John Dutton's Finances: A Discussion of the Cost of Living

A DISCUSSION OF THE COST OF LIVING

To those who take the 9.49 express from Brockton to Boston, it is apparent that John Dutton, the veteran conductor, is failing in health. Thirty years ago Dutton lived in the little town of Holbrook, a suburb of Brockton, on the Old Colony Railroad, and was engaged with his father, then a man of fifty-five, in the manufacture of custom-made shoes in a little shop in one corner of their house. The family income was small, amounting to only about nine hundred and sixty dollars per annum, as compared with twelve hundred and eighty which Dutton himself now receives as a conductor on the New Haven Railroad.

The conditions of that time, however, differed radically from those now existing. Massachusetts did not then produce one hundred and twenty million dollars’ worth of boots and shoes per annum; nor were there then any mammoth shoe-factories in the city of Brockton, nor was the Old Colony Railroad a mere branch of an immense transportation system capitalized at $385,000,000; nor was our manufacturing business over-stimulated by the world’s annual flood of gold, amounting to $450,000,000; nor had our great cities drawn from the farms the flower of their population. Life was much simpler than it is now. Our business organization was less complex, and while our industrial achievements were less striking, we were more than compensated by the larger significance of the home, the greater freedom from worry, and the lower cost of living.

These, however, are studies quite beyond the sphere of John Dutton’s thought and activity. He is chiefly concerned in the rearing of his family, the education of his children, and the attempt to make ends meet. To the casual observer, Dutton with his twelve hundred and eighty dollars per annum seems a fortunate individual, especially in view of the fact that the average income of other laborers in the United States is only about six hundred and forty dollars. Indeed, up to 1897, or a year or two thereafter, Dutton regarded himself as one of the successful minority in the struggle for a living; but since that time his difficulties have grown even more rapidly than the additional expense of rearing three growing children would seem to warrant. His family account books show that he now receives twenty per cent more salary than in 1897; but against this, his annual supply of food now costs about $550, as compared with $385 then; his rent has advanced from $168 to $240; his expense for clothing from $150 to $180, and the cost of his fuel from $56 to $62.

It may be seen at a glance that his total expense for these four main necessities amounts to about $1,032 now, as compared with $759 then, while his income has increased only from $1,075 to $1,280. He therefore has a balance of about $248 with which to cover his entire expenditure for lighting, insurance, the fees due to his union, furniture and utensils for his house, books and papers, education, amusements, sickness, and other incidentals; and this compares unfavorably with a surplus of $316 twelve years ago. Hence it becomes constantly clearer to him that his ambition to educate his children and improve his home can result in nothing but disappointment; and as commodity prices rise from month to month, living for him must be reduced more and more to the basis of bare existence.

For these hard conditions, he reasons, some one must be responsible; and whom should he blame but the “ trusts,” which, so far as he can see, are directly instrumental in keeping his wages down, as well as in raising the prices of meat, coal, food-stuffs, and other necessities of life. Were Dutton a student of industrial history, however, he might see that these “ trusts,” which appear so culpable to him, have done nothing which any man would not do under like circumstances. Their origin dates back to the decade beginning about 1830, when the railroad first became a factor of importance in the transportation business, and the factory first began largely to supplant the workshop. In the natural development of their business, the many short railroads of that time have extended their lines, and consolidated their interests, until all the important railroads of the United States have now become organized into six great groups, working in substantial harmony.

The growth of our industrial “trusts” was equally natural: for a large system of factories controlling its own raw material, and having sufficient power and volume of business to command low freight-rates, and to ward off serious competition, can operate much more economically, and with much greater profit, than could the small factory of twenty-five years ago. Moreover, it is quite natural that a community of interests should spring up between our great railway and industrial corporations, for the former, in building up their freight-traffic, offered every convenience and inducement to the latter; and this community of interests has now extended itself, until, under the leadership of able financiers, our great railway and industrial companies and our banks are now working in practical harmony. The concentration of interests, and of financial and industrial power, resulted purely from the greater profit of doing business on a large scale, and by machine methods; and if our “trusts” have sought to produce, or buy, at low cost, and to sell at good prices — they have done only what every merchant and every producer has done from time immemorial.

