for the current year.
/. Such other information as is required by the commission or that the city
manager may deem to be advisable to submit.
g. The recommendation of the city manager as to amounts to be appropriated
with reasons therefor in such detail as the commission may direct.
It is realized that the wording of the above section which pro-
vides that the '' classification shall be as nearly uniform as possible
for the main functional divisions of the departments" is no longer
applicable, and should read "shall be uniform for the main func-
tional divisions. . . . '' In practice the latter interpretation
is carried out.
The Dayton budget for 1915 does not include a program for
Budgetary Proceduke 167
permanent improvements to be paid out of bonds, but except for
this phase it is complete and according to scientific standards of
budget procedure. Based upon a detailed estimate of revenue from
all sources except bond sales, appropriations are made in accordance
with a uniform classification of expenditures for each functional
division.
The following sections go to make up the 1915 budget:
Classification of expenditures;
Estimated income by source;
Summary of expenditures by objects purchased;
Sunmiary of expenditures by organization units and according to objects
purchased;
Appropriation ordinance including detailed appropriations to each function,
in accordance with a uniform classification.
All the receipts of the city coming from taxes and miscellaneous
sources go into one fund called the general fund. From this fund
all appropriations are made to each departmental division, by char-
acter of expenditure, which is divided into two main groups, —
current operation and capital outlay. Under each of these groups
appropriations and allotments are made in accordance with the
following classification:
A. Personal Service
Personal service is direct labor of persons in the regular or temporary employ-
ment of the corporation.
1. Salaries.
2. Wages.
B. Contractual Services
Contractual services are activities performed by other than municipal de-
partments, under expressed or implied agreement, involving personal
service plus the use of equipment or the furnishing of commodities.
1. Communication.
2. Contractual Repairs.
3. Hire of Equipment.
4. Insurance.
6. Public Utility Services, N. O. S.
6. Special Service.
7. Traveling.
8. Other Contractual Services.
C. Sundry Charges
Sundry charges include those outlays legally or morally obligatory upon the
city as a public corporation and trustee.
1. Contributions.
2. Debt Service.
168 The Annals of the American Academy
3. Depreciation.
4. Imprest Cash.
5. Pensions.
6. Refunds and Claims. ,
7. Taxes.
D. Supplies
Supplies are conmiodities of a nature which after use show a material change
in, or an appreciable impairment of, their physical condition; and instru-
ments liable to loss, theft, and rapid depreciation.
1. Chemicals, Drugs, and Medicines.
2. Clothing, Dry Goods, and Notions.
3. Food Products,
4. Forage.
5. Fuel.
6. Minor Instruments.
7. Oils and Lubricants.
8. Stationery.
9. Other Supplies.
E. Materials
Materials are commodities of a permanent nature, — in a raw, finished or
unfinished state, — entering into the construction, renewal, replacement
or repair of any land, building, structure or equipment.
1. Lumber.
2. Machine and Metal Materials.
3. Masonry.
4. Paints, Oils, and Glass.
5. Other Materials.
F. Equipment
Equipment comprises the live stock, furniture, machinery, implements,
vehicles, and apparatus necessary and useful in the operation of the cor-
poration, and which may be used repeatedly without appreciable impair-
ment of their physical condition, having a calculable period of service.
1. Furniture and Furnishings.
2. Live Stock.
3. Machinery and Implements.
4. Motor Vehicles.
6. Vehicles and Harness.
6. Miscellaneous.
G. Lands, Buildings, and Structures, — By Purchase
Supplies are classified according to the nature of the goods
and not according to the use to which they might be put; for in-
st'^nce, gasoline is listed under oils and not under fuel.
The appropriation ordinance, which has been found satis-
factory for the past two years, is as follows:
Budgetary Procedure 169
AN ORDINANCE
To make the general appropriations for the year 1915.
Whereas, It is necessary in order to provide for the immediate preservation
, of the public peace, property, health and safety, and to provide for the usual
'- daily operations of the municipal departments that the general appropriations
(for the year 1915 be made at once:
Be it ordained by the Commission of the City of Dayton :
Section 1. That there shall be and hereby is appropriated out of any
; moneys in the treasury, or any accruing revenues of the city available for said
purposes, the sums of money set forth in the colunm marked "Appropriations"
for the various purposes hereinafter specified for the payment of all expenses and
^ obhgations of the city during the year 1915. The positions designated herein are
! hereby created and the rate of wages or price per unit of any of the items herein-
-, after set forth shall not be greater than that indicated. Any additions to salary
or wage, or the creating of new positions shall be by ordinance. Each depart-
Ji ment shall limit its expenditures for the various purposes set forth in the ordinance
^ to the amounts appearing in the columns marked "Expense" unless the City
[ Manager shall expressly authorize a transfer from one schedule to another. The
amounts appropriated for the various purposes hereinafter set forth shall in no
event be exceeded unless by specific authority of the Conmiission, by ordinance,
authorizing a transfer from one fund to another.
All books of accounts, warrants, orders and vouchers, or other official refer-
ence to any appropriation, shall indicate the appropriated fund involved or to be
drawn upon by the code number set forth in the colunm marked "Code " as herein-
after set forth.
A typical section of the detailed appropriation to a functional
sub-division is as follows:
DEPARTMENT OF SERVICE
Division op Water
Bureau of Pumping and Supply
Expense
Personal Service Appropri^
80 A 1 Salaries Schedule EzpmiM tiona
Chief Engmeer (1)... $1,800 per yr $1,800.00
Engineers (3) 1,350 per yr 4,050 .00
Firemen (3) 900 per yr 2,700 .00
Oilers and Wipers (3) 1,095 per yr 3,285.00
Janitor (1) 900 per yr 900.00 $12,735.00
80 A 2 Wages
t Boiler Cleaners (3)$3 .00, 313 days $939 .00
Steamfitter and
machinist 4 .40, 313 days 1,377 .20
Laborers 2 .00, 1,760 days 3,620 .00 5,836.20 $18,671.20
170 The Annals of the American Academy
Contractual Services
81 B 2 Ck)iitractual Repairs $2,500 .00
81 B 5 PubUc Utility Service, N. O. S 10,000 .00
81 B 6 Special Service 1,200.00 13,700.00
Supplies
82 D 1 Chemicals, Drugs and Medicines $250 .00
82 D 2 Clothing, Dry Goods and Notions ... 100 .00
82 D 5 Fuel 18,000.00
82 D 6 Minor Instruments 500 .00
82 D 7 Oils and Lubricants 2,000 .00
82 D 8 Stationery 50 .00
82 D 9 Other 50.00 20,950.00
Materials
83 E 2 Machine and Metal Materials $900 .00
83 E 4 Paints, Oils and Glass 50 .00
83 E 5 Other 200.00 1,150.00
Capital Outlay
Equipment
84 F 3 Machinery and Implements 250 .00
Total $54,621 .20
While funds are appropriated in great detail for specific pur-
poses, the appropriation ordinance provides sufficient flexibility for
practical purposes. Without going into the advantages or disadvan-
tages of a f unctionalized budget the fact remains that for Dayton,
its budget worked and proved effective for control of expenditures.
Merely with the consent of the manager a department head may
interchange funds freely within the column marked ** Expense" —
as for example, the manager may authorize transfers from code 82
D 1 to 82 D 7, etc., but to make a transfer from one appropriation
to another, as from code 81 B 5 to 82 D 1 the authorization of the
commission is necessary. Thus though allowing adequate flexibility,
a positive control over the budget is retained by the manager.
In addition to the above mentioned sections comprising the
budget, there remains collective and supporting data not incor-
porated but which is furnished the manager and the commission, and
informs them of the work done and the cost of operating the various
functions of the community.
The method employed in Dayton for preparing the budget is
the same as that in other similarly governed cities. The manager
receives the estimates from the departments on uniform sheets fur-
nished by him. These estimates are gone over by him with the
Budgetary Procedure 171
respective department heads, at which time definite data in the
form of records must be submitted to the manager before he recom-
mends amounts to be allowed by the commission. Before submit-
ting his budget to the city commission, the manager has reduced the
total request to within the estimated income for that year. The
commission then reviews the budget with the manager, receives his
explanation for the recommendations made and makes such changes
as it sees fit. It may be noted that in Dayton, except for a few
minor revisions after discussions at the public hearings, the budget
was passed practically as the manager recommended.
The effectiveness of the Dayton form of budget and the control
over funds which it affords was demonstrated in 1914, when the
manager was able by following the budget to turn a probable defi-
ciency into an actual surplus at the end of the year. In June, due
to a threatened shrinkage in receipts, the departments were notified
that a reduction in appropriations might be necessary. Immediately
upon receiving the final returns from taxes for the year, on August
31st, cuts in the budget were made amounting to $45,000. This
reduction in appropriations was made, however, in sufficient time
to allow of a revision of the work-program of the several depart-
ments, and, without having eliminated any major functions, or dis-
charged any employe, resulted at the close of the year in a balance
of $5,600 remaining in the treasury. This presents a significant
contrast to conditions under the old regime, when for a succession
of six years an annual deficit of $60,000 was incurred and the police
and fire departments were reduced in numbers, all because a prop-
erly classified budget and adequate accounting to supplement such
budget were lacking.
For 1916, it will be recommended that the budget of Dayton
be elaborated in accordance with the procedure proposed for New
York City by the New York Bureau of Municipal Research, and
which has been adopted with modifications by Springfield, Mass.,
upon the recommendation of its local Bureau of Municipal Research.
The plan calls for the following:
1. An explanatory text by the city-manager explaining new features
sitating requests for funds.
2. A financial program with a resolution fixing the revenue.
3. An appropriation ordinance prepared in the form in which the city-man-
ager desires it to be passed.
172 The Annals of the American Academy
4. Supporting data consisting of
Summaries of financial statements, comprehending
Balance sheet
Operating account
Surplus account
Debt statement
Fund statement
Summaries of estimates, comprehending
Comparative summary of actual and estimated revenues, showing actual
revenues for the past two years and estimated revenues for the next
ensuing year.
Comparative summary of actual and estimated expenditures, showing
actual expenditures for the past two years, and estimated expenditures
for the next ensuing year, classified by
"Organization units"
"Functions" or kinds of activity
"Objects of expenditure" or things purchased
"Character of expenditure" distinguishing expense from capital
outlay, fixed charges, and contingencies and losses
"Funds" or classes of funds to be charged.
Supporting detailed schedules of estimates, comprehending
Detailed analysis of comparative, actual and estimated revenues classi-
fied according to
Character or method of raising
Organisation units in which they occur
Scientific budgets are not inherent to the commission manager
form of government, but this scheme of government is constitution-
ally the most conducive to the promulgation of a logical budget.
The fiscal policy is an executive problem. The executive is respon-
sible for the proper functioning of the various city departments, and
it is to him that the success or failure of an administration is accred-
ited. It is his duty to plan the work to be carried on and it is
within his province to know what funds are necessary for the proper
execution of his plans. To the executive, therefore, should be
granted the power to initiate financial measures, and to the legisla-
tive body should remain the duty of authorizing funds and holding
the executive accountable for results proportionate to the expendi-
ture of funds.
Such a state of affairs has not been easy of attainment under
the federal plan of government prevalent in American cities.
Dayton's condition prior to January 1, 1914, is typical of
that to be found in hundreds of cities today. Under a modified
form of the federal plan, members of council, the mayor, auditor.
Budgetary Procedure 173
treasurer and solicitor were elective officials. The heads of the
departments of public service and public safety were appointed by
the mayor, as were the members of the Park Board and Board of
Health.
The budget was made up by the finance committee of council,
from estimates submitted to them independently by each depart-
ment head. This committee conducted hearings with the city
officials, and in it resided the power to determine what salary
increases should be granted, and what the work program for the
ensuing year should be. The tentative budget was then presented
to council which passed it, without inquiring further into the merits
of the appropriations, except to assure themselves that favorite
sons were receiving the salary increases and that their respective
districts would be benefited to some extent. In other words, the
legislative body of the government controlled administrative prob-
lems.
The mayor, who was supposed to be the head of the city and
responsible for the administration of affairs during his term of
office, could exercise no positive judgment in the formation of the
budget. Council as well as most of the other officials were directly
responsible to the electorate and unless all happened to belong to
the same political party no incentive for cooperation existed. In
fact as was the case in Dayton for two years prior to the inaugura-
tion of the commission-manager government, there was continuous
discord and strife between the executive and legislative departments
because of a difference in poHtical faith. Accusations of discrimi-
nation against the mayor's departments, whether just or unjust,
were frequent, the mayor did not attend the meetings of council and
was not present at budget hearings unless specially invited. Need-
less to state the invitations were neither numerous nor urgent.
Coupled with these conditions, which are products of the
federal form of government, is the difficulty of allocating respon-
sibility for inefficient administration. The blame is shifted from
the executive to the legislative branch and vice versa, with the
result that no intelligent judgment can be formed by the citizen-
body.
Although partisan bickering and diffusion of responsibility are
largely eliminated in the straight commission plan, yet this form of
government does not lend itself readily to a scientific budget pro-
174 The Annals of the American Academy
gram. The fundamental drawback of this plan of government is the
combined administrative and legislative powers vested in the same
body. The commission initiates and executes measures and is judge
of the results accomplished. It votes itself appropriations upon data
satisfactory to itself and controls expenditures made by itself.
Disinterested regulation is precluded.
Furthermore, each commissioner, being an administrative head,
is vitally interested in the success of his particular department
and in the amount of money appropriated for his use. He will bend
every effort to secure funds adequate for the production of good
results, and to bring this about it will frequently be found necessary
to resort to log-rolling and combining with certain of the members
of the commission against the remainder.
Contrasted to both of these types of city government is the
commission manager plan, where the manager is the head of the
administrative phase of the government and alone responsible for
the operation of the various departments. He receives the budget
estimates from all the departments and by virtue of his powers can
demand adequate information to substantiate the requests. These
estimates with his recommendations and supporting data are pre-
sented to the commission, which after conferences with the city
manager and public hearings, makes the appropriations.
Log-rolling and personal consideration in appropriating funds
are precluded under this system. The manager is accountable to
the commission for the successful administration of the affairs of
every department; one function cannot be sacrificed to another, and
everything being equal he will recommend appropriations to the
relative urgency and importance of the work to be done. The
commission is disinterested in so far as the individual departments
are concerned and no commissioner is identified with any particular
subdivision of the city government. Being accountable as a whole
to the electorate for an efficient administration of all the depart-
ments, the commission will apportion funds in such manner as to
produce the most desirable results for the community considered as
a unit.
The possibility of sacrificing judicious appropriations because
of friction between the legislative and executive branches is elimi-
nated because the continued employment of a city manager signifies
harmonious relationships between him and at least a majority of
the commission.
Budgetary Procedure 175
By having the department heads responsible to him and remova-
ble by him, the city manager controls expenditures. Frequent
cabinet meetings such as are held in Dayton and reports of current
appropriation balances enable the manager to keep in close touch
with the progress of the work and with the adequacy of funds. He
is then in a position to make curtailments and to recommend in-
creases as the occasion presents itself.
While the commission manager plan seems to be the best
medium for efficient administration in city government, material
progress can be made only through the continued interest in public
affairs by the citizen-body. The increased purchase value of the
public dollar in the commission manager cities is the outcome of
placing responsibility for spending the money, on one man, to whom
the public turns for results. Such, at least, is the case in Dayton
where as never before are the acts of the city officials being fol-
lowed. As soon as the public demands to know where the money is
coming from and how and why it is being spent, budgets will be
gotten up and the information needed to interpret budgets intelli-
gently will be supplied.
Recent events point to just such developments in city govern-
ment. The injection of the business man into municipal affairs, the
strengthening conviction that administering a city is a specialized
business and requires specialists, the growing conception that city
business is a matter of dollars and cents and not of bosses and
parties, will all contribute to the dispersion of the air of mystery
which has surrounded municipal government and to the introduction
of those methods which have made private business in this country
80 eminently successful.
THE BUDGET AS AN ADMINISTRATIVE PROGRAM
By Henry BruJire,
Chamberlain of the City of New York.
The year 1916 promises to be a memorable year in the devel-
opment of budget practices in America. There are two conspic-
uous advanced steps now under consideration, both formulated by
the New York Bureau of Municipal Research under the leadership
of Dr. F. A. Cleveland. The first relates to the establishment in
the state of New York of a definite budget procedure. This new
procedure will center in the executive responsibility for determining
financial policies and authorizing the use of public funds in the per-
formance of state business, and is the first constitutionally pre-
scribed budget procedure provided in American state government.
The second relates to the further development of the budget prac-
tice in the city of New York, which during the past ten years
has gradually evolved from chaos into a complex system of con-
trolling expenditure of public funds through a meticulously detailed
appropriation ordinance.
The bureau's proposals in both these fields mark, for the pres-
ent, the culmination of the widespread thought that has recently
been given to better control of the financial operations of the gov-
ernments in America. I cannot do better than to commend to
those interested in the scientific and at the same time the practical
methods of budget making, a careful reading of the bureau's
exphcit statement of its proposals for New York City published in
January, 1915.^
The present volume contains numerous papers on the scien-
tific aspects and theory of budget-making. My own purpose is
to consider some of the practical problems involved in administering
public finances and in determining on sound financial policies.
First, let me review briefly the present status of budget-making
in New York City, with a word of reference to the evolution of
existing practices. I select New York City because it has taken
* Next Steps in the Development of a Budget Procedure for the City of New York,
176
The Budget as an Administrative Program 177
leadership throughout the whole of America in breaking away
from the confused and mischief-breeding methods of appropriation,
once universal and still widespread, to a carefully conceived plan
of correlating financial authorizations with work expectations and
administrative responsibility. Because New York has been the
pioneer, it is, in consequence, largely the victim of its own experi-
mentation. As in every other government, departures from estab-
lished practices, though difficult to make, once made, readily form
themselves into routine, crystallized habits. New budget methods,
instituted in the first instance to overcome specific abuses, and
conceived one by one as these abuses were publicly recognized and
sought to be corrected by official action, though of value in accom-
pHshing their immediate purpose, have not aggregated themselves
into a harmonious program correlating all the features of a proper
fiscal policy.
It is this coordination and the consummation of a complete
program that the Bureau of Municipal Research undertook in the
submission of its notable document which now serves as at least
the basis for the review of present practice and the formulation of a
more broadly conceived practice for the future.
Ten years ago, appropriations in New York were in the nature
of licenses to spend public funds, with only such restrictions as
were imposed by general descriptive titles of appropriations or
specific statutory requirements. It is conceivable that the form
of budget prevailing in New York in 1906 was the result of a gradual
accretioij to a rudimentary financial structure. Never had an
attempt been made to analyze or picture the character and variety
of municipal activities, nor to correlate in any specific way the
quantities of work to be done with the authorizations of funds
by means of which the work was to be carried on. From time to
time, by reason of legislative enactment, there had been added
to the budget specific authorizations. This process continuing
through a period of years finally evolved a great volume of appro-
priations which, with subdivisions into departments and occasional
special classifications into items for salaries, wages and supplies,
represented the form of budget in vogue in New York City until
ten years ago.'
* The conditionfl prevailing in New York ten yean Ago still exist in nmny citiai
of the country, for clear budgetary statements are still the exoeption ntber than
the rule in America.
178 The Annals op the American Academy
In 1906 the first attempt was made to break through the haze
of meaningless appropriations to discover what services were con-
templated to be performed in pursuance of them. The historical
method was adopted. That is to say, an analj^sis was made of
past expenditures, and these past expenditures traced through
vouchers, payrolls and books of account and through items of
appropriation against which they had ultimately been charged.
It was then seen at once that the process of evolution had not
coordinated appropriations with the functional classification of
activities in the departments. The practical result of this defect
was that those who made the appropriations were not called upon
to consider the sums requested or finally authorized, in terms of
prospective activities or the specific needs of units of organization.
Department heads recognized in authorizations no specific mandates
of work to be performed, and consequently were free to utilize
y appropriations once obtained for whatever purposes might subse-
"^ quently seem to them wise during the fiscal period to which the
^'^'^^ appropriations applied. There was no opportunity presented for
<^.x^«i/v»c^, ^ .the consideration of prospective charges against the funds of the city
by taxpayers and civic bodies in terms of service desirable or other-
wise. Budget making was merely a compromise between the com-
/ pelling exigencies of work, or the political or personal persuasiveness
\f of those making requests, and the political inexpediency of increas-
^ ing too rapidly the city's annual outlays.
«^^W) It was this condition which the first attempt at clarification
AJLftJLZ^ in 1906 sought to remedy. This attempt consisted in the subdi-
P *^ ^ vision of appropriations by functions, according to groups or lines
^*^^♦^JM^ of activities. This functionalizing, or segregation as it came to
be known, made possible the consideration of requests in terms of
prospective service, and formed the basis of a specific agreement
between the appropriation authorities and administrative heads
to spend money allotted to them for the purposes indicated in the
budget statement.
It was found, however, that functionalizing did not accomplish
all that was expected of it. There still remained the possibility
of developing forced emergencies which would inflate appropriations
before the end of the period to which they were expected to apply,
and the further possibility, in numerous cases, of utilizing sums
which were allowed on the theory that they would be used for the
The Budget as an Administrative Program 179
purchase of supplies, for salaries, or vice versa. The door was
left open for the subversion of appropriations intended for salaries
to political purposes by withholding expenditures at the begin-
ning of the year in order that the rate of spending might be increased
at the end of the year under the promptings of a political campaign.
In short, there did not exist in the city of New York, as there
did not exist generally throughout the cities in the country, the
character of administrative responsibility or the method of admin-
istrative control in departments responsible for expenditures
which would ensure the proper use of funds even when allotted
under restrictions imposed by functional segregation. This con-
dition, brought out in specific instances, prompted the institution
of further devices for controlling administrative discretion through
the appropriation ordinance or budget as it is called in the city of
New York. These devices consisted in the:
1. Establishment of salary schedules under functions, showing the number
of positions and rates of pay authorized for the performance of work;
2. Laying down the rule that, except in specifically indicated instances,
the rate of salary expenditures must not excoed for any one month one-twelfth
of the total annual allowance, thus preventing the particular exercise of discretion
which customarily resulted in increasing the rate of employment prior to the prep-
aration of the new annual estimate or the holding of a pohtical primary or election.
Supply and equipment appropriations were treated in the same
way. That is to say, they were analyzed in considerable detail
according to the object of expenditure, so that department heads
asking for funds were bound to utilize them for the purposes for
which they had requested them, rather than for some later devel-
oped need or for a purpose not revealed at the time the authoriza-
tion was made.
In addition to these fundamental restrictions on spending
discretion, numerous administrative rules were laid down, as, for
example, requirements that supplies should be purchased under
specifications formulated by the board of estimate and apportion-
ment, to prevent the unequal use of public funds for material of
different grades for like purposes, and the prohibition of transfers
between certain accounts because of abuses resulting from such
transfers. This method of restricting the discretionary spending
power of administrative heads developed to its height in the budget
of 1913, when upwards of twenty-four conditions were laid down
to control the use of appropriations.
X
180 The Annals of the American Academy
The method of budget appropriation which thus gradually-
developed, and which I have briefly outlined had this characteristic:
It was conceived not by those responsible for administering the
departmental affairs, but by those responsible for granting funds.
It was prompted not so much by the desire to expedite the per-
formance of public business, as to prevent age-long and conspicuous
misuse of public funds which under lax organization and ineffective
administration had become characteristic in New York as in other
American cities. The purpose of the new budget method was in
theory a negative purpose; that is to say, it was inhibitory rather
than directive. But in practice this budget plan has worked a
great many positive benefits. It has compelled department heads,
in preparing their annual estimates, to scan the activities of their
departments, not sectionally or in general terms, but item by item
through the whole functional structure. It has served in a measure
the purpose of the balance sheet, of an operating statement and
cost accounts by affording an opportunity to match results with
expenditures both to those responsible for obtaining results and to
the appropriating authorities. It has revealed for the first time
to the public the scope and range of city activities, and has made
it possible in numerous instances to prevent unwise expenditures
by compelling a detailed justification of requests in advance of
authorizations.
The segregated budget plan of New York has operated to save
millions of dollars which might have been spent without chicanery
or desire for waste on the part of officials, but merely because they
were permitted to obtain funds without careful self-analysis or
analysis by special agencies which the segregated estimates have
occasioned. But with its advantages the segregated plan has
developed certain conspicuous disadvantages. These the bureau
in its brochure points out in detail. I shall mention one or two
to illustrate their character.
In the first place, the development of segregation produces
in a city the size of New York with its vast variety of activities
an appropriation ordinance of almost unwieldy proportions. Seg-
regation by functions allots units of organization to specific activi-
ties which, if available, might profitably be utilized for service in a
number or all of the divisions of a department. It ties down in
advance authorizations for supplies according to prospective
The Budget as an Administrative Program 181
functional use, although it is generally impossible to estimate in
advance the quantities of such supplies which will be required for
each function with the result that there are uneconomical purchases
or evasion of budget requirements. In other words, segregation
results in a degree of regimentation which restricts and in a measure
paralyzes the freedom with which the organization provided in
the appropriations may be employed, or the funds for purchases
may be utilized.
So much for the New York budget practice as it has developed
during the years of experimental improvement. There are, how-
ever, numerous omissions in the present practice which it is now
proposed to repair. These omissions relate chiefly to a method of
stating appropriations, the observance of distinction between the
budget and the appropriating ordinance, the inclusion in the budget
submission of a statement of the means of its financing, and the
submission for public information at the time of the promulgation
of the budget ordinance of a statement of the city's finances, its
fiscal operations during the previous period, and the facts regarding
the city debt.
In New York City the practice has not prevailed which is else-
where followed of including in the budget authorizations a complete
statement of permanent improvements to be financed by the use
of borrowed funds. Only such part of the expenditures for public
improvements as are represented by salary and incidental charges
are included in the appropriation ordinance, the contract and open
market order expenditures being entirely omitted. These it is now
proposed to include.
To facilitate the freer exercise of proper administrative dis-
cretion, and to provide a more complete financial instrument
therefor, are the purposes of the proposed revision of New York
City's budget practice. As outlined by the Bureau of Municipal
Research, it is proposed to divide the annual financial instrument
into two distinct parts: First — A budget prepared by the board
of estimate and apportionment after analysis of departmental
estimates, to be submitted by that board to the final appropriating
body, the board of aldermen. Accompanying the budget, there
are to be submitted: (1) A financial program for next year; (2) a
work program, indicating the activities to be performed or services
to be rendered pursuant to appropriations; (3) the method of
182 The Annals of the American Academy
financing authorizations; (4) statements showing the general
financial condition of the city. Second — The appropriation ordi-
nance proper. The budget, under the New York charter, does not
become law until finally approved by the board of aldermen. The
board of estimate and apportionment has, in practice, always
prepared the budget in the form of an appropriation ordinance,
the board of aldermen having authority only to reduce, not to in-
crease allowances proposed. The Bureau of Municipal Research
suggests that the board of estimate shall exercise a closer supervision
over the expenditure of authorizations and that this supervision
shall be continuous and not restricted merely to the itemiza-
tion, terms and conditions of the appropriation ordinance. This
supervision is to be exercised through the formulation of a work
program, and through the subsequent allotment, monthly or other-
wise, during the course of the year, by the board of estimate of
funds from the appropriations to departments to carry out this
work program. The budget or appropriation ordinance itself is
to be changed in form. Instead of detailed items of appropriation
by functions, departments are to be allowed appropriations in lump
sums by objects of expenditure, i. e., for salaries, wages, equip-
ment, etc.
In short, it is proposed to exercise through the appropriation
ordinance control over the total expenditures for personal services
and total expenditures for purchases and other contractual relations.
It is not proposed that there shall be an attempt, as now, to exer-
cise through budget appropriations control over the quantities
of work to be performed or the functional use of authorizations, but
that this control shall be exercised through the work program and
correlated accounts and reports. By this device appropriations
would be made for each department under general headings as
the following :
Personal service;
Supplies — classified ;
Purchase of equipment — classified;
Materials — classified ;
Contract or open order service — classified;
Contingencies ;
Fixed charges and contributions.
These appropriations would be made for an entire department,
and not, as now, for each of the numerous subdivisions of a depart-
The Budget as an Administrative Program 183
ment. It would not be necessary, as now, for department heads to
obtain specific authorization from the board of estimate to transfer
funds from one account to another if the acutal requirements as
developed during the year do not correspond with the estimated
requirements as laid down several months before, when appropria-
tions were determined. It would be possible, for example, to shift
one employee from one division to another without restriction,
except as I shall subsequently point out, and to purchase supplies
in advance, making allotments to individual divisions as requi-
sitions may determine. For an entire department it is urged there
be established schedules of positions conforming to the standard
groups and grades laid down by the board of estimate and appor-
tionment in the standardization of city service now in progress.
For supply appropriations, definite statements of the various
classes of supplies required for the entire department are to be
furnished, listed in accordance with the classificaton established
by the board of estimate and apportionment, and these are to be
purchased under standard specifications similarly prescribed.
Up to this point, .in the form of the budget the difference
between the present method and the proposed method consists
merely in the elimination of the classification by functions and the
treatment of departments as single administrative units. The
purpose of this change is to expand the now restricted discretionary
authority of department heads and to make more flexible the use
of departmental organization. It is proposed also, to correct
abuses developed through the attempt to control by functions the
use of supplies in advance of their purchase, and to remove the
confusion resulting from attempting to reflect the expenses of
departments through appropriation accounts rather than through
operating accounts.
A forward step is taken in the suggestion of the work program.
As now prepared, there is lacking in the budget a specific under-
standing as to the quantities of work to be performed as a result
of authorized expenditures. The amount of appropriations have
been increasingly correlated with detailed explanations of pro-
posed work to be performed, furnished verbally by department
heads at hearings on the budget, or educed through examinations
by accountants assigned to the investigation of requests by the
budget making authorities. But these projected activities are
184 The Annals of the American Academy
not specifically formulated into written terms which may serve
as the basis for supervisory control either by department heads
with repsect to their subordinates, by the mayor with respect to
departments under his control, or by the appropriating authorities
with respect to all departments of the city government.
The bureau's proposal requires that there be included in the
budget as submitted by the board of estimate a statement showing
the expenditures by functional activities in detail corresponding
to the detail required for proper administrative accounting control
of departmental activities. Thus, for the bureau of child hygiene
in the department of health, there would be shown proposed expen-
ditures as follows:
Administration and other general business;
Medical inspection and examination of school children;
Examination and treatment of school children for diseases of nose, throat,
teeth and eyes;
Technical instruction and direction of nurses;
Sanitary inspection of buildings, medical examination of children in insti-
tutions and day nurseries;
Investigation of persons and granting permits.
These expenditures would be classified, according to the
bureau's suggestion, under six headings, as follows:
Expenses other than upkeep;
Upkeep of property and equipment;
Capital outlays;
Fixed charges other than pensions;
Pensions and retirement salaries;
Contingencies and losses.
The total of the authorized detailed expenditures in the work
program for all divisions of the department would equal the total
authorized for the department for salaries, supplies, equipment,
etc. Thus, the appropriation ordinance would provide the means
by which the work of the departments is to be done, and the
work program would state in terms of proposed expenditures the
uses to which these means were to be directed, according to
the detailed functional activities of the department.
The bureau's plan proposes that there shall be made by a re-
sponsible member of the board of estimate and apportionment,
quarterly allotments of funds appropriated for carrying out the
The Budget as an Administrative Program 185
work program as submitted by a department head. By this sug-
gestion it is sought to maintain control over the specific use of
funds, but it presents the difl&culty of practically requiring, quar-
terly, a complete review by the appropriation authorities of
departmental activities. A better method would be to make the
appropriation and allotment for the entire year, and to authorize
the execution of a work program throughout the year unless on the
request of a department head it is desired to amend it within the
limitation of the appropriation ordinance.
By whatever method it is finally determined to exercise con-
trol over activities, it is recognized as desirable that there shall be
a close correlation between the appropriation of funds and the obli-
gation to perform specific services. In my view it is not material
whether the current revision of the work program for the year is
submitted for the approval of the appropriating board, provided
there is established adequate executive control over the use of
funds whereby the responsible head of the government may be
kept informed through reports of the current use of funds and the
current results obtained. Department heads will be made to
account for all deviations from the work program approved as a
part of the budget authorizations when they come before the appro-
priating authorities in the following year for new allowances.
The success of the liberalized budget plan as suggested by the
Bureau of Municipal Research would depend on the complete devel-
opment and skillful use of the instruments of intelligence and
control which have been and are now being provided in the gov-
ernment of the city of New York. These instruments consist of
accounts and reports, agencies of investigation and inspection,
and special advisory staffs established by the board of estimate
and apportionment. The change in budget method is not in itself
so important as the fact that the time has come when the relaxation
of restrictions may be safely considered. There has come about in
a remarkably short time a complete alteration of the attitude of
the public officer to his executive responsibility. Instead of mere
opportunism, evasion and compromise to which the average public
officer of a decade ago was driven by political conditions or by lack
of method and organization, department heads are now seeking
to increase, day by day, the quality of service performed by the
organization responsible to them, and to exercise increaaingly efifaot-
>
186 The Annals op the American Academy
ive discretion with respect to the work for which they are respon*
sible. Because of the exceptional character of its personnel, its
conspicuousness, and the ease with which the public could deal
with it, the board of estimate, the financial board of New York
City, for years served as a shield between the political rapacity or
administrative slovenliness of department heads and the public
interest. Now, more and more, department heads are better pre-
pared to exercise intelligence with respect to the administration of
their departments than it is possible for a central body, such as
the board of estimate, to acquire through personal contact or the
advice of advisory staffs. The means which the board sought
to develop for the purpose of exercising control over irresponsible
and incompetent department heads are now the means which re-
sponsible and competent department heads themselves desire for
effective control over their own work responsibilities. It is no
longer necessary to compel departments to adopt modern account-
ing methods, it is no longer necessary to explain to departments
the wisdom of adequate stores control, it is no longer a part of the
work of reform to urge the establishment of cost records. These
things are now desired by department heads as the means of assist-
ing them in the discharge of their administrative responsibilities.
Thus, the restrictive purposes of the board of estimate and
apportionment as expressed in the conditions of appropriations
and minutely itemized authorizations of funds are coming to coin-
cide with the administrative aims of departmental managers.
To the extent to which these managers recognize the need for
definite planning of work, the establishment of economical methods
of operation, the close control of operative results, just to that
extent will it be feasible to release them from the restraints of the
present budgetary restrictions. When these things are accom-
plished, as they are now rapidly in process of accomplishment in
New York City, there will be substituted for the inanimate control
of an appropriation ordinance, the animate and directing control
of a responsible and directing central executive department.
Because no machinery has as yet been developed for summariz-
ing and interpreting currently the results of departmental operation,
as reflected in accounting and service records, the chief instrument
available to the mayor for control of departmental operations is the
annual budgetary estimate. The estimate, however, has hereto-
The Budget as an Administrative Program 187
fore been inadequate because of its failure to provide a definite
work program, and because it does not correlate results accomplished
with expenditure. Accordingly, executive control continues to
be exercised very largely through the consideration of incidents
in administration, and through the planning of new activities
or special developments of old activities to meet exigencies as they
arise.
A continuous and progressive direction of the multifarious
activities of the government has never been exercised by the chief
executive and cannot now be exercised because of lack of organiza-
tion as well as information through which it may be achieved.
In order that the board of estimate and apportionment might
more adequately discharge the functions of financial control, it es-
tablished two principal agencies. One, the bureau of standards, is
charged with the formulation of standards for supply and equipment
specifications, and the standardization of compensation for various
grades and classes of service throughout the city. This work has re-
sulted in providing the board with exceptionally comprehensive infor-
mation regarding the needs, organization and methods of the various
departments of the city government. In order that this informa-
tion may be utilized advantageously, the bureau is now employed
by the board of estimate and apportionment to review requests
for funds which involve the payment of salaries and wages £is well
as the purchase of supplies and materials. In this way, as an inci-
dent to its appropriating power, the board of estimate has grad-
ually acquired an authoritative position on the executive side of
the city government as well as the appropriating side. Depart-
ments may not increase compensation or alter organization without
the consent of the board obtained or denied as the result of an
investigation by the bureau of standards.
The second agency is the bureau of contract supervision which
is charged primarily with the review of specifications and the ap-
proval of contracts executed for public improvements. As an
incident to this function the bureau is currently assembling cost
data with respect to various public improvements and accumu-
lating expert information regarding the structural equipment needs
of the city. It has become, therefore, an agency of direction as
well as appropriation in respect of those matters which involve new
ISS The Annals of the American Academy
construction or the purchase of equipment chargeable against
corporate stock.
These agencies which are subordinate to the board of estimate,
the body of financial authority, provide information which is indis-
pensable to intelligent executive direction. Their activity has
developed naturally out of the more careful methods of budget
preparation evolved by the board, and they are providing the means
of supervising the administration of the budget which now occupies a
considerable part of the attention of the board. The mayor has
available to him now, as heretofore, the investigating staff of the com-
missioners of accounts. They, however, are not in a position to
influence the organization and methods with the same compelling
authority as the bureaus of the board of estimate which report on
requests for appropriations.
In respect of the actual operation of the city government,
therefore, the development of a systematic budget program in New
York City has transferred, in considerable measure, the opportunity
and means of detailed executive supervision from the mayor who
/j is the chief executive of the city to the board of estimate and appor-
tionment in which, though a member, he does not occupy a con-
trolling position. This unbalanced condition will in a measure
be obviated by the establishment of definite work programs to
serve not only as a basis for appropriation, but as a basis for execu-
tive supervision.
