workhouses; when prohibited by law from making standard goods, they often make furniture and other supplies for state institutions. The Southern states go into the business of leasing out convicts to private firms, to be used in railroad construction and like hard labor.

In the municipalities we find the greatest number of public industries. No American city goes to the extent of the French, with public pawnshops and public restaurants, or imitates the English system of public tenement houses; but a large number of American cities engage in the business of supplying water and gas or electricity to private consumers, and there is now a manifest tendency toward the business of public street cars. Wherever the town system prevails, there is a town hall, which is often let for private entertainments. The city of New York manages a large system of public docks for profit, and the city of Boston has a public printing establishment.

497. Government regulation of industry. Governments interfere with private business enterprises for the following purposes:

The chief forms of modern government interference with private industry may be put under the four heads of action in behalf of consumers, of producers, of investors, and of the community in general.

1. In the middle ages the government interposed in behalf of the consumers either to guarantee good work or to insure reasonable price. Both of these forms of interference have disappeared in general industry to-day, because custom has been replaced by competition. . . . In modern times, accordingly, we find that the chief form of interference with competitive industry in behalf of the consumer is legislation to safeguard health, as in the case of food inspection and quarantine regulation.

2. On the other hand, the interests of the laborer have been so materially affected by the advent of the factory system that modern interference on behalf of the producers is well-nigh exclusively limited to them. As we have learned, there are five classes of such interference, all of which, except the last, are rapidly becoming universal: (a) legislation to safeguard health, through the so-called factory laws, applicable to men, women, and children alike; (b) legislation to insure safety through employers' liability laws; (c) legislation fixing maximum hours of work, as in the case of the eight-hour law for miners and public employees; (d) compulsory insurance against illness, old age, or lack of employment; and finally (e) legislation fixing minimum wages, as in Australia and New Zealand. . . .

3. In former times the striking example of interference by government in case of investment was in behalf of the borrower. The usury

laws, designed to protect the unfortunate debtor, have, as we know, been rendered almost completely unnecessary through the growth of competition in the loan of capital. This same development has, however, brought about the need of intervention of the opposite kind. To-day it is the lender or investor in corporate enterprise, and not the borrower, who requires protection. Here, again, there are dangers on both sides, the risk of over-rigidity which will hamper legitimate enterprise, and the danger of lax accountability which will destroy confidence. That, however, some solid measure of regulation is requisite can no longer be successfully disputed.

4. We come, finally, to the case of government interference in behalf of the general interests of the community. This takes the form of protection, which has already been discussed in a separate chapter, and also of bounties and subsidies.

The danger of such intervention is that particular interests may foist themselves upon the legislator in the guise of general interests. Bounties may be classified as (a) military bounties, (b) forest bounties, (c) agricultural and industrial bounties, and (d) land transport and shipping subsidies.

498. How to regulate trusts. Professor John B. Clark suggests the following as possible methods of trust regulation :

First, we may prosecute with more intelligence the effort to break up the trusts into smaller corporations. It has, for example, been suggested that no corporation should be permitted to have more than a certain amount of capital. But if a maximum of capital were fixed for all industries, the difficulty would be that an amount which is too small for prosecuting one type of business would be sufficient to enable a company to monopolize another. A more effective policy would allow capital to vary in different kinds of business, but would so restrict the output of each corporation that no one could produce more than a certain proportion of the whole output of goods of the kind that it makes. . .

Secondly, we might abolish customs duties on all articles manufactured by the trusts. We might in this way appeal to the foreign producer to become the protector of the American consumer. There is no denying the efficacy of such a measure. It is idle to say that, because trusts exist in free-trade countries, our present tariff is not effective in promoting them. Trusts have very little power in free-trade countries. . .

Thirdly, it is conceivable that we might introduce an elaborate system of price regulation. We might accept monopoly as inevitable, but prescribe, in a minute and detailed way, at what rates goods should be sold. On the supposition that this difficult policy were carried out in a spirit

of complete honesty, on the supposition that the officials of the law re'mained incorruptible, though placed in positions that offered the maximum inducement for corruption, there would still remain for determination the question as to what principle they should follow in regulating prices....

Fourthly, we may put all monopolized industries into the hands of the state and thus, within a very extensive field, carry out the program of the socialists. To a casual observer, this looks easier than the other policy: and it will certainly find more and more advocates, as the powers of trusts increase. There is, moreover, no doubt that this measure would abolish certain evils that are inherent in private monopolies. Even if it did not succeed in giving the public cheap goods, it might save the people from the necessity of buying goods that were made dear by private producers' grasping policy. But this measure must stand or fail with the general cause of socialism; and, while so extensive a subject as that is not here to be discussed, it is safe to say that the judgment of the people is against it. . . .