To John Dutton, however, the case appears in quite another light. Could he express himself in the phraseology of economics, he would say that the principle of free competition was just and sound a generation ago, because no one merchant or producer had sufficient power to oppress the rest; but for million-dollar corporations to use their power to maintain prices seems to him plain extortion; and for them to use their influence, as individuals have always done in the past, to secure favorable legislation, seems to him the worst of corruption.

Beyond question, he overestimates the influence of corporate control upon prices; for the growing wealth of our people, and their increasing consumption of all the leading commodities, have certainly played a large part in raising prices. Since 1897, our per capita consumption of cotton has increased from nineteen to twenty-nine pounds; of wheat, from four to seven bushels; of sugar, from sixty-five to seventy-five pounds, and of other commodities in like proportion. These arguments, however, are not only unconvincing, they are also irritating to John Dutton, and to other men of his class; for these men have no means of verifying the data, and only know that so far as they themselves are concerned, there has been neither any such increase in the consumption of the necessities of life, nor any possibility of it.

It would be quite unjust to hold them responsible for this defiant and skeptical attitude of mind; for while the data are indeed correct, the increased demand for commodities has come mostly from the well-to-do and wealthy classes, and not from the laboring classes. It has been carefully estimated that, except in the great agricultural states, fifty-five per cent of our population owns ninety-eight per cent of our property; and it is undoubtedly true that the distribution of newly produced wealth from year to year is similarly unequal. From twenty to thirty per cent of our entire working population is out of employment during some portion of the average year; and it is conservative to say that the number of workers receiving a bare living wage amounts to at least fortyfive per cent of the total.

To this forty-five per cent, all talk of industrial achievement sounds hollow indeed. The practical problem before them — how to make ends meet — admits of no theorizing, and to them there is no satisfactory excuse for low wages and high prices. To the economist, the theory that the rise in prices is due in a considerable measure to the great increase in the world’s production of gold is very satisfying. It is undoubtedly true that this increase in our money supply stimulates business by adding to the reserves of our banks, increasing the supplies of loanable funds, and rendering capital more readily obtainable. Nor is there much doubt that the consequent increase in trade-activity tends to raise prices, and to result ultimately in higher wages.

But these considerations are quite too abstract for the forty-five per cent who earn a bare living; and if Dutton were told that our increasing gold production indirectly benefited him by stimulating trade, securing steadier employment, and tending toward higher wages, he would truly reply that for the past twelve years the rise in prices had greatly exceeded the rise in wages. During this period, the condition of the laboring classes has undoubtedly improved to a considerable extent, owing largely to the steadier employment given, and to the falling cost of many manufactured products which tend to make homes more comfortable and attractive; but the pinch lies in the fact that wages do not rise as fast as prices.

On this and other accounts, the great prosperity of the past decade has been shared very unequally. John Dutton maintains that wages have been held down by the excessive influx of foreign laborers into this country; and certain it is that the increase in immigration from 230,872 souls in 1897 to 1,285,349 in 1907, must have had a very material effect in retarding the rise of wages. The demand for labor during this period undoubtedly kept pace with the great expansion of general business. But so long as this demand could be supplied by imported labor, it could have no very strong tendency to raise wages. John Dutton maintains that a tariff system which protects the products of capitalists, manufacturers, and producers of commodities, and fails to protect labor, is entirely unfair; and that justice to the workingmen requires that so long as there is a high tariff on merchandise, there shall be a high tariff on labor. The average import duty on merchandise is about twentyfour per cent; an admission tax equal to twenty-four per cent of the yearly earning capacity of the average male immigrant would be about one hundred and forty dollars; and whether by this or by other means, Dutton maintains that immigration should be checked in order to give the laborer a fair chance. To the argument that American labor is paid better than foreign labor, he retorts that American capital also is paid better; and to the contention that the tariff on merchandise protects labor as well as capital, he replies that what the tariff gives in higher wages, it more than takes away in the higher cost of living.