The government of a great city, loosely constructed as most
of them are, consists of a growing number of practically independent
departments. These departments are each equipped with their
special advisory technical staffs and are in a better position than
the executive to determine on needs and policies. The practice
has prevailed in New York, therefore, of executives relying upon
department heads not only for administrative work, but for sug-
gesting policies and for supervising their execution. Advan-
tageous as is the practice in many ways of allowing, for example,
initiative to department heads and giving latitude in the develop-
ment of their own .plans, there is this disadvantage: Each depart-
ment seeks to enlarge its scope of activity and build up its own
organization without regard to the conflicting needs of other depart-
ments. In putting in force a program of economy and efficiency,
the chief executive of the city is confronted with the necessity
The Budget as an Administrative Program 189
not only of curbing the natural tendency to expand which exists
in every department, but with the difficult task of finding the means,
through better organization and more efficient methods, to provide
additional services where they are imperatively required without
increasing the aggregate cost of government. The advisory staffs
of the board of estimate and apportionment, engaged as they are
in the preparation and administration of the budget, will become
increasingly well-equipped to devise and put into force improved
processes and more effective organization.
In order to protect the executive responsibility of the mayor
and at the same time to preserve the effectiveness of the budgetary
control exercised by the board of estimate and apportionment, it
is apparent that the mayor as the head of the corporation is called
upon to take leadership in the direction of the fiscal activities of
the board of estimate and apportionment of which he is chairman.
Not to do so would result either in neglect of his responsibility
to maintain active supervision over the administration of depart-
ments or duplication of the agencies of supervision. New York
is therefore confronted with the necessity either of recognizing in
the board of estimate a body of executive authority, or of revising
its budget method to the extent of vesting in the chief executive
responsibihty for the preparation of the annual estimates and the
supervision of their expenditure. This executive responsibility in
preparing the budget estimate is one which will be exercised by
the governor if the new plan of budget procedure laid down in the
proposed new constitution of the state is put into effect. In the
case of the state, as ultimately it is to be expected in the case of
the United States, the chief executive will assume the responsibility
for budget planning exercised by cabinets in parliamentary gov-
ernments but heretofore exclusively exercised by legislatures and
administrative departments in American state and city govern-
ments.
The board of estimate in New York is neither a cabinet nor
a legislature. It is a body of officials individually responsible to
the electorate and without collective responsibility for the adminis-
tration of the city government. To achieve effective adminis-
tration as well as competent financial supervision, the city of New
York must . presently choose between a government of board
control and the transference of the agencies of supervision from the
190 The Annals of the American Academy
control of the appropriating authority to the control of the mayor.
Under tjie present charter there are difficulties in the way of cen-
tering this control in the mayor, because a large part of the govern-
ment of the city is under the direction of the borough presidents,
who are members of the board of estimate, but who are not in any
sense responsible to the mayor for the conduct of their departments.
It is clear, however, that executive control cannot be intelli-
gently exercised without the use of the power afforded in de-
termining on appropriations and the opportunity which the
investigation of requests presents for obtaining precise information
regarding departmental needs, methods and activities.
As a practical matter, no formulation of a program of service
is feasible in a great government which does not concern itself
primarily with the community's ability to finance that program.
The budget, therefore, is the basis upon which administrative
planning and control must be predicated. A department of health
must scheme out a complete program for health service, but it will
never be able to execute that program until it is first able to persuade
the appropriating authorities to grant funds with which to carry
on the activities which the program demands. A growing city
is continually presenting increasing demands for service. To meet
these demands there are only two alternatives open:
1. P^o^dsion of increased funds, or
2. The more effective utilization of funds already granted.
An intelligent appropriating body will seek to demonstrate
to an administrator his ability to perform increased service without
adequate appropriations by more effective utilization of existing
appropriations. To make such a demonstration it is necessary
for the appropriating body to be informed in detail of the organiza-
tion and administrative practices of the department in question,
as well as of the service needs of the community. Recognizing
this need, the present mayor of New York has sought in various
ways to anticipate the demands of the board of estimate not only
by directing department heads to refrain from asking for additional
funds until every means apparent to them for effecting economies
are exhausted. In addition to this he has opened the door to con-
tinuous investigation of departments by the board of estimate
agencies, and has supplemented these investigations with studies
The Budget as an Administrative Program 191
made by special staffs reporting directly to him. The results of
these efforts to achieve economy are reflected in the annual esti-
mates of the departments and in the authorizations of funds based
upon them. The budget, therefore, in New York City has become
not only a means available to the legislative department of the
city of New York, — the board of estimate and the board of alder-
men,— for control of departmental expenditures, but furnishes as
well the basis for executive supervision.
This is the purpose of a complete budget procedure. It should
not merely be the expression of authorizations, but should be the
summation of executive direction with respect to the scope of
municipal activities and the methods of their administration.
THE GERMAN MUNICIPAL BUDGET AND ITS RELATION
TO THE GENERAL GOVERNMENT
By Karl F. Geiser,
Professor of Political Science, Oberlin College.
To a proper understanding of our subject it seems necessary
to reverse the order suggested by the title and first explain the
relation of the local to the general government. No attempt will
be made to explain in detail the complicated relations of the Ger-
man municipality to the various governmental units of adminis-
trative areas within the German Empire, though a complete study
of the municipal budget would require it; for every taxpayer living
within a rural or urban commune contributes directly or indirectly
to several governmental organizations above the municipality.
Obviously many of the sources of revenue of both the state and
the imperial governments lie within the city. The income tax,
for example, is a source of both state and municipal revenue, while
the unearned increment tax, introduced into Frankfort in 1904,
was adopted by the Imperial Government in IQIL It is now
provided by law that this tax shall be collected and administered
by the various states and the proceeds are to be divided between
the imperial, state, and municipal treasuries. In practice, however,
this tax is collected by the municipal authorities who may, by
sanction of the state, levy a supplemental unearned increment
tax not to exceed 100 per cent of the imperial tax. I mention
these facts here merely to show the complicated financial relations
between the local and general governments that we may better
appreciate the problems presented to the budget makers.
Before entering upon details, other facts of a general nature
should also be kept in mind. In considering German municipal
practices it should be remembered that the German Empire is
composed of twenty-six more or less independent states, that each
of these states has its own legislative body, its own administrative
officials, its own political subdivisions and its own system of local
government. A mere glance at the history of Germany — its former
192
German Municipal Budget 193
numerous petty states, its local customs, its independent cities,
its leagues and confederations and its comparatively recent Empire
— will enable us to understand why there are still differences in
the administration of local affairs in different parts of the Empire.
The administration of finance forms no exception to this general
statement. Whatever may be said, therefore, concerning the policy
of one state should not necessarily be assumed to apply to all states.
However, it should be observed in this connection that there is
coming to be more and more uniformity, in the administration of
local matters, through the influence of the central government,
through national municipal congresses, through numerous journals
devoted to local government and through the readiness of one
state to adopt a superior system that has proved successful in
another state.
Since Prussia comprises about three-fifths of the area of the
Empire and contains, in round numbers, 40,000,000 of the Empire's
total population of 65,000,000, we may properly regard that state
as not only dominant in the Empire but as typical of German local
administration. At the same time, against the tendencies toward
local uniformity through the forces mentioned, especially through
the dominance of Prussia, must be placed the fact — the most cardi-
nal fact of local finance — that there is a wide latitude of local auton-
omy. The German city is a city of general, not delegated powers
and may do everything not specifically denied it by the state
or the imperial government. This fact operates against uniformity.
But whatever degree of difference or uniformity exists, from the
standpoint of the individual the municipal budget must take
into account the fact that every taxpayer within the municipality
must or may contribute in some form, directly or indirectly, to the
following governmental or administrative organizations: (1) The
Empire, (2) the State, (3) the Province, (4) the Government Dis-
trict, a subdivision of the province, (5) the Circle and (6) the Com-
une, of which there are two kinds — rural and urban.
From first to last, each one of these jurisdictions, — whether
organized for purposes of general or local government, whether
a subdivision of a larger government used for purely administrative
purposes or a government largely independent in itself, such as
a city — has a set of administrative officials, assiatants, clerks,
and employees, some of whom, in connection with their general
194 The Annals of the American Academy
work of administration, are also specially organized for the admin-
istration of finance. While the finance administration of both the
Empire and of the state is carried on by a division of the respective
ministries of finance and charged with only financial matters,
there is in the cities no special municipal budget commission or
board of estimate. Every phase of budget making is in the hands
of the regularly constituted city officials. A word should, therefore,
be said concerning the general city organization. This consists
of two general organs of government. First, there is the council,
elected by a popular vote, a body with functions similar to those
of an American municipal council. The second organ of city govern-
ment is an administrative board, at the head of which stands the
biirgermeister or mayor. This board, called the magistrat, act-
ing in a collective capacity controls and directs the city govern-
ment; but the individual members also serve as heads of depart-
ments and in various other capacities. They are elected by the
council, the number being usually one-fourth to one-third of that
of the council.
The magistrat prepares the business for the council, and super-
vises municipal enterprises; it has custody of the revenues and
documents; it cares for the civic property, appoints employes,
represents the municipality as a corporation and acts as an agent
for the state and imperial governments in matters assigned to them
by law or by the higher officials. Among the most important
duties thus assigned are those pertaining to finance. Certain forms
of taxation are of course classed as federal taxes, such as imposts
and excises, the latter including postage stamps, bill-stamps, the
inheritance tax, a tax upon spirits, beer, tobacco, sugar, and salt.
The collection and administration of these taxes come entirely
within the jurisdiction of the federal government but in practice
many of them are levied by means of the state and local authorities,
and in some instances the general government divides a portion
of these revenues with the state or with the state and municipality,
as in the case of the unearned increment tax, already noted, which,
by the way, is both an imperial and a municipal tax.
As in America, there is a growing tendency in Germany, on
the part of the general government, to encroach upon the original
sources of state and municipal revenue. The inheritance tax is
a good example of this tendency. As the unearned increment tax.
German Municipal Budget 195
though first used in one of the German colonies, was first used on
the continent in Frankfort where its successful operation suggested
itself as also a convenient source of federal revenue, so the inherit-
ance tax was first a Prussian tax being provided by an elaborate
law of that state in 1891. In 1906, in connection with a movement
for the reform of imperial finance, the Prussian law was incorporated
into a federal statute and the inheritance tax became a federal
tax with the provision, however, that one-fourth of the gross receipts
from this source should be turned over to the various states. Such
changes in the sources of revenues obviously necessitated the combi-
nation of national, state and local functions and the mutual admin-
istration of finance is a natural consequence. It should not, how-
ever, be assumed that the encroachment of the general government
upon the field of local finance has seriously crippled the municipali-
ties, for they have been quite free to adopt new methods and they
have readily found new sources of income. The high order of
German municipal statesmanship and the wide latitude of local
autonomy have furnished the motive and the occasion to solve
the problems involved.
Having considered some of the relations between general and
local finance, we may, it is hoped with a better understanding,
consider some of the chief features of the municipal budget in par-
ticular.
While the laws of Prussia permit a city to plan its budget for
one, two or three years, the yearly budget is the rule, the financial
year beginning April 1, and ending March 31. The leading facts in
budgetary procedure are as follows : From the reports and estimates
of revenues and expenditures presented to it by the various admin-
istrative departments, the magistrat, i. e., the administrative
board, already described, makes an annual estimate not later than
January 1 preceding the fiscal year. This estimate must be pub-
lished for public examination and criticism for a period of eight days
after which it is formally presented to the city counci whose
approval is necessary before it becomes the established budget.
At the time of the preliminary estimate a copy is sent to the author-
ities superior to the municipality. Their 'sanction," however,
which the law requires, is not necessary unless new taxes are imposed
or old ones changed. If there is no objection by the superior
authorities and the city council approves it, the estimates thus
196 The Annals of the American Academy
finally established become the budget for the fiscal year following-
In a word it becomes the financial law of the municipality and, after
its final approval, it becomes the duty of the magistrat to see that
all officials having any connection with its administration strictly
adhere to the prescribed budget Special budgets may, however,
at any time be presented if unforseen events arise to demand it; but
this is seldom the case. When it is necessary, however, the pro-
cedure followed is the same as that of the regular budget. The
mere fact, however, that a special budget is permitted by law is
more important to us than its details, for it suggests one of the most
cardinal principles of local finance as well as of local government —
the freedom allowed by the state to cities in the management of
their local affairs.
The form and details of a municipal budget are not prescribed
by general law; that is left to the local officials, yet certain general
and well defined practices, common to all budgets, enable us to set
forth their main features. It may be added in this connection that
there are numerous standard works dealing with municipal budget-
making that have done much to unify their form and content.^
Municipal tax congresses and frequent recommendations and sug-
gestions from the ministries of the interior and of finance also tend
toward local uniformity.
The municipal budget (Haushaltsetat) is made up of two gen-
eral classes of minor or subsidiary budgets, viz., (1) budgets which
affect taxation, i. e., either increase or decrease it; and (2) budgets
which do not, such as savings bank-budgets, foundation-budgets,
etc. Each of these general classes is again divided into two heads,
comprising (a) ordinary administration (Ordentliche Verwaltung)
and (b) extraordinary administration (Ausserordentliche Verwal-
tung) ; then follow, as occasion demands, the minor subdivisions or
special items of administration whence the original or primary esti-
mates are made ; that is to say, the needs of the ultimate adminis-
trative divisions must be known to the makers of the general budget
before it is drafted. In the order of presentation, however, the
general budget precedes the separate estimates. It assigns to the
various departments and administrative subdivisions the amount
^ An excellent work upon this subject is A. Machowicz, Grundsdtze fur das
Etats-, Kassen-, Rechnungs-, Revisions- und Anleihewesen der Stadtgemeinden.
Dritte Auflage. Berlin, 1908.
German Municipal Budget 197
which in the judgment of the magistrat may be expended during the
following year. The general budget merely contains the results of
the estimates of the separate departments, which estimates must be
independently approved by the magistrat and council. The ordi-
nary part of the budget includes the regular current incomes from
communal property, the portion granted to the municipality by the
state, province and circle; it also includes taxes and exemptions,
dues, fees and miscellaneous contributions. The extraordinary part
includes incomes from exceptional or special sources, as gifts,
legacies, sales from land and loans. The divisions of a general
budget as illustrated by Machowicz^ are as in table on page 198.
Each of the divisions is again subdivided under the gen-
eral headings of "Income" and "Expenditures" into minor divi-
sions and items, and, needless to say, in an orderly manner, with
references and cross-reference to audits, approvals and vouchers,
until the minutest detail of revenue and expenditure is traced to its
original or ultimate source.
While there is no state audit of local finance in Germany, as in
some of our American states, there is little danger of mismanage-
ment of funds, since a "revision" of the local treasury is made by
the executive every month, on specified days, notice of which is
given to the council beforehand so that it may appoint members to
be present; and at least once a year there is a surprise "revision" of
which no notice is given, at which either the chairman of the council
or a member appointed by that body must be present. Further
control of the budget is provided by requiring the magistrat to keep
and publish a register (Lagerbuch) of the municipal property, both
real and personal. This register, which is open to public inspec-
tion, is periodically revised and must be so prepared as to present
a clear account of the tangible municipal assets.*
It would be impossible to place within the limits of this paper
a comprehensive outline of the various sources of municipal rev-
enues, since German cities are quite free to choose not only the kind
of tax but also the objects of taxation. I will, therefore, confine
my remarks upon this phase of the subject to a limited number of
observations and to a summary of general results.
«P. 141.
• W. H. Dawson, Municipal Life and Oovemment in Oermany, 1914, pp. 344-
45. This work contaioB the best account in English of German municipal finanot.
198
The Annals of the American Academy
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German Municipal Budget 199
The Prussian municipal ordinance of 1853 made no provision
for limiting cities either in the rate or the objects of taxation. But
a law of July 14, 1893, amended the former law by providing that
taxes could only be imposed in so far as the revenues from city
property, plus state grants, did not provide an income sufficient to
meet the expenses of government. In general it may be said that
the restrictions by the general government upon local finance
administration are all indirect, suggesting means of avoiding exces-
sive taxation and accumulation of debt rather than preventing the
carrying on of communal enterprises and undertakings. Thus, for
example, in 1907 the Prussian ministers of finance and of the interior
issued a joint rescript commanding rural and urban authorities to
redeem loans at a higher rate than had been the custom. The rate
for the redemption of general loans was increased from 1 per cent to
IJ per cent; loans for streets and similar work were now to be
redeemed at 2| per cent and sewerage loans at 2 per cent. In 1912
another rescript advised greater caution on the part of the state
authorities in sanctioning loans. To meet extra expenditures the
general government also advised municipalities to establish emer-
gency and new building funds; and Dusseldorf has for some time set
aside an annual amount for a fund for new buildings; Cologne and
other cities do the same. The superior authorities have also ordered
one-third of the cost of new buildings to be defrayed otherwise than
by loans. This restriction, it should be noted, applies only to
expenditures for non-productive purposes; there are no objections
on the part of the central authorities to establishing land-purchase
funds by means of initial loans; nor are there any general restrictions
upon the local tax rates, such, for example, as we have in some of
our American states, which prevent cities from meeting the neces-
sary expenses of government or from reaching out into new activ-
ities which would really benefit the whole community. In a word,
the state says to a city, in effect:
Develop your own sources of revenue, but tax your citizens as
little as possible ; you may engEige freely in any kind of enterprise
you please, providing you make these enterprises pay their own ex-
penses and, in some instances, even pay a profit;* we shall be glad
to advise you, but we trust you to govern yourselves well.
* The Pruflsian law of communal taxation makes a distinction betw«eii enter-
prises which may be carried on for gain and those which are described M AnaiaUen
or "communal institutions" which are to benefit the whole public and are not
intended primarily for profit.
200 The Annals of the American Academy
This attitude of the state toward the local community throws
the responsibility for efficient management upon the city, and,
therefore, with the consciousness that its destiny is in its own hands,
the city develops a high order of municipal statesmanship. Officials
are chosen for their respective positions, not because they belong
to a particular party, but for the same reason that American private
corporations choose their officials, namely, efficiency. Indeed this
is the chief explanation of why German public corporations and
American private corporations are both successful. It would how-
ever be unjust to many American cities not to acknowledge in
extenuation of mismanagement the fact of ill-advised and often
unjust state interference, for no man can serve two masters. This
interference on the part of the American state, of course, prevents
the use of many profitable sources of income. Our short tenure
of service also prevents our officials from planning a continuous,
long-sighted municipal policy.
What this freedom from state interference means to a German
city may be shown by a few examples. The present mayor of Ulm
has held his position for a quarter of a century. When he entered
upon the duties of office he advocated the purchase of land to carry
forward an extensive housing policy, and during his administration
about 1,500 acres of land have been added to the corporate wealth
at an expense of $2,650,000. Of this amount 500 acres have been
sold at a price exceeding the total cost of all lands purchased, thus
leaving 1 ,000 acres free of debt which are now yielding a net revenue
of $18,750 annually.^ Here was a colossal undertaking which,
instead of being a burden upon the city, has been its chief source of
revenue. A similar example of municipal enterprise, though rather
unusual in its results, is furnished by the little town of Klingenberg
in Bavaria. It has a population of only 2,000, yet it owns forest,
and other lands including a clay pit, from which it pays, not only all
expenses of government, but also an annual cash bonus to its free-
men. During a recent fiscal year, after paying all expenses of
government and adding $500,000, to its reserve fund, it presented
a cash dividend of $100 to every freeman. It would be a mistake,
however, to suppose that German municipalities are, as a rule,
free from debt; the illustration, just mentioned, has been given
rather to suggest the freedom with which German cities may engage
' This statement applied to year 1912.
German Municipal Budget 201
in profitable enterprises and thus relieve their budgets of excessive
tax rates. As a matter of fact German cities have, as a rule, a large
debt and the cost of government is, as in America, on the increase,
owing in part to the high cost of living and in part to the large num-
ber of public enterprises and undertakings which in America would
be in private hands. Thus the rural and communal debt in the
Empire in 1907 was $26.50 per capita, while in 1910, the debt of
eighty-four of the largest cities of the Empire, representing a popu-
lation of fifteen and a half millions, was $74.25 per capita. But a
large portion of this debt represents an outlay of capital engaged in
profitable enterprises, and is therefore an actual surplus, a net gain
to the municipality.
The relation of public enterprises to the German municipal
budget, it will thus be seen, is an important one; in fact it constitutes
the chief problem in budget making and I have given it special
consideration because it is the distinguishing feature which differ-
entiates a German municipal budget from an American municipal
budget. What it means to the total revenues of a German city,
and incidentally to taxation, may best be seen by comparing the
incomes of the various sources of revenues with the expenditures
for their cost, maintenance and administration. This compari-
son applies to all German cities and rural communes having a
population of over 10,000, and is based upon a report of the im-
perial government made in 1907 and published in 1908.
Of the total gross revenue 33.2 per cent came from taxation,
25.9 per cent from communal enterprises and undertakings of all
kinds, 5.9 per cent from the administration of communal estates
and investments, 5.1 per cent from educational and art institutions,
3 per cent on account ot poor relief, orphans and hospitals, 4.7 per
cent from the building administration, and the remainder, 22.2 per
cent, from the general, police and other branches of administration.
Of the gross expenditures, 23 per cent were for the administra-
tion of communal enterprises and undertakings, 17.4 per cent for
educational and art institutions, 14.3 per cent for the administra-
tion of debts, 11.8 per cent for general and police administration,
9.9 per cent for building administration, 7.6 per cent for the admin-
istration of charities and hospitals, and the remainder, 16 per cent,
for miscellaneous branches of administration.*
• These results are quoted from Dawson, pp. 341-342.
202
The Annals op the American Academy
Limitations of space forbid an analysis and discussion of the
various sources of revenue and the final distribution of that revenue,
the results of which are summarized on page 201. It will be noted
that of all of the sources of income mentioned, that from taxation
yields almost exactly one-third of the total. The various forms of
taxation, both direct and indirect, their history and application to
budget making, form an instructive study in municipal finance. But
I am compelled to content myself by appending two tables showing
the kinds of direct and indirect taxes, the total income from each of
these in various classes of cities grouped according to population,
the per capita income from each group, and the percentage each
group bears to the total of the total income from each source.
These tables apply to Prussian cities and are taken from the Kom-
munales JahrhucK' of 1913-14:
Income from Direct Municipal Taxes in Prussia Reported March 31,
1912
Class of cities having
a population
Total income
Aggregate
Per capita
Percentage of total income
from each source
Income
tax
Real
estate
tax
Trade
tax
Berlin
Above 200,000 (excl. of Ber
lin)
From 100,000-200,000
From 50,000-100,000
From 25,000-50,000
From 10,000-25,000
From 7,000-10,000
From 5,000-7,000
From 3,000-5,000
From 2,000-3,000
Less than 2,000
Total
$22,587,500
41,410,000
23,360,000
15,687,500
12,797,500
15,215,000
3,657,500
3,382,500
4,017,500
2,170,000
1,160,000
$11.10
9.225
8.85
7.35
6.60
6.025
4.725
4.45
4.20
3.65
2.90
51.8
61.1
60.4
60.3
61.4
62.1
60.2
57.8
56.3
53.1
51.5
31.8
27.1
27.9
25.6
25.5
24.6
26.9
29.0
30.4
33.7
36.0
16.0
11.4
11.3
13.7
12.6
12.9
12.3
12.6
12.6
12.3
11.3
$145,450,000
$7.55
59.1
27.7
12.7
0.3
0.6
0.6
0.8
0.9
1.2
0.5
'In translating the German "Mark" into the American denomination I
have, for convenience, called the Mark equivalent to 26 cents; it is a little less.
German Municipal Budget
Income fbom iNDiREcr Municipal Taxes in Prussia Reported March 31,
1912
Claas of cities having
a population
Total income
Aggregate
Per
capita
Percentage of total inoome from
each source
> M
§5
s
D.2
li
» a
3.1
a ■•5
a
«>
6
<
Berlin
Above 200,000 (excl. of
Berlin)
From 100,000-200,000
From 50,000-100,000
From 25,000-50,000
From 10,000-25,000
From 7,000-10,000
From 5,000-7,000..
From 3,000-5,000..
From 2,000-3,000 .
Less than 2,000 . .
$2,112,500
5,217,500
2,760,000
1,630,000
1,132,500
1,177,500
300,000
252,000
320,000
190,000
102,500
$1.05
1.175
1.05
.775
.575
.475
.40
.325
.325
.325
.25
52.1
44.5
39.9
35.2
37
36
41
43
41.9
47.1
44.0
25.4
18.4
15.6
14.9
14.2
8.5
9.9
3.6
5.7
5.0
3.2
2
5
5
4
2
1
0
1
1.0
0.6
8.6
10.4
14.1
18.9
16.3
22.9
20.9
22.7
24.3
20.7
22.9
13.9
7.3
8.3
9.4
10.8
12.3
12.9
14.7
13.0
12.7
14.0
Total
$15,197,500
$0.80
42.5
16.3
2.9
14.1
12.6
9.7
1.8
3.6
1.1
1.2
1.4
1.9
1.2
2.1
2.0
4.2
1.7
THE BUDGET PROCEDURE OF ENGLISH AND FRENCH
CITIES
By D. C. Baldwin, A. B.,
Student, Graduate School, University of Pennsylvania.
The most vital facts concerning municipal budgetary procedure
in England and France are the methodical manner in which these
instruments are drawn up and voted upon, the careful balancing of
proposed expenditures and estimated receipts, the rigid distinction
drawn between capital and revenue accounts, and the earnest desire
everywhere apparent to get a dollar's worth for every dollar spent.
While any comparison with similar conditions in America is
discouraging, there is no doubt that two factors should receive
some notice. The mere momentum of precedent and of long
established custom has a steadying influence, while the more or
less static conditions attending development in the older countries
would have caused extravagant expenditure to be keenly felt. On
the other hand our large areas of unsettled or sparsely settled
territory, much of it rich in material resources, combined with a
steady stream of mature, hard-working immigrants, all possessed
with ambition for economic independence, have produced conditions
so dynamic as to constantly react on the older portions of our
country and to permit of only a qualified comparison with Europe.
But with the passing of the period of settlement and abnormal
expansion, American cities, too, have felt the economic necessity of
"counting their pennies," and serious attempts at municipal reform
have followed rapidly. Of the varied experiments in city govern-
ment of the closing decade, the fundamental element has been the
determined attitude of the average elector, largely, no doubt, be-
cause his '' pocket nerve" has been touched. Once possessed of
an awakened citizenship, the specific system used to attain the end
is of minor importance.
The city of Philadelphia, under a recent administration,
repeatedly used the proceeds of thirty-year bonds to meet large
deficits in current expenses. Even a cursory acquaintance with
204
Budget Procedure of English and French Cities 205
the financial reports of their municipalities lets one feel that such
a thing in England or France would be unthinkable. On the other
hand, under the caption of "Refuse Disposal," Birmingham lists
fifteen items for the past year. One or two may be of interest.
The sale of old ash-pans brought in £233 and scrap iron realized
£1,163. 1
In the methods of financial control the English and the French
city are in marked contrast, due largely to difference in political
temperament. The English municipality is practically autonomous,
and even the small measure of control exercised by the central
authorities, the Local Government Board and the National Ex-
chequer, are conceded grudgingly. The right of local self-govern-
ment has become traditional and any contemplated extensions of
central authority are viewed with suspicion and hostility.
In France, on the other hand, a large measure of local control
has been sacrificed to the efficiency of centralized authority. The
French municipality is largely a cog in a wheel, a unit in a graduated
hierarchy leading directly to the Minister of the Interior, represent-
ing the President of the Republic. French municipal law is almost
wholly comprehended in the code of April 5, 1884. This is a
blanket grant of powers, extending, to all cities alike. French cities
may do anything not forbidden in its provisions, and for which
they can obtain administrative approval.
English cities, however, may exercise only those powers ex-
pressly granted by Parliament. As a result they are constantly
petitioning for special acts granting additional powers. Hence
English municipal law is an indeterminate affair, a growth some-
what analogous to the English constitution itself.
For instance, the Birmingham Council, in its instructions to its
Finance Committee, bases its authority upon seven general munic-
ipal acts, twelve special acts, "and so much of any other existing
act of Parliament as relates to any of the said matters." • The
English mayor is a figurehead and power is almost wholly centred
in the Town Council. The latter does the bulk of its work through
committees, of which Birmingham happens to have twenty-one.
Of these the most important is the Finance Committee. All
other committees must run the gauntlet of its survey as regards
» Financial Statemenl, City of Birmingham, 1914-16, EctimaiM seotion, p. 40.
'City of Birmingham, Municipal Diary^ 1914-15, p. 115.
206 The Annals of the American Academy
the financial aspects of their activities, and the Finance Committee
in turn is held to strict account for the finances of all committees,
including its own. Through the Finance Committee must be made
all warrants for payment of authorized appropriations. Upon it
devolves the negotiation of all loans; the investing of sinking funds;
the preparation of the annual Financial Statement submitted to
Council; and the management of tax collections. It must, permit
no payments on revenues accounts to be transferred to capital
account, except by its own approval. It has general charge of the
Accounts and Financial Departments of the city. Most important
of all, it acts as a Consultative Committee on Rate Estimates,
considering with each of the other committees ^ (excepting those in
charge of the public utilities) their financial needs for the coming
year, and revising their estimates, if necessary, in the light of the
expenditures as a whole. It then presents the revised estimates
to Council together with the precept (tax-rate) considered necessary
to meet such a budget. It must consider especially, any committee
proposals which involve excess expenditure for new loans and
report to Council upon the financial aspect of such proposal con-
currently with such committee.
In the general instructions to all committees, there are similar
provisions regarding their relations to the Finance Committee,
thereby clinching the supervisory powers of the latter committee.*
Thus, upon the Finance Committee devolves the budget in
its three phases of preparation, execution, and audit in a general
way. Though the Finance Committee presents the estimates to
the Council, the several committees of the Council are responsible
for the expenditure with regard to the purposes entrusted to them,
and it is expected that they will use every endeavor to keep the
expenditure under each head of account within the amount voted
by the Council.
The Budgets in French Cities
In the French city ^ it devolves upon the Mayor to prepare the
budget and have it ready for Council's consideration in the May
» City of Birmingham, Municipal Diary, 1914-15, pp. 110-11-13-15.
< /bid., pp. 147-48.
^ A large part of the material regarding French procedure has been drawn
form Maurice Block, Diet, de Administration Frangaise.
Budget Procedure of English and French Cities 207
meeting. This is known as the original budget and is succeeded
toward the close of the year by a supplementary budget.
The budget is divided into receipts and expenditures. The
former is subdivided into receipts ordinary and receipts extraordi-
nary. In other words, those that are stable and permanent and
those which are irregular and occasional in their nature. The
expenditures are subdivided into optional and obligatory. The
former vest in the discretion of the local authorities: in the Mayor,
if he can persuade Council to authorize his views.
The obligatory expenditures must be provided for, and pro-
vided, too, out of established income. They include, in general,
such items as the maintenance of municipal property, the preserva-
tion of municipal archives, the salary of the city treasurer, the
maintenance of the police force, the pensions of local officials,
education, repair of local highways, etc. The Code of 1884 con-
tains a provision making the maintenance of the personnel of the
police in cities whose population exceeds 40,000 an absolutely
obligatory item. The Code of 1884 lists over twenty such items.
If they are not adequately provided for, the higher authorities
will make forcible provision by a procedure known as inscription
d'office, or official entry upon the budget. Cities whose annual
receipts are below three million francs must submit their budgets
to the prefect of their department (France is divided into 86 depart-
ments or provinces); those whose revenue is above this sum are
subject to the Ministry of the Interior, representing the President
of the Republic. If the Mayor and Council should prove obstinate
in the matter of obligatory expenditures, the central authorities have
power to suspend them from office. Once the French municipal
budget is finally approved, it cannot be altered in the slightest
degree.
The additional credits found necessary since the opening of the
year, together with any new developments in the way of income,
are incorporated in the supplementary budget. This, too, is drawn
up by the Mayor and is considered by the Council at the May see-
sion of the year to which it applies, that is, a year after the budget
whose transactions it completes. It is authorised in the same
manner as the latter.
In addition to the supplementary budget, the Mayor draws
up an administrative account extending from Januaxy 1 to March
208 The Annals of the American Academy
31, that is, including the three complementary months during
which settlement may go on. This statement shows actual receipts
and expenditures to date. A similar report is prepared by the
city treasurer and also an account showing the amounts of regular
receipts and expenditures not yet collected or not yet paid out.
With these documents at hand, the Council proceeds to con-
sider the supplementary budget, inserting as the first item the sur-
plus or deficit which may appear from a comparison of the Mayor's-
report and that of the treasurer. Then come the regular receipts
and expenditures not yet completed, as they appear in the treasurer's
statement. They are followed by the extraordinary receipts ® and
expenditures, and under the latter division the Mayor can insert,
to the extent of the available balance, those unforeseen expenditures
which appear in his report.
If a supplementary budget faces an inevitable deficit, a new
source of income must be provided for immediately to cover the
same. The supplementary budget differs from the original in that
the obligatory expenses have already been met. As Professor
Fairlie has pointed out, these form the greater part of the original
budget, thereby greatly reducing the discretionary power of the
mayor. ^ If the contemplated expenditures seem to the higher
authorities to be unwarranted, they may be rejected or reduced by
a decree of the President or by a resolution of the prefect in charge of
the department; but such authorities are not permitted to increase
expenditures or to introduce new ones, except in so far as the same
may be obligatory.
Fixing the Rate in English Cities
English cities, as a rule, are large property-holders and derive
regular incomes from long-term leases. In addition, they receive
substantial amounts from the management of their own public
utility undertakings.
Birmingham ^ during the past year received a total of 145,162
pounds from utilities, in a total expenditure of 4,903,408. Leeds *
received a total of 80,000 pounds toward a total expenditure of
• The proceeds of a special tax for the purpose of building a school-house or
some municipal building would be classed as extraordinary income.
' National Municipal League, Proceedings, 1901, pp. 282-301.
' Birmingham, Financial Statement, 1914-15, p. iv.
' City of Leeds, Anntud Accounts, p. xv.
Budget Procedure of English and French Cities 209
868,257, while Manchester^® received 100,000 pounds from its
tramways alone during the present year.
The estimated needs for the coming year are drawn up. Then
all income from property owned, profits from municipal undertak-
ings and any other sources are estimated. The difference is the
deficit to be met by taxation. The necessary ''precept" or rate
is calculated and recommended to Council by the Finance Com-
mittee. The chairman of the latter in submitting the estimates
to Council usually draws attention to the past year's results, es-
pecially to those of committees which have either greatly exceeded
their estimates or those who have worked below them.
The manner of levying the precept differs in different cities.
Leeds has a city rate, a consolidated rate, and a highway rate
levied by town council. In addition there is a poor rate levied
by the Overseers of the Poor, but all are collected in one.
Birmingham levies but one, the borough rate, which covers
the whole expenditure of the corporation which can be charged on
the rate. The Overseers are by precept required to levy a rate
necessary to produce the amount required. Of course, here as in
Leeds, there is an additional poor rate to meet expenditure on
Poor Law proper. These two purposes, together with the necessary
expense of collecting, form the whole of the charges made in Bir-
mingham. The two, when levied, are technically called the poor
rate. The Overseers collect the rate half-yearly and pay over the
councils precept by installments as the money comes in.
Audit in French and English Cities
The system of audit in English cities is very unsatisfactory.
There are three auditors, of whom two are elective, and the third,
known as the Mayor's auditor, is a councillor appointed by the
Mayor. They all act independently of each other. They are sup-
posed to serve without pay, and most of them do, and they generally
perform their task in a hasty and perfunctory manner. It is rarely
that a trained accountant occupies the position. Many cities of
late years have made a practice of employing professional account-
tants, and have adopted provisions to this effect in their by-laws.
This professional auditing is in addition to that done by the usual
method, as the latter is not taken seriously in large cities.
^' City of Manchester, Eatimaies, 1916, p. xvii.
210 The Annals of the American Academy
In pursuance of the Education Act of 1902, the educational
expenditures of the cities are subject to audit by representatives
of the central authorities, and a goodly number of the small cities
have preferred to have all the rest of their accounts audited in
the same way, paying, of course, for the additional service. This
practice is looked upon with much approval by the central authori-
ties, as tending toward a needed increase of centrahzation, with-
out arousing the hostility which such attempts usually precipitate.
In fact, several cities such as Folkstone and Bournemouth have
agreed to such a provision as the price of getting from Parliament
the kind of a charter they wanted.
In France, on the other hand, we have a great national institu-
tion called the National Court of Accounts, a department under
whose survey and audit must pass the whole of the accounts
of national revenue and expenditure of the departments (prov-
inces) and of all towns, districts and public institutions whose
revenues annually exceed 30,000 francs. If a town's revenues fall
below this limit all accounts must be sent to the Prefectoral Council
for audit. In either case they are subject to a corps of trained
experts maintained by the central authorities.
THE MOVEMENT FOR IMPROVED FINANCING AND
ACCOUNTING PRACTICE IN TORONTO
By Horace L. Brittain,
Director, Toronto Bureau of Municipal Research.
The city of Toronto has increased in population from 238,642
in 1905 to 470,144 in 1914, or over 97 per cent. During the same
period its assessed valuation increased from $149,159,206 to $509,-
366,151, or over 240 per cent, and the city taxes from $2,834,025
to $9,865,068, or over 248 per cent. During the last five years the
necessities of a rapidly growing city have raised general taxation per
capita from $14.71 to $24.84, or over 68 per cent, and special taxa-
tion per capita from $2.32 to $2.96, or over 27 per cent.
The rapid growth of the city demanded rapid extensions of
public works and services, which in turn greatly increased the prob-
lems of city financing and municipal accounting and reporting. It
is not strange on the one hand that the city's accounting and budget-
ary system should have been more or less outgrown during the last
two decades or, on the other hand, that a popular movement looking
toward better methods of fact-producing, of fact-reporting and of
financing should have sprung up and gained considerable force
under the unpleasant stimulus of the increasing financial burden of
government.
