IX The Divine Right of Property
1. Land Ownership and Liberty
The owners of American wealth have been molded gradually into a ruling class. Years of brutal, competitive, economic struggle solidified their ranks,—distinguishing friend from enemy; clarifying economic laws, and demonstrating the importance of coördination in economic affairs. Economic control, once firmly established, opened before the wealth owning class an opportunity to dominate the entire field of public life.
Before the property owners could feel secure in their possessions, steps must be taken to transmute the popular ideas regarding “property rights” into a public opinion that would permit the concentration of important property in the hands of a small owning class, at the same time that it held to the conviction that society, without privately owned land and machinery, was unthinkable.
Many of the leading spirits among the colonists had come to America in the hope of realizing the ideal of “Every man a farm, and every farm a man.” Upon this principle they believed that it would be possible to set up the free government which so many were seeking in those dark days of the divine right of kings.
For many years after the organization of the Federal Government men spoke of the public domain as if it were to last indefinitely. As late as 1832 Henry Clay, in a discussion of the public lands, could say, “We should rejoice that this bountiful resource possessed by our country, remains in almost undiminished quantity.” Later in the same speech he referred to the public lands as being “liberally offered,—in exhaustless quantities, and at moderate prices, enriching individuals and tending to the rapid improvement of the country.”41
The land rose in price as settlers came in greater numbers. Land booms developed. Speculation was rife. Efforts were made to secure additional concessions from the Government. It was in this debate, where the public land was referred to as “refuse land” that Henry Clay felt called upon to remind his fellow-legislators of the significance and growing value of the public land. He said, “A friend of mine in this city bought in Illinois last fall about two thousand acres of this refuse land at the minimum price, for which he has lately refused six dollars per acre.... It is a business, a very profitable business, at which fortunes are made in the new states, to purchase these refuse lands and without improving them to sell them at large advances.”42
A century ago, while it was still almost a wilderness, Illinois began to feel the pressure of limited resources—a pressure which has increased to such a point that it has completely revolutionized the system of society that was known to the men who established the Government of the United States.
This early record of a mid-western land boom, with Illinois land at six dollars an acre, tells the story of everything that was to follow. Even in 1832 there was not enough of the good land to go around. Already the community was dividing itself into two classes—those who could get good land and those who could not. A wise man, understanding the part played by economic forces in determining the fate of a people, might have said to Henry Clay on that June day in 1832, “Friend, you have pronounced the obituary of American liberty.”
Some wise man might have spoken thus, but how strange the utterance would have sounded! There was so much land, and all history seemed to guarantee the beneficial results that are derived from individual land ownership. The democracies of Greece and Rome were built upon such a foundation. The yeomanry of England had proved her pride and stay. In Europe the free workers in the towns had been the guardians of the rights of the people. Throughout historic times, liberty has taken root where there is an economic foundation for the freedom which each man feels he has a right to demand.
2. Security of “Acquisitions”
Feudal Europe depended for its living upon agriculture. The Feudal System had concentrated the ownership of practically all of the valuable agricultural land in the hands of the small group of persons which ruled because it controlled economic opportunity. The power of this class rested on its ownership of the resource upon which the majority of the people depended for a livelihood.
The Feudal System was transplanted to England, but it never took deep root there. When in 1215 A. D. (only a century and a half after the Great William had made his effort to feudalize England) King John signed the Magna Carta, Feudalism proper gave way to landlordism—the basis of English economic life from that time to this.
The system of English landlordism (which showed itself at its worst in the absentee landlordism of Ireland) differed from Feudalism in this essential respect,—Feudalism was based upon the idea of the divine right of kings. English landlordism was based on the idea of divine right of property. English landlordism is the immediate ancestor of the property concept that is universally accepted in the business world of to-day.
The evils of Feudalism and of landlordism were well known to the American colonists who were under the impression that they arose not from the fact of ownership, but from the concentration of ownership. The resources of the new world seemed limitless, and the possibility that landlordism might show its ugly head on this side of the Atlantic was too remote for serious consideration.