Certain it is that, notwithstanding the extraordinary prosperity of the past decade, the purchasing power of the wages of railway employees has actually declined, while that of the average wage for all industries has declined almost as much — from 1897 to the present date, this fall being estimated at about fifteen per cent. Apparently the only benefit derived from the present era of prosperity, by the laborers in industries other than agriculture, has been the more constant employment given; and the share of agricultural laborers in the general betterment has been due almost wholly to the lower cost of their food-supplies, and to the greater simplicity of their wants.

Indeed, those engaged in agriculture have, on these accounts, been somewhat free from the evils of rising prices; for some of the very influences which have raised the cost of living in all other industries have at the same time increased the profits and wages of agriculture. As population has drifted more and more to the cities, the proportion of workers engaged in the production of food-stuffs has steadily declined, until, at present, only about thirtysix per cent of our working population is engaged in agriculture, as compared with thirty-eight per cent in 1890, and more than forty-four per cent in 1880. The number of mouths to be fed is continually growing more rapidly than the number of hands engaged in feeding them; and so long as less and less labor is devoted to the production of foods, and more and more to other pursuits, the cost of living, as well as the profits of agriculture, must continue to rise.

Moreover, the problem of rising prices is even more serious for the salaried than for the wage-earning classes; for salaries have actually fallen, whereas in the case of wage-earners, the rise in the cost of living has been partly offset by the general increase in wages. The average fall in salaries in Massachusetts from 1895 to 1905 —an exceptionally prosperous period — was 6.96 per cent, whereas wages during the same period rose 9.18 per cent, as shown by the state census. Some of the principal factors affecting the two classes of incomes have been distinctly different; for salaried employees entirely lack any such organization as labor-unions, through which to press their demands, while the number of persons qualified to fill salaried positions has been immensely increased by the rapid growth of industrial and business education. Chiefly for these reasons, there has been a widespread tendency to substitute younger and poorer-paid men for those formerly occupying high-salaried positions; and as a consequence the purchasing power of salaries has probably fallen at least 25 per cent since 1897.

But the problem of rising prices is becoming serious, not only to the wageearner and the salaried employee, but also to professional and business men, whose incomes range from three to ten thousand dollars per annum. Their problem, however, is essentially different in one respect, namely, that their higher standard of living is consuming their increased income, whereas, with the other two classes, the decline in the purchasing power of incomes tends to force the standard of living downward. Hence, the income-receiving classes, while perhaps having no great advantage in ability to accumulate savings, have a distinct advantage in ability to maintain a rising standard of living.

Undoubtedly the increase in incomes since 1897 has been almost astonishing. During this period the per capita gross business done by all industries in the United States has grown nearly 25 per cent, while, owing to better business methods and to the increased skill of labor, net profits have grown even more rapidly. In brief, the average gain in incomes is estimated at 35.5 per cent; but this gain is apparently more than offset by the rise in the standard of living. During the period mentioned, commodity prices have risen about 42 per cent, the quantity of food and clothing consumed has increased about 35 per cent per capita; and other items of expense have grown proportionately. The cost of the necessities of life has increased about 51 per cent, while the average per capita expenditure of the income-receiving class for educational purposes has grown about 70 per cent. Meanwhile the increase in rent is estimated at nearly 30 per cent, in cost of government 32 per cent for each person, and in the consumption of luxuries more than 200 per cent per capita.

It seems strange, at first thought, that so energetic and capable a class of people cannot obtain better control of their expenditures; but a little reflection shows us that these expenditures are governed by a psychological law as deep-rooted and strong as human nature itself. Standards of living are the natural outgrowth of standards and methods of doing business; or, in other words, the whole structure of the social side of our life is the indirect but equally inevitable outgrowth of our industrial system. The latter is the creature of our primary or physical wants, whereas our social system is, in turn, the creature of the general conditions of living, and of the methods of thought and action which are determined by our industrial activities.

Broadly viewed, the main characteristic of our industrial system, the characteristic which distinguishes it from those of all other ages, is its mechanism. The past has had its great empires, its highly developed philosophies, literatures, and political systems; but no other age ever had so much mechanism. The whole world, to some extent, and the United States in particular, has been developed into one vast machine for the production and distribution of goods. This machine of ours is politically united under one government, physically bound together by railways, telegraphs, and telephones, and unified industrially and financially by the great concentration of banking, railway, and other corporate interests in New York City.