In 1913, largely through the energy of one public-spirited citi-
zen a committee of over one hundred citizens was formed to study
improved municipal methods. This committee, known as the Civic
Survey Committee, raised among its members a sum of $6,000 to
pay for a first-hand study of administration at the City Hall. Hav-
ing obtained the consent of the Mayor and City Council, a contract
was made with the New York Bureau of Municipal Research for a
report on five important city departments, viz.: The City Treasurer's
Department, the Department of Works, the Fire Department, the
Assessment Department and the Property Department. It is the
first of these that particularly concerns us in this article as the City
Treasurer is not only the chief financial officer of the city but pays
the city's bills, receives directly or indirectly all the city's revenues
211
212 The Annals of the American Academy
and is the chief accounting ofl&cer of the city, subject, with other
city department heads, to the accounting control of the City Auditor.
The report of the Civic Survey Committee, prepared by the
New York Bureau of Municipal Research, found much to commend
in the accounting and financial system of the city. It states:
In contrast to many American cities, the books of the department were
found to be neatly and clearly kept and balanced with periodical regularity. . .
. . . In the main the accounting technique employed in the Treasurer's office
is superior to that in most cities where surveys have been made
The records and accounts maintained in the arrears of taxes division are exceed-
ingly well kept. They are balanced and proven periodically with the general ledger
and it is possible at all times to ascertain the status of each individual item. As at
present administered the office of the City Auditor (an independent official not in
the Treasury Department) has many commendable features. The periodical
regularity of its inspection of revenue-producing offices, its reconcihation and
audit of current and arrears of taxes accounts, and the detailed audit of the
Treasurer's general cash accounts are especially commended. The salutary effect
of an independent audit of outside departmental accounts from time to time must
of necessity be good.
As the report was intended primarily, however, to point out
places where improvements could and should be made, time and
money were not wasted in listing in detail the many good points
of the system. The report concerns itself chiefly with constructive
criticisms and recommendations concerning:
1. The administration of the city's finances;
2. The methods of accounting and reporting used by the city — methods
which should make available at all times to administrative officers, members of
council and citizens information about the city's financial conditions and the
results of financial transactions.
Defects in the Administration of the City's Finances
Legal Obstructions Requiring Legislation. The revenue year
does not correspond with the fiscal year. The fiscal year is the
calendar year, but tax payments are made in July, September and
November. This necessitates the payment of large sums in inter-
est as the requirements of the city during the first six months cannot
be met out of miscellaneous revenue.
The penalty for delay in paying taxes is inadequate and in fact
encourages prolonged delay As a flat rate of 5 per cent only is
charged on unpaid taxes no matter how long they may have been
Financing and Accounting in Toronto 213
in arrears, and as tax-rolls have in the past been held open for five
or six years taxpayers have, in effect, been able to borrow from the
city at rates varying between ^^ per cent per annum and 5 per
cent. As the city at present has to pay from 5 per cent to 6 per
cent for loans, this involves a heavy penalty in interest. In this
connection it is worthy of note that the reforms recently introduced
into the tax collection division in one year and a quarter have closed
up all tax-rolls for 1909, 1910, 1911 and 1912, so that at present no
arrears of taxes are on the books save those for 1913 and 1914. In
future tax-rolls will be closed "at the end of the year succeeding the
year in which they become due'* ' — a step in advance which will
save tens of thousands of dollars to the taxpayers annually.*
The water revenue collection period does not correspond with
the fiscal year. Water rates are payable semi-annually in advance
on April 1 and October 1. If payments were made on January 1
and July 1 large sums of money would be available to the city much
earlier in the fiscal year.
Lack of Effective Control Over the City's Finances. The Board
of Control which is elected annually is supposed to be the city's
administrative body. At present the formulation of a financial
program is left to the incoming board with the result that the esti-
mates are not passed until April or May and the first installment of
taxes cannot be collected before July. This system means that the
city has practically to operate without a program for five months
in the year, the interest bill of the city is greatly increased, and the
electorate is handicapped by having, for the most part, to pass on
financial policies after the fact rather than before the fact.
The departmental estimates at present in use are inadequate
although very considerable improvements have been effected during
the past year. Standard forms for the preparation of departmental
estimates are not used giving information with respect to cost and
unit costs for each function, and costs for each organization unit,
separating current expenses from capital outlay, and showing cost
of all objects of expenditure. A few departments do supply such
information but the majority have not accounts which could pro-
duce the necessary information to supply a basis for such estimates.
* Civic Survey Report, p. 20.
' These reforms were due largely to the continued recommendations of the
City Auditor in his annual reports.
214 The Annals of the American Academy
There is inadequate publicity in the whole budget-making pro-
cedure. Departmental estimates are given no publicity whatever,
and the draft estimates, prepared from these, have a very narrow
distribution. While deputations may be heard on particular fea-
tures, there is no regular method provided for the taxpayers' co-
operation in budget making.
While the draft estimates are prepared under the direction of
the Mayx)r and Board of Control and submitted to Council in its
name, it is hardly submitted as a definite recommendation of the
Mayor or the board, although practice is perhaps tending toward
this consummation so devoutly to be wished. The Mayor and
Council have no opportunity to go before the people on a proposed
program but only on a record of accomplishments. Even here, the
division of responsibility, the lack of significant details supporting
the estimates, and the lapse of time make it difficult to locate or
enforce responsibility.
Although a city by-law provides for the establishment of grades
in the city's service, as a matter of actual fact a civil list with care-
fully outlined grades and rates of pay does not exist. This makes it
difficult to make intelligible that part of the estimates which deals
with personal services.
Discussions of personal service items are apt to degenerate into
discussions of the personal or official fitness of particular individuals
in the city's employ.
At present the Toronto Council, like dozens of others on the
continent, gravely attempts to control expenditure by passing
vouchers before payment. This is evidently not only a waste of
time, as the Council must act without sufficient knowledge, but it
delays the passing of bills to such an extent as to cause the loss of
large sums in discounts offered for prompt payment.
Methods Employed in Financing . The almost universal tendency
to over-estimate miscellaneous income and under-estimate necessary
expenses for the purpose of keeping down the tax rate has not passed
by Toronto. The temptation to pass on the resulting deficit to
posterity has usually been too strong to resist. It is an encouraging
sign of the times that a decided check has been administered to both
these practices and that there seems to be a determination to allow
no overdrafts this year the excuse for which, in previous years, has
Financing and Accounting in Toronto 215
been an alleged or real under-estimate of necessary expenditure.
Overdrafts have always been illegal.
It would be strange, indeed, if Toronto has sidestepped the
pitfall of charging to capital account legitimate current expendi-
tures. The outstanding Toronto example of this practice is the
custom of issuing debentures to pay for repairs of the track allow-
ance areas of the streets. As the franchise of the Toronto Street
Railway expires in 1921, the terms of debentures issued have been
decreased a year at a time so that the life of all debentures will
expire in that year. This will make the final payments extremely
large but will, undoubtedly, lead to the abandonment of the practice
now in vogue.
In the past Toronto, in common with most municipalities, has
not been at sufficient pains to coordinate the term of the bonds it
sold with the life of improvements. The necessary facts were not
available for the determination of the actual life of improvements.
It is natural therefore that in many cEises long term bonds were
issued for short-lived improvements. An improvement in this
respect is very noticeable and has been facilitated by the reorgani-
zation of such departments as Works and Street Cleaning which
have developed or are developing modern systems of cost accounting.
Legal and other difficulties make local improvements costly.
Contrary to general belief, however, special local improvement
rates have not increased as rapidly as general taxation. The
situation is best described in the words of the Civic Survey Report:
Because of the present practice of having to wait until the entire cost of
local improvement work is ascertained and all disputes are settled, and because
the city must borrow the necessary funds to carry on the work, heavy interest
charges for bank loans are incurred. Considerable delay in determining final"
costs is made necessary by expropriating more property than is ultimately found
necessary in street widening operations. For that reason the city must wait
until the surplus property is sold before actual costs are obtainable. Debentures
cannot be issued until such costs are determined and the collection of assesnnents
made against the property benefitted is necessarily deferred.
Lack of Adequate Supervision over the Administration of Finances
In the past it has been the practice to apportion from time
to time debenture discounts to the various capital expenditure
accounts with the result that very important facts neoeasary to
sound financing were hidden or so obscured aa to be of no effect.
216 The Annals of the American Academy
At the time of making the survey the banks allowed 3 per
cent on all existing city balances and charged the city 4J per cent
on all overdrafts up to the amount of city sinking fund deposits
in the banks, "which means that the city was paying IJ per cent
interest for the use of its own money represented by cash in the
sinking funds. " The relation of this to the time set for paying the
first installment of taxes is obvious.
The Treasurer, at the time of the survey, had no means of
exercising effective supervisory control over miscellaneous revenue
collection. This is the condition in most cities.
As, at the same period, the City Auditor had no means for
performing an independent inspection of deliveries, and as he did
not have in his possession copies of contracts or specifications,
there was insufficient basis for the audit of claims. This condition
still exists to some extent.
A year or two ago it was the practice of the City Auditor to
sign all checks drawn upon the City Treasury, but recently arrange-
ments have been made with several departments by which pay-
rolls are covered by a single cheque, the individual payments
being made by paymasters' cheque or otherwise. Much time, how-
ever, is still wasted on unnecessary details, time which the auditor
is anxious to use in assisting in various necessary departmental
accounts installations.
In 1913, it was customary to invest sinking funds in Toronto
city debentures. One sale from the sinking fund at 17 points
below par led to a large loss. Both these facts represent undesirable
or even dangerous tendencies, especially when, as in Toronto, the
sinking funds are not administered by an independent commission,
but by the same authorities who have to raise money by the issue
of debentures.
Recommendations re the Administration of the City's Finances
The following is a short statement of the recommendations
of the Civic Survey Report with regard to city financing:
1. That the Mayor and Board of Control assume full respon-
sibility for financial proposals to be submitted to the taxpayers just
before the election at the beginning of each year. It appears that
this method is at present legally impossible, but there is no legai
Financing and Accounting in Toronto 217
obstacle to the preparation of the estimates between October and
December of each year so that they can be acted upon by the Coun-
cil immediately after the first meeting in January. While this
compromise would not establish responsible leadership to such an
extent it would enable the city to operate under a program for ten
months in the year instead of six and would save the city large
sums of money in interest.
2. That forms of annual estimates be established which will
show comparative expenditure data and estimates. These would
set forth "actual as well as estimated expenses and capital outlay
for each function or activity performed by each department or
other organization unit, as well as overhead cost, including fixed
charges." These should be further analyzed so £ls to show cost
or estimated cost in terms of objects of expenditure, that is:
Personal Services
Contractual Services
Materials
Supplies
Equipment, etc.
3. That a budget be prepared which would show:
a. A comparative balance sheet showing current assets
and liabilities and surpluses or deficits;
h. A comparative operation account;
c. A comparative capital account;
d. A consolidated fund statement, showing the condition
of the general fund, capital account funds, special
and trust funds, sinking funds;
e. A request for appropriations;
/. Detailed departmental estimates.
While it has been found impossible to secure all these reforms
in budget procedure the draft estimates for this year were a great
improvement on any submitted previously. The following quo-
tation from the Annual Report of the Toronto Bureau of Municipal
Research gives a clear idea of the present situation:
A completely scientific budget is, of course, impossible before the establish-
ment of accounts which produce the facts upon which a scientific budget can be
based. This fact has been persistently drawn to the attention of the city govern-
ment and receives the heartiest assent of the City Auditor and City Treasurer,
as well as other prominent officials of the city. That the City Treasurer and
218 The Annals of the American Academy
the Aflsistant City Treasurer will work efiFectively along the right lines in respect
to budget reform, is shown conclusively by the draft estimates for 1915 recently
submitted to the Board of Control and the Council. For the first time the esti-
mates contain, in addition to a column showing the actual expenditures for the
preceding year and the estimates for the current year, a column showing the
estimates for the preceding year. This is, therefore, the first budget issued by
the city of Toronto which makes intelligent comparison possible.
Another excellent feature of the draft estimates is that expenditures and
receipts, not directly affecting taxation, are placed on opposite pages, with cor-
responding items in corresponding situations on the pages. The previous prac-
tice was to place all the expenditures together and after them all the receipts.
This made the process of analysis so formidable that the average citizen could
not afford the time to make a study of the annual estimates. For the first time
also the draft estimates are indexed, by letters and numbers of pages. In fine,
the estimates are prepared not only with the end in view of giving information
to those most familiar with the facts, but to make the getting of information
easier by any citizen who has sufficient interest to study the city's program for
the year.
Defects in Methods of Accounting and Reporting Used by the City
While considerable improvement has been made in the annual
financial report of the city of Toronto, the following statements
of the Civic Survey Report with regard to the financial statements
issued before 1913, in the main, still hold good:
1. The balance sheet, or the most summary pictiu-e of financial conditions,
is buried in a mass of detail where it is all but lost. The report is not indexed
and it is only the man who has the tenacity of purpose and interest to turn through
570 pages who will find the balance sheet at all.^
2. In the "condensed statement of receipts and disbursements," there has
been an attempt to combine in one form both an operation account (revenues
and expenditures) and an account-current (statement of cash receipts and dis-
bursements) with beginning and ending balances.
3. The "abstract of receipts and disbursements" has the same defect as
the "summary" that precedes it, with a different classification.
' Since this criticism was written the 1913 Treasury Report has been issued
which shows the following improvements: The detailed statements of receipts
and disbursements have been cut down until they occupy only 72 pages instead
of 558 pages as in 1912. The detailed schedule of insurance on property has
been condensed so that it now occupies but two pages and forms a valuable sum-
mary. The report is also indexed and reference to any statement is thus made
comparatively easy. But the accounts are still prepared on a purely cash basis,
no particulars of income and expenditure being given unless same was received
or paid in cash during the current year and the balance sheet still conveys but
little information to the average citizen.
I
Financing and Accounting in Toronto 219
4. The "detailed statements of receipts and disbursementa" are little more
than a printed register or lists of individual or detailed transactions of the city
for a year.
5. The statement of "current assets and liabihties" is misleading in certain
respects and fails to bring out essential financial relations. It does not give a
clear picture of conditions about which officers and citizens are called upon to
think.
With regard to the city's published balance sheet the Civie
Survey Report states that it
cannot be of much assistance in thinking about Toronto's financial and business
problems for the reasons that
1. It goes into too much detail for a summary statement — so much so that
it does not help one to grasp at a glance significant relations which should be
brought to pubhc attention.
2. In so far as it presents a picture of financial conditions, it is confused.
3. There is a commingling of current assets and habilities with capital assets
and habilities and the resources and obligations of the sinking fund.
4. From the statement presented, it cannot be determined whether there is
a current surplus or a deficit, nor even what is the present condition of the cash
account.
5. Current cash, capital cash, and trust cash are thrown together without
taking into consideration cash reserves.
6. Neither the balance sheet nor the summary of current assets and liabili-
ties is supported in all its items by the details of the report.
7. Questions raised by the balance sheet cannot be answered without special
inquiry through the department of finance.
8. The only conclusion to be drawn is that the balance sheet now used is a
makeshift and not an integral part of the reporting system.
9. In several instances, estimated figures are used which do not appear on
the books of account.
Accounting and Reporting Recommendations
The defects in the Annual Report, of course, reflect defects in
the system of accounting upon which the report is based. In order
to remedy these defects the Civic Survey Report recommended as
follows:
1. That a new form of annual report be adopted which will more elearly set
forth financial conditions and results.
2. That a new general ledger be installed which will contain such accounts
and only such as are needed in the preparation of summary statements showing
assets and habihties, revenues and expenditures, surplus and deficit and the coo-
dition of the city's funds.
3. That all supporting details of information, which arc needed for purpoMe
220 The Annals op the American Academy
of administration and for furnishing such analysis of summary accounts kept on
the general ledger, be carried in detailed records.
4. That the supporting and detailed accounts be so classified that informa-
tion in any detail or summary desired may be drawn off without re-analysis or
duplication of work.
5. That the accounts of the general ledger and the detailed ledgers be inde-
pendently posted so that the accuracy of statements when taken off the detailed
records may be proved by being checked by totals to the general ledger control
accounts.
6. That a summary statement of assets and liabiUties in balance sheet form,
revenue and expense account and statement of the condition of the city's funds
be drawTi off of the general ledger and published monthly; and that, quarterly,
a detailed comparative statement of departmental expenditures be made available
to the mayor, council and pubhc press.
7. That the quarterly statements of expenditure be accompanied by com-
parative operation statistics furnished by departments in such form that units
of cost may be shown whenever practicable.
8. That the statistics of expenditures be kept in such analysis as may be
needed in the preparation of the annual estimates.
In making its constructive criticisms and recommendations
the Civic Survey Report recognized that the heads of city depart-
ments were not personally responsible for defects shown. The
following paragraphs from the report are significant:
In pointing to some of the obvious defects in methods of reporting of the
treasury department, officers of this department are not charged with incompe-
tence or neglect. Toronto officials are in the same situation as are the officials
of other fast-growing cities. The current work increases rapidly, the daily rou-
tine demands on official attention are such that persons in responsible positions
have Uttle time or opportunity left to study the business system as a whole, much
less to take the time needed to work out constructive plans and obtain the coop-
eration essential to a successful installation of new methods and procedures. Each
d ay's work must be done or the business will stop. Each day is a full day. The
larger the city the more difficult it becomes to make a change (1) by reason of
the increasing demands on the responsible officers; (2) by reason of the large
number of iastitutional adjustments which must be brought about to make any
change effective. The working out of some systematic method of doing busi-
ness and the installation of new procedure must necessarily be performed by per-
sons who are relatively free from the grinding details of administration. The
only solution is either in a temporary or permanent staff which is not charged
with making the decisions essential to direction and control. As a matter of
organization, Toronto, like most public corporations, has its full quota of "line"
officers and men but is lacking on the "staff" side. So long as matters of this
kind are left to men who must keep the wheels of business moving, those in com-
mand must find themselves at an increasing disadvantage. Changes may be
made, and frequently as a matter of adaptation, but unless the whole subject of
Financing and Accounting in Toronto 221
institutional needs is taken up systematically, change after change in method
wiU be made under circumstances such that while they may be adapted to getting
better results, each change may increase the cost and red tape of doing business.
Toronto has been peculiarly fortunate in having had many years of contin-
uous service of the principal oflBcers in its departments. But the best thing that
these officers can do for Toronto and for themselves is to focus public attention
on the difficulties of the problem before them in order that they may have the
support of public opinion in bringing about an adaptation of organization and
methods to service requirements.
In the later months of 1914 the two chief accounting officers
of the city, namely, the City Auditor and the City Treasurer, to-
gether with the head of the chief spending department of the city,
namely, the Commissioner of Works, whose department has more
accounting to do than any other operating department in the city,
were appointed a committee to report on a reformed system of
accounting for the city of Toronto. They visited personally sev-
eral cities and later sent their chief accountants to go carefully into
the details of the methods used in Philadelphia and New York City.
They spent three weeks in the work. As a result of their study
they issued a report to the Mayor and Board of Control making
recommendations which if followed would supply practically all the
elements necessary for a thoroughly modern accounting system.
At time of writing (June, 1915) definite action has not been
taken upon this report by the city authorities but there is every
reason to hope that such action will be taken before the time comes
for the preparation of the 1916 estimates in the fall. In the mean-
time the departments concerned are continuing the making of de-
tailed improvements which do not involve a uniform system of
accounting for the city. For example: A distribution cash book
has been established by the Treasurer's Department in accordance
with a recommendation contained in the report above mentioned,
while the improvements which have been under way in the Works
Department and the City Auditor's Department for some con-
siderable time are progressing rapidly.
If adopted, the plan will make the City Auditor actually, what
he is now potentially, the controller or commissioner of accounts,
while the City Treasurer will become practically a commissioner
of finance. The rearrangement and clear definition of the functions
of these two officials on the lines advocated by the report will con-
stitute an immense step in advance.
222 The Annals of the American Academy
As in the past, Toronto will meet her problems courageously.
Her officials welcome any hints she can gain from the experience of
other cities. This article is written with the hope that the history
of Toronto's movement for financing, accounting and reporting
reform may be suggestive to other municipalities.
COUNTY BUDGETS AND THEIR CONSTRUCTION
By Otho Grandford Cartwright,
Director of Westchester County Research Bureau.
As one's thoughts concentrate upon the subject of budgets and
budget procedure for counties, the question projects itself insistently
into the foreground : What bearing upon democracy has the prepara-
tion of a budget for the management of county government?
Coerced to find an answer to this query before proceeding with
discussion of the budget itself, I can do no better than to state here
certain extracts from a report of Dr. Carroll Dunham, of Irvington,
Vice-President of the Westchester County Research Bureau, in
behalf of a committee appointed by the Bureau's board of directors
to prepare a model county charter.
Dr. Dunham states the basic principles of democratic govern-
ment briefly as follows:
1. Sovereignty resides in the people.
2. In a republic, government should be by those whom the people choose.
3. Government must be for the people.
4. Government administers a certain part only of the people's affairs
(pubhc afifairs, and not private).
5. Its scope changes gradually, as time progresses.
6. Government must be efficient and responsible.
a. To be efficient, the administrators must have authority.
b. To be responsible, they must be answerable for their authority to
the sovereign people.
7. To build a government logically and soundly upon these fundamental,
elect few officers. Do not handicap them by multitudes of other officers, depart*
ments and bureaus, with checking and balancing powers; but give those few
officers power to appoint and remove subordinates.
8. Secure responsibiUty by publicity. Complete publicity, as to the details
of public business and the acts of public officers, destroys opportunity for graft.
0. Enforce the keeping of full, simple, accurate records, open at all times
to all people.
10. Let the officers responsible for the conduct of the government prepare in
advance a complete budget, with full financial programs and full statement of
financial condition.
11. Have fixed dates for the publication of the complete budget, and fixed
dates for full public hearings thereon, open to all people.
223
224 The Annals op the American Academy
12. In enacting the budget, provide that it shall be lived up to strictly during
the period which it is to cover.
13. A sovereign must always be able to learn how his work is being done.
When the people is the sovereign, as in American government, the people must
have such full knowledge.
Dr. Dunham's fundamentals constitute the elixir of life of
municipalities. The budget is the thing that keeps the blood
coursing fresh and vigorous through the veins of government.
When the elixir is low, the administration is impoverished and
weak. When it is lavish, gluttony and coarseness result, — the
administration becomes selfish and heedless.
Nothing is fool-proof. A budget, however scientific and com-
plete, does not guarantee good government. Neither does keepiig
the weeds out of a garden guarantee good crops. But as it is
certain that there will be very slim crops where weeds overrun, so
it is likewise certain that the absence of proper j&nancial provision
will greatly reduce, if not completely nullify, the efl&ciency of an
administration.
A government without a financial plan is as badly off as an
army without munitions. Consequently it is not waste of space
for The Annals to give to this subject the prominence of an entire
volume, nor to emphasize therein the importance of the county
budget in the grand tactics of financing public service.
Like the old parson in the Wonderful One Hoss Shay, I am
given to firstlys, secondlys, etc. In discussing this subject, I shall
try first to picture to the readers of The Annals the ordinary way
of financing a county government; then to state some improvements
of method accomplished in recent years; and thereafter to portray
what a proper budget should be, and how it should be arrived at
and its operation assured.
The Ordinary Way
From such incursions as, in the course of my experience, I have
been able to make into the minds of men who are either concerned
in any way in budget-making, or have from other causes given any
thought to the matter, I have concluded that to the majority of
men the term ''budget" does not convey any definite meaning.
A hazy concept, as of something pertaining to a bag of documents
that contain a lot of bills to be paid, and a lot of other items that
County Budgets and their Construction 225
will call later for the expenditure of a lot of money, if the governing
body or council votes to authorize them, is what the word "budget"
suggests to most people.
One afternoon I addressed a ladies* club of a nearby city on
the need of a local budget exhibit. After I had ended, and was
taking tea with the ladies, the president of the society remarked,
with a puzzled look:
" You have explained perfectly the great advantages of a budget
exhibit. Now I wish that before you go you would tell us just what
a budget is, and then we will understand the whole subject."
Excluding students of finance and of public service, I think the
usual understanding of a budget is almost as indefinite as that indi-
cated on the part of the worthy lady president referred to.
But the term "budget," as used in this volume and in this
discussion, is meant to include the entire financial plan made by a
government for the work of its fiscal year. The detailed discussion
of a full scientific budget will be taken up later.
In most municipalities, the elected or appointed rulers have
not thought much further than the statute law requires them to
think. Their financing, therefore, consists of providing for those
things that the law says must be provided for. In county govern-
ments this is more than generally true, though some states are more
advanced than others as to their statutory requirements. An
example like Indiana, where the law permits the employment of a
wide-awake accountant who keeps pushing into county financing
successive advanced ideas and improvements, shows up immensely
by contrast.
The usual procedure in making the county budget is resistance
to "procedure" of any sort. It is rather inertia than procedure.
It consists of yielding to the enforcement of the law that taxes
levied on the county by the state, money borrowed by the county
to meet emergencies and carry current expenses, and legal claims
accumulated against the county, must be paid. If it were not for
the law compelling these things, and for the urgent reminder of
people who want the money which the county owes them, I am
not sure that there would ever be a county budget in most states.
The county goes much on the principle of the lazy man who gets
trusted for everything he needs as long as possible, and only bestirs
226 The Annals of the American Academy
himself to obtain money to pay accumulated obligations when he
is urgently pressed by creditors.
When all items that have to be paid are gathered together, it
is usual to put off as much as possible by borrowing on county
bonds all that it is legal to borrow, and by refunding, where possible,
bonds that have matured. Then the irreducible minimum is placed
into the tax levy. There is nothing less scientific, less economical, and
more inefficient or more extravagant than such a method of procedure.
In the county budget the board of supervisors, or county com-
mission, or tax levying authority, must provide for two classes of
expenditures, and may provide for a third class. The first class
includes those disbursements over which the tax levying authority
has no discretion. Such are taxes levied by the state upon the
county, judgments pronounced against the county by a court of
competent jurisdiction, salaries of county officers established by
legislative enactment, and similar items. The second class includes
expenditures which have to be provided for, but over which the
tax levying authority has discretion as to the amount. The third
class includes expenditures over which the tax levying body has
complete control, both as to their existence and their amount.
Such expenditures would include items of pubUc service not spe-
cifically required by law, but which the county governing body
might deem wise and necessary for the benefit of the county at
large. The possibility of expenditures of this type, however, is
commonly cramped by the narrowness of the powers conferred by
law upon the county authorities.
Things ordinarily not provided for are industrial and social
needs, which properly call for pubhc management and public regula-
tion, but which have hitherto been left to individual control, and
the consequent management of which has been good or bad accord-
ing as individual greed and selfishness or individual benevolence has
predominated.
Some of these matters are regulated in some counties, but none
of them in all counties, and all of them in no county. In determin-
ing what elements of such nature shall be turned over to public
management or regulation, it is necessary to decide where the border
line lies in Dr. Dunham's fourth fundamental, that government
administers only the public part of people's affairs, and not the
private.
County Budgets and their Construction 227
, Improvements in Recent Years
Some improvements have been made in recent years in a few
states where they have adopted something in the line of budgetary
provision. New York state has a law (General Municipal Law,
§§30-38) empowering the state comptroller to prescribe a uniform
scheme of appropriations for all counties of the state, but gives him
no means to enforce its adoption or use. It rests largely with
individual counties, therefore, whether the comptroller's budget
plan will be used at all or not. Some chief essentials of a budget
are lacking in the comptroller's plan. It does not prescribe a bal-
ance sheet; nor a working plan; nor current periodical reports; nor
a statement of estimated funds available for budget purposes in
the reduction of taxation; nor budget hearings; nor any safeguards
upon the appropriations.
Indiana has an accounting law which prescribes budget esti-
mates by each department head, to be presented on forms furnished
by the county auditor. These forms are sufficiently detailed to
provide for a fairly complete list of appropriations for the conduct
of various county departments, but many of the elements of a
budget which are lacking in New York state law are also lacking
here.
Los Angeles County, California, with its new charter, has also
made a great advance in budgetary provision within the last three
years.
Perhaps one of the best types of county budget procedure at
present in operation is shown in Westchester County, where the
heads of departments are required to submit in advance requisitions
for all the needs which they are required to serve during the fiscal
year, the requisitions are passed upon by the finance committee,
and the budget is then prepared and submitted to the board of
supervisors in the following order:
In the first column, the amount of the requisition by the department head;
In the second column, the total amount required by each department;
In the third column, the amount allowed by the board to te expended by
each department;
In the fourth column, the unencumbered balance of the fund remaining from
the previous year, and applicable to such department.
In the fifth column, the amount of unpaid obligations of the previous yMT
for the payment of which money is still on hand in the treasury ; and
In the sixth columi;, the total amount of money to be provided in addition
to the funds on hand.
228 The Annals of the American Academy
These summaries are followed by estimates of municipal earn-
ings,— that is, amounts to be received as current revenue from the
earnings of the various departments; revenues due as refunds for
advances made by the county, and revenues from other sources;
and by a statement of the details of the requisitions for each county
department, and each function and line of operation thereof.
The Westchester County budget lacks the following elements:
(1) a balance sheet, or statement of the financial condition of the
county; (2) a working plan; (3) provision for reports as to the con-
dition of funds, and the comparison of operating cost periodically
with budgetary provision; (4) provision for full publicity; and (5)
certain safeguard provisions in the enacting statute or resolution
of the board of supervisors. Moreover there is no investigation
as to social or industrial needs of the county, and there is no pro-
vision for public hearings, the most democratic of all features of a
budget procedure.
Ontario County, New York, has improved its budget and
accounting and audit system by taking advantage of as much of
the existing law as it found possible permitting such improvement.
Monroe County, New York, operating under the direction of
a newly established bureau of municipal research, has adopted
something approaching a more scientific budget, but still some of
the above elements are lacking there.
Cities, particularly those that have acted under the guidance
of the New York Bureau of Municipal Research, have advanced
much farther, and have established very complete budget provi-
sion, attended by all the necessary provisions and safeguards to
make it workable, and to prevent it from falling down in operation ;
but cities have centralized responsibilities, where counties have
nothing of the sort.
The County Budget as It Should Be
In order to arrive at the direct and scientific way of approach-
ing the preparation of a budget for a county, it is necessary to make
sure that we understand the full significance of all that is compre-
hended under the term "annual budget," and we shall readily see
that it is by no means a simple matter, to be put off until the latter
part of a fiscal year, and then hastily constructed. It needs ad-
County Budgets and their Construction 229
vanced study and provision, including extended and thorough exam-
ination into all the needed service to be financed.
The budget is a definite plan or proposal for financing present
and future needs of the government. As thefe is a national budget
for the national government, and a state budget for the state gov-
ernment, etc., so there must be a county budget for the county
government, and it must be built much upon the same general plan
as prescribed elsewhere in this volume for nation, state, or city.
In making the budget, the first thing to do is to find out what
needs must be served, and we learn, as pointed out above, that
there are three general groups, resulting entirely from the character
of the laws, which confront the governing body of the county. The
first is that of statutory levies. The state law provides that a county
must pay its pro rata share of the state's expenses. The county is
simply informed by the state authorities as to what such an amount
is to be, and must include it in its tax levy. The county usually
has maturing bonds to be paid. Such bonds must be placed in the
tax levy, together with interest due on them. Occasionally there
are judgments rendered by a court of competent jurisdiction against
the county. Such judgments must be paid, and placed in the tax
levy. Over matters like the foregoing, the county governing body
has no choice. It simply must pay them.
The second group comprises statutory levies, over which the
governing body has no discretion as to whether such needs shall be
served, but does exercise control over the amount to be provided.
Instances of such are the maintenance and operation of the various
county departments established by law, and the salaries of various
county officers and employees not fixed by statute. Salaries fixed
by statute cannot be controlled by the county governing body,
but such are few.
As yet, we have considered only statutory needs. There is an-
other group of needs, which we have already indicated, that are
never provided for in county government, and I would go further,
I believe, than any of my fellow-advocates of a proper budget pro-
cedure, and besides having department heads, required to submit
advance estimates of what they need to support their departments,
I would advocate urgently the enactment of a state law to the effect
that some means be provided for asking the public, in all the com-
munities of the county, for statements of all things that they con-
230 The Annals of the American Academy
ceive to be public needs, which should be served by county govern-
ment.
This information might be obtained by public advertising. In
such case, civic societies would urge various needs: one, that the
county enforce industrial safeguards; another, that the county
enforce sanitary housing regulations; another, that it control the
sanitation of schoolhouses and medical inspection of children;
another, that the county regulate local health ordinances and uni-
formity of health administration; another, that the county con-
trol municipal accounting, so that it shall be uniform in all the towns,
cities, and villages of the county; another, that the county admin-
ister uniform collection of taxes; another, that it regulate the ad-
ministration of justice, by substituting courts of inferior jurisdic-
tion, with trained lawyers as judges, instead of the local justices of
the peace, who are apt to become mere fee-chasers, and are frequently
ignorant of the law.
Individual citizens would recommend other public services
that should be performed by the county. These needs would then
be considered by the governing body, and weighed thoroughly, and
such as were deemed to be of sufficient importance would be incor-
porated into the budget provisions, as far as the county governing
body might have power conferred upon it by law to make such
incorporations. For others, held to be of sufficient importance, it
would then ask further powers from the legislature. We should
then have a budget serving community needs in a way I have never
yet known them to be provided for.
It would be a misfortune, however, to have to rely entirely
upon the county governing body for the judgment of the merit of
the various needs. Consequently, each one who suggests any item
of public service, not hitherto provided for and recognized as such,
should be invited by the appropriate government authority to
appear before it and extend his recommendations with all the sup-
porting arguments that he might be able to prepare. Otherwise,
his recommendations might be undervalued, and misjudged, and
undeservedly set aside.
After all is weighed, assorted, classified, and fully prepared, of
course the final proposals for public service are to be passed upon
by the governing body which has power to enact.
Who should prepare the budget is a question of the gravest
County Budgets and theib Construction 231
importance. In state and national government there is no doubt
that the chief executive is the proper person to perform this service,
upon consultation with and the advice of his cabinet or department
heads and such members of the legislative body as are most con-
versant with the needs of legislative, judicial, and other depart-
ments of government.
In the county government in most states, however, there is
no such head, and the budget is usually prepared by a committee
of members of the governing board, whether a board of supervisors,
or commissioners, or what not. Such a committee cannot have
either the understanding of the full meaning of a budget, or the
personal interest in properly performing the work of budget prep-
aration, that an executive head should have who is personally re-
sponsible in very large degree for the success or failure of the entire
county administration. The man who is officially responsible
ought personally to lay the plans, summoning to his aid such advis-
ers as he deems best suited to give him counsel. This principle
has been recognized in the amendments recently approved by the
constitutional convention of the state of New York, which provide
that the governor shall finally prepare and present the entire budget
to the legislature, after a maximum of sixty days' consideration of
estimates and appropriation bills.
Next in order must be considered the accounting features of
the budget. Having established our catalogue of community needs,
which it is supposed to serve, they will be classified and codified,
under proper heads and titles, as a series of appropriations, to be
made from county funds, when provided, and to be expended for
the specific purposes named and for those only.
But the proposed appropriations for the current financial period
are by no means all there is to a budget. The appropriations must
be supported by several auxiliary statements, each in itself entailing
more or less accounting analysis. The first of such statements
would be a comparison of appropriations made in previous years
(at least the two next preceding the year to be financed) for similar
purposes, and explanations of the reasons for appropriations made
for the current year for needs not hitherto provided for. Such a
statement shows increases or decreases, and permits comparison
of such increase or decrease with the growth of the county and the
wealth and population.
232 The Annals of the American Academy
The second statement which must be submitted is a balance
sheet, — that is, a tabulation of the values of all properties tangible
or intangible, which the county owns, and a corresponding tabula-
tion of all the debts outstanding against the county, which must be
paid either currently or in the future. The balance sheet should be
so arranged as to contrast bonded debt with the value of the im-
provements for which it was incurred, and current liabilities with
current assets in hand or available for their liquidation. The bal-
ance sheet would then show the surplus in hand or available, appli-
cable to the support of the appropriations asked for the current
year, which surplus should be divided into two elements, (1) capital
surplus, and (2) current surplus. If there results a deficit, it should
be shown in the same characters.
The third supporting statement should be a tabulation of all
funds of previous years, of which there is either a balance or a deficit.
The statement should be so arranged as to show what part, if any,
of the balance of each fund is unincumbered and free for re-appro-
priation towards the budget of the current year, or if the total
amounts to a deficit, what deficit should be added to each of the
appropriations asked for for the current year, and what the total
deficit so added should be. The total surplus, or the total deficit
of the fund statement, should be identical with the current surplus
or deficit as shown in the balance sheet.
The fourth statement should show the estimated amount to be
received from indirect sources, such as municipal earnings, amounts
paid into the county treasury from the state treasury, from the
state school fund, the state highway fund, etc., and from other
indirect sources.
The fifth statement should recapitulate:
a. The total amount of the budget appropriations;
b. The total amount of receipts from unincumbered fund balances, and from
estimates from indirect sources which should be deducted from the total amount
of the hudget;
0. The difference which would be the amount to be raised by a direct tax.
This amount, re-grouped in such a way as to show the amount
to be paid by each of the tax districts in the county (because in
county government the tax rate does not fall evenly upon all parts
of the county, as explained below) and the tax rate for each tax
district, is then levied by the county governing body. With ref-
County Budgets and theib Construction 233
erence to the unevenness of tax incidence, it is only necessary to
explain as follows: highway taxes are for districts outside of vil-
lages, and do not fall within the village corporation limits, because
each village takes care of its own streets and highways; education
taxes are for proportionately different amounts for the different
superintendency districts and the different school districts, and
these are locally levied, and not spread upon the whole county
evenly; etc.