With the independence of the United States assured after the War of 1812; with the growth of industry, and the coming of tens of thousands of new settlers, the future of democracy seemed bright. Daniel Webster characterized the outlook in 1821 by saying, “A country of such vast extent, with such varieties of soil and climate, with so much public spirit and private enterprise, with a population increasing so much beyond former examples,... so free in its institutions, so mild in its laws, so secure in the title it confers on every man to his own acquisitions,—needs nothing but time and peace to carry it forward to almost any point of advancement.”43
“So free in its institutions, so mild in its laws, so secure in the title it confers on every man to his own acquisitions,”—the words were prophetic. At the moment when they were uttered the forces were busy that were destined to realize Webster’s dream, on an imperial scale, at the expense of the freedom which he prized. Men were free to get what they could, and once having secured it, they were safeguarded in its possession. Property ownership was a virtue universally commended. Constitutions were drawn and laws were framed to guarantee to property owners the rights to their property, even in cases where this property consisted of the bodies of their fellow men.
The movement toward the protection of property rights has been progressive. Webster as a representative of the dominant interests of the country a hundred years ago rejoiced that every man had a secure title to “his own acquisitions,” at a time when the property of the country was generally owned by those who had expended some personal effort in acquiring it. It was a long step from these personal acquisitions to the tens of billions of wealth in the hands of twentieth century American corporations. Daniel Webster helped to bridge the gap. He was responsible, at least in part, for the Dartmouth College Decision (1816) in which the Supreme Court ruled that a charter, granted by a state, is a contract that cannot be modified at will by the state. This decision made the corporation, once created and chartered, a free agent. Then came the Fourteenth Amendment with its provision that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty or property, without due process of law.” The amendment was intended to benefit negroes. It has been used to place property ownership first among the American beatitudes.
Corporations are “persons” in the eyes of the law. When the state of California tried to tax the property of the Southern Pacific Railroad at a rate different from that which it imposed on persons, the Supreme Court declared the law unconstitutional. This decision, coupled with that in the Dartmouth College Case secured for a corporation “the same immunities as any other person; and since the charter creating a corporation is a contract, whose obligation cannot be impaired by the one-sided act of a legislature, its constitutional position, as property holder, is much stronger than anywhere in Europe.” These decisions “have had the effect of placing the modern industrial corporation in an almost impregnable constitutional position.”44
Surrounded by constitutional guarantees, armed with legal privileges and prerogatives and employing the language of liberty, the private property interests in the United States have gone forward from victory to victory, extending their power as they increased and concentrated their possessions.
3. Safeguarding Property Rights
The efforts of Daniel Webster and his contemporaries to protect “acquisitions” have been seconded, with extraordinary ability, by business organizers, accountants, lawyers and bankers, who have broadened the field of their endeavors until it includes not merely “acquisitions,” but all “property rights.” Daniel Webster lived before the era of corporations. He thought of “acquisitions” as property secured through the personal efforts of the human being who possessed it. To-day more than half of the total property and probably more than three-quarters of productive wealth is owned by corporations. It required ability and foresight to extend the right of “acquisitions” to the rights of corporate stocks and bonds. The leaders among the property owners possessed the necessary qualifications. They did their work masterfully, and to-day corporate property rights are more securely protected than were the rights of acquisitions a hundred years ago.
The safeguards that have been thrown about property are simple and effective. They arose quite naturally out of the rapidly developing structure of industrialism.
First—There was an immense increase in the amount of property and of surplus in the hands of the wealth-owning class. After the new industry was brought into being with the Industrial Revolution, economic life no longer depended so exclusively upon agricultural land. Coal, iron, copper, cement, and many other resources could now be utilized, making possible a wider field for property rights. Again, the amount of surplus that could be produced by one worker, with the assistance of a machine, was much greater than under the agricultural system.