Both industrially and socially, this is a mechanical age. Just as the railway represents the mechanism of industry, the automobile symbolizes the mechanism of society. The employment of about six hundred thousand such machines by the people of the United States — one for every hundred and fifty persons — can hardly be explained by reasons of utility; nor is there any charm in the speed or mechanism of the automobile, which can be regarded as a substitute for the beauty of the landscape; but its very wheels and sprocket-chains satisfy the social “ want ” for action, mechanism, and dash. Minds steeped in the sight or sound of the revolving wheels of the factory, or drilled in offices where business is carried on with mechanical speed and precision, crave action, mechanism, and organization.

In brief, our highly concentrated and organized methods of mechanical production have led inevitably to a highly organized and mechanical social structure. Every thought and feeling and conception is made the basis for a club or society — just as every profession and business is specialized, and every step in processes of production results in corresponding divisions of labor. All this mechanism and organization involves a corresponding multiplication of “ wants,” and increase in expense. There are automobiles even where there were no horses; our houses have grown to be larger and better equipped to meet the greater demands upon them; ideas have been converted into clubs and societies; even happiness is no longer happy unless it is organized.

This multiplication of wants has also been stimulated by the increasingly abundant means of satisfying them through the growing use of credit . The establishment of the gold standard in 1896 greatly enhanced our credit with the capitalist nations of Europe; and since then the growing extension of credit by capitalists, both foreign and American, and by our banks, manufacturers, and wholesale and retail dealers, has continued, until every one who now has the slightest claim to the use of credit is accommodated.

Not only is it impossible to determine in what proportion incomes and credit have been used to satisfy our growing wants, but we are liable, in many instances, to mistake that which is really credit for actual earnings. During the past ten years, for example, the borrowings of our railways have exceeded their aggregate dividends and interest payments; and who shall say what portion of the fortunes accumulated in the railway business must be ascribed to these borrowings? A large part of the capital provided for the establishment of all new enterprises, and for the extension of old ones, is paid out in wages, salaries, and incomes; and there are thousands who cannot know what portion of their incomes consists of real earnings, and what portion represents the borrowings of the industries in which they are engaged.

Moreover, the tendency toward the use of credit for the satisfaction of wants is enhanced by the increase in our supplies of capital. The world’s immense production of gold since 1895 has brought about corresponding increases in bank-reserves, in the volume of money, and in the mobility of capital; for the production of gold stimulates the use of credit more than does the production of other forms of wealth, in proportion as it changes hands oftener, or causes other property to be exchanged oftener. The mobility of capital, and with it the use 3of credit, has also been increased by the rapid extension of the corporate form of ownership. For more than a decade, private property has been converting into corporate property at the rate of nearly a billion dollars per annum; and the new securities issued in the process form excellent collateral for loans, and correspondingly increase the availability of capital.

The rapid growth in the supply and mobility of capital, and the corresponding growth in the use of credit, have had similar effects upon our industrial and social life. The many fortunes made in business through the use of borrowed capital have had a distinct tendency toward its use in the achievement of social success. Many railways and other new enterprises have been “capitalized,” or, in other words, have borrowed capital, to the extent of their ability to earn and pay the interest and dividends required; and there has been a perceptible tendency to capitalize personal incomes in a similar way — borrowing to the extent of one’s ability to pay running expenses and interest charges.

Through this natural process, debt, which was at first generally contracted for the sound purpose of developing our natural resources, has become a national habit; and in our social, as well as in our industrial and municipal life, the distinction between sound and unsound indebtedness has been growing more and more shadowy. The gross public and private indebtedness of the people of the United States is now estimated at $660 per capita, as compared with our total wealth of about $1450 per capita; and even our net indebtedness, including only our foreign and public debts, is estimated at $71 per capita, or $350 per family.

Industrial mechanism, in brief, has given rise to the highly organized and mechanical structure of society; and the increasing organization in both departments of life has been accompanied by a corresponding multiplication of wants. Our inborn and inbred craving for progress, and rapidity in progress, has given these wants irresistible power over the mind — while the growing supplies of capital and increasing use of credit have proven a fertile soil in which these wants might multiply.