An auxiliary statement, accompanying the budget, should
show the amount to be borrowed for capital outlays, so that tax-
payers may know the entire amount which is being spent in the
county for the current year. In New York State counties we never
are informed of this total. Different bond issues are authorized
by the board of supervisors at different times during the year for
public improvements. For example, in Westchester County we
are issuing bonds this year for purchase of properties lying within
the Bronx Valley parkway; for the erection of various new county
buildings, such as court house, penitentiary, and almshouse; for
various highway purposes, as occasions may arise, and possibly for
one or two bridges. At the close of the fiscal year only the county
treasurer or the county comptroller is able to state just what amount
of long-term indebtedness has been incurred by the county during
the course of the year. The only item about which the citizens
are broadly informed, regarding bonded indebtedness, is the amount
of maturing bonds and interest which must be incorporated in the
budget itself and paid during the year.
Now we come to the budget ordinance, or the enacting statute,
which, in itself, deserves most serious consideration, but is, never-
theless, perhaps worse slighted than any of the other elements of
budget making, as bad as they are. This ordinance must perform
the following functions:
1. Authorize the appropriations which the governing body decides are to
be expended.
2. Re-appropriate, for the pui^ose of meeting such appropriations, the unin-
cumbered balances of the funds described above.
3. Add to the stated appropriations the deficits from previous years as part
of the current year's expenses.
4. Appropriate the estimated receipts from indirect sourees, to be used for
similar purposes.
5. Levy the taxes necessary to be raised to meet the baknce of expenditures.
234 The Annals of the American Academy
6. Make all these things mandatory, not simply permissive.
7. Provide for the control of the authorized expenditures, by prohibiting
the use of funds for any purpose except that specified.
8. Provide for an accounting system, coordinated in detail with the budget
appropriations, so that all operations of the year may be traced in direct compari-
son with the original financial plan adopted at the beginning.
9. Provide a work plan, as detailed as possible, for carrying out the service
planned in the appropriations, and provide for the payment for such service only
as rendered, after inspection and certification by the proper county authorities.
10. Provide for full pubHcity, as to the operations of the plan, as to the service
rendered by pubhc employees, and as to the progress of county contracts for im-
provements and other service. Such pubhcity must include periodical reports,
at least monthly, and complete records open at all times to all persons.
In no other way can intelligent judgment be formed as to the
fidelity, competence, and efficiency of public officers and employees,
or as to the adequacy of the general financial plan of the admin-
istration.
Summary of Important Features
1. All needed public service of any nature whatsoever, whether
previously included in public service, or previously left to private
or individual management, or previously entirely neglected and
unprovided for, must be considered and financed; and all silly,
fanatical, and in any way unsound proposals, and all merely orna-
mental and fantastic schemes, and all merely political partisan
patronage plots disapproved and rejected.
2. Complete scientific statements of financial conditions, both
as to ownership and indebtedness and as to funding operations,
must accompany the scheme of appropriations proposed.
3. The enacting statute must provide for complete control
of the operation of the proposed plan.
4. The most efficacious way of securing responsibility is by
complete publicity, which is, in itself, cheap, simple, and entirely
effective, and not by a complicated system of interlocking powers,
with checks and balances, which is costly and complex, and has never
proven to be efficient.
BUDGET MAKING FOR SMALL CITIES
By Lent D. Upson,
Executive Secretary, National Cash Register Company.
Even the most ordinary city has a budget in the sense that there
is a periodic authorization to spend public money. However, the
new city budget is more — it is a careful estimate of revenues ac-
companied by a definite program for spending them. In progres-
sive municipalities such a program is only determined upon accurate
information of the efficiency of each city activity, the necessity of
its continuance, its cost, and its desirability as compared with the
other work, that the community may be best served at the least
cost. It is desirable to interest the citizens and officials of smaller
communities in some methods of budget making, which, while
assisting in administration, are not so red tape-ish as to prevent
their use by those with neither time nor patience for the techni-
calities of municipal finance.
Who Should Make the Budget
The first essential to successful budget making is the prepara-
tion of the estimates by the administrative officers responsible for
the carrying out of the work program. In the city manager form of
government, this task naturally falls to the manager, assisted by
the financial officer; in the federal plan, where the mayor appoints
all departmental heads and is responsible for their proper conduct,
the estimating of the city's revenues and their apportionment among
the several departments belongs to this head of the government.
However, in the average American city, there is unfortunately such
decentralization — so many public officers responsible to no one but
the electorate — that there is no central authority whose duty it is
to correlate the financial requests of the divisions of the corpora-
tion. Consequently, the real preparation of a financial program is
left unfortunately to a committee of the city council, who are
unfamiliar with the relative departmental needs, frequently have
political axes to grind, and who are not actually or popularly re-
236
236 The Annals of the American Academy
sponsible for the conduct of government. This committee of coun-
cil solicits their own statement of anticipated revenues from the
city auditor and receives the miscellaneous estimates of needs
which have been prepared without regard to available revenues.
Out of this material they have the impossible task of creating a
homogeneous program which will meet public needs.
Where such lack of centralization exists, it is desirable that the
mayor of the municipality — who in the mind of the public is largely
responsible for its administration — should bring together the rep-
resentatives of the independent elements supported from public
funds. Before this body he should present the current resources
of the city and ask that they be properly apportioned. Here, by a
committee of the whole, public needs could be correlated, absolute
essentials approved, any surplus distributed, and the entire esti-
mate, with supporting data, be prepared for presentation to the
council. With such methods the chances of one activity of the
city being over-emphasized at the expense of others are lessened,
and the council is relieved of interfering with the detail conduct of
the departments. The preparation of budget estimates by a re-
sponsible committee outside of the city council, and the approval
or disapproval of these estimates by the council itself, would tend to
place the responsibility for the government where it actually be-
longs, removing in some measure the burden of ineffectiveness,
inefficiency, and shifting responsibility which cities now bear.
It has been suggested that estimates so prepared should be
subject only to revision downward by the council. However, such
a proposition is at present illegal in American cities, and draws its
support from other than American' municipal experience, if New
York City be excepted. As a means of further reducing legislative
interference, it is perhaps desirable in federal plan cities, particu-
larly as applied to salary schedules. Where the budget com-
mittee is a creature of the council, as in the city manager plan, the
scheme is not only impractical, but theoretically unsound.
How the Budget Should he Made
1. Revenues: An essential requirement for budget making is an
accurate estimate of municipal revenues, and a resolution that
appropriations shall be limited to such estimate. When the budget
is prepared by a council committee, it is sometimes felt a hardship
Budget Making 237
to reduce the estimates of the various city departments to within
the estimated current receipts. Frequently the entire requests are
appropriated for, irrespective of the money which will come into
the city treasury, lea\4ng the burden of cutting the city's suit to fit
the cloth to the city auditor. In such instances, if the auditor is
not aggressive, departments will incur liabilities far in excess of the
city's ability to pay, with resulting operating deficits.
The distinction of revenues from receipts as a proper basis
for apportioning city expenditures has created a movement for the
placing of city accounting upon a revenue and expense rather than
upon a receipt and expenditure basis. Large cities, unhampered
by state legislation, may logically base appropriations upon revenues
accruing, issuing short time loans when such revenues are not
actually paid into the city treasury during the fiscal period covered.
The restrictions on such loans by state authority as well as by local
opinion preclude the use of revenues in place of receipts as a basis
of budget making in the average American municipahty. However,
in appropriating receipts, proper allowance should be made for
unusual payments which are not normal revenues. For example,
h censes may be paid into the treasury during the closing days of
the year, although not actually due until the beginning of the new
fiscal period. Such funds should be held inviolate for the period
for which they are intended.
The estimate of income should accord with a definite classifi-
cation which is followed continuously by the accounting officers of
the municipality. Only such a classification, conscientiously ad-
hered to, will permit the fiscal officers to determine with reasonable
confidence the accuracy of the estimate. The variation in sources
of revenues makes it impractical to present a suggested classification
here, but one which has been given much thought and which has
proven serviceable may be found in the budget of Dayton, Ohio.
After a conservative estimate of operating revenues has been
made, and the budget committee has definitely resolved that the
city appropriation shall be kept within this estimate of current
resources, there follows the more detailed task of preparing the
estimates of the several departments. This is the real basis of
budget making, and upon its being done correctly, depends the
success of a budget, either in a small or large city. If the estimates
are presented on miscellanous sheets of paper, salaries sometimes
238 The Annals of the American Academy
grouped by themselves, three or four of the larger expenses segre-
gated, and the remainder lumped as miscellaneous expense, and
these sheets are used as the basis for the appropriations of the
following year, it is a budget as typical of the average American town
as it is typical of what a budget ought not to be. If, however, some
little care and thought are given to the problem, these estimates
will offer to the budget committee a statement of proven depart-
mental needs, and to the public, a comprehensive idea of the work
which the city proposes to do during the coming fiscal period.
^. Appropriations hy Activities: It is essential that the value of
city activities should be weighed one against the other, and to do
this properly, these activities must be the units of appropriation.
In smaller cities, while the desirability of appropriating to activities
or functions is important, it is not as imperative as in larger com-
munities. In the small city, the bureau or division usually repre-
sents the smallest unit to which it is feasible to appropriate. As
cities become larger, it is necessary to break these bureaus into the
various functions which they perform; as, for example, under the
bureau of street repair, we have the activities of repairing brick
streets, repairing macadam streets, repairing asphalt streets, etc.
In the small cities, it is neither necessary nor expedient to have
these separations in the budget itself. The budget commission,
however, should go carefully over their departmental organizations,
making such functional separations as are advisable.
S. Classification hy Character of Expenditure: In order that
any change in the assets of the city may be properly reflected in the
city's balance sheet, and that the actual operating expenses may be
known, it is necessary to separate estimates and appropriations
into "Expense'' and '^ Capital Outlay." In some larger budgets
it is customary to make this separation according to ''Administra-
tion," ''Operation," "Maintenance," and "Capital Outlay."
The first three items are really expense charges and in Dayton a
year's experience proved such divisions to be decidedly impractical.
The two divisions suggested, however, are easily made if the follow-
ing definitions are carried in mind :
Expense comprises all items of expenditure necessarily incurred for current
administration, operation and maintenance of the several departments; those
for which the Greneral Fund is reimbursed; and those for materials and equipment
Budget Making 239
in the nature of renewals or replacementfl, which do not add to the capital assets
of the corporation.
Capital Outlay comprises expenditure of every character made from the Gen-
eral Fund which increase the capital assets of the corporation.
4. Classification hy Objects Purchased: After the larger separa-
tion of estimates and appropriations into "Expense" and "Capital
Outlay," it is necessary to make a further classification by objects
of expenditure under each, which will apply to all departments,
and which will become a part of the accounting procedure of the
municipality. If the budget making authority is to give relative
weight to the needs of each of the appropriating units, these needs
must be expressed in the same terms. This classification by the
kind of thing to be purchased varies in each city, according to the
personahty of the budget makers, but in broad, general lines, re-
mains practically the same in every instance. While the New
York classification is usually followed, it has been modified in Day-
ton to more nearly meet the needs of a small city. By a further
deviation the sub-classifications under supplies are based upon the
character of supply itself rather than upon the use to which it is put.
The classification, however, should present no considerable
difficulty to the average budget committee. The classifications
used in Dayton, Cleveland, Cincinnati, Reading, or any one of a
number of cities, will probably prove highly satisfactory. The
chief requirements are that some classification be decided upon,
that the definitions covering the same be prepared and sent to the
departments prior to the preparation of the estimates, and that the
finance department follow this classification in the distribution of
public expenses, in order that the actual expenses may be made
known at the end of any fiscal period.
The Dayton classification has been found satisfactory in a
city spending a million and a quarter dollars for operating expenses,
but the subdivisions should be fewer in number if used in a munici-
pality with a budget of perhaps less than five hundred thousand
dollars. A brief outline of the Dayton classification is given in the
article on "Budget Procedure Under the City Manager Form of
Government" by Mr. Arch M. Mandel in this volume.
6. The Salary Schedule: A further important feature in the
preparation of the estimates is the presentation of a salary schedule
carrying the number of employees of each class, with the rate of
240 The Annals of the American Academy
pay, or in case of labor, the total number of hours at each rate, with
the rate per hour, noting increases in each instance. This is more
desirable than appropriating a lump sum of money to each city
department for salaries, and later passing a salary ordinance which
carries the rate of pay of each class of employee.
In connection with the statement of salaries and wages desired,
it is of assistance to have a comparison with the condition of the
current year. At the top of the estimate sheets may be printed a
summary, as follows:
Request for salaries,
Existing conditions,
Net increase in salaries,
Net decrease in salaries,
Net added force,
Net reduction in force,
Net total increase,
Net total decrease.
6. Uniform Budget Stationery: It is of no inconsiderable help,
in fact it is almost necessary, that the departmental request be
presented to the budget committee upon uniform stationery.
Sometimes separate sheets are provided for each classification, but
this is not necessary in small communities. It is sufficient if the
uniform sheets, to be filled out by the departmental head, contain
space for the
Code number of the proposed appropriation,
Title and
Rate of wage or price per unit.
Number of employees or quantity of supplies, etc.,
The number of days, or number of months.
Total amount,
Estimated balance at the end of the fiscal year,
Expenditures for corresponding items for the current and last two fiscal
years,
Comparison of requests with expenditures for the current year, with increase
or decrease,
Estimated stock on hand — quantity, unit, value and amount,
Allowance recommended by the budget committee,
Tentative allowance by the finance conmiittee before the city council,
Final appropriation.
If such stationery is properly used by the departments, with
the assistance of the accounting officers, it presents to the budget
Budget Making 241
makers necessary information for the preparation of a sound finan-
cial program. Each increase or decrease in requests is shown, and
a decrease is measured, not over the appropriation of the current
and previous years, but in comparison with the actual expenditures
over these periods. The estimated balance at the end of the fiscal
year shows the excess appropriation of the previous period. How-
ever, it is desirable that this balance should revert to the general
treasury, rather than be made available for expenditure during the
coming year by the department for which it was originally appro-
priated.
The budget committee now have before them in great detail
the requests of the city departments. Here are the general work
programs of each division, supported by the items of proposed
expenditures. The budget committee can weigh the value of one
activity as against another; eliminate one portion of an activity
without injuring the remainder of the work; can definitely provide
that certain activities shall not be followed, and that the whole
strength of a division must be concentrated upon others. Salary
increases are definite, and explanations can be asked for each. Ad-
ditions to the force must be accounted for and justified. The de-
partmental heads and their subordinates can be brought before the
committee and asked to explain specific requests, specific increases,
specific needs, and specific programs instead of generalities. Re-
ductions in requests are much easier made when it is possible to
effect the reduction of a dozen different items rather than of a grand
total. For example, during 1914 it became necessary in the city of
Dayton, owing to a shrinkage of revenue, to reduce appropriations
by some $40,000. Such a cut would have been considered impossible,
or at least would have worked great hardship to the various de-
partments, had the appropriations been made upon the lump sum
or partial lump sum plan. As it was, the estimates were available,
broken up into four or five hundred different items. The several
administrative officers were brought before the city manager, and
each item studied, the officer stating the minimum which he could
receive and still operate his department successfully. Afl a result,
in two days' time there was a $40,000 reduction in the departments,
which had reduced the activities of all without serious hardship to
any.
7. Appropriations vs. Estimates: It is, of course, undesirable
242 The Annals of the American Academy
that these estimates be passed as the budget itself, as such detail
would unduly restrict administrative officers in their work. How-
ever, the extent to which administrators are tied down varies from
city to city. It is usual to place in the budget the number of em-
ployees and their rate of pay, as well as the number of hours and
rate of compensation for labor. Beyond this, the main estimate
classifications are followed, as
Supplies and Material,
Contractual Services,
Fixed Charges, and
Equipment.
In Dayton, where executive authority is concentrated, it has
been found an advantage to place the sub-classifications under
these more general divisions upon the appropriation ledger, but
provision is made for alteration at the order of the city manager.
Thus the manager has control of modifications in the plans of de-
partments, while that department is not restricted to the exact
detail expressed in the estimates. This scheme works well in Day-
ton, and probably would in any city manager municipality, but is
not to be recommended for the average city.
8. Appropriation Ordinance: A further step to successful bud-
get making is the drafting and passing of an appropriation ordinance
which will make effective the proposals of the budget makers.
While the particular wording of the ordinance must vary according
to local legal requirements, there are certain provisions which should
be made binding upon the administrative officers of the municipality.
Among them are these :
1. Every contract for the purchase of materials, supplies and
equipment should require the signature of the city comptroller be-
fore it is valid. The estimated amount which will eventually become
payable should be entered against the appropriation or fund account
for which it is an encumbrance, provided that account has an
unencumbered balance. If the account is already fully encumbered,
the contract may not be signed.
2. No expense should be incurred by any department, board,
or any other officer unless an appropriation has been previously
made covering such expense, nor shall liability be incurred during
any fiscal period in excess of the sum appropriated.
3. The salary schedules which were part of the original esti-
Budget Making 243
mates should be attached to and become part of each appropriation
for personal services. The number of positions and salaries payable
for each are thus fixed, and may not be increased except by action
of the legislative body. Some administrative officers are of the
opinion, however, that only the salary or other rate should be bind-
ing, leaving the number of employees to the discretion of the officer.
This is equivalent to granting a lump sum to the officer for salaries
and wages with specification of the rate of pay. Dayton employs
the former plan, with reasonable success.
4. If the sub-classifications under the main classifications in the
estimates are included in the budget, transfer of money from sub-
classification to sub-classification within the same group should be
permitted upon the request of the administrative officer. To do
otherwise, would throw needless red tape around the operation of
his department. However, there should be an absolute prohibition
of the transfer of money from any appropriation — i.e., main budget
classification — to another appropriation, without action of the legis-
lative body. In larger municipalities, notably New York, there is
a prohibition on the transfer of money from any appropriation
for personal service to any appropriation for other than personal
service, and vice versa. This check is to prevent a department
needlessly increasing its salary or wage roll after the publicity attend-
ing the passage of the original budget has passed. Such a provision,
however, is not necessary nor desirable in smaller communities.
5. Some appropriation ordinances carry the provision that no
more than one-twelfth of the appropriation for salaries shall be
spent in one month, nor more than one fifty-second of the appropri-
ation for wages shall be spent in any one week. A glance at the
pay roll growth which formerly prevailed in New York and else-
where immediately before election time indicates the necessity of
such a regulation in some instances. It is a feature, however, which
is highly undesirable in smaller places. It is an unnecessary re-
striction upon public officers, and prevents seasonal variation in
work programs. It would serve its purpose only in instances where
the budget allotments were made up for three months at a time.
This latter suggestion has been seriously advanced, but not yet
utilized.
6. All books of "account, warrants, orders, vouchers, or other
official reference to any appropriation should indicate the appropria-
244 The Annals of the American Academy
tion and fund involved or to be drawn upon by the proper code
number; and provision should be made that the city auditor or
comptroller should exercise a keen supervision to insure that such
code numbers are properly designated. One of the most difficult
features of budget making is to enforce the drawing against proper
appropriations after the budget has been made. There is an earnest
temptation for an administrator when one appropriation is ex-
hausted, to endeavor to draw upon another appropriation for
purposes for which it was not intended.
9. Preliminary Publication: Before the budget is considered by
the finance committee of the city council, it should be made available
to the pubfic in preliminary hearings. It has been aptly said that
democracy in government is not as necessarily correlated with
methods of representation as with the information which the public
has concerning the acts or failures to act of its representatives.
Since the city budget outlines nearly all of the city's activities, there
has in the past ten years been a marked tendency to popularize the
preparation of the city spending program, and make it a more
effective instrument for securing results.
Probably in small cities funds would not be available, nor
would public interest be sufficiently great, to justify the publication
of the entire budget estimate prior to the budget itself. The main
outline of the budget estimate can be given to the public press
with a statement from the budget committee, indicating the general
work program for the coming year, with such modifications as they
have thought necessary. In addition, should be presented (1) an
estimate of the income by sources compared with the income of
several years previous; (2) expenditures by objects purchased, show-
ing the money which it is proposed to spend for salaries, wages,
suppUes and materials, contractual services, etc., compared with
the years previous; (3) expenditures by the different organization
units or functional units where it has been thought advisable to
divide the organization into functions, and with this should be
given the statement of expenditures for several periods past; (4)
if the space is available, these last two tables should be compiled
jointly, indicating the expenditure for objects purchased for each
organization unit.
All or part of these summaries will be gladly carried by the
public press, and can be put in typewritten form for presentation
Budget Making 245
to such organizations or individuals as might be interested. The
Dayton charter requires that all of the preliminary estimates, as
well as these summaries, should be on deposit with the city clerk
several days prior to the public hearing. The cost of printing the
summaries, however, is very small, and any group of public ofl&cers
concerned with interesting the citizen body in the city activities
could well afiford to have this data published and distributed. If
such a course is pursued, and an effort made to stimulate the tax-
payer's interest in how the tax dollar is being spent, the public hear-
ings which precede the passage of the document will in most cases
be well attended, and profitable to citizen and official alike. The
knowledge that a few hundred or a few thousand people care what
the city is doing will urge the conscientious official to a higher
endeavor, and require of the careless one a desirable minimum of
effectiveness.
It is equally desirable that the budget as finally passed by the
city council be in printed form, not only that public employees may
have ready access to the authorization to incur liabilities, but also
that citizens may secure a definite statement of the city's public
program. In a small city, this cost of publication would be very
small indeed, and it is hardly justifiable in any municipality that
the most important accomplishment of its administrative officers
and its legislative body should be hidden away in the records of the
city clerk, and not presented forcefully to the public.
10. Funds: It is quite common in municipal government that
the city revenues do not come into one fund but are segregated for
some half a dozen different purposes — one or two departments
drawing from each fund. In this case, the method of budget mak-
ing need be no different from that which has already been outlined.
Instead of one estimate of revenues there must be an estimate for
each fund. Instead of one estimate of expenditures there must be
an estimate for the several departments which draw from each
fund. In other words, instead of one budget, the budget committee
must make from three to six different budgets, keeping each sep-
arate. This makes the drafting of the summary statements some-
what difficult, and compHcates the situation, but this complication
is more apparent than real.
Such funds are normally a handicap rather than a help to
better government, and frequently cities have seen fit to disregard
246 The Annals of the American Academy
laws requiring such segregation. There is seldom any taxpayer
or public officer who is sufficiently interested in such separation of
expenditures to bring the matter to the attention of the courts.
11. Additional Helps to Budget Making: In some of the larger
cities mlich more information is given to the budget committee
than has been specified in the preceding paragraphs. Nothing has
been mentioned in the foregoing which is not available to interested
officers of any city in this country. Municipal accounting has not
progressed to a point where the average municipality may secure
an accurate balance sheet, although that would be of assistance in
formulating the city's financial program for the coming year. It
is also frequently suggested that a city should have available, in
addition to the balance sheet, a statement of the operating revenues
and expenses over a series of years, a surplus account, debt state-
ment, and fund statement. In simpler words, the budget makers
should know previous years' expenditures by department and
classification; the unexpended balance at the end of the year; bills
outstanding against such; and a statement of the city's assets and
liabilities. The most necessary of these facts (the first two named)
could be secured with due diligence, and the others (the last two
named) are not absolutely necessary for a long step in advance in
municipal budget making. The detail of these features as applied
to smaller municipalities is described in the article on budget pro-
cedure by Mr. Mandel, previously referred to.
12. The Allotment Scheme: It has been advanced by some
budget authorities that appropriations should not be made for each
function separately, but for objects of expenditure. At certain
periods of the year, perhaps quarterly, allotments of these appro-
priations should be made to the several functional or appropriation
units within the municipality. Such allotment should be made by
the body responsible for the presentation of the original estimate to
the legislative body. It is maintained that such a system would
permit the meeting of needs not forseen at the beginning of the year,
and would afford the flexibility which the segregated plan lacks.
At the same time an adequate accounting and administrative con-
trol is secured. The proposal has been seriously considered for
New York City, and was refused by the authorities in Springfield,
Mass. In Dayton, as is possible in any city with centralized
authority, most of the advantages outlined are secured through a
Budget Making 247
less formal budgetary control. The proposal will require empirical
support before extended adoption may be considered, and most
American cities have important preliminary steps yet to take.
IS. Bond Budgets: Nothing has been said so far concerning
bond budgets, as in the smaller municipalities it is in general un-
necessary to consider this feature of city finance from a budgetary
standpoint. However unwisely the permanent debt of munici-
palities has been incurred and liquidated, ■ the fault will probably
not be corrected through the budgetary medium. Only a small
per cent of cities* operating income is expended for permanent im-
provements, and while it is desirable to make a division in the
budget between operating expense and capital outlay, it would not
be recommended that such capital outlay be carried by long term
bonds. For example, in every municipality some work done on
the streets, sewers, waterworks, fire alarm telegraph, etc., is of a
permanent nature, and should be reflected on the city's general
ledger as such. It would be foolhardy, howevel*, that all such
expenses be eliminated from the general operating expense to be
taken care of by the sale of long term securities. Detail budgeting
of bond issues has not come into use since such funds are usually
spent by contract for specific purposes.
14. Municipal Reports: So far this article has dealt entirely
with what may be called the debit side of city financing. There
has been explained how in small municipalities city oflficers may be
charged with a definite city program, and with the funds which
the taxpayer has advanced for carrying out that program. Of
equal importance are the methods by which the public oflficer
becomes aware of the thoroughness with which his subordinates
are carrying out the duties allotted to them; and the method by
which such ofiicer may report to the public the results of his steward-
ship. It is only by the developing and standardization of intra-
departmental and departmental reports that such credit may be
arrived at. Unfortunately, the development of such reports and
accounts, particularly those dealing with unit costs have not pro-
ceeded to a point where they may play an important part either in
budget making or in informing the public concerning the results of
budget spending.
Municipal accounting and municipal reporting have not kept
pace with budget making, and it is necessary to use the methods
248 The Annals of the American Academy
outlined as an indispensable aid in effecting a more economical and
effective use of the money resources of the municipality. The
segregated budget is a necessary expedient until more perfect de-
partmental administration is assured through the adoption and exer-
cise of other methods.
Happily, these new methods are being rapidly introduced.
The modern budget; modern accounting control over public funds;
scientific purchasing of city supplies; time sheets and service records;
cost accounting; adequate health records are not inherent to any
type of government nor to any size of city; are not necessarily se-
cured by a new charter; and may be established in any government
if a sufficient number of citizens desire it.
THE PREPARATION OF ESTIMATES AND THE
FORMULATION OF THE BUDGET— THE
NEW YORK CITY METHOD
By Tildbn Adamson,
Director, Bureau of Contract Supervision, City of New York.
Because of the peculiar problems in New York City, its budget
and its budget making methods are more complex than would be
necessary in the average American city. Nevertheless, some
description of the New York method of securing estimates of de-
partmental needs, formulating the budget, and checking expendi-
tures should prove of value to other cities.
As an appropriation bill, the New York City budget for 1915
authorized the expenditure of $198,989,786.52. This amount, how-
ever, is only the so-called tax levy portion of the budget. In addi-
tion to this the budget provides a control over expenditures of
millions of dollars other than funds raised by tax levy or by city
revenue.
Up to a few years ago the budget comprehended only appro-
priations for current administration, operation, and maintenance.
Today, it covers or controls all appropriations except bond issues
for the development of the Catskill water supply and the building
of the subway. Not all of these appropriations are actually made
in the budget, but the original function of the budget has been
expanded to give what is believed to be a necessary control over
expenditures from corporate stock and special revenue bond funds.
The expenses of administrative operation and maintenance are
borne chiefly by funds appropriated in the budget and raised by
tax levy. This is supplemented by city revenue from various
sources and in cases of deficiency by special revenue bonds which
are redeemed in the budget of the year succeeding the year of their
issue. The expenses of constructing necessary improvements are
borne by the proceeds of bonds known as corporate stock or by
assessment upon the owners of property benefited by public im-
provements.
249
250 The Annals op the American Academy
Until six or seven years ago no one thought of corporate stock
funds and the tax levy budget as having any relation. This was
a strange blindness on the part of city officials because even as
early as 1909 the interest, redemption, and installment on the city
debt amounted to $47,223,078.33. This amount had to be appro-
priated in the budget. By a singular oversight no one in authority
seemed to regard it as necessary to place a restriction upon the issue
of corporate stock or long term bonds. Their point of view was
that a future generation would have to redeem the bonds. They
overlooked the fact that every year they were adding millions to
the budget in the form of interest and redemption. About 1910
the rapidly growing tax-budget compelled the attention of city
officials. Since that time the lesson has been gradually learned
that the annual tax appropriations cannot be controlled unless
control is exercised also over expenditures from bond funds.
The segregated form of budget was largely responsible for
directing attention to the grave danger from uncontrolled bond
appropriations. A comparison between uncontrolled expenditures
out of corporate stock and the controlled expenditures out of tax
levy emphasized the necessity of a control over all funds.
The budget now in force has four chief purposes, as follows:
1. It determines and appropriates the amounts to be expended for each and
all the various objects of governmental activity chargeable to tax levy.
2. It controls by schedules, terms and conditions the expenditure of funds
other than tax levy.
3. It provides by segregation, by titles of appropriations, by terms and con-
ditions and by schedules for the control of tax levy appropriations so that they
will be expended economically for the necessary purpose of the appropriation.
4. It serves as a document of publicity by informing city officials, city em-
ployees and taxpayers of the amoimts and the objects of the various appropria-
tions and it charts in simple form the positions, titles, and salaries provided for
each function of governmental activity.
The budget of New York City not only appropriates but guides
the expenditure of the appropriations. Its scheduled form of de-
tailed appropriation makes it well nigh impossible for department
heads to misuse funds or to expend funds wastefuUy.
But the greatest improvement in budget making in this city
in the last five years has not been in the form of the budget itself
but chiefly in the methods of gathering facts to be used as a basis
for budget making. Under the old method, department heads
New York City Budget 251
would send in their estimates as required by law and just before
October 31 there jvould be a more or less perfunctory examination.
In no case was there a thorough inquiry made into the needs of a
department. The result was that appropriations were not based
on actual necessities.
During the last five years an attempt has been made to develop
a budget system based on fundamental facts. Without facts as a
basis no improvement can be made in administrative methods and
no intelligent or effective control of municipal activities can be
exercised by the board of estimate and apportionment which in
New York is the controlling body. With this in mind we have
attempted to gather facts and present them in such form that they
can be applied with best effect to problems of the city government.
A full description of our machinery for gathering budget data
would be lengthy. Departmental estimates are prepared on forms
based on the theory that the main duty of the budget maker is to
ascertain the amount of money that should be appropriated and
not to ascertain, as was done in the old days, simply the amount
that the department head wants to have appropriated. This is a
very difficult task in a city with great departments, each with many
and varied functions.
Our problem deals naturally with seven simple essential ele-
ments, as follows:
1. Work.
2. Workers.
3. Rate of pay.
4. Tools.
5. Supplies.
6. Materials.
7. Prices of tools, supplies, and materials.
The following elaboration and extension of these seven simple
factors expresses perhaps more fully the chief things to be con-
sidered.
1. Numher of units of work to be done.
2. Classes of employees necessary to do the work.
3. Number of units of work to be done by each class of empIo3re6e.
4. Number of units of work the average employee of each oUas ought to
perform in a day.
5. Number of days of work for each claai of employee.
6. Rate of compensation for each class of employet.
252 The Annals of the American Academy
7. The kind, quality, and quantity of supplies, materials, and equipment
necessary for the performance of the work to be done.
8. Lowest market prices for all the kinds of supplies, materials, and equip-
ment.
9. The best methods of performing the work.
An intelligent coordination of all these facts forms the soundest
basis not only for budget appropriation, but for departmental
administration.
The department head who knows the volume of work he has
to do, the classes and the number of employees necessary, the proper
rate of compensation, the kind and quantity of supplies, materials,
and equipment and their lowest market prices, has a simple task.
If we can give him these facts it will not be necessary to show him
how to do the work. The labor involved in this apparently simple
problem is tremendous. In addition to a study of the work per-
formed by many thousand employees, there must be an inves-
tigation into all the needs of the various departments for funds to
operate and maintain city property.
The first and most important fact we have to ascertain is the
volume of work to be done. This cannot be determined in all
cases upon departmental estimate forms but requires a detailed
study by engineers and examiners. However, our forms are devised
to obtain information showing the volume of work to be done where-
ever it can be conveniently expressed. We then try to express this
work in standard units of measure and to classify it according to
the nature of the thing to be done. For instance, on the forms for
the "Maintenance of Highways" we endeavor to ascertain, among
other things, the approximate number of square yards of sheet
asphalt with a wearing surface of a given thickness that will have
to be replaced in the coming year. On our "Forage" forms we as-
certain the number of horses that will have to be fed in the coming
year, the quantity of oats, the quantity of hay, and the quantity of
straw and other supplies used, the unit cost of each kind of supply,
and the daily per capita cost of feeding horses of each class or
occupation. A careful classification is necessary, as, for instance,
horses used in the fire department and working only occasionally
do not require such heavy feeding as the big horses used in the street
cleaning department which are usually overworked.
In the last few years there has been a determined effort to
New York City Budget 253
supersede the present scheduled budget with a so-called cost data
budget. The chief advantage that has been urged for the cost data
budget is that it provides a work program. This form of budget is
still being urged but not by anyone who has an intimate practical
knowledge of the requirements of the budget. For four years an
experimental cost data budget has been made for the Borough of
Richmond. This budget has proved a failure and is to be aban-
doned next year at the request of the Borough President. A report,
made September 25, shows an over-expenditure of almost 20 per
cent in the highways appropriation in the Borough Richmond, in
the first three quarters, leaving a deficit of the same amount in the
last quarter. As there was no control in this cost data budget, the
money that should have gone into road materials was to a large
extent used for salaries, wages, and the unnecessary employment of
teams.
The main weakness of the cost data budget is that it fails to
control expenditures, and its work program is actually not so intelli-
gent or comprehensive as the work program that forms the basis for
a scheduled budget in New York City. Emphasis should be put
upon the fact that the schedule budget is a work program cost data
budget. A work program is essential as a foundation for any
intelligent budget, but to this work program we apply cost data
after determining what cost data are proper. The so called work
program budget does not analyze cost data but accepts and applies
the costs of this year as fixing the proper costs for the same things
next year.
The unit cost of a thing done does not always represent the
proper cost. In order to get the proper cost, it is necessary to
obtain the unit price of the various elements of labor, supervision,
supplies, material, and equipment, entering into the thing done.
It is this necessity which governs the forms on which departmental
estimates are prepared. An example of the weakness of the usual
cost data is shown by the cost per square yard for certain paving
work done by five different gangs under different foremen. I have
in mind a single day's work for these gangs. The work to be done
was identical yet the cost ranged from $1.11 per square yard to
$1.89. This cost data was worthless on its face because it did not
analyze the cost into the constituent elements. It accepted the
compound unit cost as final. By going back of the unit cost per
254 The Annals of the American Academy
square yard we find the reason for the difference in cost for doing
the same thing under similar conditions. We base everything on
elemental cost data. By this is meant the unit cost of each element
that enters into the performance of a thing as, for instance, the laying
of a square yard of asphalt pavement. The fact that it costs only
$1.70 for laying a square yard of asphalt pavement is absolutely
useless and misleading information unless we know all the facts
entering into the cost of laying the pavement. An offhand sum-
mary of the various elements to be considered in comparing the
cost of asphalt pavement is as follows:
1. Number of linear feet of old curb removed and cost of same.
2. Number of linear feet of new curb set.
3. Number of basins and heads adjusted and cost of same.
4. Character of surface to be stripped and cost of stripping.
5. Character and quantity of foundation to be stripped and cost of stripping.
6. The quantity and cost of adjusting to grade.
7. Cost of rolhng of sub-grade.
8. The thickness of new foundation.
9. The proportions of concrete mixture used in the foundation.
10. The thickness of wearing surface.
11. The quaUty of asphalt.
12. The cost of asphalt.
13. The quality of asphaltic cement.
14. The cost of asphaltic cement.
15. The proportions of asphaltic mixture.
16. The cost of the broken stone.
17. The cost of sand.
18. The cost of cement.
19. The distance of transportation of material.
20. The cost of transportation.
21. The cost of heating materials.
22. The cost of labor.
23. The cost of supervision.
24. The extra cost of maintaining traffic without interruption.
25. The area of work done.
26. The conditions under wliich the work must be done.
27. The time limit for the completion of the work.
28. The cost of guarantee.
29. The character of traffic that the pavement will have to bear as a means
of determining the cost of guarantee.
30. The local conditions affecting the performance of the work.
This looks like a formidable list but, even so, probably three
or four elements of cost have been overlooked.
New York City Budget 255
The fact is that one square yard of asphalt may be cheap at
$2, while another square yard may be high priced at $1.
Another trouble with compound unit cost data is that it com-
pares entirely dissimilar things with each other. For instance, I
have seen comparisons between things as dissimilar as the following:
1. The cost of laying a square yard of asphalt pavement on a 6-inch founda-
tion of the richest mixture of concrete with a 3-inch wearing surface of the best
mixture and finest quality of asphaltic material laid under the most exacting
conditions in a crowded section of the city where trolley and vehicular traffic
must be maintained without interruption and where the work must be done in
one-half the usual time.
2. The cost of laying a square yard of asphaltic pavement on a 3-inch founda-
tion of the thinnest mixture of concrete with a wearing surface of less than 2
inches of poor asphalt materials laid under the most favorable conditions within
a short distance of an asphalt plant with no vehicular traffic or trolley to be
maintained or with no exacting time requirements.
This is just as bad as comparing the moon with a radish. The
number of square yards to be done has a marked effect upon the
unit cost per square yard and the conditions under which the work
is done will have an even more marked effect. For instance, a
contractor can lay 10,000 square yards of pavement straight away
the full width of a street at a much lower price than he can lay
10,000 square yards of pavement on exactly the same street when
he is compelled to pave one side of the street while keeping the
other side open for traffic.