Second—The new method of conducting economic affairs gave the property owners greater security of possession. Property holders always have been fearful that some fate might overtake their property, forcing them into the ranks of the non-possessors. When property was in the form of bullion or jewels, the danger of loss was comparatively great. The Feudal aristocracy, with its land-holdings, was more secure. Land-holdings were also more satisfactory. Jewels and plate do not pay any rent, but tenants do. Thus the owner of land had security plus a regular income.
The corporation facilitated possession by providing a means (stocks and bonds) whereby the property owner was under no obligation other than that of clipping coupons or cashing interest checks upon “securities” that are matters of public record; issued by corporations that make detailed financial reports, and that are subject to vigorous public inspection and, in the cases of banks and other financial organizations, to the most stringent regulation.
Third—Greater permanence has been secured for property advantages. Corporations have perpetual, uninterrupted life. The deaths of persons do not affect them. The corporation also overcame the danger of the dissipation of property in the process of “three generations from shirt sleeves to shirt sleeves.” The worthless son of the thrifty parent may still be able to squander his inheritance, but that simply means a transfer of the title to his stocks and bonds. The property itself remains intact.
Fourth—Property has secured a claim on income that is, in the last analysis, prior to the claim of the worker.
When a man ran his own business, investing his capital, putting back part of his earnings, and taking from the business only what he needed for his personal expenses, “profits” were a matter of good fortune. There were “good years” and “bad years,” when profits were high or low. Many years closed with no profit at all. The average farmer still handles his business in that way.
The incorporation of business, and the issuing of bonds and stocks has revolutionized this situation. It is no longer possible to “wait till things pick up.” If the business has issued a million in bonds, at five per cent, there is an interest charge of $50,000 that must be met each year. There may be no money to lay out for repairs and needed improvements, but if the business is to remain solvent, it must pay the interest on its bonds.
Businesses that are issuing securities to the public face the same situation with regard to their stocks. Wise directors see to it that a regular rate, rather than a high rate of dividends, is paid. Regularity means greater certainty and stability, hence better consideration from the investing public.
Fifth—The practices of the modern economic world have gone far to increase the security of property rights.
Business men have worked ardently to “stabilize” business. They have insisted upon the importance of “business sanity;” of conservatism in finance; of the returns due a man who risks his wealth in a business venture; and of the fundamental necessity of maintaining business on a sound basis. After centuries of experiment they have evolved what they regard as a safe and sane method of financial business procedure. Every successful business man tried to live up to the following well-established formula.
First, he pays out of his total returns, or gross receipts, the ordinary costs of doing business—materials, labor, repairs and the like. These payments are known as running expenses or up-keep.
Second, after up-keep charges are paid he takes the remainder, called gross income, and pays out of it the fixed charges—taxes, insurance, interest and depreciation.
Third, the business man, having paid all of the necessary expenses of doing business (the running expenses and the fixed charges), has left a fund (net income) which, roughly speaking, is the profits of the business. Out of this net income, dividends are paid, improvements and extensions of the plant are provided for.
Fourth, the careful business man increases the stability of his business by adding something to his surplus or undivided profits.
The operating statistics of the United Steel Corporation for 1918 illustrate the principle:
| 1. | Gross Receipts | $1,744,312,163 |
| Manufacturing and Operating expenses | ||
| including ordinary repairs | 1,178,032,665 | |
| ——————— | ||
| 2. | Gross Earnings | $ 566,279,498 |
| Other income | 40,474,823 | |
| ——————— | ||
| $ 606,754,321 | ||
| General Expense, (including commission | ||
| and selling expense, taxes, etc.) | 337,077,986 | |
| Interest, depreciation, sinking fund, etc. | 144,358,958 | |
| ——————— | ||
| 3. | Net Income | $ 125,317,377 |
| Dividends | 96,382,027 | |
| ——————— | ||
| 4. | Surplus for the year | $ 28,935,350 |
| Total surplus | 460,596,154 |
Like every carefully handled business, the Steel Corporation,—
1. Paid its running expenses,
2. Paid its fixed obligations,
3. Divided up its profits,
4. And kept a nest egg.
The effectiveness of such means of stabilizing property income is illustrated by a compilation (published in the Wall Street Journal for August 7th, 1919) of the business of 104 American corporations between December 31, 1914, and December 31, 1918. The inventories—value of property owned—had increased from 1,192 millions to 2,624 millions of dollars; the gain in surplus, during the four years, was 1,941 millions; the increase in “working capital” was 1,876 millions. These corporations, representing only a small fraction of the total business of the country, had added billions to their property values during the four years.
These various items,—up-keep; depreciation; insurance; taxes; interest; dividends and surplus,—are recognized universally by legislatures and courts as “legitimate” outlays. They, therefore, are elements that are always present in the computation of a “fair” price. The cost to the consumer of coffee, shoes, meat, blankets, coal and transportation are all figured on such a basis. Hence, it will be seen that each time the consumer buys a pair of shoes or a pound of meat, he is paying, with part of his money, for the stabilizing of property.
Fifth. Property titles under this system are rendered immortal. A thousand dollars, invested in 1880 in 5 per cent. 40 year bonds, will pay to the owner $2,000 in interest by 1920, at which time the owner gets his original thousand back again to be re-invested so long as he and his descendants care to do so. The dollar, invested in the business of the steel corporation, by the technical processes of bookkeeping, is constantly renewed. Not only does it pay a return to the owner, but literally, it never dies.
The community is built upon labor. Its processes are continued and its wealth is re-created by labor. The men who work on the railroad keep the road operating; those who own the railroad owe to it no personal fealty, and perform upon it no personal service. If the worker dies, the train must stop until he is replaced; if the owner dies, the clerk records a change of name in the registry books.
The well-ordered society will encourage work. It will aim to develop enthusiasm, to stimulate activity. Nevertheless, in “practical America” a scheme of economic organization is being perfected under which the cream of life goes to the owners. They have the amplest opportunities. They enjoy the first fruits.
4. Property Rights and Civilization
Under these circumstances, it is easy to see how “the rights of property” soon comes to mean the same thing as “civilization,” and how “the preservation of law and order” is always interpreted as the protection of property. With a community organized on a basis which renders property rights supreme in all essential particulars, it is but natural that the perpetuation of these rights should be regarded as the perpetuation of civilization itself.
The present organization of economic life in the United States permits the wealth owners through their ownership to live without doing any work upon the work done by their fellows. As recipients of property income (rent, interest and dividends) they have a return for which they need perform no service,—a return that allows them to “live on their income.”
The man who fails to assist in productive activity gives nothing of himself in return for the food, clothing and shelter which he enjoys,—that is, he lives on the labor of others. Where some have sowed and reaped, hammered and drilled, he has regaled himself on the fruits of their toil, while never toiling himself.
The matter appears most clearly in the case of an heir to an estate. The father dies, leaving his son the title deeds to a piece of city land. If he has no confidence in his son’s business ability or if his son is a minor, he may leave the land in trust, and have it administered in his son’s interest by some well organized trust company. The father did not make the land, though he did buy it. The son neither made nor bought the land, it merely came to him; and yet each year he receives a rent-payment upon which he is able to live comfortably without doing any work. It must at once be apparent that this son of his father, economically speaking, performs no function in the community, but merely takes from the community an annual toll or rental based on his ownership of a part of the land upon, which his fellowmen depend for a living. Of what will this toll consist? Of bread, shoes, motor-cars, cigars, books and pictures,—the products of the labor of other men.
This son of his father is living on his income,—supported by the labor of other people. He performs no labor himself, and yet he is able to exist comfortably in a world where all of the things which are consumed are the direct or indirect product of the labor of some human being.