Yet the outcome seems neither remote nor inscrutable, notwithstanding that social and industrial developments move on such broad lines that it is seldom possible to gauge accurately the time required for their completion. Already, through the operation of natural forces, the problem of rising prices is in process of solution. Among the most far-reaching of these forces is the checking of the movement of population into cities. The welfare of all, and particularly of the salaried and wageearning classes, will be promoted by the retarding and the ultimate reversal of this movement. This, in turn, is certain to be accomplished, since the continuance of the urban movement tends constantly to raise food-prices, to increase the profits of agriculture, and to diminish the relative advantages of city life. If economic tendencies are left to themselves, the movement will be checked by a process of starvation, if by nothing else. Already it is proceeding at a diminishing rate; and the building of thirty-one thousand miles of electric railways in the United States since 1897 represents in part a counter-movement of population —into the suburbs and the country.

Other forces also will contribute to the solution of the problem. The mobility and abundance of capital cannot go on increasing without limit; and the over-extension of credit — which has so stimulated the growth of wants and expenses—will cure itself. The expansion of credit, or, in other words, the growth of the debt-habit, involves a continually increasing demand for loans; and the greater this demand, the higher interest-rates rise, the more net profits are reduced, and the greater is the resulting forced curtailment of loans. In recent years, as a result of the growing use and abuse of credit, loans have expanded more rapidly than formerly, and in consequence, business depressions, or reactions, are occurring more frequently. The experience of these depressions is certain to teach us the proper use of credit, and correspondingly to limit the multiplication of our wants.

This automatic limitation of the debt-habit, and the better division of population between urban and rural life, are certain ultimately to establish a better equilibrium between income and expenditure; and the rapid rate of our industrial and social growth suggests that this may be accomplished in a surprisingly short time. Back to the country, or even to the smaller suburbs, means back to nature in some degree. As the relative profits of agriculture increase, and the urban promise of quick riches becomes more discredited, the mechanism of city life, and, to a lesser degree, of all our social intercourse, will lose a part of its charm. The burden of over-organization will seem heavier as its profits and allurements decline; and as the automobile or factory method of producing happiness becomes more difficult, other and more æsthetic methods will be sought and found.

Rural life or surroundings cultivate the love of nature; and that in turn quickens the appreciation of nature’s imitations in art. The multiplicity of automobiles and clubs and mechanical pleasures must yield somewhat to the love of painting, poetry, architecture, and sculpture. Pleasures of thought and feeling must, to some degree, supplant pleasures of action, and physical accomplishments. The æsthetic in our natures, stimulated by the irresistible social and industrial tendencies toward the country, and away from the debthabit, must necessarily gain upon the mechanical. It seems inevitable that there should develop some general conversion of material into mental wants, and a partial substitution of culture for wealth as a measure of the value of the individual. In brief, the present excessive cost of living represents a stage of our industrial and social growth, and promises to be solved, at least in part, by a further development of the same industrial and social forces which produced it.

This view of the future, however, does not appeal to John Dutton; for even though he fully understood the evolution of conditions and wants which may be expected to solve the cost-problem of the income-receiving classes, he would not fall within the pale of this evolution. His problem is not how to limit the multiplication of wants, but rather how to satisfy the more primary and inevitable necessities without exhausting all means of providing for the higher wants which arise from the intellectual, social, and æsthetic side of his nature.

Capital, unlike wages and salaries, reproduces itself through the drawing of interest; and in consequence, capitalists tend to come more and more into the possession of all business property and all wealth-producing agencies. As the power of the capitalist thus expands, his control over salaries and wages increases correspondingly, and whenever business depressions or the varying fortunes of trade endanger either profits or wages, his human instinct impels him to protect profits. Thus wages tend to fall lower and lower, as compared with incomes; and the recipients of wages and salaries are dependent in a large degree upon legislative relief measures, such as the checking of immigration, the readjustment of taxes, and the revision of the tariff in favor of the consumer. Hence, while the natural evolution of our industrial and social life may solve the cost-problem of the income-receiving classes, the financial problem of John Dutton and his fellows requires something more — a greater spirit of fairness and brotherhood in both legislation and business.