Moreover, it is essential to a fair comparison that the unit cost
of compounds be analyzed into simple elements. If the Health
Commissioner receives a report from hospitals showing that in
each the daily per capita cost of feeding, treating, and caring for
patients is $2.10, the very uniformity of the unit cost might con-
vince him that $2.10 was the proper price. Suppose, however, that,
instead of receiving the report of the compound unit cost, the com-
missioner receives a separate report showing the daily per capita
cost of feeding patients, the quantity in pounds of food consumed,
the quantity of each article of food consumed, and the cost of each
separate element of supplies or service. He might find that in one
hospital the cost of feeding patients was 45 cents per day per capita,
whereas in another hospital caring for exactly the same class of
patients, the price was only 19 cents per day. It might be found
also on investigation of these reports that the patients fed for 19
256 The Annals op the American Academy
cents per day were supplied with better and more nourishing food
than the patients fed at the higher cost. The commissioner might
then, by comparison of the elemental costs, find low prices for each
element and by insisting upon this cost as the standard in all hos-
pitals be able to cut the compound unit cost in half. This is not
an entirely suppositious case.
The first year we used budget accounting forms on food sup-
plies we found the daily per capita cost for food ranging from 8
cents up to $1.20. We found that patients or inmates who were
being fed at 30 cents a day were receiving better food in some cases
than inmates or employees whose daily per capita cost for food was
several times as high. The result was the eHmination of many
luxuries and a vast saving to the taxpayers. I believe the Com-
missioner of Correction states that the inmates of institutions under
her care are being fed better now on a 16 cent per capita basis than
when the per capita cost was much higher. We would never have
been able to accomplish any reform in the food supplies if we had
not insisted upon getting the daily per capita consumption of all
kinds of food. This form of budget accounting points a finger
directly at strawberries in January or fresh asparagus at Christmas
time. It also shows up the departmental employees when they
take the choicest steaks for themselves and leave the poor meat for
patients. The great amount of detailed information required on
food supplies has been criticized but the tremendous results accom-
plished have more than justified the method. Not only has there
been a very large saving annually but there is now an assurance
that patients such as those who suffer from tuberculosis will receive
plenty of the most nourishing foods whereas under the old condi-
tions no one seemed to realize that there should be a distinction
between the per capita cost of food consumed in a scarlet fever
hospital and the per capita cost of food consumed in a tuberculosis
hospital.
Going back to the seven simple elemental factors to be consid-
ered in budget making, I will use as an example the Otisville Sana-
torium, an institution for the care of tuberculosis patients. Our
departmental estimate forms show the number of patients to be
treated, the number of horses to be fed and the repairs, replacements
and other work necessary for the maintenance of the institution.
With this as a basis for the work program we determine the number
New York City Budget 257
of workers, that is, the number of nurses, physicians, internes,
hospital helpers, drivers, foremen, carpenters and other employees
necessary to make the work program effective.
The determination of the number of workers necessary is based
upon the volume of work to be done and the number of units of
work the average employee of each class ought to perform in a day.
With these facts we can determine the number of days* work for
each class of employees. The rate of compensation for each class
and grade of employees is the next step. In determining this rate
we apply standard work specifications which form a part of the
general program of the standardization of salaries and grades.
Tools or equipment must be considered in connection with the
volume of work and the number of the workers. Our departmental
estimates do not permit departments to request simply a lump sum
for equipment but require a detailed statement of each kind of
equipment. The request is always considered in its relation to
the number of workers. The departmental estimate forms provide
against waste and over-stocking by a system of inventory and a
statement of stock on hand.
The question of the quantity of supplies for the ensuing year
depends absolutely upon the work program. For instance, the
quantity of food supplies depends upon the number of persons to be
fed, the quantity of motor vehicle supplies depends upon the number
of automobiles or the mileage, and the quantity of forage supplies
depends upon the number of horses and the class of horses to be fed.
Experience has taught us that we cannot make a lump sum
appropriation for supplies. Patients used to go hungry in hospitals
because money that had been appropriated for food supplies under
a general heading of "Supplies and Materials" was actually spent
to buy Persian rugs and automobiles. We have found it necessary
to control such expenditures by classifying the various forms of
supplies and making appropriations as follows:
Food Supplies.
Forage and Veterinary Supplies.
Fuel Supplies.
Office Supplies.
Medical and Surgical Supplies.
Laundry, Cleaning and Disinfecting Supplies.
Refrigerating Supplies.
Educational and Recreational Supplies.
258 The Annals of the American Academy
Botanical and Agricultural Supplies.
Motor Vehicle Supplies.
General Plant Supplies.
This sub-classification serves not only to control the expendi-
ture of appropriations but makes it easier to analyze departmental
requests. There is a form of departmental estimate for each class
of supplies and a complete statement with supporting data must be
made with every request.
The same principle of subclassification is applied to materials
which have been classified as follows:
Highway Materials.
Sewer Materials.
Building Materials. *
General Plant Materials.
This insures that materials appropriated for the repair of
highways will be used for that purpose instead of being diverted to
materials for laying parquet floors in the offices of commissioners
or for other purposes that are not necessary.
In like manner it has been found necessary to subdivide the
grand division of equipment into nine subdivisions as follows:
OflBce Equipment.
Household Equipment.
Medical and Surgical Equipment.
Live Stock.
Motorless Vehicles and Equipment.
Motor Vehicles and Equipment.
Wearing Apparel.
Educational and Recreational Equipment.
General Plant Equipment.
The desirability of separating appropriations for equipment
into these subdivisions may be illustrated by the fact that money
appropriated for hospital "equipment" and intended for operating
tables has been used to buy pianos and billiard tables for persons
connected with the hospital.
Formerly there was no distinction in the budget between sup-
plies, equipment and materials. In order to make the budget
classifications susceptible of practical application it was necessary
to make arbitrary definitions. These definitions and the classifi-
cations were intended to compel all articles to fall naturally into
their proper places. The definitions are as follows:
New York City Budget 259
Supplies: Supplies are articles which can be used but once, or which, after
being used once, show a material change in or an appreciable impairment of their
physical condition.
Equipment: Equipment includes all apparatus, machinery, vehicles, tools,
instnmients, furniture, fittings and other articles which can be used over and over
again without a material change in or an appreciable impairment of their physical
condition.
Materials: Materials are articles and substances in a natural or manufac-
tured state entering into the construction or repair of any building, highway, sewer,
apparatus, machinery or other equipment.
The importance of the distinctions is illustrated forcibly in
our budget work. The fact that a power plant used 10,000 tons
of coal in 365 days of one year indicates that unless there has been
some change in conditions, the same quantity of fuel supplies will
be required in the following year. This is true of practically all
supplies while the reverse is true of equipment. When the depart-
mental estimate forms show that 800 beds were purchased last
year for a hospital with an 800 bed capacity, that on its face shows
the Budget Committee that there should be no need for the pur-
chase of 800 beds the next year. The failure to make these dis-
tinctions in the past was responsible for inflated appropriations that
were wasted.
In addition to the several classifications already mentioned we
have special departmental estimate forms for the Contract or Open
Order Service, as follows:
General Repairs.
Motor Vehicle Repairs.
Light, Heat and Power.
Janitorial Service.
Transportation.
Communication.
General Plant Service.
Lighting Streets and Parks.
Lighting Public Buildings.
Power.
Heat.
Hire of Horses and Vehicles with Drivers.
Hire of Horses and Vehicles without Drivers.
Storage of Motorless Vehicles.
Storage of Motor Vehicles.
Shoeing and Boarding Horses, including Veterinary Service.
Hire of Automobiles.
Carfare.
260 The Annals of the American Academy
Expressage and Deliveries.
Telephone. *
Telegraph, Cable and Messenger Service.
Contingencies.
Another advantage of the detailed accounting required on the
departmental estimate forms is that it shows up departmental
sore fingers prominently. When this system of budget accounting
was first installed, the head of a certain department was amazed
to find that one division in his department was buying kerosene
oil at 7^ cents a gallon while another division was buying kerosene
oil by the pound at a price of 28 cents. This same department
found that one division was paying three or four times as much as
other divisions for its engine oils.
The first year of the operation of these forms a certain big
department filled out its estimates on the old fashioned basis. The
department was required to analyze its request in accordance with
the new form. This analysis resulted in showing that the depart-
ment had deliberately padded its requests by 50 per cent in some
divisions and by 25 per cent in others. The required analysis
as made by the department itself showed requests for 2§ bicycles,
12 J thermometers, and 1| wheelbarrows. The very absurdity of
these requests served to estabhsh firmly the new system of making
departmental estimates. Since that time as a result of these methods
the budget of this same department has been reduced almost two
million dollars notwithstanding a very large growth in the main
functions of the department.
The results to be obtained from a thorough and scientific
system of budget making are illustrated by the fact that in making
the 1915 budget a comparatively small group of men engaged upon
only thirteen of the one hundred and twenty departments and offices
reduced the aggregate budget of these thirteen departments approxi-
mately $4,000,000 below the 1914 schedule. One of these thirteen
departments had in 1914 a budget of approximately $4,000,000. By
a thorough study and reorganization of this department and by the
appUcation of proper methods of work performance we were able
to reduce the budget for 1915 by about one and one half million
dollars. The commissioner of the department in question insisted
that this would ruin his department. The form of departmental
estimate used and the method of investigation followed showed so
New York City Budget 261
convincingly the vast waste in this department that despite the
very radical recommendations and despite the commissioner's
protest, the budget was cut almost in half. Instead of ruining the
department there was an actual improvement. The department
has done better work this year than for many years in the past and
the commissioner himself has requested for 1916 less than half the
1914 appropriation.
Another instance of the New York method of making the bud-
get is given by the appropriation for hghting public streets and pubUc
buildings. Year after year it has been necessary to authorize
revenue bonds to meet deficits in the lighting appropriation. This
appropriation had increased from year to year until it was approxi-
mately $5,000,000 in 1914. We made a physical examination of
lighting conditions and investigated the size, character and location
of every street light in the city. The result was a saving of almost
$700,000 in the budget for 1915 and an increase of almost 20 per cent
in illumination. This was done largely by replacing old fashioned
gas lamps and costly arc lights with improved nitrogen and tungsten
lights. This year the same methods are expected to reduce the
budget for lighting by approximately $300,000 or a total reduction
of about $1,000,000 in two years.
The greatest difficulty with which we have had to contend has
been the general belief that the head of a department knows more
about this department than budget examiners. After several years
of repeated proof that intelligent and expert examiners who have
given close and detailed study to conditions had a better knowledge
than commissioners who rarely understand the detail working of
their departments, we have at last succeeded in having the budget
considered on the basis of facts rather than on that of the opinions
of department heads. In preparing the budget we try to introduce
in all departments methods that have demonstrated their superior-
ity. One advantage that a centraUzed force of examiners has over
department representatives is that they are in a position to witness
the activities of all departments, to contrast the good with the
bad and to make profitable use of the mistakes of one department
and the high accomplishments of another.
The departmental estimate forms are so devised that current
comparisons can be made between departments and between divi-
sions of departments, and the best methods selected. The depart-
262 The Annals op the American Academy
mental estimates themselves form what might be considered a
negligible part of the work of budget making. With the depart-
mental estimates as a working basis it is necessary for the examiners
and engineers to make a very close study of the organization and the
work of the departments. This requires considerable tact. We
keep in mind always that the departmental engineer who has been
building sewers for twenty five years knows the duties of his posi-
tion probably as well as we know our own but we endeavor tactfully
to show him that there are other engineers building sewers and
repairing highways with better results at less cost.
The departmental estimates are prepared usually by clerks of
the various divisions. These clerks use as a basis for their request
the estimates given them by heads of bureaus, heads of divisions,
engineers, foremen, and others. The experience data are taken
from the records of the department.
Estimates are required by law to be submitted to the Board of
Estimate and Apportionment on or before September 10. The
final budget must be made on or before October 31. There is such
a short time between September 10 and October 31 that it
would not be possible to gather all the essential facts to prepare
recommendations, hold hearings and print the budget in that time.
Accordingly it is necessary to make the budget work continuous
throughout the year. Examiners and engineers are already familiar
with conditions in departments when the estimates are received.
They proceed immediately to apply their knowledge of conditions
and to analyze the requests. Usually the examiners go over every
item with representatives of the departments and then write in their
recommendations in the proper column on the estimate forms.
After the estimates have been analyzed, recommendations are
made and a summary placed upon forms known as "committee
sheets." These committee sheets carry complete comparative
data concerning every account to be considered. On these sheets
reasons are given for the various recommendations.
Hearings on the budget are held and the committee sheets are
given to the members of the Budget Committee to assist them in a
better and quicker understanding of the recommendations than
otherwise would be possible. The argument of the department
representatives is heard and in cases of disagreement the facts are
discussed thoroughly by the committee. After the completion of
New York City Budget 263
committee hearings on all departments a tentative budget is printed
and a public hearing held to consider this tentative budget as a
whole. Representatives of the various civic associations, tax-
payers' associations and others usually appear and argue for and
against certain appropriations. If the arguments at the public
hearings convince the members of the board of estimate and appor-
tionment that the tentative budget should be changed in any partic-
ular the change is made, and, then, after a very careful checking as
to the accuracy of the budget, it is adopted and signed on October
31.
BUDGET MAKING IN CLEVELAND
By Mayo Fesler,
Secretary of the Civic League of Cleveland.
In the city charter of Cleveland adopted in 1912, all financial
administration is consolidated in one department. Under the
director of finance are brought together the formerly separate and
independent departments of auditor, treasurer, assessments and
purchases. He is given authority to prescribe the methods of
keeping accounts in all departments and controls the form of finan-
cial reports to be rendered by each. He appoints all bookkeepers
and other employees charged with keeping books of account in all
departments. He is made responsible for the proper custody of
public moneys and is required to see that all expenditures are kept
within the appropriation. He prepares the blanks on which the
heads of the several departments submit to the Mayor their detailed
requests of each year's expenses.
The Mayor's Estimate
While the charter requires the Mayor to prepare and submit to
the council the mayor's estimate covering the estimated expenses of
all departments and divisions of the city government for the year,
in practice the director of finance prepares this estimate. There
are, of course, frequent conferences with the Mayor and heads of
departments, but the estimate is essentially the work of the director
of finance.
The mayor's estimate, according to the charter, must contain:
(a) An itemized estimate of the expenses of conducting each department.
(b) Comparison of such estimate with the corresponding items of expendi-
ture of the last two years.
(c) Reasons for all proposed increases or decreases.
(d) A separate schedule showing the things which each department must do
during the year and things which it would be desirable to do if possible.
(e) Items of pay roll increase as either additional pay to present employees,
or pay for more employees.
(f ) A statement from the director of finance of the total probable income of
the city from all sources.
264
Budget Making in Cleveland 265
(g) The amount required to meet the interest on city debt and for sinking
fund purposes.
(h) The total amount of outstanding debt with a schedule of maturity of
bond issues.
This estimate must go to the council by the middle of Novem-
ber. The council is then required by the charter to prepare "at
once" the appropriation ordinance based upon the mayor's estimates.
This ordinance is printed for general distribution and public hearings
must be held. These hearings may be before the regular appro-
priations committee or before the council sitting as a committee of
the whole. The report of the committee which is in effect the second
reading of the ordinance, must be printed in the city record with a
separate schedule setting forth the items asked for in the mayor's
estimate and refused or changed by the council, and the reasons for
each such refusal or change. The council is prohibited from passing
the ordinance until fifteen days after its publication or before the
first Monday in January.
Under the charter, the council has full power to increase,
decrease, reapportion or reject items in the mayor's estimate. There
is nothing in the charter which compels them to follow closely the
mayor's estimate. The only specific limitation on the council in
this respect is that in the preparation of the appropriation ordinance,
the council shall "use the mayor's estimate as a basis." The
council can depart as far as they please from these estimates and
recommendations, both in items and amounts.
It will be seen that, in the main, the charter provisions prescribe
a well devised plan for modern budget procedure. It enables the
mayor of the city to get before the council a clear and concise state-
ment of the year's transactions; a complete and accurate statement
of the present financial condition of the city, and a definite and or-
derly outline of the work to be undertaken during the next fiscal
year. It enables him also to present to the public an understand-
able picture of the city's problems and activities. As a plan of
budget procedure, it is fairly complete. The question is: How is
the plan working in actual practice?
In answering this question, it is necessary to keep in mind one
of the broad general principles established in the Cleveland charter.
The charter attempts to make a clear cut division between Icgiali^
tive and administrative functions. Upon the council, of course, is
266 The Annals of the American Academy
conferred all legislative powers; but it is strictly limited to legislative
duties and is specifically prohibited from interfering with the admin-
istrative departments in any way, especially in the matter of appoint-
ments and the fixing of salaries, except the salaries of its own mem-
bers and those of heads of departments. The fixing of salaries is
an administrative duty which is specifically conferred upon the
Board of Control, consisting of the mayor and the heads of depart-
ments.
Early in October of each year, the director of finance sends to
the heads of the several departments the regular form blanks with
the request that they prepare their estimates on these forms. The
blanks are accompanied by a standard code of classification pre-
pared by the finance department, and the several departments are
requested to prepare their estimates on the basis of the classifica-
tion. This insures uniformity of budget requests. These depart-
mental estimates must be in the hands of the director of finance by
November 1, when he proceeds with the preparation of the mayor's
estimate.
The arrangement of the items in the mayor's estimate by the
director of finance has led to a direct violation of the charter pro-
visions. The charter distinctly provides that the board of control
shall fix the salaries and compensation of all officers and employees,
and the sections covering budgetary procedure purposely omit
any suggestion which might give the council authority to fix in the
appropriation ordinance the salaries of any officer or employee,
except heads of departments and members of the division of police
and fire. Yet the council committee in the pubUc hearings on the
appropriation ordinance has not only fixed definite salaries, but has
considered the supposed efficiency or inefficiency of men in the
administrative service. The director of finance is, in the main,
responsible for this violation. Instead of following the directions
laid down in the city charter, and arranging his code classification
so that all appropriations for personal service would be made not
in items but in lump sums, he provided in his classification of ex-
penditures not only for the itemization in many cases of salaries
under the heading ''Supervision," but gave such salary items a
number. This makes each such item a specific appropriation which
the board of control has no power to increase, decrease or reappor-
tion without authority of council.
Budget Making in Clevelaj^d 267
At the public hearings in January before the appropriations
committee, councilmen who have not yet given up the practice of
seeking to control the administration indirectly, tried to enforce
their views by attacking certain of the supervision items. For
example, when the question of the appropriations for the division
of smoke abatement was under consideration, the chairman of the
appropriations committee declared that the chief smoke ins|>ector
was not only inefficient, but that he was actually persecuting some
of the councilman's constituents in an outlying ward, and for that
reason he favored revising the salary item of the chief smoke inspec-
tor. The discussion continued for some time, and finally the
mayor was compelled to appear before the committee to defend
not only the salary item but to make clear to the committee that in
his opinion the chief smoke inspector was an efficient officer and was
enforcing properly the smoke abatement ordinances. This absurd
procedure, of course, was wholly contrary to the clear intentions of
the city charter, but the councilman gained his point, the appro-
priation was greatly reduced and, as a result, the chief smoke inspec-
tor resigned his position.
The same course was pursued in the division of pubUc recrea-
tion, but the commissioner accepted the reduction and the council
failed to secure his resignation.
The disposition of the council committee to meddle with the
salaries of individual employees finally became so serious that the
mayor asked for a joint meeting of the committee and the board of
control in order to arrive at some working basis. The director of
law and the mayor at this meeting explained fully the requirements
of the city charter and the intention to take from the council the
authority to fix salaries, but the director of finance expressed his
disapproval of the plan laid down by the city charter, and urged
that the appropriation ordinance be framed according to the plans
laid down originally in the mayor's estimate. The conference ended
without any change being made, the appropriation ordinance was
passed in its original form, and thus by the mere arrangement of
the items in the mayor's estimate, the council has used the appro-
priation ordinance as a cloak for interfering with the administration
by fixing salaries, although specifically prohibited, by the charter.
The fixing of salaries in the appropriation ordinance is not only
contrary to the charter, but is contrary to the best practices in
268 The Annals of the American Academy
budget making. It takes away from the administrative officer
discretion and responsibility, reduces him to a position of dependence
upon the council, and leaves the salary items so inflexible that
changes which will tend to promote economy and efficiency in the
administration cannot be made except by ordinance. The council
must, of course, exercise the power of finally determining the amount
of money available for the various divisions, but no legislative body
can, in the hurry of passing the appropriation ordinance, anticipate
all of the conditions which are likely to arise in the actual expendi-
ture of the money. For that reason, the salary items should be in
lump sum and not in detail. The schedule should, of course, con-
tain all of the detailed information necessary to give the council a
clear conception of the objects of the appropriations, but these need
not be a part of the salary items in the appropriation ordinance.
The city has been in unusually straitened financial circum-
stances since the new charter was adopted, and the chief concern,
both of the mayor and the city council, has been to keep the appro-
priations within the estimated income. The mayor's estimate cuts
off a million or more from the departmental estimates, and then
the council is forced either to reduce the estimate another million
in the appropriation measure or to resort to short time loans. In
spite of this pruning, the city's expenditures have exceeded its
Income by $1,500,000 in the last two years.
It has been suggested that the charter be amended so as to
limit the authority of the council in appropriations to the power
to decrease but not to increase or otherwise change the items in the
appropriation bill. This, of course, would prevent administrative
interference or meddling with salaries, but it would so reduce the
function of the council as to make it a governmental body of small
importance. Moreover, the duty of making appropriations is
essentially a function of the legislative body and belongs to the
council. This is especially true in a form of government such as
has been adopted in Cleveland, where the policy-determining
function has been so fully divorced from the administrative.
The public hearings attending the preparation of the appro-
priation ordinance are especially illuminating. Each department
presents its own needs. The director and his commissioners appear
and explain in details the items in the departmental requests and
compare the proposed expenditures with the preceding year's
Budget Making in Cleveland 269
expenditures and activities. A clear and convincing argument must
be presented in order to avoid a cut by the committee. The only
defect in these public hearings is the absence of an active and vigor-
ous minority on the committee, intent upon probing deeply into
the expenditures; but that is not the fault of the system.
On the whole, the budget procedure outlined in the Cleveland
charter has worked out satisfactorily in practice with the one excep-
tion noted above.
BUDGET MAKING IN CHICAGO
By Charles E. Merriam,
Professor of Political Science, University of Chicago; Member of Chicago City
Council.
Appropriations for public expenditure in the city of Chicago
are made by the city council with the approval of the mayor. The
mayor has also a veto power over specific items contained in the
appropriation bills. This veto may be overidden by a two-thirds
vote. Furthermore, the statute requires that the annual appro-
priation bill shall be passed during the first quarter of the fiscal
year. Preliminary estimates of departmental needs for the ensu-
ing year are presented to the controller on blanks prepared and
sent out by him for this purpose. These estimates are received by
the comptroller, revised and transmitted by him to the finance
committee of the council. This body is composed of fifteen mem-
bers appointed by the council itself. The chairman receives a
salary of five thousand dollars a year and devotes the greater part
of his time to the duties of this office. The finance committee,
after a series of sessions covering ordinarily a period of about two
months, recommends a budget to the entire council. During this
period, hearings are held at which heads of departments, bureaus,
city employees and interested citizens appear and present argu-
ments. The budget transmitted to the council by the finance com-
mittee is considered by the council in committee of the whole and
then by the council in regular session. In recent years the budget
has been passed practically as recommended by the finance com-
mittee, although some additions are usually made by log-rolling
methods. And in the last two years, budget increases have been
made following the veto of the mayor upon items which he regarded
as insufficient for departmental purposes. In the main, however,
the budget passed is substantially the budget of the finance com-
mittee. In 1911 a log-rolling campaign increased the committee's
budget by nearly two million dollars, but on the final vote, the over-
loaded budget failed to secure the necessary number of votes for
passage, and consequently the whole budget was re-referred to the
270
Budget Making in Chicago 271
finance committee and subsequently passed substantially as it was
when originally introduced. In 1915 the budget was increased
about $100,000 as a result of various successive motions on the part
of different aldermen, but after two days of this procedure, a motion
was made to eliminate all such increases and this was carried by a
decisive majority.
In 1910 the segregated budget system was adopted by the
finance committee of the city council as the result of a recommenda-
tion made by the Commission on City Expenditures. The organ-
ization of this system and its installation were under direction of
Mr. Herbert R. Sands, who was employed by the commission for
that purpose. Prior to this time there had been a budget very
inadequately subdivided under certain broad general heads. For
example, although salaries were set out separately in most instances,
they were frequently grouped in large sums. The same thing was
true of the amounts allowed for the purpose of supplies and equip-
ment. The following two items will illustrate the old system.
For the bureau of streets, the sum of $2,017,540 was appro-
priated under the following title:
For the removal and dispositioD of garbage, street and alley cleaning, repair
of improved and unimproved streets, sidewalk repairs. Salaries of yard men to
be $75.00 per month and the wages of laborers $2.00 per day. Expenses of repair-
ing improved and unimproved streets to be paid from the wheel taxes.
Again, in the police department $205,000 was appropriated in
the 1909 budget under the following title:
For repairs and renewals of wagons and harness, replacement and lifestock,
police telegraph expense, rents, renewals repairs equipment hospital service, print-
ing and stationery, secret service, light and heat, twenty-five more horses and
equipment for mounted police and for repair Hyde Park station, also for other
miscellaneous expense.
The new budget plan provided for a detailed segregation of
items previously grouped together. Instead of a lump sum of
$2,000,000 for the bureau of streets, under the new budget system
was classified as follows :
1. Ward supervision other than salaries. (Amount allowed each ward aet
up separately.)
2. Cleaning streets and alleys.
a. Wages.
6. Hire teams, horses and cartf.
c. General supplies.
272 The Annals of the American Academy
3. Removal of garbage, ashes and refuse.
a. Wages.
h. Hire teams, horses and carts.
c. General supplies.
4. Repairing sidewalks. (Street labor charged to another account.)
a. Wages.
h. Hire teams, horses and carts. (Amount allowed each ward set up
separately.)
c. Material for repairs and replacements by departmental repair.
This scheme has subsequently been modified in some particu-
lars as a result of practical experience.
Furthermore a code number was given each separate account,
leaving in the hands of the controller the power to make necessary
changes in such code numbers. Accounts were set up in the con-
troller's office with corresponding code numbers, thus making it
impossible to exceed the amount authorized by the appropriation
bill. In this way, it was made possible for the controller to keep
an effective check over the particular appropriations. The 1915
budget provides, for example, (section three)
That the comptroller and the heads of the other departments and bureaus
and offices of the city government shall administer the amounts appropriated in
this bill by standard accounts as specified by the account numbers; designations
of which may be amended or altered by the city controller to suit the needs of
the particular classification and grading in the financial manual of the depart-
ment of finance, in which is specified details of commodities, service, benefits and
claims chargeable to such standard accounts respectively. And they are hereby
prohibited from incurring any Uabilities against any account in excess of the
amount herein authorized for such account, and from changing any wage item,
salary herein, and from incurring any liability which will necessitate a transfer
from any appropriations for salaries or wages in their respective departments^
Practical experience has shown the need of modifying this system
in some particulars, but in the main, the segregated budget plan of
1910 remains in operation.
One of the first difficulties in any budget system arises from
the need of securing a greater flexibility in expenditures. Trans-
fers from one account to another may easily undo the entire intent
and purpose of a carefully itemized budget. The original system
contemplated such transfers and provided that they could be made
upon the recommendation of the comptroller through the finance
committee on the approval of the council. In actual practice, how-
ever, considerable difficulty is found in effectively checking demands
Budget Making in Chicago 273
for transfers of funds. If a particular bureau or department de-
sires to conceal a juggling of the funds, it is at times very diflScult
to detect the real purpose. The amounts of these transfers are
considerable and cover important operations. During the year
1914 they aggregated $1,002,844. These items are of course scruti-
nized by the comptroller and by the chairman of the finance com-
mittee and approved by the council.
One of the practical difficulties of budget making in Chicago is
the formation of an appropriation bill which will not exceed the
estimated revenue of the city. It has been the custom for a num-
ber of years to appropriate all the probable receipts of the city from
taxation, licenses and all other sources, and then to exceed this by
a considerable amount. In the year 1914 the amount of over ap-
propriation was $3,178,644. In 1915 there was an over appropria-
tion of $2,740,765. This means of course that two million con-
tained in the appropriation bill will not actually be expended unless
the city draws upon some surplus existing at the beginning of the
year available for that purpose. Some of the items appropriated
that will not be expended during the year are very clearly evident,
as for example, the formal appropriation for a bridge which un-
doubtedly will not be completed during the year. In most in-
stances, however, it is not at all clear which items are to be expended
and which are to remain paper items. There is what is called *'hot
air" in the appropriation, but it is never possible to localize it at
the time the budget is passed. The effect of this over-appropria-
tion is vicious, since every department head or bureau head knows
that there is insufficient money to meet the amounts appropriated,
and there ensues inevitable competition between the departments.
Those expending their money early are sure of their appropriation
allowance. Those who are frugal and saving may discover at the
end of the year or towards the close of the year that the amount
they have saved has been expended by others. In other words, a
premium is put upon hasty action and extravagance on the part of
the departments. It is literally true in dealing with over-appro-
priated budgets that the early bird gets the worm. Those who
survive are not the most frugal, but those who are most liberal in
anticipating their needs. Of course, the controller's office can and
does to some extent check this tendency, otherwise the retreat
would become a rout. This check is by no means eflfective, how-
274 The Annals of the American Academy
ever, and leaves much to be desired in the way of public economy.
It has been proposed that some limitation be placed upon the
amount that is to be expended by a given bureau during any one
month or during a quarter of the year, and it is probable some
change will be made within a short time. The practical difficulty
with this plan lies in the seasonal nature of much of the work of the
municipality and the difficulty of accurately forecasting the seasonal
needs of all such municipal agencies.
The state statute requires that each municipality in Illinois
shall pass an annual appropriation bill during the first quarter of
the fiscal year. The practice has been in Chicago to pass the budget
late in January or early in February. In 1915, the budget was
passed on February 8. However, numerous supplemental appro-
priations are made. During the year 1914 these amount to $500,-
000. These have been justified partly on the ground that they
were emergencies and partly on the ground that the law applies
only to the appropriation of revenues obtained from taxation and
not receipts from licenses, fees, interests, rents and other sources.
In 1915 the city treasurer refused to honor warrants based upon
these supplemental appropriations and suit has been brought in
court to determine the intent of the state law. The lower court
has rendered a decision that favors the practice adopted by the
city for the many years, that is, of making supplemental appro-
priations where necessary in the judgment of the city council. If
such supplemental appropriations were not permissible, it would
be necessary either for the city to make unusually liberal appro-
priations for specific departments in order to cover possible needs
during the year, or to provide a large contingent fund which might
be drawn upon from time to time.
In Chicago during the last five years the chief impulse towards
economy in appropriation has come from the city council. Sin-
gularly enough, the council has taken more interest in administra-
tive efficiency and economy than the administration itself. It has
been necessary for the council to investigate the expenditures of
various departments and recommend administrative changes, and
further for the council to oppose attempts on the mayor's part to
increase the annual appropriation. This has made the task of the
finance committee doubly great. The various departments under-
took to escape what they call the iron rule of the finance committee
Budget Making in Chicago 275
and increase their appropriations. As the chairman of the finance
committee said one day, a department head asserted to him "I
will slip it over on you anyivay. If I can't get the money this way,
I will find out another way." This is not true of course of all, or
perhaps a majority of the departments. In some instances there
has been close cooperation between the departments and the ap-
propriating body.
The mayor of Chicago, although not a member of the finance
committee, has from time to time been in attendance upon the
meetings of the finance committee. This was not done by Mayor
Dunne or Mayor Busse, but has always been the practice of Mayor
Harrison. His presence in the committee room tended to increase
appropriations rather than bring them down. Furthermore, the
mayor's vetoes of budget items were made not because they were
excessive, but because in his judgment, they were inadequate. In
1914 the mayor increased the budget $250,000, of which, however,
only one hundred thousand was allowed. Ordinarily the executives
have endeavored to restrain the extravagant tendencies of the council
and this has lead in numerous cases to the removal of the appro-
priating power from the council altogether. In Chicago, however,
the council retains in full its original function of an appropriating
body, namely, checking demands for expenditure made by the
crown, — in this case, by the executive. I remember a few years
ago in a budget making debate, an occasion when one of the alder-
men suggested that certain items should be passed, because, as he
said, you can put those items up to the mayor and he will veto such
of them as he considers excessive, if the city's finances will not war-
rant them. I took the position that the power to make appropria-
tions and supervise them is a function which the city council could
not possibly delegate, but which they must most vigorously protect;
and in this I was sustained by a large majority of the aldermen.
For many years the council felt the need of expert assistance
in making the budget. In 1910 Mr. Sands aided in installing the
segregated budget system and in subsequent years, diflfercnt mem-
bers of the efficiency division of the Civil Service Commission were
helpful in sifting budget items. The finance committee felt, how-
ever, that more permanent assistance was necessary and, conse-
quently, recommended last July an ordinance creating a board of
standards and apportionment, which was passed by the city council
276 The Annals of the American Academy
but has been vetoed by the mayor. This board was to consist
of the chairman of the finance committee, the controller and
three members of the finance committee selected by that body.
The duties of the board would be to sift out the preliminary esti-
mates of the departments and prepare a tentative budget for sub-
mission to the finance committee, and after the budget was passed,
to supervise appropriations. It would be their duty to make such
investigations or inquiries as were necessary for checking expendi-
tures and to make constructive recommendations to the committee
for the promotion of economy and efficiency in the use of public
funds. There has been much discussion as to whether such an or-
ganization would be placed under the civil service commission, under
the controller, or under the finance committee. There is probably
no exclusive answer to this question, but in Chicago where the im-
pulse to economy and efficiency comes from the council, the need
of such a body immediately responsible to the representatives of the
people is plain.
SELECT LIST OF REFERENCES ON NATIONAL, STATE,
COUNTY AND IVIUNICIPAL BUDGETS IN THE
UNITED STATES
By Harry A. Rider.
Library of Research in Government, Western Reserve University.
[This list makes no pretense of being exhaustive, but is believed to include
reference to the more important material on American Budgets. For a more
extended bibliography see Library of Congress : List of references on the budgets
of cities, June 22, 1914; and other bibliographies cited below.]
National Budgets
Bullock, C. J. Finances of the United States from 1775 to 1789, with especial
reference to the budget, The. Madison, Wis., The University, 1895.
General bibliography, pp. 266-273.
Chamber of commerce of the United States of America. Referendum [pamphlet],
No. 1, Nov. 1912. On the question of the plan for a national budget.
Chase, H. S. National budget on its expenditure side. H. S. Chase, 84 State
St., Boston, Mass., 1913.
Cleveland, F. A. What a budget may mean to the administration. Univer-
sity of Illinois: Conference on commercial education and business progress,
1913, pp. 35-50.
What is involved in the making of a national budget. Journal of Ac-
countancy, May, 1913, pp. 313-328.
Ford, H. J. Cost of our national government, The; a study in political pathol-
ogy. N. Y.: Columbia University Press, 1913.
Taft, W. H. Message of the President of the United States, submitting for the
consideration of the Congress, a budget with supporting memoranda and
reports. 62d Congress, 3d session. Senate document No. 1113, Feb. 26, 1913.
Taft, W. H. Speech before the Pennsylvania legislature, Apr. 15, 1915. Penn»
sylvania Legislative Journal — House, pp. 1762-1764.
United States. President's commission on economy and efficiency. Need for a
national budget. The. 62d Congress, 2d session, H. R. document No. 854,
June 27, 1912.
Wilhams, J. S. Supply bills. The. 62d Congress, 2d session, Senate document
No. 872, July 15, 1912.
WiUoughby, W. F. Allotment of funds by executive officials an essential feature
of any correct budgetary system. American Political 8cime$ Rmitw^ Feb.
1913 (sup.), pp. 78-87.
277
278 The Annals of the American Academy
State Budgets
Adams, H. C. Science of finance. Holt, N. Y., 1898.
Pt. I, Book II. Budgets and budgetary legislation, pp. 103-218.
Agger, E. E. Budget in the American commonwealth, The. New York: The
Columbia University Press, Macmillan Co., agents, 1907. (Studies in his-
tory, economics and public law, edited by the faculty of political science of
Columbia university, v. 25, No. 2.
Bibliographical note, pp. 13-14.
Bureau of municipal research. New Yoik. Budget systems: a discussion before
the New York constitutional convention. Municipal Research, No. 62, June
1915, pp. 251-^47.
Contains: Proposed constitutional amendments to provide for a state
budget system; Exposition of the proposed amendment, by J. G. Saxe;
Exposition of the proposed amendment, by F. A. Cleveland; American
financial methods from the legislative point of view, by J. J. Fitzgerald;
American financial methods from the executive point of view, by F. J.
Goodnow; Financial administration with special reference to English
experience, by A. L. Lowell; Appendix; Report of committee on finance.
State budget: Constructive proposals to be submitted to the state con-
stitutional convention. Municipal Research, No. 58, pp. 145-198.
Contains: State budget: Constructive proposals to be submitted to
the state constitutional convention [Reprint from the Proceedings of the
Academy of Political Science], F. A. Cleveland; Practical side of budget
procedure [discussion of Mr. Cleveland's paper], C. D. Norton; Appendix
to Mr. Cleveland's paper; illustrations of budget summaries adapted to
submission by the executive to the legislative branch of the government.
Cleveland, F. A. Constitutional provision for a budget. Proceedings, Academy
of Political Science, Oct. 1914, pp. 141-192.
Principles of budget-making. Journal of Accountancy, Oct. 1907, pp.
456-466.
lUinois. Frazer, G. E. Accoimting information needed by members of the
general assembly; Accounting needs of heads of departments and boards in
charge of state institutions. In Report on the accounts of the state of
Illinois prepared for the EflBciency and Economy Committee, John A. Fairlie,
director, pp. 40-48, 54-58. 1914.
• Legislative reference bureau. Graphic chart showing purpose and dis-
tribution of appropriations requested by the various state departments of
the 49th general assembly. 1915.