Living on one’s income is not a new social experience, but it is relatively new in the United States. The practice found a reasonably effective expression in the feudalism of medieval Europe. It has been brought to extraordinary perfection under the industrialism of Twentieth Century America.
Imagine the feelings of the early inhabitants of the American colonies toward those few gentlemen who set themselves up as economically superior beings, and who insisted upon living without any labor, upon the labor performed by their fellows. It was against the suggestion of such a practice that Captain John Smith vociferated his famous “He that will not work, neither shall he eat.” The suggestion that some should share in the proceeds of community life without participating in the hardships that were involved in making a living seemed preposterous in those early days.
To-day, living on one’s income is accepted in every industrial center of the United States as one of the methods of gaining a livelihood. Some men and women work for a living. Other men and women own for a living.
Workers are in most cases the humble people of the community. They do not live in the finest homes, eat the best food, wear the most elaborate clothing, or read, travel and enjoy the most of life.
The owners as a rule are the well-to-do part of the community. They derive much of all of their income from investments. The return which they make to the community in services is small when compared with the income which they receive from their property holdings.
Living on one’s income is becoming as much a part of American economic life as living by factory labor, or by mining, or by manufacturing, or by any other occupation upon which the community depends for its products. The difference between these occupations and living on one’s income is that they are relatively menial, and it is relatively respectable, that is, they have won the disapprobation and it has won the approbation of American public opinion.
The best general picture of the economic situation that permits a few people to live on their incomes, while the masses of the people work for a living, is contained in the reports of the Federal Commissioner of Internal Revenue. The figures for 1917 (“Statistics of Income for 1917” published August 1919) show that 3,472,890 persons filed returns, making one for each six families in the United States. Almost one half of the total number of returns made in 1917 were from persons whose income was between $1000 and $2000. There were 1,832,132 returns showing incomes of $2000 or more, one for each twelve families in the country.
The number of persons receiving the higher incomes is comparatively small. There were 270,666 incomes between $5,000 and $10,000; 30,391 between $10,000 and $25,000; 12,439 between $25,000 and $50,000. There were 432,662 returns (22 for each 1000 families in the United States) showing incomes of $5,000 or over; there were 161,996 returns (8 returns for each 1000 families) showing incomes of $10,000 or over; 49,494 showing incomes of $25,000 and over; 19,103 showing incomes of $50,000 and more. Thus the number of moderate and large incomes, compared with the total population of the country, was minute.
The portion of the report that is of particular interest, in so far as the present study is concerned, is that which presents a division of the total net income of those reporting $2,000 or more, into three classes—income from personal service, income from business profits and income from the ownership of property.
Personal Incomes by Sources — 1917
| Amount of Income | Per Cent of Total Income | |
| Source | ||
| 1. Income from personal serv- ice; salaries, wages; com- mission, bonuses, director’s fees, etc | $ 3,648,437,902 | 30.21 |
| 2. Income from business; busi- ness, trade, commerce, partnership, farming, and profits from sales of real estate, stocks, bonds, and other property | 3,958,670,028 | 32.77 |
| 3. Income from property; rents and royalties | 684,343,399 | 5.67 |
| Interest on bonds, notes, etc. | 936,715,456 | 7.76 |
| Dividends | 2,848,842,499 | 23.59 |
| Total from Property | 4,469,901,354 | 37.02 |
| 4. Total income | 12,077,009,284 | 100.00 |
Those persons who have incomes of $2,000 or more receive 30 cents on the dollar in the form of wages and salaries; 33 cents in the form of business profits, and 37 cents in the form of incomes from the ownership of property. The dividend payments alone—to this group of property owners, are equal to three quarters of the total returns for personal service.
These figures refer, of course, to all those in receipt of $2,000 or more per year. Obviously, the smaller incomes are in the form of wages, salaries, and business profits, while the larger incomes take the form of rent, interest and dividends. This is made apparent by a study of the detailed tables published in connection with the “Income Statistics for 1916.”