Is there no further recourse? There is one; and it has the advantage of being in harmony with the spirit of our people, with the principles of common law and also with the economic tendencies that have made our present state a tolerable one. It is to give to potential competition greater effectiveness that is, to give a fair field and no favor to the man who is disposed to become an independent producer, leaving him wholly at the mercy of fair competition but shielding him from that which is unfair. Let the trust crush him, if he cannot produce goods as cheaply as it can; but let him bring the trust to terms, if he can produce them more cheaply. This puts the trust in a position where its security will depend, not on its power to destroy competitors unfairly, but on its power to meet them fairly.

499. The problem of railway regulation. The general nature of the problem of governmental regulation of railways is thus stated by a leading American authority : 1

There are two parts to the permanent problem of government regulation of railroad transportation, two duties devolving on the state. One is to adjust the relations of the carriers with each other; the other is to maintain an equitable relationship between the public and the carriers. The theory concerning the interrelations of the carriers that has generally been adhered to in the laws of the United States and the severa American States has been that the several railroad companies should act independently and should actively compete with each other as regards traffic and rates. Neither pooling arrangements nor agreements 1 Copyright, 1908, by D. Appleton and Company.

concerning the making and maintenance of reasonable rates have been sanctioned by law. . .

The Government's obligation to maintain an equitable relationship between the carriers and the public is as great to-day as it ever has been. The problem has a different form than it has had in the past or may have in the future, but in essence the question is a permanent one, and <consists in harmonizing as far as possible the interests of the private corporations of a quasi-public character engaged for profit in the performance of a service of a public nature, with the interests of the individuals, the localities, and the general public served by the carriers. This general problem is a continuing one, but the specific reason for Government regulation will vary from time to time, and may be, as it was in 1870, to secure cheaper rates to the seaboard for the agricultural products of the Central States; or may be, as was particularly the case during the period from 1870 to 1890, to adjust the rates charged at the small local towns and at the large cities; or the reasons may be, as at the present time, to secure relatively reasonable rates for rival areas of production and for rival economic interests in the same area of production.

500. Real value of a protective policy. One important political point, often overlooked in economic discussions of protection and free trade, is emphasized in the following:

On the other hand, the free traders fail to make allowance for an important element in the problem. The essence of free trade is cosmopolitanism; the essence of protection is nationalism. Free trade holds up to our contemplation the ultimate economic ideal, but fails adequately to reckon with actual forces. The universal republic is far in the distance, and the separate nations still have an important function to subserve in developing their own individuality and thus contributing distinctive elements to the common whole. Legitimate competition presupposes a relative equality of conditions; as long as the growing nations of the world are in a state of economic inequality, we must expect and not entirely disapprove the effort on the part of each to attain equality by hastening its own development. Ultimately, no doubt, patriotism will be as much of an evil as particularism has now become; but in the present stage of human progress patriotism is a virtue. Free traders often overlook the sound kernel in what seems to be the apple of discord.

As long as nations continue to form the economic units it is not competent to argue from internal free trade to international free trade. The cotton mills in the South may injure their competitors in New England, but the nation will look on with equanimity, because it means a

surplus production of wealth within the country. When, however, an industry in one country is menaced by the competition of another, it is no solace to the first that the world's wealth is being augmented at the cost of its own. Nations are not yet so unselfish. They calculate that even if protection carries with it certain incidental disadvantages, they stand to gain more than they will lose. Even as an engine of commercial diplomacy a protective tariff is frequently of service.

In the main, then, the conclusion would seem to be that under certain conditions a protective policy is relatively defensible. It may be conceded that in countries the mass of whose exports are of an industrial character protection is unwise. It may be taken for granted that when nations reach a state of comparative economic equality, protection will be unnecessary and even injurious, because if left alone each will then develop its own natural advantages. It cannot be gainsaid that protection sets loose the selfish passions of individuals and classes and that it is responsible for its share of political greed and unsavory legislation. But when the economic resources of a country are not yet fully developed, it may none the less be desirable to accelerate the pace, in the interests of its own immediate national progress, with the idea that the contributions of fully mature and economically well-rounded nations to the common wealth of the globe will in the long run exceed the gain from an uneven and one-sided evolution.

501. Tariff outlook in Europe. Certain tendencies indicate the further extension of free-trade principles in Europe.

The war of protective tariffs which is now in progress in Europe is doing more than could any amount of argument to discredit that policy. Statesmen in all countries are beginning to appreciate that however advantageous protection might be if one country could practice it all by itself, it is suicidal when pursued to its logical limit, that is, the entire exclusion of all products that may be produced at home, by all countries together. The United States, with its varied natural resources, may pursue such a policy and prosper, but this is not possible for one of the countries of Europe. It may take time for this conviction to win general assent, but that it is gaining ground is evinced by the agitation for enlarging the boundaries of the protected areas. Tariff unions similar to the German Zollverein are now being considered on the one hand for the whole continent of Europe, and on the other for the whole British empire. That such unions will be formed is highly improbable, but that the same arguments that are urged in their favor may be advanced with even more cogency in support of a policy of general free trade must be admitted by all who have followed the tariff controversy.