Lapp, J. A. Budget system. Indiana University Bulletin, Jan. 15, 1915, pp.
144-151.
Address before the 2d annual Conference on Taxation in Indiana, Dec.
1-2,1914.
Lowrie, S. G. Budget, The. Wisconsin State board of public affairs, 1912.
Suggestions for a state budget. American Political Science Review, Feb.
1913 (sup.), pp. 88-98.
Budget References 279
Minnesota. Efficiency and economy commissum. Final report, Nov. 1914, p. 41.
Preliminary report.
The budget system in appropriations, pp. 18-21.
Nebraska. Legislative reference bureau. Reform of legislative procedure and
budget in Nebraska. 1914.
New York. Department of eflBciency and economy. StaU Budget Report, 1914.
North Dakota. Public service commission. Budgetary laws. 1912.
Compilation of the budget laws of the various states.
Norton, C. D. Constitutional provision for a budget; discussion. Proceedingt,
Academy of PolUical Science, Oct. 1914, pp. 189-192.
Ohio. Budget commissioner. Budget classifications for 1914. 1913.
Rules of procedure for filling out departmental estimates, 1914.
Tweedale, Alonzo. Budget of the District of Columbia. National Municipal
League. Proceedings, Cincinnati, 1909. [Philadelphia.] 1909. Pp. 273-
283.
Updyke, F. A. Budgetary procedure of the states. American Political Science
Review, Feb. 1914, pp. 57-61.
CouNTT Budgets
Bureau of public efficiency, Chicago. Methods of preparing and administering the
budget of Cook county, Illinois. Report No. 1, Jan. 1911.
Analysis of the present methods and suggestions for improvement.
Form of budget, pp. 3-10.
Submitting budget estimates, pp. 21-37.
Passing the budget, pp. 28-30.
Recommendations, pp. 34-53.
Cook county, Illinois. Study of Cook county, Illinois, A. 1914.
Pt. 10. County budget.
Westchester county, N. Y. Research bureau. County budget, The. EflBciency
series. No. 1, 1912.
Making the county budget. EflBciency series, No. 2, 1912.
These two pamphlets refer directly to Westchester county, N. Y.
MuNiCTPAL Budgets
Allen, W. H. New York's first budget exhibit. American Review of RenetM,
Dec. 1908, pp. 686-688.
Illustrated. Describes the gains made in the first budget exhibit cam-
paign in New York city.
American Review of Reviews, Need of engineers in municipal administration,
The. Feb. 1911, pp. 224-225.
Discusses the New York budget exhibit.
American Review of Reviews. Visualizing Cincinnati's budget. Jan. 1913, pp.
67-59.
Illustrated. Presenting the effect of Cinoimiati's budget exhibit on the
dtisens.
280 The Annals of the American Academy
Baltimore, Maryland. Bureau of state and municipal research. Baltimore
Budget, The. Report No. 2, Jan. 18, 1913.
Pt. 1. Study of the ordinances of estimates from 1900 to 1913. Pre-
sents the problems of municipal administration in simple form, stripped of
detail and technical phraseology, in order that these problems may be
understood by the citizen.
Ordinance of estimates: Summary of the budget appropriations for
1915, classified in accordance with the uniform-municipal-expenditure classi-
fications of the United States census bureau. Baltimore Municipal Journal,
Dec. 4, 1914, pp. 1-8.
Description of the plans and explanation of the purposes of the new
budget system, p. 2.
Beard, C. A. American city government. Century Co., N. Y., 1912. Pp.
143-157.
Boston, Massachusetts. Finance commission. Budget, The. Reports and
Communications, v. 9, pp. 22-26.
Communication to the mayor and city council in relation to the
adoption of a segregated budget for the city of Boston and the county of
Suffolk, Oct. 31, 1914. Reports and Communications, v. 10, pp. 199-211.
Report comparing New York and Boston budget systems, and
making recommendations. Boston City Record. Nov. 7, 1914, pp. 1048-
1050.
Braddock, J. H. Eflficiency value of the budget exhibit. The Annals of the
American Academy of Political and Social Science, May 1912, pp. 151-157.
An article showing the value of budget exhibits as an educative factor
in arousing public opinion.
Braddock, J. H. New York city budget exhibit. Twentieth Century, Dec. 1911,
pp. 117-122.
Bruere, Henry. New city government. D. Appleton & Co., N. Y., 1912.
Ch. 7: Budget-making, pp. 171-204.
Bruere, Henry. Address at the opening of the budget exhibit in Ossining, N. Y.
Mar. 1, 1913.
Bureau of economy and efficiency, Milwaukee. Guide to exhibit and a review
of the bureau's work. Loan exhibit of the census bureau. Milwaukee's
budget exhibit. Auditorium, Nov. 27-Dec. 3, 1911. Bulletm No. 9, 1911.
Bureau of municipal research, Cincinnati. City's Annual Budget, The. Report
No. 1, Mar. 31, 1911.
Explains the necessity for scientific budget-making, with recommenda-
tions for its gradual adoption by the city.
Bureau of municipal research, Dayton. Appropriations for the fiscal half year,
ending Dec. 31, 1913.
A brief classification of the Dayton budget for the information of the
citizens as to the sources of the city's revenues and their expenditure.
"This innovation met with the approval of the council committee, -and for
the preparation of the appropriations . . . such uniform sheets for
making financial requests were officially printed and distributed to the
departments. "
Budget References 281
Bureau of Municipal Research, Dayton. Budget claasification, 1915. Report,
Oct. 1914.
The approved classification for the Dayton budget, published at the
request of the city manager.
Budget of the city of Dayton, The. 1914.
Explanation, pp. 10-11. The estimates are divided into four groups:
Administration, operation, maintentince, capital outlays.
Bureau of Municipal Research, Memphis, Tenn. Budget, city of Memphis, 1910.
(Memphis, E. H. Clark & Brother, 1910.]
Bureau of Municipal Research, New York, N. Y. Budget [survey]. City an4
county of Denver: survey, 1914, pp. 533-540.
How should public budgets be made? Report No. 23, Oct. 15, 1909.
A simple exposition of budget reform for the average citizen. "The
segregated, classified budget, is the indispensable basis for intelligence in
city planning, in applying business principles to government, and in using
wisely the initiative, referendum and recall. " Four changes needed:
(1) Changes in the steps of budget-making;
(2) Changes in the form;
(3) Changes in the restrictions on post-budget expenditure: budget
segregation;
(4) Changes in the attitude of the general public toward the budget.
Making a municipal budget : Functional accounts and operative statistics
for the department of health of Greater New York. Report, No. 9, 1907.
Describes the need for publicity given by a budget system, and gives a
history of the inquiry by the bureau into the New York city health de-
partment which brought about the establishment of the budget system —
as an illustration of the methods of municipal research and its opportunities
for civic improvement.
Brief for segregated budget, 1906, pp. 34-35.
Methods proposed for fixing responsibility in exercise of financial control
in the Toronto survey. Municipal Research, No. 34, Mar. 14, 1914.
Municipal reform through revision of business methods, New York.
Bulletin, No. 25, July 1910.
Budget, p. 49.
New York city's needs for a financial program: one which will include
plans for improvements and borrowings. Municipal Reaearch, No. 69, Mar.
1915, pp. 211-239.
New York's kindergarten. Efficient CiHxenahip, No. 384, Oct. 1910.
Announcement of New York budget exhibit, Oct. 1910, with newipaper
comment.
Next steps in the development of a budget procedure for the city of
Greater New York: a report. Municipal Research, No. 67, Jan. 1915, pp.
5-141.
Contains: Letter of transmittal; Constnictivo proposab, DiioiMioii
of constructive proposals; A budget: suggested forma of doeumoitt to be
submitted to the board of aldermen by the board of estimates;
forms of collateral and supporting documents.
Short talks on municipal accounting.
282 The Annals of the American Academy
Bureau of Municipal Research, New York, N. Y. Organization and business
methods of the city government of Portland, Oregon. 1913.
"The budget," pp. 71-91.
-^ St. Louis, a preliminary survey of certain departments of the government
of the city of St. Louis, with constructive suggestions for changes in organiza-
tion and method. St. Louis, City council, 1910.
"Criticism and constructive suggestions with respect to the preparation,
form and voting of the annual budget, " pp. 79-88.
What should New York's next comptroller do? " The business issue of
the next administration." Oct. 1, 1909.
Chase, H. S. Accounting as the basis of publicity. National Municipal League:
Conference for good city government and meeting of National Municipal
League, 1908, 337-347.
Budgets and balance sheets. National Municipal League: Conference
for good city government, 1910, pp. 214-229.
Chicago, Illinois, Civil Service Commission. Report on appropriations and ex-
penditures. Bureau of streets. Department of public works, city of Chicago.
Uniform standards and percentages for ward estimates and appropriations.
Chicago, [Western newspaper union, 1912.]
Report on the budget of educational estimates and expenditures,
Board of education, Feb. 27— May 2, 1914.
Reports on the Bureau of streets. Department of public works.
city of Chicago. Methods, systems, standards and schedules of service
— bases of estimates and appropriations — administrative questions, organ-
ization of the Bureau of streets and of other departments having similar
activities. [Chicago, H. G. Adair, 1913.]
Cleveland, Ohio. Chamber of commerce. Committee on city finance. Muni-
cipal accounting report, No. 2; recommendations for an improved city budget.
1911.
Mayor's annual budget, 1915. Cleveland City Record, Nov. 25, 1914,
pp. 1193-1255.
First budget submitted under the provisions of the new Cleveland
"home rule" charter, giving expenditures for 1914 and estimates for 1915
in parallel columns.
Cleveland, F. A. Municipal administration and accounting. Longmans, Green
& Co., 1909.
Ch. 6: Principles of budget-making, pp. 67-84.
Clow, F. R. Comparative study of the administration of city finances in the
United States, with special reference to the budget. Macmillan Co., for
American Economic Association, 1901.
Coliunbia, District of. Public Library. Municipal budget. Social Service Bidle-
tin, No. 10, Dec. 1914. (Typewritten.)
Cromwell, George. Successful budget-method protest, illustrated by extracts
from the report of the Bureau of street cleaning, Richmond borough. New
York city. Engineering News, Nov. 26, 1912, pp. 279-283.
Discusses the New York city budget.
Budget References 283
Denver, Colorado. Budget investigating committee. Report. Rocky Mountain
News (Denver), Dec. 3, 1914.
The commit tee consists of tax-payers and business men. It recommends
a $700,000 cut in the budget.
Durand, E. Dana. Finances of New York city. Macmillan Co., N. Y., 1898.
Pt. 2, Ch. 10: The budget and city expenditures, pp. 253-254.
Eggleston, D. C. Municipal accounting. New York: Ronald Press Co., 1914.
Passim, esp. Ch. 5 : Budget-making as a means of control.
Municipal cost system, A. Journal of Accountancy, Dec. 1911, pp.
573-587.
FairUe, John A. Municipal accounts and statistics in continental Europe.
National Municipal League, Proceedings, Rochester, 1901. Philadelphia,
1901, pp. 282-301.
" Budget procedure " : pp. 282-285 ; 297-298.
Fetherston, John T. Efficiency in budget-making. Engineering Record, Nov. 9,
1912, pp. 511-512.
Folks, H. Social significance of New York's budget. Charities, Nov. 30, 1907,
pp. 1108-1112.
A brief treatment of the social results secured by the improved budget
system in New York. "As the real tone and purpose of an individual are
most truly indicated by his expenditure of his annual income, so the real
tone and purpose of an administration are indicated most clearly by its
apportionment of the people's money."
Force, H. D. New York city municipal finance and accounting under the
charter. Journal of Accountancy, Aug. 1911, pp. 241-261.
Garland, Robert. City budget. The. Dec. 1, 1914. Chamber of commerce,
Pittsburgh, Pa.
Goodnow, F. J. Limit of budgetary control. American Political Science Review,
Feb. 1913 (sup.), pp. 68-77.
Municipal government. Century Co., N. Y., 1909.
"City expenditures": pp. 369-372.
Hadley, W. B. Municipal accounting. Journal of Accountancy, May 1914, pp.
355-363.
Herrick, A. Budget as a means for control of expenditures. Journal cf Ac-
countancy, April 1911, pp. 414-418.
Importance of the municipal budget as a means for the control of expen-
ditures. Journal of Accountancy, Apr. 1911, pp. 414-418.
Hess, Ralph H. Cost of government in Minnesota and analysis of municipal
receipts and disbursements, The, l)eing chapters 22 and 23 of the Second
biennial report of the Minnesota tax commiflsion, St. Paul, Minn., 1910.
Pp. 229-304.
Hinckley, T. L. Budget exhibits and municipal engineering displays. Bnqir
neering Record, Dec. 2, 1911, pp. 661-662.
Howe, F. C. Modem city and its problema. Charlea Scribner'i 8on% N. Y.,
1916.
City budget, pp. 322-345.
284 The Annals of the American Academy
League of American municipalities. The book of American municipalities, in
reference to what is what in our cities; an authentic summary of civic progress
and achievements. Chicago, Municipal information bureau, 1910.
Lindars, F. W. Segregated budget as applied to municipal engineering work,
The. Municipal engineers of New York, Proceedings, 1912. New York,
1913. Pp. 129-149.
Discussion: pp. 150-161.
Mason, C. P. Preparation of the budget. National association of school ac-
counting officers; Report, 1914, pp. 45-58.
Discusses budgets and budget-making and points out the difference be-
tween the American and European forms of budgets.
Massachusetts. Bureau of statistics. Municipal bidleiins No. 1-4. Boston,
1910-1911. 4 V.
Meloney, W. B. New confidence game. Everybody's magazine, Jan. 1911, pp.
50-51.
Journalistic account of the new municipal confidence game — budget-
making — as an advertising stunt. "The city of New York — the greatest
of all municipal proving grounds."
Municipal budget as a community program. The. National Municipal Review,
Jan. 1913 (sup.), pp. 13-16.
Municipal Journal. New York budget exhibit. Oct. 12, 19, 1910, pp. 501-
503; 537-540.
National association of comptrollers and accoimting officers. Report of the Com-
mittee on municipal budgets, June 7, 1912. (Proceedings, 1912. Providence,
1912, pp. 66-79.)
National municipal league. City finances, budgets and statistics. Proceedings,
Buffalo, N. Y., 1910. [Philadelphia.] 1910. Pp. 473-489.
Report of the committee on municipal budgets. National Municipal
Review, Jan. 1914, pp. 218-222.
National Municipal Review. New York municipal budget exhibit. Jan. 1912,
pp. 131-132.
New York. Comptroller's ofl5ce. State. Uniform system of accounts for second
class cities: the form of the budget, the procedure to be followed in
budget-making and the classification of appropriations. Bureau of municipal
accounts. Comptroller's office, 1912.
Describes the uniform system prescribed by the State Comptroller for
second class cities in New York, according to law, with sample form of
budget.
Budget-making procedure, pp. 2-3.
Classification, pp. 3-8.
Sample budget, pp. 8^85.
"A municipal budget is the formal, complete, final statement of the
proposed financial plan for a fiscal period, comprising the authorized muni-
cipal expenditures for that period correlated with the estimated revenues
and other means of meeting such expenditures."
New York, N. Y. Board of estimate and apportionment. Budget News Bulletin,
1914, Nos. 1-6; 1915, Nos. 1, 2.
Budget References 285
New York, N. Y. Board of estimate and apportionment. Departmental esti-
mates for budget, 1913, 1914, 1915. Supplements to New York, N. Y., city
record.
New York, N. Y. Borough of Richmond. Efficiency and economy in relation
to budget methods. 1912.
New York, N. Y. Bureau of municipal investigation and statistics. Yearly tax
budgets of the city of New York and how the funds therefor are raised.
May 1915.
New York, N. Y. Comptroller's office. Comparative analytical tables of the
budget appropriations of the city of New York, 1899-1908, also arra>'ing
the revenues and expenses of the Water department and Docks depart-
ment, with other data relating to the city's fiuiances. [New York, M. B.
Brown Press, 1908.]
Comparative tables classifjang and grouping, according to func-
tion or general purpose, the budget appropriations of the city of New York
for 1908 and 1909. Supplemented by similar tables for years since consoli-
dation; together with other comparative tables refunded debt and assessed
valuations. [New York, M. B. Bro^Ti Press, 1909.]
Department of finance. Businessof New York city, The; where the city
gets its money and how it spends it. Budget appropriations; 1910 tax levy
and collections; funded debt; debt limit; assessed valuations, etc. [New
York, M. B. Brown Printing and Binding Co., 1911.]
Tables and statements summarizing the operations of the city
treasury and of the sinking funds for the year ended Dec. 31, 1910, together
with comparative tables of budgets, funded debt, etc. [New York, M. B.
Brown Printing and Binding Co., 1911.]
New York, N. Y. Municipal reference hbrary. List of books on accounting
and budget-making. Bulletin, Sept. 1913.
New York times annalist. Two hundred million dollar city budget, A. In
Nov. 9, 1914.
Pennsylvania, University of. Wharton school of finance and commerce. City
government of Philadelphia, The. A study in municipal administration,
Philadelphia, Wharton school of finance and economy, 1893.* Publications of
the University of Pennsylvania. Wharton school Btudies in politics and
economics, June 1893.
"The budget": pp. 221-225.
Powers, L. G. Budget provisions in commission governed cities. The Annals
of the American Academy of Political and Social Science, Nov. 1911, pp.
798-807.
Discussion of up-to-date budget methods, illustrated by commission-
governed cities. "Defective budgets " usually result from preparing thoM
documents in sections at different times.
Essentials of a good budget from the viewpoint of the statistician, The,
National association of comptrollers and accounting offioera, Proeetdinge,
1911. Washington, D. C, 1912.
Discussion: pp. 54-74.
Municipal budgets and expenditures. National municipal leagua^
Proceedings, Cincinnati, 1909. [Philadelphia) 1909. Ppi 258-272.
286 The Annals of the American Academy
Prendergast, W. A. Budget classifications. Explanation indicating the articles
which belong to each classification, and giving the definition of "Supplies,"
"Equipment," and "Materials," as used in the 1913 budget. [New York,
M. B. Brown Printing and Binding Co., 1914.]
New York city finances. National Municipal Review, Apr. 1913, pp.
221-229.
St. Louis, Missouri. Bureau of revision of accounts and methods. Special
report of the comptroller, Apr. 15, 1913. St. Louis, Buxton and Skinner
Stationery Co., 1913.
Budget: pp. 8-9, 19-20.
Municipal reference branch, Public hbrary. Municipal revenue : budget
items. 1915.
San Francisco, California. Board of supervisors. Finance committee. Report
on budget estimates, 1914-1915. San Francisco Recorder, May 2, 1914,
pp. 7-9.
Sands, H. R., and F. W. Lindars. EflSciency in budget-making. The Annals
of the American Academy of Political and Social Science, May 1912,
pp. 138-150.
Suggestions for eflicient budget-making, by the members of the New
York bureau of municipal research.
1. Standard form of budget, pp. 139-145.
2. Preparation of estimates, pp. 145-147.
3. Procedure of passing the budget, pp. 147-150.
4. Administration of the budget, p. 150.
Sayles, Mary B. Budget and the citizen, The. Outlook, Sept. 1909, Aug. 28,
1909, pp. 1048-1059.
Describes the work of the New York, N. Y., bureau of municipal research
from 1906 to 1909 and the reorganization of the New York city budget
in consequence of its work.
Secrist, H. Problems in municipal indebtedness. Journal of Accountancy, Apr.
1914, pp. 271-289.
Special libraries. List of references on the budgets of cities. March 1915,
pp. 49-56.
Strayer, George D. and E. L. Thomdike. Educational administration. New
York, Macmillan Co., 1913.
City school budget, pp. 324-367.
United States. Library of Congress. List of references on the budgets of cities.
June 22, 1914.
Available for free distribution to a limited extent, to municipal reference
libraries and similar hbraries and bureaus.
Upson, L. D. Cincinnati's first municipal exhibit. American City, Dec. 1912,
pp. 530-532.
Sources of municipal revenues of Illinois. Urbana-Champaign, 111.,
The University, 1912. (University of Illinois studies in the social sciences,
V. 1, No. 30.)
Bibliography: p. 120.
Budget-making; pp. 107-109.
Budget References 287
VeiUer, L. New York city as a social worker; the 1910 budget and social needi.
Survey, Nov. 6, 1909, pp. 211-216.
"The significant feature of this year's budget was the increased recogni-
tion by public oflficials of social needs."
Wade, H. T. Influence for eflSciency in municipal administration, An: The New
York budget exhibit of 1910. Engineering Magazine, Jan. 191 1, pp. 584-604.
A study of the data collected by the New York budget exhibit relative
to the employment of expert engineers as administrators and the conae-
quent increase in eflBciency in public works.
Williamson, C. C. Finances of Cleveland, The. New York, The Columbia
University Press, Macmillan Co., agents, 1907. (Studies in history, econom-
ics and public law, edited by the Faculty of political science of Columbia
university, v. 25, No. 3.)
The budget: pp. 44-47.
Woodruff, C. R. New municipal idea, The. National Mum'cipal League, PrO'
ceedings, Buffalo, N. Y., 1910. [PhUadelphia.] 1910. Pp. 22-102.
Budget: pp. 41-48.
ADDENDA
Bureau of municipal research. New York, N. Y. Suggestions for budget and
accounting provisions. Cleveland, 1st Charier Commission, Documents, 1913,
pp. 81-92. (Typewritten.)
Bureau of municipal research, Toronto, Ontario, Canada. Citizen Control of
Citizens' Business. Toronto's budget for 1915, based upon the official
draft and final estimates, rearranged .... so as to show costs of
services rendered and of things purchased.
Childs, W. T. Annual budget: the three essentials of a budget — new improve-
ments decide the rate — how Baltimore makes up the budget. Municipal
Journal, Oct. 7, 1915, pp. 616-621.
BOOK DEPARTMENT
GENERAL WORKS IN ECONOMICS
Notes
Brooks, T. J. Markets and Rural Economics. Pp. 396. Price, $1.50. New
York: The Shakespeare Press, 1914.
This book ranges the whole gamut of rural economics and marketing. It
deals with agencies controlling price; the exchanges; cooperation; selling of differ-
ent commodities, such as fruits, live stock, tobacco, peanuts, gram and cotton;
rural credits; home ownership; and the cost of living. The best chapters are
those dealing with the exchanges, cooperation, and sales methods. The book
attempts to popularize its contents. This is often done by comparisons, ranging
all the way from Greece, "the darling of the ancient world," and Rome, who
"founded, built, conquered, ruled — debauched and died," to the Battle of Tra-
falgar, and Napoleon's conquests. Platitudes hold concourse with fallacies, as
to wit, "Analyze these conditions and tendencies, young man of America, and
study what they mean. More of the rural population are to be started to farther
aggravate over-urbanism. You must face the future whether you wish to or
not."
C. L. K.
DuR AND, Edward D. The Trust Problem. Pp.145. Price, $1.00. Cambridge:
Harvard University Press, 1915.
This book brings together under one cover a series of articles which appeared
in the Quarterly Journal of Economics during the year 1914, and contains as an
appendiix all the federal laws relating to trusts. The subject matter is well indi-
cated by the Chapter headings. These are: The Necessity of Prohibition or
Regulation; The Possibility of Preventing Combination; Difficulties of Regulat-
ing Combinations; The Alleged Advantages of Combination; The Trust Legisla-
tion of 1914. The conclusion of the author, who, as secretary of the Industrial
Commission, has had unusual opportunities in this field, is that the trust move-
ment is essentially artificial in its nature. By resort to general reasoning
(adequate data are lacking for a scientific study of the facts) he endeavors to show
that the alleged economies of the trust form of organization are unimportant.
Price regulation, in addition, is found to be very difficult. Naturally, therefore,
the author finds himself approving the principle of the trust legislation of 1914,
though venturing in an able discussion of this measure to criticize it in several
particulars.
E.J.
288
Book Department 289
HoBsoN, C. K. The Export of Capital. Pp. xxv, 264. Price, S2.00. New
York: The Macmillan Company, 1914.
The present European war, with the consequent liquidation on our exchanges
of American securities, has stimulated interest in the question of intenuttiona]
investments, some aspects of which this volume exhaustively treats. While
available figures do not warrant definite statistical conclusions this work is valu-
able as throwing needed light on the advisabihty, in a national sense, of the
exportation of capital. Its principal value is as a carefully worked out estimate
of the extent of British foreign investment during 1870-1912, while its detailed
history of this use of capital shows the causes of the rise of London to the position
of the world's financial center. Little additional insight is given into the efFecta
of foreign investment.
R. R.
Moore, Henry Ludwell. Economic Cycles: Their Law and Cause. Pp. viii,
149. Price, $2.00. New York: The Macmillan Company, 1914.
In this book Professor Moore has attempted to determine the law and cause
of economic cycles by the application of the statistical method. He begins with
the hypothesis that there must be some physical cause at work to account for so
general a movement as alternate periods of depression and prosperity. The
most fundamental need of man being food, it is possible that this physical cause
is in some way related to the food supply. He first investigates the question as
to whether there is a periodicity in the annual amount of rainfall and chooses data
from the Ohio Valley and Illinois as being most representative, among available
data, of the crop-producing area of the United States. He discovers cycles of
approximately thirty-three and eight years in the annual rainfall of these sections.
These cycles are then correlated with crop yields and a close relationship estab-
lished.
The further analysis of his problem consists in relating the physical yield of
the crops with their value and finally with cychcal changes in the activity of
business and in general prices. He thus makes the law of cycles of the crops the
law of economic cycles.
Professor Moore repeatedly cautions throughout his essay that the laws he
states are at first only proximate laws and must wait for their authenUcation
until similar studies have been made for other places and other times.
B. D. M.
Nearing, Scott. Income: an Examination of the Returns for Services Rmdtnd
and from Property Owned in the United States. Pp. xxvii, 238. Price, $1.25.
New York: The Macmillan Company, 1915.
Peddib, J. Taylor. First Principles of Production. Pp. 231. Price, 11.76.
New York: Longmans, Green and Company, 1916.
On page 20, the author names four "factors" of produotioii; (1) nmkBdtl,
(2) labour, (3) estabUshment charges, (4) profit. Ho does not show elewiy,
however, the "principles" mentioned in the title. He writes, on ptfe 81, "To
290 The Annals of the American Academy
dwell on the aims of Industry would be futile." Possibly so; but it would have
been well if he had considered those aims before he wrote most of this work and
published the whole. He identifies production and manufacturing technique,
also large profits for British manufacturers and national prosperity, thus following
popular usage.
The book is a collection of pamphlets, pleading vaguely for the more extended
use of chemical research in British industry, and for governmental aid in the
training of industrial chemists. The time-worn moral is drawn from German
experience. The subject and its treatment have been common enough in the
popular magazines of this country — not so common, perhaps, in Great Britain.
Appended to the author's work, are several articles and addresses by a few British
scientists and a steel manufacturer. All lead to the same general conclusion, that
the closer application of chemical research to British industry will bring increased
profits to British manufacturers, and, consequently, greater glory to the British
Empire. The whole book is a negligible contribution to recent hterature of
"efficiency" and of mercantile, imperialistic patriotism.
A. A. O.
MONEY, BANKING AND FINANCE
Reviews
Ma, Yin Ch'u. The Finances of the City of New York. Pp. 312. Price, $2.50.
New York: Longmans, Green and Company, 1914.
New Yorkers may not consider themselves complimented by Dr. Ma's com-
parison of former New York financing with that of China, but they may at any
rate appreciate his efforts in analyzing the financial practices now followed. His
treatment is divided into four parts, viz., scientific budget making, the system of
taxation, the city debt and control of revenues, and expenditures under the new
system of accounting.
The author very clearly and effectively emphasizes the necessity of segrega-
tion of budgetary estimates "as regards both the function to be performed and
the objects of the expenditure," showing its numerous advantages. This is fol-
lowed by a description of the preparation and examination of budgetary estimates
and a discussion of the procedure of hearing, voting, funding and administering
the budget.
The chapter on real estate taxation is one of the best brief treatments of the
subject that has ever been brought to the reviewer's notice. Other taxes are
discussed briefly in a single chapter. Discussion of the city debt occupies three
chapters. Control of revenues and expenditures is treated in four.
The first and last sections of the book are the best. In them the collection
of subject matter is valuable and the analysis clear and convincing. The same
may be said of the chapter on real estate taxation although in it the author adopts
too readily the view that there must be a separation of state and local taxation.
The section dealing with the city debt presents clearly the two leading classes of
loans, shows the evils of past methods of borrowing and describes the new methods
of financing. The treatment, however, is not symmetrical, giving, for example,
Book Department 291
an undue amount of space to the high standing of New York City bonds in the
investment market and to the factors determining bond prices. Throughout the
volume secondary references are frequently given when a reference to the sources
would have been much more convincing.
E. M. Pattibson.
University of PennsyUxmia,
Notes
DoRAiswAMi, S. V. Indian Finance, Currency and Bariking. Pp. Ixzxvi, 176.
Price, $1.00. Mylapore, Madras: Published by author, 1914.
The author describes and criticizes the currency system of India. A gold
currency in addition to the present somewhat nominal gold standard and a central
bank are the leading changes advocated.
E. M. P.
Gould, Clarence P. Money and Transportation in Maryland, 1720-1765. Pp.
176. Price, $1.00. Baltimore: The Johns Hopkins Press, 1915.
Haio, Robert Murray. A History of the General Property Tax in Illinois. Pp.
235. Price, $1.25. Urbana: University of Illinois, 1914.
Dr. Haig surveys the history by periods with special stress on present con-
ditions, closing with a discussion of defects and proposals for reform.
E. M. P.
Herrick, Myron T. Rural Credits. Pp. xix, 619. Price, $2.00. New York:
D. Appleton and Company, 1914.
Land credit and cooperative credit are the headings of the two main divisions
of the book. Under the first topic the authors discuss general principles and then
explain in successive chapters land credit organizations in Germany, France,
Italy and other countries. More space is very properly given to Germany than
to any other country, especial attention being devoted to the Silesian landschaft.
France and the Credit Foncier are next in importance. German methods also
receive the larger amount of space in the discussion of cooperative credit in the
second part of the book, separate chapters being devoted to the Schulxe-Delitssoh
banks and to the Raiffeisen system.
Occasional repetitions are probably due to the joint authorship and detract
but little. The chief merits of the volume are its comprehensiveness, since it
covers a very wide field in a relatively small space, and its clarity of statement.
Few writers on this particular subject have been so successful in presenting to
American readers a clear picture of foreign practice.
E. M. P.
HiooB, Henry. The Financial System of the United Kingdom. Pp. x, 218. Price,
$1.60. New York: The Macmillan Company, 1914.
There have appeared in recent years a number of valuable itudiei of the
English fiscal system, until now the American student finds it much easier to
292 The Annals of the American Academy
inform himself on British finances than those of the United States. This volume
is, however, a valuable addition to the available material. The author's inti-
mate acquaintance with the English Treasury has especiaUy qualified him for
his task and he has performed it thoroughly. Each branch of the work is han-
dled in a separate chapter.
The author has himself indicated the main criticisms which may be passed
upon his work in the statement which he makes in the preface: "The present
work is too condensed to be interesting. It must suffice for the present if it is
found to be useful." E. M. P.
Proceedings of the Eighth Annual Conference under the Auspices of the National
Tax Association held at Denver, Colo., Sept. 8-11, 1914' Pp- 499. Madison:
National Tax Association, 1915.
At this conference the federal income tax and land taxation in western Canada
received special attention. Other papers were of a rather miscellaneous nature
with the emphasis somewhat on problems in the western states. Important re-
ports were presented by the conmiittee on double taxation and situs for purposes
of taxation and by the committee on increase in public expenditures.
E. M. P.
Tanoorra, Vincenzo. Trattate di Sdenza della Finanza. Vol. I. Pp. xxxii,
884. Price, L. 20. Milano: Societa Editrice Libraria, 1915.
This volume is divided into seven books. The first two consider the general
theory of pubhc finance and public expenditures, and the remaining five introduce
the subject of public income.
E. M. P.
Weber, Adolf. Depositenhanken und Spekulationsbanken. Pp. xvi, 375. Price,
10 M. Miinchen: Verlag von Duncker and Humblot, 1915.
In this second and revised edition relatively few changes have been made.
The old arrangement of subject matter has been retained and very few of the
author's conclusions have been modified. Further study by the author and the
investigations of others have merely confirmed the opinions expressed in 1902.
E. M. P.
SOCIOLOGY AND SOCIAL PROBLEMS
Reviews
Blackmar, Frank W. and Gillin, John Lewis. Outlines of Sociology. Pp.
viii, 586. Price, $2.00. New York: The Macmillan Company, 1915.
This work is really an enlarged edition of an earlier work, Blackmar's Ele-
ments of Sociology, which it follows essentially in scheme of division and method
of treatment. There are seven parts to the book, treating of the nature and im-
port of sociology, social evolution, socialization and social control, social ideals
and social control, social pathology, methods of social investigation, and the
Book Department 293
history of sociology in the order named. The divisions suggest roughly the
character of the material discussed. The authors have aimed to make the book
meet the requirements of a text for college teachers and the needs of the general
reader interested in the subject. Each chapter is followed by a small number of
references to supplementary reading and a list of questions and exercises.
In designing a text for elementary college requirements and the use of the
general reader, the authors have done their work well. There is a good deal of
illustrative material, concrete and easily understood by the average student, and
it is fairly well arranged. This quaUty of concreteness is a conmiendable fea-
ture. The book does not meet the needs of the advanced student since it con-
tains nothing distinctively new or original. Giddings' definition of sociology is
followed pretty closely and some material is borrowed from Ross. The authors
make no claim to completeness of treatment. The reader is directed along the
general lines of the development of sociology and certain movements of society
and the laws which govern them. The book fulfills in a fairly satisfactory way
the stated purpose of the authors, which is a useful and timely one.
James G. Stevens.
University of Illinois.
Notes
Eld RIDGE, Seba. Problems of Community Life. Pp. ix, 180. Price, $1.10.
New York: Thomas Y. Crowell Company, 1915.
Papers and Proceedings of the Ninth Annual Meeting of the American Sociological
Society on Freedom of Communication hdd at Princeton, N. J., December
28-31, 1914. Pp. vi, 202. Price, $1.50. Chicago: Chicago University
Press, 1915.
Reed, Susan Martha. Church and the State, 1691-1740. Pp. 208. Price,
$1.05. Urbana: University of Illinois, 1914.
Trawick, a. M. (Ed.) The New Voice in Race Adjustments. Pp. vi, 230.
Price, 75 cents. New York: Student Volunteer Movement, 1914.
POLITICAL AND GOVERNMENTAL PROBLEMS
Reviews
Hates, Hammond V. Public Utilities: Their Fair Present Vahu and Retwm,
Pp. viii, 207. Price, $2.00. New York: D. Van Noetrand Company,
1915.
This volume was intended to supplement the work by the same author on
Public Utilities: Their Cost New and Depreciation. It is not an authoritative di»-
cussion as to the principles and methods that have been applied by the railway
and public service commissions, with footnote references to their dedaiooa, auch
as Whitten's Valuation of Public Service Corporations or Reeder's VaUdUif tf BaU
Regulation. On the contrary, it is a clear, well-argued, mature pwaentation of
294 The Annals of the American Academy
what the author conceives to be a Une of reasoning which should be followed by
those whose duty it is to ascertain the fair present value of a property after an
appraisal has been made, and all necessary information has been obtained.
The author places much rehance upon a comparative statement of the rates
and net returns of other companies doing substantially the same business in the
same state. It is refreshing to find an author who is ready to attach to com-
parative statements the value they merit. But when they are to be used as an
important Unk in the chain of reasoning in valuation, they may be utterly unre-
liable. Thus it is evident at the present time that either those electric companies
and public plants which have as a maximum charge 3 cents per kilowatt hour are
wholly wrong, or else the vast majority of private companies which are essaying
to maintain a maximum of 10 cents per kilowatt hour are exacting exorbitant
prices. If the latter should be the case at all, it is clear that the average rate
charged in any state for substantially identical service for electric current is
quite in excess of a fair rate, and that net returns are therefore probably also in
excess of a fair return. Such being the case, it would certainly be fallacious to
use such comparative rates and returns as a basis for determining fair value,
however valuable they may be as a basis on which a given city could reach a
judgment that its particular rates are exorbitant.
Undue emphasis, however, should not be placed on this point, as such em-
phasis would tend to destroy confidence in the book. For the book, as a whole,
is much sounder than much of the literature that has appeared in this field.
Thus, the author very clearly points out that the reproduction-cost-new theory,
which has so many impetuous champions among corporate experts, often results
in a value wholly unfair to the public. He is likewise quite convinced, and very
properly so, as is evident to those who are acquainted with what corporate experts
are essaying to prove before public service commissions, that over-head charges
are often exorbitant, and that "nothing has brought greater discredit upon other-
wise careful work in appraisals than the arbitrary addition of percentages to
represent over-head charges. All who have had experience in making valuations
to find the replacement cost of a property know upon what little evidence most
claims for the percentages added as over-head charges are based." The author
does not believe that unearned increment should accrue to the fair value of all
undertakings at all times, and the conclusion he adopts pertaining to unearned
increment in land particularly would lead ultimately to the recognition that no
unearned increment should accrue to the present fair value of any utility property.
On the whole, the discussions of this book are sound, and are eminently worth
the consideration of all interested in public utiUties. It is probably the fairest
and best considered discussion of valuation that has appeared to date.
Clyde Lyndon King.
University of Pennsylvania.
Howe, Frederic C. The Modern City and Its Problems. Pp. x, 390. Price,
$1.50. New York: Charles Scribner's Sons, 1915.