Among those of small incomes—$5,000 to $10,000—nearly half of the income was derived from personal services. The proportion of the income resulting from personal service diminished steadily as the incomes rose until, in the highest income group—those receiving $2,000,000 or more per year, less than one-half of one per cent. was the result of personal service while more than 99 per cent. of the incomes came from property ownership.
A small portion of the American people are in receipt of incomes that necessitate a report to the revenue officers. Among those persons, a small number are in receipt of incomes that might be termed large—incomes of $10,000 or over, for example. Among these persons with large incomes the majority of the income is secured in the form of rent, interest, dividends and profits. The higher the income group, the larger is the percentage of the income that comes from property holdings.
The economic system that exists at the present time in the United States places a premium on property ownership. The recipients of the large incomes are the holders of the large amounts of property.
Large incomes are property incomes. The rich are rich because they are property owners. Furthermore, the organization of present-day business makes the owner of property more secure—far more secure in his income, than is the worker who produces the wealth out of which the property income is paid.
5. Plutocracy
The owning class in the United States is established on an economic basis,—the private ownership of the earth. No more solid foundation for class integrity and class power has ever been discovered.
The owners of the United States are powerfully entrenched. Operating through the corporation, its members have secured possession of the bulk of the more useful resources, the important franchises and the productive capital. Where they do not own outright, they control. The earth, in America, is the landlords and the fullness thereof. They own the productive machinery, and because they own they are able to secure a vast annual income in return for their bare ownership.
Families which enjoy property income have one great common interest—that of perpetuating and continuing the property income; hence the “cohesion of wealth.” “The cohesion of wealth” is a force that welds individuals and families who receive property income into a unified group or class.
The cohesion of wealth is a force of peculiar social significance. It might perhaps be referred to as the class consciousness of the wealthy except that it manifests itself among people who have recently acquired wealth, more violently, in some cases, than it appears among those whose families have possessed wealth for generations. Then, the cohesion of wealth is not always an intelligent force. In the case of some persons it is largely instinctive.
Originally, the cohesion of wealth expresses itself instinctively among a group of wealth owners. They may be competing fiercely as in the case of a group of local banks, department stores, or landlords, but let a common enemy appear, with a proposition for currency reform, labor legislation or land taxation and in a twinkling the conflicting interests are thrown to the winds and the property owners are welded into a coherent, unified group. This is the beginning of a wealth cohesion which develops rapidly into a wealth consciousness.
American business, a generation ago, was highly competitive. Each business man’s hand was raised against his neighbor and the downfall of one was a matter of rejoicing for all. The bitter experience of the nineties drove home some lessons; the struggles with labor brought some more; the efforts at government regulations had their effect; but most of all, the experience of meeting with men in various lines of business and discussing the common problems through the city, state and national and business organizations led to a realization of the fact that those who owned and managed business had more in common than they had in antagonism. By knifing one another they made themselves an easy prey for the unions and the government. By pooling ideas and interests they presented a solid front to the demands of organized labor and the efforts of the public to enforce regulation.
“Plutocracy” means control by those who own wealth. The “plutocratic class” consists of that group of persons who control community affairs because they own property. This class, because of its property ownership, is compelled to devote time and infinite pains to the task of safeguarding the sacred rights of property. It is to that task that the leaders of the American plutocracy have committed themselves, and it is from the results of that accomplished work that they are turning to new labors.
Footnotes
41 Speech in the Senate, June 20, 1832. Works Colvin Colton, ed. New York, Putnam’s, 1904, vol. 7, p. 503.
42 Ibid., p. 503.
43 “Speeches,” E. P. Whipple, ed. Little, Brown & Co., 1910, pp. 59-60.
44 “The Constitutional Position of Property in America,” Arthur T. Hadley, Independent, April 16, 1908.