Dr. Howe's contributions to the study of municipal problems occupy a unique
position in the literature on the subject. No writer has contributed so much
Book Department 295
toward the development of a fruitful social point of view. The present work
is but one of a series of volumes in which the author has developed the new view-
point in municipal affairs. It is the logical complement to the series of volumes
in which The British City, the Beginning of Democracy, The City: The Hope of
Democracy, and European Cities at Work mark successive steps. In all of these
works the author gives a position of secondary importance to questions of ad-
ministrative organization, and deals primarily with municipal functions and the
manner of their performance. Throughout his discussion of municipal activities
the author shows the keenest appreciation of the many ways in which the city
affects the daily life and welfare of the inhabitants. His deeply-rooted demo-
cratic beUefs, combined with his broad democratic sympathies, enable him to
portray the possibilities of municipal action when dominated by a spirit of social
sympathy.
Although the present work contains chapters on the City and the State,
Municipal Home Rule, The City Charter, and The Organization of German and
British Municipalities, the most characteristic and valuable chapters of the book
are those dealing with Municipal Housing, Recreation, and the Problem of Lei-
sure, and the City as a Social Agency. Although we now have a voluminous
literature on most of these subjects, it would be diflBcult to find any work in which
a clearer and more inspiring picture of the possibilities of municipal action is
presented.
No better basis for instruction in municipal institutions has been presented
than that contained in this work. It combines the merit of accurate presentation
of fact with an inspiring picture of the possibilities of social betterment. The
effect on the student's mind is not only to arouse an interest in municipal affairs,
but to awaken a desire to become an active factor in contributing toward com-
munal welfare.
L. S. RowB.
University of Pennsylvania.
Lynch, John R. The Facts of Reconstruction. Pp. 325. Price, $1.60. New
York: The Neale Publishing Company.
This account of the reconstruction in the southern states is interesting mainly
because of the fact that it is written by a negro, and by one who, like Frederiok
Douglas, won considerable recognition from the white race and was not an inoon-
spicuous actor in events which have materially influenced his people. He was a
member of Congress during the heated presidential contest between Tilden and
Hayes and presents a new, and for his race, unexpected view of some features of
this struggle. He served as temporary chairman of the Republioan National
Convention of 1S84 and later as a federal employee, Fourth Auditor of the United
States Treasury.
The work has decided limitations not indicated in its title in that it is pivoted
on the reconstruction experience of Lynch's native state, Miaeittippi, and can
scarcely be said to be typical of other states, such as South Carolina or of tlie
entire South. As far as the author's own knowledge of facts there goes, it makes
some contribution to the general story which has been more fully and oarefuUjr
296 The Annals of the American Academy
recounted by Gamer, Dunning and others. The purpose of the book, aside from
the facts described, is to show that the enfranchisement of the black men at the
South was not a mistake on the part of Congress, that the reconstructed state
governments were neither a failure nor a disappointment, and that the fifteenth
amendment to the Constitution was neither premature nor unwise. That this
is an uphill task the author asserts when he condemns all of the writing of "the
last quarter of a century about Reconstruction" as opposed to these dicta, and
brands the authors of these writings for making it their "primary purpose" "to
prevent the publication of those things that were commendable and meritorious"
in this work of reconstruction by Congress. Nevertheless the book deserves to
be read for its directness and fearlessness and as another instance of the literary
capacity of a people who have already given us the writings of Frederick Douglas,
Booker T. Washington, Paul Dunbar and W. E. B. DuBois.
J. C. Ballagh.
University of Pennsylvania.
Updyke, Frank A. The Diplomacy of the War of 1812. Pp. vii, 494. Price,
$2.50. Baltimore: Johns Hopkins Press, 1915.
This volume, consisting of the Albert Shaw Lectures on Diplomatic History,
1914, gives a complete account of the diplomatic controversies with Great Britain
preceding the War of 1812 and of the negotiation of the treaty of peace at Ghent
in 1814. The similarity of some of the difficulties existing at present between
the United States and European nations to the difficulties existing previous to
the War of 1812 lend a timely interest to Professor Updyke's work. The book
is well written; constant references to source material are given; there is a care-
fully prepared index.
It is unfortunate that some errors have been made in the chapter on neutral
trade, especially with regard to the treatment by the British government of cargoes
of foodstuffs shipped from the United States to France. Professor Updyke's
statement on page 67 leads one to think that after August 18, 1794, such cargoes
were seized indiscriminately without any provision for compensation. As a
matter of fact, such seizures were for the time being discontinued. Furthermore
the Jay treaty contained an article, which the author fails to mention, that in
case foodstuffs were at any time to be seized as contraband, they were to be paid
for. The statement on page 71 that the twelfth article of the Jay treaty pro-
hibited American vessels from carrying certain articles produced in the British
West Indies to any part of the world except to the United States also contains
an error. American vessels were prohibited from carrying these articles (cotton,
sugar, etc.) to other parts of the world, not only if they were produced in the
British West Indies but also if they were produced in the United States. Jay,
of course, did not know that the South was beginning to export cotton. Never-
theless it was this prohibition that made the twelfth article of the treaty absolutely
unacceptable.
T. W. Van Metre.
University of Pennsylvania.
Book Department 297
Usher, Roland G. Pan-Americanism. Pp. xix, 466. Price, $2.00. New
York: The Century Company, 1915.
This is in many respects an extraordinary book. Whether one agrees or
disagrees with the conclusions reached, the array of facts and the way in which
they are marshaUed command attention and hold the interest of the reader from
cover to cover. It is impossible even to attempt a summary of the wide range
which the author's discussion of the subject has taken. The book is, in brief,
as he himself designates it, "a forecast of the inevitable clash between the United
States and Europe's victor."
Although Dr. Usher attempts to present the pros and cons of the different
aspects of the question, it is evident that he is firmly convinced of the necessity
of preparedness for the great conflict which he beheves the future has in store for
the United States. It is hardly necessary to present the argument in detail, as
it is based on the same premises which have been impressed upon the American
public time and again by ex-President Roosevelt, Senator Lodge and the writers
who have followed their lead.
In his discussion of Pan-Americanism in its relation to American foreign
policy, the author does not draw a very encouraging picture. In spite of many
acute and accurate observations concerning the attitude of the people of Latin
America toward the United States, one cannot help but feel the author's lack of
first hand acquaintance with the situation. He attempts to generalize for all of
Latin America on a great mass of topics which will not admit of generalization.
Racial, economic, political and social conditions are so widely divergent in different
parts of Latin America that the attempts at generalization contained in this book
are at times misleading. To correct them, however, would require the writing
of another book.
The great value of Dr. Usher's book is in its stimilus to serious thought and
reflection on the foreign policy of the United States.
L. S. RowB.
University of Pennsylvania.
Notes
Ford, Henry Jones. The Natural History of the StaU. Pp. viii, 188. Price,
$1.00. Princeton: Princeton University Press, 1915.
This volume, as its title implies, lies in the border zone between biology and
political science, and attempts to apply the Darwinian theory, as modified by
later critics, to the origin and development of the state. The general point of
view is that the state, as the original form of organized society, precedes the exist-
ence of man as a rational human being, the distinctive traits that characteriie
man l>eing the result of social life. Aristotle's dictum that "man is a political
animal" is, therefore, strictly upheld, as is his account of the historical order of
development. In support of this theory, data are drawn from biology, ptythoiofff,
linguistics, and anthropology. The book supports a modified form of the organic
theory of the state, and in its implications strongly oppoees the indiyidualistic
attitude toward state functions and natural rights.
R. G. O.
298 The Annals of the American Academy
Phelps, Edith M. (compiled by). Selected Articles on Federal Control of Inter-
state Corporations (2d and enlarged edition). Pp. xxx, 240. Selected Arti-
cles on the Monroe Doctrine. Pp. xxviii, 253. Selected Articles on The
Recall, including the Recall of Judges and Judicial Decisions (2d edition,
revised and enlarged). Pp. xlviii, 273. Price, $1.00 each. White Plains,
New York: The H. W. Wilson Company, 1916.
Shurtleff, Flavel and Olmsted, Frederick Law. Carrying Out the City Plan.
Pp. ix, 349. Price, $2.00. New York: Survey Associates, Inc., 1914.
This is a reliable, authoritative discussion of the methods actually employed
and prescribed by law or legal custom in different parts of the United States in
acquiring land for public purposes, in distributing the cost of public improve-
ments, and in other proceedings essential to the proper shaping of our growing
cities to the needs of their inhabitants. These matters are discussed under the
captions, the pubhc ownership of land, the acquisition of land, the distribution of
the cost of land acquirement, excess condemnation, the use of the police power in
the execution of a city plan, and the work of administrative agencies in the execu-
tion of a city plan. One hundred and twenty-five pages are taken up with the
appendix, which gives legislation and decisions, and extracts from a report on
English and Continental systems of taking land for public purposes. The volume
is well indexed.
This volume will probably take first place among the medium-sized reference
works, dealing with the legal phases of land acquisition by the public, city plan-
ning, billboards, building regulations, condemnation of land, excess condemna-
tion, excess taking, special assessments, and heights of buildings. As indicative
of the need for public ownership a table is cited (p. 15), showing that of 537 pubUc
sites, acquired by New York City from 1812 to 1900, 91 had increased in value
less than 25 per cent up to 1908, whereas 96 had increased over 500 per cent, 196
from 101 to 501 per cent, and 154, 25 per cent to 101 per cent. The discussions
on special assessments are particularly suggestive and valuable. The discussion
of excess condemnation is one that will be informing to all students of municipal
a£fairs.
C. L. K.
Thompson, C. Mildred. Reconstruction in Georgia. Pp. 418. Price, $3.00.
New York: The Columbia University Press, 1915.
Toulmin, Harry Aubrey. The City Manager, Pp. xi, 310. Price, $1.50.
New York: D. Appleton and Company, 1915.
This is a clear and interesting presentation of the actual plans for the city
manager or commission manager form of government as it has been worked out
in those cities where it has been adopted, particularly Dayton, Ohio; Staunton,
Va.; Springfield, Ohio, and Hickory, N. C. Some proposed plans such as the
Lockport proposal are also discussed.
It is probably the best presentation of this new type of city government
that has yet been made. Mr. Toulmin is a resident of the city of Dayton and
was instrumental in getting the city plan adopted there. ,He has availed him-
Book Department 299
self of the opportunity to study at first hand both the regulationa for and
against the plan as well as the actual results that are being and can be secured
through it. It is a practical, common-sense type of book.
C. L. K.
INTERNATIONAL QUESTIONS
Revieioa
Anqell, Norman. America and the New World State. Pp. x, 305. Price, $1.25.
New York: G. P. Putnam's Sons, 1915.
Mr. Angell's chief purpose in this work is to urge the people of the United
States to take the lead, at the close of the present war, in the eetablishment of a
new policy of international relations, which shall have for its goal the formation
of a Concert of Nations.
The plan is the familiar one of uniting the nations of the world into a society
for mutual protection from aggression, the influence of all to be used against any
one recalcitrant member. The author suggests that the decrees of such an in-
ternational society be enforced not by military strength, but by organised non-
intercourse with the offending country. The United States, when the war ends,
will face the alternative of taking the leadership in the initiation of such a system,
or of taking her place in another era of rivalry in increasing armaments.
As a presentation of the need for an international world state, the work is
strong and clear. As a plea for American leadership in international organization,
it offers no solution of the difficulties in the way of such a plan. The difficulty
of enforcing an international boycott against a country, the fact that many
nations would have little to fear from such a boycott, the likelihood of the nations
breaking up into rival groups, the case of a nation attacking another with military
force — all these problems are unanswered.
The purpose is rather to develop public opinion in favor of the plan by point-
ing out the futility of war. In this lies the value of the work. Every discussion
of international peace leads to the conclusion that it will be secured only if all the
peoples of the civilized world have come to regard war as useless, reprehensible,
and intolerable, and have determined to end it.
W. Lbwib Abbott.
University of Pennsylvania.
Seton-Watson, R. W.; Wilson, J. Dover; Zimmsbn, Althbd B. Tk§ Wat
and Democracy. Pp. xiv, 390. Price, 80 cents. New York: The Mso-
millan Company, 1915.
This illuminating book is interesting for two reasons: first, because it presents
the very one-sided British attitude toward the war, and second, because it is
written for the purpose, avowed in the preface, of educating the oitissnry of Britain
in the causes and issues of the war.
The "nationality" theory of the organisation of politionl statss is disousssd
in the first chapter and defines with excellent oleamess one oT the issuss for whiob
Britain is fighting. It furnishes an interesting oootrast to the theory oT the soo-
300 The Annals of the American Academy
nomic organization of political states and is chiefly valuable for the clearness
with which the British case is stated.
The frankly apologetic character of the book is revealed in chapter five on
Russia, in which poUtical issues, or political organization, are disregarded and the
character of the Russian people is presented as a justification for this pecuhar
alliance of England and Russia.
The chapters on the Southern Slavs and the Issues of the War are mines of
facts and present a great deal of current history not previously available in this
readily accessible form.
One of the most interesting parts of the book is chapter nine on German
Culture and the British Commonwealth which gives with a rare degree of impar-
tiality, considering other parts of the book, the contrasting ideas of English and
German civiHzation. German "Kultur," or civiHzation in terms of intellect
and efl&ciency, is contrasted with the British ideal of civilization expressed in
terms of character. It is the contrast of the individual personality with the social-
ized being. The chapter fails only in its confusion of this German ideal of civi-
lization with the Prussian "system." It does not see German civilization as
something separate and apart from the military and autocratic r6gim6 of Prussia.
Bruce D. Mudqett.
University of Pennsylvania.
Notes
GoEBEL, Julius. The Recognition Policy of the United States. Pp. 228. Price,
$2.00. New York: The Columbia University Press, 1915.
Hutchinson, Lincoln. The Panama Canal and International Trade Competition,
Pp. X, 283. Price, $1.75. New York: The Macmillan Company, 1915.
The primary object of Mr. Hutchinson's book is to present commercial data
and outline tendencies in a way that will be of assistance to business men who
conduct or expect to conduct trade between those countries of the Atlantic and
Pacific Oceans within the range of the Panama Canal. Much the greater portion
of the volume deals with the foreign commerce and production of the leading
Atlantic and Pacific countries reached through the Canal, and are of special interest
because of numerous tables which indicate in convenient form the relative posi-
tions of the United States and competitive countries in the markets of the Pacific.
Chapter IX contains Mr. Hutchinson's conclusions as to what line of action
should be pursued by American traders in these markets, and the variety of
commodities for which they are especially adapted. Chapter II, which describes
the effect of the Panama Canal upon ocean routes and the countries which will be
affected by the Canal, is based largely upon data contained in the report on Pan-
ama Traffic and Tolls by Professor Emory R. Johnson.
G. G. H.
Myron, Paul. Our Chinese Chances through Europe^s War. Pp. 220. Price,
$1.25. Chicago: Linebarger Brothers, 1915.
Book Department 301
NiEMETER, Th. und Strupp, K. JahrbuchdeaVdlkerreehU. II. Band. LandlL
Halfte. Pp. 1564. MQnchen: Verlag von Duncker and Humblot, 1915.
Professors of German, Austrian, French, Italian, Spaniah, Swiss, TCngH«h|
American, Japanese and Greek universities have here contributed variouB inter-
national public documents, covering in Part I the period February 29, 1912 to
May 26, 1913. The collection comprises some two hundred and sixty-one num-
bers, and is of great value to students of foreign relations and diplomacy. Part II
contains valuable documents relating to the year 1913 arranged under tbdr
respective subjects and nations of Europe, America and Asia.
J. C. B.
MISCELLANEOUS
Reviews
GoETHAUB, George W. Government of the Caned Zone. Pp. 106. Price, $1.00.
Princeton: Princeton University Press, 1915.
GoRGAS, William Crawford. Sanitation in Panama. Pp. 297. Price, $2.00.
New York: D. Appleton and Company, 1915.
Pepperman, W. L. Who Built the Panama Canal. Pp. xiv, 419. Price, $2.00.
New York: E. P. Dutton and Company, 1915.
Bennett, Ira E. (Ed.). History of the Panama Canal. Pp. xi, 543. Price,
$5.00. Washington: Historical Publishing Company, 1915,
It was natural that the opening of the Panama Canal last year should bring
about the preparation and publication of numerous books and papers dealing
with different aspects of the construction and history of the canal. Two of the
books listed among the four above noted, are by the two men best qualified to
speak upon Panama Canal matters — General Goethals and General Gorgas.
In his essay upon the Government of the Canal Zone, General Goethals, idio,
since April 1, 1914, has been governor of the Panama Canal, gives a ooneise his-
torical account of the government of the Canal Zone from the aoquisitioo of terri-
tory in 1904 to the present time. This account is in every way authoritative.
As is well known, the Panama Canal was governed by executive orders without
special grant of authority from Congress for nine years from the first of April, 1906
until April 1, 1914. The canal was constructed by the Presideiit acting through
the Secretary of War. The executive orders signed by the Pretideot were, M a
matter of fact, for the most part— although General Goethals does not nMotkm
this — drafted by General, then Colonel, Goethals who was ehief wigimwi and
chairman of the canal commission from 1907 until he beeame govtmor.
There was much discussion in Congress when the Panama Canal aet of AagiMt
24, 1912, was under consideration as to the adrinbility of opeoing the Canal
Zone to settlement and cultivation by Americans, with the idea of wtaKHrfifalg a
model little republic in the heart of Latin America. The impraetkabOity and
unwisdom of that policy was clearly understood and convincingly prwented by
Colonel Goethals, who advocated the policy that was adopted of making the
302 The Annals of the American Academy
Canal Zone a government reservation devoted entirely to canal, military and
naval purposes. The United States has acquired all the property within the
Canal Zone outside of the limits of the cities of Panama and Colon, and the Zone,
by authority of the act of August 24, 1912, is governed and administered by the
President acting through a governor of the Panama Canal and such other officials
as the President may deem necessary to employ. The administrative organiza-
tion for the operation of the canal and the government of the Zone has been de-
vised and set in operation by General Goethals, who will soon be able, without
detriment to the service, to carry out the wish he has for some time had to retire
from the governorship of the canal and turn over the task to his competent assist-
ant, who, it is expected, will be appointed governor of the Panama Canal.
General Gorgas as a writer is as entertaining as he is in conversation, which is
saying a great deal. His book on Sanitation in Panama is delightful and instruct-
ive from beginning to end, and will, no doubt, be as widely read by the general
public as by members of the medical profession.
Nearly one-half of the book is devoted to an account of the discovery and
proof of the mosquito theory of the transmission of yellow fever and to a descrip-
tion of the sanitation work done at Havana. General Gorgas gives fuU credit to
the heroic work done by Dr. Walter Reed and Doctors Lazear, Carroll and Agra-
monte — the members of the well-known Reed Board — whose experiments defin-
itely proved the mosquito theory of the transmission of yellow fever. The
experiments cost Doctor Lazear his life, and nearly brought Doctor Carroll's
career to an end.
Having definitely learned by experience in the sanitation of Havana that
yellow fever could be eliminated from any place where it had been endemic by
preventing the breeding of the stegomyia mosquito, and that malaria could be
reduced to small proportions by measures that would limit to a minimum the
breeding of the anopheles mosquito. Colonel Gorgas, with the support of President
Roosevelt and with the assistance of the canal commission, especially of Mr. John
F. Stevens, the second chief engineer of the commission, was able to establish
sanitary conditions at Panama that wiped out yellow fever in 1905 and kept
malaria increasingly under control throughout the period of the construction of
the canal.
The work of the sanitation department at Panama under the direction of
Colonel Gorgas attracted world-wide attention and is entitled to all the credit it
has received. The methods followed in sanitating Panama and the results accom-
plished are briefly told by General Gorgas in the latter half of his book, and the
narrative is not only non-technical in language but is presented in a style that can
be understood and enjoyed by all readers.
The book by General Gorgas is the first of a series of three volumes. The
second volume, shortly to appear, has been written by Mr. John F. Stevens and
Brigadier-General William L. Sibert. It gives an account of the construction of
the canal. The third volume of the series will deal with the Panama Canal and
conunerce.
Mr. W. L. Pepperman served as chief of "the office of administration" at
Washington, created April 3, 1905, by the Isthmian Canal Commission, and he
Book Department 303
held his position while Mr. John F. Stevens was chief engineer of the Pa
Canal. Mr. Pepperman has written his book to emphasise the fact that the
canal "was built upon the foundation laid by the railroad administration," i.e.,
the organization established by Mr. John F. Stevens and Mr. Theodore P. Shonta,
the chairman of the Isthmian Canal Conmiission from April, 1905, until Mai«h 4,
1907. Mr. Stevens was chief engineer under Mr. Shonta; and, from the time of
the resignation of Mr. Shonts until Mr. Stevens resigned a few weeks later, he was
chairman of the commission. The tone of Mr. Pepperman's book throughout
gives one the impression that the author feels that due credit has not been given
Mr. Stevens and Mr. Shonts for the work they accomplished at Panama. It is
quite possible that the later and greater achievements of General Goethals and
his assistants have caused the general pubhc to overlook the substantial work d<»e
by Mr. Shonts and more particularly by Mr. Stevens. General Goethals and
those who were associated with him have always placed a high estimate upon the
work of Mr. Stevens who organized the system of transportation of mate-
rial out of Culebra Cut and from other points along the line of the canal. Mr.
Stevens' large experience as a railroad engineer and his executive ability were of
great service at Panama, and the work he inaugurated was carried on without
much change in methods by those who followed him.
The difficult problems of hydraulics — the designing and location of the locks
and dams and the construction of these and other hydraulic works — were worked
out by the successors of Messrs. Shonts and Stevens. Little is to be gained by
over-emphasis of the work of any of the special leaders who carried through the
work of constructing the Panama Canal. The general public does not understand
the difficulties that confronted the first commission under Admiral John G. Walker,
nor is it generally realized that the preliminary work which the Walker commisBioo
did during the year of its existence was essential to the subsequent execution of
the project. When Messrs. Shonts and Stevens took hold of the enterprise the
time had come to organize and begin the work of excavation. When the seocmd
commission, that over which Mr. Shonts presided, gave way to the third commis-
sion, under the chairmanship of Colonel Goethals, the hydrauUc problems had to
be solved, and the general problem of organizing and caring for a mudi enlarged
construction force had to be worked out. Of the various leaders who contributed
to the ultimate success of the canal work, unquestionably General Goethals has
the greatest executive ability, and to him rather than to the "raiboad adminis-
tration, " is due the largest measure of praise, if any preference is to be given to
the accomplishments of any one individual.
Mr. Pepperman's book contains a great deal of information well presented.
One very excellent feature of the book is the illustrations, which include most of
Mr. Joseph Pennell's artistic lithographs of the canal.
Mr. Bennett, with the assistance of a board of associate editors and numerout
contributors of special papers, has brought together a large amount of hiitorioal
material which is well arranged and well presented. No other volume eootains
so full or so satisfactory an historical account of the canal as does this work writtiO
and edited by Mr. Bennett. It may profitably be read, as a whole or in part, by
students of the Panama Canal or of particxilar questions oooosming tiie oonstruc-
tion or the military and naval uses of the canaL
304 The Annals of the American Academy
Mr. Bennett has endeavored to make his History of the Panama Canal cover
the contribution which all have made who participated in the work as legislators,
administrators or constructors. The volume makes its appeal not only to the
historian but also to the student of engineering and of construction work. One
interesting feature of the book is a biographical sketch of the various officials who
were connected in one capacity or another with the canal. The volume is evi-
dently constructed with the view to sale by subscription, and thus contains certain
popular features which, however, do not detract from the substantial merits of
the work as a whole.
Emory R. Johnson.
University of Pennsylvania.
KiRKALDY, Adam W. British Shipping: Its History, Organization and Impor-
tance. Pp. XX, 655. Price, $2.00. New York: E. P. Button and Company,
1914.
Since the time when men first began to "go down to the sea in ships," no
field of endeavor has possessed greater lure than the sea, no branch of industry
has held more romance and charm than shipping and navigation. At the same
time, few industries can show a greater material development than the shipping
industry and none can claim credit for a greater measure of benefit to mankind.
The rise of the British power was due largely to the growth of its maritime indus-
tries, and the integrity of the great empire has for generations rested on the su-
premacy of its power at sea. The economic importance of the shipping industry,
its political significance, and its romance are the outstanding features of this ex-
tremely interesting and well-written volume.
The first part of the work deals with the evolution of the ship from the " flimsy
coracle" to the "magnificent Uner," giving an account of the changes in the form
and size of vessels, the materials of construction, and the motive power; the sec-
ond part treats of ownership, management and regulation of shipping; the third
of the great trade routes of the world, and the fourth of the principal ports and
docks of the United Kingdom. A well selected bibliography is given, and a
copious appendix containing statistical and other information concerning the
development of the speed and size of ships, the changes in ocean freight rates and
the growth of the mercantile marine of Great Britain and other countries.
The American reader of this work cannot fail to find interesting the chapters
deahng with the rivalry of the United States and Great Britain for maritime su-
premacy during the period from 1830 to 1860. The account of the remarkable
success of American ship-owners in the competitive struggle during the years just
preceding the introduction of the iron ship will doubtless occasion surprise to
some who begin the decline of the merchant marine of the United States with the
enactment of the shipping reciprocity law of 1828.
Chapter IX, Book III, on the economic effects of the opening of the Panama
Canal, is an extremely lucid and well-balanced statement of the political and
economic changes which are hkely to follow the opening of this new trade route.
Pohtical and commercial ideals have changed everywhere in the past few years
and "the world is on the eve of great things full of great possibilities." The
Book Department 305
author's keen insight has been vindicated by many events occurring since his
work was published; his conclusions concerning the trend of the near future merit
careful consideration.
T. W. Van Mbtbb.
University of Pennsylvania.
Ross, Edward Alsworth. South of Panama. Pp. xvi, 396. Price. $2.40.
New York: The Century Company, 1915.
"My first obligation is not to National PoUcy but to Truth." Prefa. m^ lii.s
book of South American travel and research with this statement, Dr. Ro>s nwikea
good his word. This the reader soon realizes. The main line of thought, visual-
ized by clear-cut descriptions, shows the entrenched power that the authoritative
hierarchy of state, church and privileged-class hold over the masses of people.
Coupled with such traditional forces are the natural concomitants of class pride,
contempt for useful labor, subjection of women and social parasitism. These are
the old, hardened mold-forms that shape the lives, thoughts and ideals of the
peoples south of Panama. And as the author well puts it, " It will be yet long ere
it is transformed by such modern forces as Industry, Democracy and Science."
Through the first five chapters of the book you travel with the writer from
the Panama Canal along the western coast of the Continent as far as five hundred
miles south of Santiago, Chili. It is on these inland tours that Dr. Ross ferrets
out the customs, traditions and local pecuharities. At one place he finds all at-
tempts to introduce the new, steam-rolled by the church and established customs;
at another place the races are so low that their sluggish indiflference bars out any
civihzing tendencies.
From Santiago an eastern cut is made across Argentina to its capital, Buenos
Aires; followed by travels into the northern part of the Republic. Argentina
shows a wholesome improvement in comparison with the other South American
countries. In establishing industry from family life and social legislation we at
least find the first stakes driven.
The major part of the book deals with the general economic, educational,
moral and religious conditions of the Continent. The economic status brought
out by these travels and investigations is pitiable — or better put — is vicious.
Class domination grinds labor far beneath contempt. The "hook system" of
Peru, the pongos' conditions in Bolivia as well as the trampled inquilinos of Chili,
all show degeneracy of those who do the work. Absentee landlordism reigns;
there is no thought or care of labor conditions so long as the fruit of the land faDs
to the landlord.
These basic economic conditions cast black shadows upon polities, govern-
ment, education and religion. Caste is everywhere. The church — the Catholic
Church — controls in the main both reUgion and education. The chureh and
state are linked, the former receiving financial, legal and moral support from the
latter. However, the dawn of church and state separation is eonung, and already
the light of religious and educational freedom brightens one't hopes for a better
day.
The theory of Professor Ward's famous fourteenth chapter of Pwr$ SaewUtn
finds facts for its support in South America. The nz morality, the tpiiere of
306 The Annals of the American Academy
woman and the laws and customs regarding the home and children all show mascu-
line control. The whole civilization is "man-made."
Dr. Ross closes this interesting book by a chapter on class domination, which
well epitomizes the prevailing forces that determine the people's activities. The
author nowhere gives us anything about the Brazilian people or those of the north-
eastern provinces. This is the only discordant note, which makes incomplete
Dr. Ross's account of the societies Uving south of Panama.
The author's live and pleasing style sparkles briskly on through the whole
book. This in addition to the interesting facts unearthed will make the book
widely read and highly appreciated.
Charles Ervin Reitzel.
University of Pennsylvania.
Stokes, Anson Phelps. Memorials of Eminent Yale Men. 2 vols. Pp. xxii,
820. Price, $10.00. New Haven: Yale University Press, 1914.
These two volumes, covering eight hundred quarto pages, represent a labor
of love on the part of their author. What a delight it must have been to him to
have searched through old documents and correspondence as well as early pub-
lished literature, and to have brought forth these fascinating facts in regard to
the men of Yale! An ordinary reader of books would probably be attracted by
the prints and some of the narratives recorded in these very interesting volumes;
but to the writer of these hnes, it scarcely seems possible that any Yale graduate
would wish to omit a most careful perusal — ^yes, a second perusal — of their con-
tents.
Yale, through her graduates, has made lasting contributions to religion, to
Uterature, to education, to scholarship, to science, to invention and art, to states-
manship, to law and to patriotism.
"There is no field of activity in which Yale's influence has been greater
than in that of religion." This is made conclusive when one notes the names of
Jonathan Edwards, Samuel Hopkins and David Brainerd ("one of the most
inspiring figures in America's missionary history"), Samuel Seabury, Lyman
Beecher, and many others.
In considering her contributions to education, it is interesting to observe
that 157 graduates have been college presidents, and that Yale men have been the
earliest presidents of many of our most representative colleges. Eleazer Wheelock,
founder and first president of Dartmouth College, was a Yale man; as was
sturdy Samuel Johnson of Columbia, Andrew D. White of Cornell, Oilman of
Hopkins and Harper of Chicago.
Among her scholars, Worcester and Webster, the great lexicographers, ap-
pear. "But," writes the author, "they were far from being warm friends.
Their temperaments and attitudes of mind were very different. Webster did
his work with the great public and had its judgments always in mind. He wanted
to influence the nation. Worcester was a much more modest and retiring scholar.
Webster tried to change the language so as to conform with his ideals of what
was right. Worcester was satisfied to exhibit his motheV tongue as it was." It
is in this truly human vein that the author writes of James Hadley, of Trumbull,
of Brinton and of Sumner.
Book Department 307
In science Yale has contributed in many ways through inveitigftton Ww
Willard Gibbs, teachers like Benjamin Silliman, St., writerB like Loomis and
Chauvenet. Benjamin Silliman is described as the most conspicuous scientific
teacher in America in the early part of the nineteenth century. Upon his ap-
pointment to a professorship in his Alma Mater, he spent two winters studying
in Philadelphia. The mineral collection was so small at that time that Silliman,
in order that the specimens might be properly labelled, carried them with him in a
small portable box to Philadelphia, where doubtless under the direction of Ben-
jamin Smith Barton, he was able to determine them accurately. It was in
Philadelphia, too, that Silliman received his first instruction in chemistry from
James Woodhouse and formed that friendship with the great chemist, Robert
Hare, which was to continue through life and which meant bo much to both of
them.
Yale rendered an important aid to the legal profession and to the sacred
cause of jurisprudence.
In reading over the various biographical sketches there are so many things
which arrest attention and furnish genuine pleasure. For instance, a classmate
of the great Chancellor Kent said that the latter "left college universally beloved
by his class and ranked as a scholar among the first," although Kent himself wrote
"I stood as well as any of my class, but the test of scholarship at that day was
contemptible. I was only a very inferior classical scholar, and we were not re-
quired and I had never looked into any Greek book but the New Testament.
My favorite studies were geography, history, poetry, belle lettres, etc. When
the college was broken up and dispersed in July, 1779, by the British, I retired
to a country village, and finding Blackstone's Commentaries, 1 read the four
volumes. Parts of the work struck my taste and the work inspired me at the
age of fifteen with awe and I fondly determined to be a lawyer."
Every biographical sketch in the two volumes contains personal notes or
illuminating lines from classmates or friends. For example, it is said that wbaa
John C. Calhoun was in college, he "maintained his opinions in the disousskaif
with the President with such vigor of arguments and success," that later the
President remarked "the young man had talent enough to be president of the
United States, which he accompanied by a prediction that he would one day at-
tain that station." A reminiscence of this prediction is preserved in an old
political song which ran about like this:
"John C. Calhoun, my Jo, Johnl
When first we were acquaint
You were my chum at Yale, John,
And something of a Saint —
And Dr. Dwight, God bless him, Johnl
Predicted as you know
You'd be the Nation's President,
John C. Calhoun, My Jol"
However, to fully appreciate Mr. Stokes' admirable oontnbuuon to Yale
history, one should read every word in these volumes. It would, indeed, be a
splendid thing if other universities had among thair number thoas who would
308 The Annals of the American Academy
seek to set forth the contributions of their respective institutions in a spirit similar
to that so beautifully and loyally displayed by Mr. Stokes. The reviewer is in
absolute accord with the thoughts contained in the following sentences: "Why not
have annual commemorative exercises, when the history and achievement of the
University are duly recorded? Why not develop college hterature — historical,
biographic, descriptive, romantic, poetic — to rival on this side of the ocean, at
least in quahty, that noble collection of works — scores in number — which are 'in
praise of Oxford'? Why not institute courses on the institution's Ufe and its
contacts with and influence upon the main currents of our history? Why should
we not lay more emphasis in the academic year on patriotic days, Washington's
Birthday, Lincoln's Birthday, Memorial Day, with appropriate references to the
connection of the University with the movements for which these men and events
stood?"
And, when all this would be done, each institution setting forth its own
achievements in a manly and modest way, if the several results were combined,
what a noble presentation it would make of the efforts of the college-bred men of
our country in many diverse directions, but all for the benefit of their fellow-men.
Edgar Fahs Smith.
University of Pennsylvania.
Notes
Barrington, Mrs. Russell. The Works and Life of Walter Bagehot. 10 vols.
Pp. box, 3499. Price, $25.00. New York: Longmans, Green and Com-
pany, 1915.
The only uniform edition of Walter Bagehot's writings to date has been that
published in 1889 by the Travellers' Insurance Company of Hartford, Conn.
This new edition comprises all of this material with the following additions: The
Currency Monopoly and Principles of Political Economy, written in 1848; The
Monetary Crisis, 1858; The American Constitution, 1861; Matthew Arnold in
The London University, 1868; Senior's Journals, 1871; Count your Enemies and
Economize your Expenditure, 1862; The Depreciation of Silver, 1876; three short
early essays illustrative of Bagehot's youthful writings. Volume IX contains
articles originally contributed to The Economist, The Saturday Review and The
Spectator, which are now repubhshed for the first time. The Life of Walter
Bagehot forms the tenth volume of this edition.
Bagehot was a versatile writer, whose work reveals keenness and breadth of
interest and insight. This sumptuous edition of his writings is not only an ad-
equate memorial to a man of unusual parts, but a mine of social, economic and
literary discussion of more than usual interest to those of philosophic mind.
R. C. McC.
Buck, Solon J. The Granger Movement. Pp. xi, 384. Price, $2.00. Cam-
bridge: Harvard University Press.
This excellent volume by Dr. Solon J. Buck, Research Associate in History
in the University of Illinois, contains a detailed and clearly stated account of the
"granger movement" of the decade 1870 to 1880. It deals especially with the
Book Department 309
organization and working of the Patrons of Husbandry or "Grange," as it is
frequently called, but includes also the general agrarian movement which was
wider in scope than the particular order which served "as an efficient means of
organization and a convenient rallying point." The first chapter discusses the
fundamental conditions which led up to the formation of the Grange and the
second describes its organization. Subsequent chapters deal with the Granger
movement as a political force, granger railway legislation, business codperation,
and the social and educational features of the Grange. Previous accounts have
been confined so largely to the efforts of the Grange to regulate railways that other
features were lost sight of. For this reason chapters VII, VIII and IX will be
found of particular interest to students of the Agrarian movement.
G. G. H.
DE Constant, Paul H. B. d'Estotjrnelles. America and Her Probleim. Pp.
xxii, 545. Price, $2.00. New York: The Macmillan Company, 1915.
A book giving the impressions of a distinguished and observant foreign
traveller. Old world standards naturally afford the basis of judgment whether
the thing to be appraised be American architecture, American moral standards or
American social and political institutions. Written before the outbreak of the
European conflict, the purpose of the book was twofold. "One was to do my
best not only to show the United States how fully I appreciated their vast re-
sources, but to make them realize the incalculable service they could render to
civilization, as well as to themselves, by remaining faithful to their peace policy,
which is the main cause of their prodigious prosperity. Secondly, after defining
this peace policy and quoting facts to show that it was inspired neither by short-
sightedness nor by cowardice, I have tried to indicate its patriotic grandeur and
its advantages for other nations, especially for those who believed in the superiority
of mihtarism. I have given my readers a choice between two forms of actual
experience — two models, the first, to be followed, a peace policy, and the seocHid,
to be avoided, a policy of adventure and armament."
R. C. McC.
Fish, John Charles L. Engineering Economics. Pp. xii, 217. Price, $2.00.
New York: McGraw-Hill Book Company, Inc., 1915.
Lewis, E. St. Elmo. Getting the Most Out of Business. Pp. xx, 483. Price,
$2.00. New York: The Ronald Press Company, 1915.
Getting the Most Out of Business is a book exceedingly rich in its numerous
concrete experiences as related to the career of a modem business executive.
Mr. E. St. Elmo Lewis has classified the various human factors necessary in the
functioning of a successful business organization; in addition he has summarised,
analy2sed and criticized the present business sjrstems and house policies. TIm
larger spirit of the text insists upon individual efficiency from the office boy to
the head of an organization, with experts and scientific data to keep the bofbiea
out of "ruts" and alive to the progressive tendencies of the day. Mr. Lewis
evidently feels that our modem business system is still involved in a craathre
310 The Annals of the American Academy
process, but withal a business philosophy is developing, the power of which is to
create men loyal and persistent to the highest ethical standards. His main
thought consists in encouraging initiative and creativeness of the individual and
progress of the concern, in order to obtain maximum results with a minimum
amount of effort.
Individual executive experiences, citations from numerous co-workers, wage
plans, foreign methods, educational plans, and individual standards of efficiency
under cooperative influence, afford abundant material inspirational and coura-
geous in its appeal to the creative man serving business as an executive. This
book might be classified as among the first to appear which affords data in a form
utilizable by the business man in executive capacity.
H. W. H.
RuBiNOW, I. M. A Standard Accident Table. Pp. 63. Price, $1.50. New
York: The Spectator Company, 1915.
Russell, Elmer Beecher. The Review of American Colonial Legislation by the
King in Council. Pp. 227. Price, $1.75. New York: Columbia Univer-
sity Press, 1915.
An excellent study dealing with a most important phase of colonial history.
Manuscript material in the PubUc Record Office at London has been the author's
chief source of information. The method of procedure of the English govern-
ment in legislative review, the policy adopted in dealing with acts of colonial
assembhes, and the results of the system are the chief topics considered.
T. W. V. M.
Weld, L. D. H. Studies in the Marketing of Farm Products. Pp. iv, 113. Price,
50 cents. Minneapolis: University of Minnesota, 1915.
INDEX
Accounting and reporting, defects in
methods of, used by Toronto, 218-
219.
Accounting Basis of Budgetary
Procedure. WillB. Hadley, 136-
139.
Accounting features, of the budget,
231-232.
Accounting Practice, the Move-
ment FOR Improved Financtng
AND, in Toronto. Horace L. Brit-
tain, 211-222.
Accounting system: Classifications of
the, of Philadelphia, 136-137; what
it must provide for, 136.
Accounts, classification of, as presented
in the budget, 40-41.
Adamson, Tilden. The Preparation
of Estimates and the Formulation of
the Budget— The New York City
Method, 249-263.
Administrative discretion, devices
adopted for controlling, in New
York City, 179.
eflBciency, relation between city
planning and, 157.
functions, division between legis-
lative and, in Cleveland, 265-266.
government, Wisconsin as a
model of, 59.
initiative, effect of, 6.
organizations to which all tax-
payers must contribute, 193.
Administrative Program, the Bud-
get AS an. Henry Bruftre, 176-191.
Administrative re-organization: In
Ohio, 61-62; in Wisconsin, 62;
results to be expected from plan of,
in Illinois, 90.
American cities: Dependence of, on
the general property tax, 115; impor-
tance of real estate tax in revenue
system of, 125; per capita aaaeand
building value in average, 127; per
capita land value in average, 127;
sources of revenue of, 121-123.
municipal revenues, two charao-
teristics of, 114.
Appropriating systems, difficulty in
our, 52.
Appropriation: Example of a detailed,
to a functional subdivision, 169-170;
revenues subject to annual, 103-104.
acts: Form of, 108-110; number
of, passed in each month of legislar
tive session of 1915, in Massachu-
setts, 110.
bills: Consequence of distribu-
tion of, 10-11; enacted by 48th
General Assembly of Illinois, 78;
former method of presenting, in
lUinois, 86.
law: Argument for and against
insertion of detail in the, 53-54;
definition of the, 51-52; difficulties
arising from the itemizing of, 53.
of funds, and obligation to per-
form specific services, 185.
ordinance: Flexibility of the, <A
Dayton, 168-170; of the budfBk»
242-244; preparation of the, by
Cleveland's Council, 265; proviaionfl
to be contained in an, 242-244;
pubUc hearings attending prepara-
tion of the, in Cleveland, 268-209;
result of fixing salaries in the, 267-
268.
plan, evils resulting from tht
periodical, 56, 57-68.
procedure, outline of the, in
Massachusetts, 104-106.
Appropriatioos: Amount at, passed
811
312
Index
by Illinois legislature in 1913 and
1915, 76; by activities, 288; classi-
fications of, provided for by Dayton's
budget, 167-168; combination of two
methods of making, in Ohio, 95;
controlled by budget in New York
City, 249; desirability of separating
into subdivisions, 258; disadvantages
of old method of making, in Illinois,
74; factors specified in acts granting,
109; former practice of assigning, to
charitable institutions in Illinois,
74-75; in Chicago, 270; increase in
total, in Illinois from 1913-1915,
8&-88; objections to a system of
permanent, 58; old methods of
making, in Illinois, 73-74; present
law of securing, in Massachusetts,
101; provisions for, in New York
City budget, 182-183; provisions of
Dayton governing, 166; total, made
in each month of legislative session
of 1915, in Massachusetts, 110;
total amount of, in Ohio, for 1915-17,
98; versus estimates, 241-242.
Assessment: Methods of, 127-128; of
land and buildings, importance of the
separate, 127; of physical improve-
ments, 130-131; of street and park
openings, 130.
Assessments: Advantages of annual
127; advantages of full value, 126;
revenue derived from special, 129-
130.
Atlantic City, per capita land value of,
127.
Audit, in French and English cities,
209-210.
Baldwin, D. C. The Budget Proced-
ure of English and French Cities,
204-210.
Beard, Charles A. The Budgetary
Provisions of the New York Consti-
tution, 64-68.
Beisser, Paul T. Unit Costs in
Recreational FaciUties, 140-147.
Bell, Finley F. The Illinois Budget,
73-84.
Birmingham, England: Duties of the
Finance Committee of, 205-206;
receipts of, from utilities, during
past year, 208; total expenditure of,
during last year, 208.
Board of Control, work of the, in
establishing a budget system in CaU-
fomia, 69-70.
estimate and apportionment,
work of agencies established by, 187-
188.
Braddock, J. Harold. Some Sug-
gestions for Preparing a Budget
Exhibit, 148-162.
British budget, some features of the, 59.
Brittain, Horace L. The Move-
ment for Improved Financing and
Accounting Practice in Toronto,
211-222.
Bru^jre, Henry. The Budget as an
Administrative Program, 176-191.
Budget: Accounting features of the,
40-41, 231-232; appropriation ordi-
nance of the, 242-244; appropria-
tions controlled by, in New York
City, 249; arguments in favor of the
executive formulating the, 42, 49;
as a plan of financing, 16-17;
chief purposes of present, in New
York City, 250; classes of expendi-
tures to be provided for in the county,
226; classifications of appropriations
provided for by Dayton's, 167-168;
classifications provided for in the
IlHnois, 80; definition of a, 15-16, 38,
47-48, 51, 118, 225, 229, 235; diffi-
culties presented by the classifica-
tions in the Illinois, 81-82; difficulty
of constructing a, in Illinois, 78-79;
division of the, in French cities, 207;
division of the, of New York City,
181-182; divisions of a general,
197-198; essential feature of a, 48;
essentials of a, lacking in comptrol-
ler's plan for New York, 227; exam-
Index
813
pie of New York method of making
the, 261; form of, existing in New
York City until ten years ago, 177;
main estimate classifications in the,
242 ; material to be contained in a,
39, 42; meaning of the, 165, 224-225;
need of expert assistance in making
the, 273-276; needs to be considered
in making a, 229-230; net amount of
departmental appropriations in Illi-
nois, 81; obstacles in the way of an
executive, in Massachusetts, 103;
outlook for a federal, 29; period to
be covered by expenditure classifica-
tions for purposes of the, 137; prelim-
inary work in preparation of a report
showing need of, 25-26; preparation
of the, in French cities, 206-207;
provisions for appropriations in New
York City, 182-183; provisions for
control of the, in Germany, 197;
questions raised by the submission
of the, by the executive to the legis-
lature, 43—44; recommendation for
preparation of a, in Toronto, 217;
recommendation of a, by finance
committee of Chicago, 270; relation
of the, to government, 224; reorgani-
zations necessitated by installation
of the, 96-97; revenue system re-
quired by administration of the, 114;
steps necessary in the making of a,
50-51; summary of important fea-
tures of the, 234; total amount of
departmental estimates in Illinois,
81; total recommendations of the,
in Ohio, for 1915-17, 98; total
request of the, in Ohio for 1915-17,
98; various subdivisions of a munici-
pal, 196-197; work of Legislative
Reference Bureau, in preparing a,
for lUinois, 80; work of the Finance
Committee on the, 206.
Budget, California's State. John
Francis Neylan, 69-72.
Budget, Taxation and the Munici-
pal. MUton £. Loomis, 113-124.
Budget and thb Leqislature, Ths.
Rufus E. Miles, 36-46.
Budget, The, as an ADiaNiSTRATiVB
Program. Henry Bru^, 176-191.
Budget, The German Municipal,
and its Relation to the General
Government. Karl F. Geiaer, 192-
203.
Budget, The Illinois. Finley F.
Bell, 73-84.
Budget, The Preparation of Esti-
mates AND THE Formulation of
the — The New York Citt
Method. Tilden Adamson, 249-
263.
Budget, The Proper Function of
the State. S. Gale Lowrie, 47-
63.
Budget accounting: Result of using
forms of, on food suppUes, 256; what
is meant by, 139.
appropriation, characteristic of,
in New York City, 180.
control: By the representative
body, 18-19; results of Philadelphia's
effort of working out forms and
procedure of, 34.
estimates: Conditions tending
to swell, 99; provision for, in
constitution, 3-4; the penonal prop-
erty tax and, 120.
exhibit: Commercial facts re-
lating to city shown in a, 156-157;
comparison of display charts used in
a, 158 ; facts shown to the taxpayer by
the, 148; function of the, 148; de-
vices used to create interest in a,
155-156.
Budget ExHierr, Somx Suoobstions
FOR Preparing A. J. Harold Brad-
dock, 148-162.
Budget idea: Acceptance of the, by
the public, 28-29; efforU mada to
apply the, in the fadend fforenuiMot»
23; in state govenimeot, the, 39; in
the United Sutes, the, 21-22.
BuDorr Idea, Evolution or nu,
314
Index
EST THE United States. Frederick
A. Cleveland, 15-35.
Budget ideas, applied to municipali-
ties, 32-35.
making: Additional helps to,
246; basis of, 237; essential require-
ment in, 236, 251-252; first essential
to successful, 235; importance of, 1;
practical diflBculty of, in Chicago,
273; results obtainable from a, 260-
261; the allotment scheme in, 246-
247; provisions for, in the constitu-
tion, 1.
Budget Making and the Work of
Government. Henry Jones Ford,
1-14.
Budget Making for Small Cities.
Lent D. Upson, 235-248.
Budget Making in Chicago. Charles
E. Merriam, 270-276.
Budget Making in Cleveland.
Mayo Fesler, 264-269.
Budget Making, State, in Ohio. W.
O. Heffeman, 91-100.
Budget making procedure, inadequate
publicity in the, of Toronto, 214.
method: Benefits derived from
the new, in New York City, 180;
purpose of the new, in New York
City, 180.
Budget Methods in Illinois. John
A. Fairlie, 85-90.
Budget movement, the, in Illinois,
76-77.
ordinance, functions to be per-
formed by the, 233-234.
plan: Disadvantages of the
segregated, of New York City, 180-
181; essentials to an adequate, 48;
practice, purposes of the proposed
revision of, in New York City, 181.
procedure; Boards of control in,
30-31; factors affecting, in the
United States, 3; necessity for pub-
licity in, 45; provisions of Cleveland's
charter for, 265; purpose of, 191.
Budget Procedure, the, of English
and French Cities. D. C. Bald-
win, 204-210.
Budget program, effect of development
of a scientific, on operation of govern-
ment in New York City, 188.
proposals, of President Taft,
action of Congress on the, 27-28.
system: Adoption of the segre-
gated, in Chicago, 271; advantages
of installing in state governments,
63; basis laid by New York Bureau
of Municipal Research for, 65; plan
prepared for a new, in Illinois, 89;
efforts of New York City to establish,
178-179.
Budgets: Bibliography on, 277.
Budgets, County, and Their Con-
struction. Otho Grandford Cart-
wright, 223-234.
Budgets, Select List of Refer-
ences ON National, State, County
AND Municipal, in the United
States. Harry A. Rider, 277-287.
Budgetary control, steps necessary to
preserve effectiveness of, 189.
procedure: Leading facts in, in
German municipahties, 195-196; re-
lation between the revenue system
and, 113; significance of, 36; under
the commission manager plan, 174;
vital facts concerning municipal, in
England and France, 204.
Budgetary Procedure, Accounting
Basis of. WillB. Hadley, 136-139.
Budgetary Procedure Under the
Manager Form of City Govern-
ment. Arch M. Mandel, 163-175.
Budgetary Provisions, the, of the
New York Constitution. Charles
A. Beard, 64-68.
Bureau ©f Municipal Research: Basis
laid by, of New York, for a scientific
budget system, 65; bills prepared by,
of New York, 65-66.
Cahfomia: Extent of power of State
Board of Control of, 69; improve-
Index
315
merits established by new budget
system of, 71.
California's State Budget. John
Francis Neylan, 69-72.
Capital outlay, definition of, 239.
Cartwright, Otho Grandford.
County Budgets and their Construc-
tion, 223-234.
Chicago: Adoption of the segregated
budget system in, 271; amount of
over appropriation in, in 1914 and
1915, 273; amount of supplemental
appropriations made in, in 1914,
274; appropriations in, 270; average
cost per unit of attendance at the
playgrounds of, 143; cost of operation
of bathing beaches and swinmiing
pools in, 146; illustration of old
budget system in, 271 ; improvements
of new budget system in, 271-272;
per capita cost of bathing beaches
and swimming pools in, 146; practical
difl5culty of budget making in, 273;
recommendation of a budget by
finance committee of, 270; some
provisions of the budget of, for 1915,
272.
Chicago, Budget Making in. Charles
E. Merriam, 270-276.
Chicago's South Park Commissioners,
table compiled from report of, 1914,
141-142.
City, alternatives open to meet de-
mands of a growing, 190.
City Government, Budgetary Pro-
cedure UNDER THE MANAGER FORM
OF. Arch M. Mandel, 163-175.
City planning, relation between admin-
istrative efficiency and, 157.
Cleveland: Division between legisla-
tive and administrative functions in.
265-266; excess of expenditures over
income in, in last two years, 268;
financial administration of, 264;
preparation of the appropriation
ordinance by council of, 265; pro-
visions of charter of, for modem
budget procedure, 265; public hear-
ings attending preparation of the
appropriation ordinance in, 268-269.
Cleveland, Budget Making in.
Mayo Fesler, 264-269.
Cleveland, Frederick A. Evolu-
tion of the Budget Idea in the United
States, 15-35.
Commission manager charter of Day-
ton, provisions of, governing appro-
priations, 166.
form of government, number
of cities having adopted, 163.
plan, budgetary procedure
imder the, 174.
Congress, connecting link between
executive and, 9.
Cost data: Difficulty of compound
unit, 255; example of the weakness
of usual, 253.
of asphalt pavement, summary of
various elements in comparing, 254,
County and Municipal Budgets in
the United States, Select List op
References on National, Statb.
Harry A. Rider, 277-287.
County budget: Classes of expendi-
tures to be provided for in the, 226;
usual procedure in making the, 225-
226.
procedure, improvements in
recent years in, 227-228.
budgets, bibliography on, 279.
County Budgets and Their Con-
struction. Otho Grandford Cart-
VrTight, 223-234.
County government: The ordinary
way of financing, 224-226; the
preparation of the budget in, 231.
Dayton: Appropriation ordinance of,
168-171; method employed in, for
preparing budget, 170-171; provi-
sions of charter of, governing appro-
priations, 166.
Dayton's budget: Amount for cm^
rent operation in, 165; claaiificatioQi
316
Index
of appropriations provided for, by,
167-168; effectiveness of, 171; result
of operation under, prior to 1914,
165-166.
Detroit Recreation Commission,
amount of budget of the, 140.
Economy and efficiency: Duties of
the commission on, in Massachu-
setts, 103; organization of Presi-
dent Taft's commission on, 24;
program of work formulated by
commission on, 24.
Efficiency and Economy Committee,
report of, of lUinois, 89-90.
Efficient government, position of muni-
cipahties of this country in crusade
for, 60.
Electorate, how it can be reached, 20.
England, vital facts concerning muni-
cipal budgetary procedure in, and
France, 204.
English and French Cities, The
Budget Procedure of. D. C
Baldwin, 204-210.
English cities: Audit in French and,
209-210; fixing the tax rate in,
208-209.
Equipment, definition of, 259.
Estimate classifications, main, in the
budget, 242.
forms; Advantage of detailed ac-
counting required on departmental,
260; special departmental, 259-260.
sheets, summary on, of salaries,
240.
Estimates; Appropriations versus, 241-
242; people required to make, 16-17;
preparation and investigation of,
106-108; present law of submitting,
in Massachusetts, 101 ; proper oflBcers
to prepare, 48; recommendation for
establishment of annual, in Toronto,
217; two kinds of, 16.
Estimates, the Preparation of, and
the Formulation of the Budget —
THE New York City Method.
Tilden Adamson, 249-263.
Executive: Arguments in favor of the,
formulating the budget, 42; budget
to be made by responsible, 17-18;
questions raised by the submission
of the budget by the, to the legisla-
ture, 43-44.
budget, obstacles in the way of an,
in Massachusetts, 103.
power, results of increase in, 62.
Expenditure: Authorization of, in New
York City, for 1915, 249; classifica-
tion by character of, 238-239; classi-
fication by objects of, 239.
Expenditures : Conditions resulting
from revenues of the government
exceeding authorized, 48; control of,
by classifying various forms of sup-
pHes, 257-258; necessity for simul-
taneous consideration of income and,
37-38; need of flexibility in, 272-273;
obligatory, what they include, 207.
Expense, definition of, 238-239.
Fairlie, John A. Budget Methods in
lUinois, 85-90.
Federal government, efforts made to
apply the budget idea in the, 23.
Fesler, Mayo. Budget Making in
Cleveland, 264-269.
Finance: Charts used in exhibit on, 152;
plan for organizing a department of,
in Illinois, 90; relations between
general and local, 194-195.
Committee: Duties of the, of
Birmingham, 205-206; of Chicago,
recommendation of budget by, 270;
work of the, on the budget, 206.
Finances: Defects in the administra-
tion of the, of Toronto, 212-215; lack
of adequate supervision of, in To-
ronto, 215-216; lack of effective con-
trol over the, of Toronto, 213-214;
recommendations regarding the ad-
ministration of Toronto's, 216-218.
Index
317
Financial administration, of Cleveland,
264.
Financial Administration of the
Commonwealth of Massachusetts.
Ernest H. Maling, 101-112.
Financial control, contrast between
English and French cities in methods
of, 205.
legislation, situation in Illinois
with regard to, 77-78.
Financing, methods employed in, in
Toronto, 214-215
Financing and Accounting Prac-
tice, the Movement for Improved,
IN Toronto. Horace L. Brittain,
211-212.
Fire protection, charts used in exhibit
on, 150.
Fiscal administration: Former system
of, in Ohio, 94-95; provisions of first
constitution of Illinois for, 85; pro-
visions of New York constitution for
a new era of, 66-68; provisions of
present constitution of Illinois, re-
garding, 85-86.
Ford, Henry Jones. Budget Making
and the Work of Government, 1-14.
France, vital facts concerning municipal
budgetary procedure in England and,
204-210.
French cities: Contrast between Eng-
lish and, in methods of financial con-
trol, 205; division of the budget in,
207; preparation of the budget in,
206-207.
French Cities, the Budget Proced-
ure OF English and. D. C. Bald-
win, 204-210
Geiser, Karl F. The German Muni-
cipal Budget and its Relation to the
General Government, 192-203.
German municipal budget, relation of
public enterprises to the, 201.
German Municipal Budget, The,
and its Relation to the General
Government. Karl F. Geiser, 192-
203.
German municipahties, leading facts
in budgetary procedure in, 195-196.
municipality, effect of freedom
from state interference on a, 200.
Germany: Comparison of incomes of
various sources in, 201; complicated
financial relations between local and
general governments of, 192; duties
of the magistrate in, 194; examples of
municipal enterprise in, 200-201;
inheritance tax as a federal tax in,
195; provisions for control of the
budget in, 197; taxation in, 199.
Government: Annual expenditures of
the federal, 25; conditions resulting
from revenues of the, exceeding au-
thorized expenditures, 48; relation
between budget conditions and work
of, 3, 14.
Government, Budget Makino and
THE Work of. Henry Jones Ford,
1-14.
Governor, duties imposed on the, re-
garding matters of money raising
and accountability for expenditure,
29-30.
Hadley, WillB. Accounting
of Budgetary Procedure, 130-139.
Hamilton: On taxation, 1-2; work of,
in early United States government,
5.
Heffernan, W. O. State Budget
Making in Ohio, 91-100.
Health exhibit, charts used in, 150.
Illinois: amount of appropriatioDS
passed by legislature of, in 1913 snd
1915, 76; amount of estimstes pn-
pared by Legislative Referanoe Bu-
reau of, 88; appropriAtion bills en-
acted by 48th QeiienJ AsMmbly of,
78; dsssifioAlioQS provided for in the
budget of, 80; definite pbo pi«|»i«d
318
Index
for a new budget system in, 89;
diflBculty of constructing a budget in,
78-79; disadvantages of old method
of making appropriations in, 74;
former method of presenting appro-
pi iation bills in, 86; former practice
of assigning appropriations to chari-
table institutions in, 74-75; increase
in total appropriations in, from 1913-
1915, 88; increases in the biennial
appropriations made by General
Assembly of, from 1875 to 1915, 85;
old methods of making appropria-
tions in, 73-74; plan for organizing a
department of finance in, 90; pro-
visions of constitutions of, regarding
fiscal administration, 85-86; reasons
for increase in biennial appropriations
in, 85; relation between Legislative
Reference Bureau and General Assem-
bly in, 79-80; report of EfiBciency
and Economy Committee of, 89-90;
situation in, with regard to financial
legislation, 77-78; the budget as
prepared by the Legislative Refer-
ence Bureau of, 77-78; the budget
movement in, 76-77; work of Legis-
lative Reference Bureau in prepaiing
a budget for, 80.
Illinois, Budget Methods in. John
A. Fairlie, 85-90.
Illinois budget: DiflBculties presented
by the classifications in the, 81-82;
net amoimt of departmental appro-
priations in, 81; total amount of
department estimates in, 81.
Illinois Budget, The. Finley F.
BeU, 73-84.
Income: Necessity for establishment
of a balance between expenditure
and, 48; necessity for simultaneous
consideration of expenditures and,
37-38.
tax, objections to the adoption of
the, as an element in municipal
finance, 117-118.
Indiana, progress of the budget in, 227.
Inheritance tax, as a federal tax in
Germany, 195.
Land value, relation of, to total real
estate value, 129.
maps, value of, 128.
Leeds: Total expenditure of, during
past year, 208-209; total receipts of,
during last year, 208.
Legislative and administrative func-
tions, division between, in Cleveland,
265-266.
initiation, reasons for our failure
of, 50.
Legislative Reference Bureau: Amount
of estimates prepared by, of IlUnois,
88; the budget as prepared by the,
of Illinois, 77-78; work accomplished
by, of Illinois, 88; work of, in pre-
paring a budget for Illinois, 80.
Legislature: Authority of, over pubhc
money, 36; questions raised by the
submission of the budget by the
executive to the, 43-44.
Legislature, the Budget and the.
Rufus E. Miles, 36-46.
Licenses, granting of, 134-135.
LooMis, Milton E. Taxation and the
Municipal Budget, 113-124.
Los Angeles: Per capita land value
of, 127; progress of the budget in,
227.
LowRiB, S. Gale. The Proper Func-
tion of the State Budget, 47-63.
Maling, Ernest H. Financial Ad-
ministration of the Commonwealth
of Massachusetts, 101-112
Manchester, receipts of, from tram-
ways, 209.
Mandel, Arch M. Budgetary Proced-
ure under the Manager Form of
City Government, 163-175.
Manhattan, per capita land value of,
127.
Massachusetts: Appropriation proced-
ure in, 104-105; bonds issued in,
Index
319
111-112; duties of Commission on
Economy and Efficiency in, 103;
number of appropriation acts passed
in each month of legislative session
of 1915, in, 110; obstacles in the way
of an executive budget in, 103, 107;
present method of submitting esti-
mates and securing appropriations
in, 101.
Massachusetts, Financial Adminis-
tration OF THE Commonwealth of.
Ernest H. Maling, 101-112.
Materials, definition of, 259.
Merriam, Charles E. Budget Mak-
ing in Chicago, 270-276.
Miles, Rufus E. The Budget and
the Legislature, 36-46.
Municipal budget: Direction of the
development of the, in American
cities, 113; provision for recreational
facilities in the, 140; relation of public
enterprises to the German, 201;
various subdivisions of a, 196-197.
Municipal Budget, Taxation and
the. Milton E. Loomis, 113-124.
Municipal Budget, The German,
AND its Relation to the General
Government. Karl F. Geiser, 192-
203.
Municipal budgetary procedure, vital
facts concerning, in England and
France, 204.
budgets, bibliography on, 279-
287.
Municipal Budgets in the United
States, Select List of References
ON National, State, County and.
Harry A. Rider, 277-287.
Municipal enterprise: Examples of,
in Germany, 200-201; operation of,
135.
expenditures, effect of increase in,
on revenue system, 114.
methods, committee formed to
study improved, in Toronto, 211-
212.
reports, 247-248.
revenue: Important sources of,
118-123; two characteristics of
American, 114.
taxes: Income from direct and
indirect, in Prussia, 202, 203.
Municipalities: Budget ideas applied
to, 32-35; position of, of this country
in crusade for, 60.
National, State, County and Mu-
nicipal Budgets in the Unfted
States, Select List of Refbrencbs
ON. Harry A. Rider, 277-287.
National budgets, bibliography on, 277.
New York: Basis laid by Bureau of
Municipal Research of, for a scien-
tific budget system, 65; bills prepared
by Bureau of Municipal Research of,
65-66; board of estimate in, 18^190;
budget procedure in, 34-35; compari-
son of amounts estimated and
amounts collected from various
sources of revenue in, from 1912-
1914, 121-122; deficiency in real and
personal taxes in, from 1899-1913,
120-121; essentials of a budget lack-
ing in comptroller's plan for, 227;
method of making budget, example
of, 261; per capita land value of, 127;
provisions of constitution of, for a
new era of fiscal administration, 66-
68; two steps in the development
of budget procedure in, 176.
New York City: Appropriations con-
trolled by budget in, 249; authorisa-
tion of expenditure in, for 1916, 249;
benefits derived from the new budfel
method in, 180; charaotorfartio ct
budget appropriation in, 180; chief
purposes of present budget in, 250;
classification of expenditures for
bureau of child hyipene in, 184;
devices adopted for oontroUing ad-
ministrative disareUoD in, 179; diffei^
ence betwen preMot and proposed
method of the budfst, for, 188; di»-
advantaffss of the s>ip«iitied bodfei
320
Index
plan of, 180-181; division of the
budget of, 181-182; form of budget
existing in, until ten years ago, 177;
provisions for appropriations in
budget of, 182-183; purpose of the
new budget method in, 180; purposes
of the proposed revision of budget
practice in, 181.
New York City Method, The — the
Preparation of Estimates and the
Formulation of the Budget. Til-
den Adamson, 249-263.
New York Constitution, The Bud-
getary Provisions of the. Charles
A. Beard, 64-68.
Neylan, John Francis. California's
State Budget, 69-72.
Ohio: Administrative re-organization
in, 61-62; combination of two meth-
ods of making appropriations in, 95;
consolidations suggested in govern-
mental machinery of, 97-98; former
system of fiscal administration in,
94-95; provisions of law estabUshing
a budget system in, 91-92; total
amoimt of appropriations in, for
1915-17, 98.
Ohio, State Budget Making in.
W. O. Heffeman, 91-100.
Personal property tax, reasons for
abolishing the, 134.
Philadelphia: Classifications of ac-
counting system of, 136-137; play-
ground costs in, 144-146; total ex-
penditure of municipal swimming
centers in, 147.
Philadelphia's budget, two methods of
presenting general accounting re-
ceipts in, 138.
Playgrounds: Average cost of opera-
ting, in Chicago, 146; in Pliiladelphia,
146.
Police protection, charts used in exhibit
on, 150.
Prussia: Income from direct munici-
pal taxes in, reported March 31,
1912, 202; income from indirect
municipal taxes in, reported March
31, 1912, 203.
Public: Interest of the, in the budget,
165.
revenue, in St. Louis, 159, 160.
Publicity, necessity for, in budget
procedure, 45.
Real estate value, relation of land value
to total, 129.
Recreation, total amount spent in 1910
for, 140.
centers: Cities maintaining, in
1913, 140; number of, in the United
States, in 1913, 140; total expendi-
tures for, in 1913, 140.
parks, in Chicago, 142-143.
Recreational facilities: Movement for
public cooperation in, 141; need for
standardization in cost of, 141; per
capita expenditures for, 140; pro-
vision for, in the mimicipal budget,
140.
Recreational Facilities, Unit Costs
IN. Paul T. Beisser, 140-147.
Revenue: Comparison of amounts
estimated and amounts collected
from various sources of, in New York
from 1912-14, 121-122; derived from
special assessments, 129-130; rela-
tion between, and budgetary pro-
cedure, 113; relative certainty of,
from real property tax, 119; sources
of, 116, 117, 121-123; subject to
annual appropriation, 103-104.
Revenue, Sources of. Herbert S.
Swan, 125-135.
Revenue demands, adaptabiUty to,
114-118.
system: Characteristics of, 113,
118-124; effect of increase in munici-
pal expenditures on, 114; importance
of real estate tax in, of American
cities, 125; lack of flexibility in the,
115; remedy proposed for inflexibiUty
Index
321
in the, 115; lequired by adminiBtra-
tion of the budget, 114.
Revenues: Excess of, over expendi-
tures, 48; utilized under standing
statutory authority, 110-111.
RroER, Harry A. Select List of Ref-
erences on National, State, County
and Municipal Budgets in the United
States, 277-287.
Salaries : Schedule of, 239-240 ; stand-
ard izat ion of, 80.
San Diego, per capita land value of, 127.
San Francisco, per capita land value of,
127.
Sewage exhibit, charts used in, 150-
151.
Sidewalks, cross-walks and parks,
charts used in exhibit on, 151.
Speaker of the House: Decrease in
power of, 12-13; development of
autocratic power of, 11-12.
St. Louis: Revenue of, 159, 160; share
of state's expenses borne by, 161.
Standardization: Need for, in cost
of recreational facilities, 141; of
salaries, 80.
State and municipal government, dis-
tinction between, 60-^1.
budget: Preparation of, 49.
State Budget, California's. John
Francis Neylan, 69-72.
State Budget, the Proper Function
OF the. S. Gale Lowrie, 47-63.
State Budget Making in Ohio. W.
O. Heffeman, 91-100.
State budgets, bibliography on, 278-
279.
State, Countt and Municipal, Bud-
gets IN THE United States, Select
List of References on National.
Harry A. Rider, 277-287.
State constitutions, requirements of,
29-30.
governments, advantages of in-
stalling an adequate budget system in
our, 63.
reports: Of expenditures, lack
in, 93-94; value of, 94.
Street cleaning, exhibit on, 162-153.
lighting, exhibit on, 151.
sprinkling, exhibit on, 161.
Supplies, definition of, 259.
Swan, Herbert S. Sources of Rev-
enue, 125-135.
Taunton, per capita land value of, 127.
Tax: Budget estimates and the per^
sonal property, 120; dependence of
American cities on the general |nt>p>
erty, 115; relative certainty of rev-
enue, from reiil property, 119; rela-
tive certainty of yieU from personal
property, 120; the general propcrtv,
118-121.
discounts, objection to, 126.
maps, value of, 128.
rate: Fixing the, in EngUeh
cities, 208-209; how it shouki be
fixed, 125; limitations on the, 125.
receipts, method of estimating,
123.
Taxation and the Municipal Bud-
get. Milton E. Loomis, 113-124.
Taxation: Exemption of buildings
from, 128-129; Hamilton on, 1-2,
in Germany, 199.
Taxes: Advantages of the semi-anoual
collection of, 126; deficiency in real
and personal, in New York from
1899-1913, 120-121; desirabiUty of
business, 134; exhibit on afwewwncnt
and collection of, 162; aenuHomual
collection of, 126.
Taxpayer, facts shown to Uie, by tiie
budget exhibit, 148.
Taxpayer's organisations, servioe per-
fonned by, 115.
Toronto: Accounting and reporting
recommendations of Civic Survey
Report of, 2 19-220; defects in methods
of accounting and reporting ueed hft
218-219; defect* in the adminietn-
Uon of the finanoet of, 213-216; in-
322
Index
crease in assessed valuation of, from
1905-1914, 211; increase in city taxes
of, from 1905-1914, 211; increase in
population of, from 1905-1914, 211;
lack of adequate supervision over
the administration of finances in,
215-216; methods employed in fi-
nancing in, 214-215; recommenda-
tions for establishment of annual
estimates in, 217; recommendation
for preparation of a budget in, 217;
recommendations regarding the ad-
ministration of finances of, 216-
218; report of Civic Survey Com-
mittee of, 212, 215, 218-221.
Toronto, the Movement for Im-
proved Financing and Accounting
Practice in. Horace L. Brittain,
211-222.
Toronto Bureau of Municipal Re-
search, report of, 217-218.
Unearned increment tax: Advantages
of the, 134.
United States : The budget idea in the,
21-22; total amount of unexpended
balances in the, 10.
United States, Evolution op the
Budget Idea in the. Frederick A.
Cleveland, 15-35.
United States, Select List of
References on National, State,
County and Municipal Budgets
in the. Harry A. Rider, 277-287.
Upson, Lent D. Budget Making for
Small Cities, 235-248.
Westchester County: Budget of, 227,
228.
Wisconsin: Administrative re-organi-
zation in, 62; as a model of adminis-
trative government, 59.
CUMULATIVE TOPICAL INDEX
Below is a list of refereDces to the articles in previous issues of Thb Annalb
which also treat of the special subjects discussed in this volume. A eumulatiye
index will appear in each succeeding issue of The Annals. Throu^ these cumu-
lative indexes, the vast amount of valuable material that the Academy has pub*
Ushed during the twenty-five years of its existence can be efficiently correlated
and efifectively used. — The Editor.
Municipal Government
Previous volumes:
Municipal Problems, Vol. XXIII,
March, 1904; Municipal Ownership
and Municipal Franchises, Vol.
XXVII, January, 1906; Municipal
Problems, Vol. XXVIII, November,
1906.
Articles in other volumes:
The Study of Municipal Govern-
ment, F. P. Pritchard, Vol. II, Jan-
uary, 1892, p. 18; Problems of Munic-
ipal Government, E. L. Godkin,
Vol. IV, May, 1894; p. 1; The Need
for Co6rdinating Municipal, State and
National Activities, Frederick A.
Cleveland, Vol. XLI, May, 1912,
p. 2S; Efficiency in the Fiscal Opera-
tions of Cities, Edmund D. Fisher,
Ibid., p. 71; Economy and Efficiency
in the Department of Water Supply,
Gas and Electricity of New York
City, J. Leggett Pultz, Ibid., p. 78;
Efficiency in Water Revenue Collec-
tion, J. H. Clowes, Ibid., p. 86; A
Proposed Municipal Administrative
Code for New Jersey Cities, D. O.
Decker, Ibid., p. 204; Development
of Standards in Municipal Govern-
ment, Henry Bru^re, Vol. LXI,
September, 1916, p. 199.
State Govbrnmbnt
Articles in other volumes:
Reform of Our State Governments,
GamaUel Bradford, Vol. IV, May,
1894, p. 27; Custody of State
Funds, E. R. Buckley, Vol. VI,
November, 1895, p. S7; Recent Tend-
encies in State Administration, Leon-
ard A. Blue, Vol. XVIII, November,
1901, p. 44; Separation of State aad
Local Revenues, T. S. Adams, Vol.
LVIIl, March, 1915, p. 151.
Taxation
Previous volumes:
Readjustments in Taxation, Vol.
LVIII, March, 1916.
Articles in other volumes:
Taxation of Quasi-Public Corpora-
tions in the State of Ohio and the
Franchise Tax, Frederic C. Howe,
Vol. XIV, September, 1899, p. 167;
The Taxation of Corporations in the
United States, Frances Walker,
Vol. XIX, March, I90i, p. 185.
BUDGITB
Articles in olKsr fojumst:
Budget Provisions in ConuninkNi-
Governed Cities, L. 0. Powen, Ksl.
323
324
Cumulative Topical Index
XXXVIII, NovembiT, 1911, p. 128;
Efficiency in Budget Making, Her-
bert R. Sands, Vol XLI, May, 1912,
p. 138; Efficiency Value of the
Budget Exhibit, J. Harold Braddock,
lUd., p. 151.
Accounting
Articles in other volumes:
Efficiency Through Accounting, Wm.
A. Prendergast, Vol. XLI, May,
1912, p. 43; Results Obtainable
through Reorganization of Account-
ing Methods, B. J. Taussig, Ibid., p.
57; The Application to a Municipal-
ity of Modem Methods of Account-
ing and Reporting, John M. Walton,
Ibid., p. 64; A National Fund for
Promoting Efficient Municipal Ae-
counting and Reporting, U. L. Leon-
hauser. Ibid., p. 304; Simplified Cost
Accounting for Manufacturers, Wal-
ter B. Palmer, Vol. LXI, September,
1915, p. 166.
County Government
Previous volumes:
County Government, Vol. XLVII,
May, 1913.
Articles in other volumes:
Efficiency in County Government,
Otho Granford Cartwright, Vol.
XLI, May, 1912, p. 193.
G
F
H American Academy of Politic
1 and social Science, Phi lade
^ Annals
V. 60-62
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