The Disfranchisement of Property

by David McGregor Means

I

It is Hawthorne, I think, who tells us that when he was a boy he used once in a while to go down to the wharves in Salem, and lay his hand on the rail of some great East India merchantman, redolent of spices, and thus bring himself in actual touch with the mysterious orient. But there is nothing strange in this: almost anything that we can feel or see may start the flight of fancy, and open to us prophetic visions. This is even true of such dry symbols as figures, for our journalists would never publish statistics as they do, unless they knew that their readers liked to see them. Travellers from other parts of the world have often laughed at our fondness for revelling in the marvellous accounts of our material dimensions, but they should remember that people who do not have a taste for poetry may yet have a taste for romance, and that big figures do appeal to the imagination.

It is true that there may be something portentous in bigness. “Tom” Reed, as he was affectionately called, said many wise things in a jesting way. At a certain crisis in our history he exclaimed: “I don’t want Cuba and Hawaii; I’ve got more country now than I can love.” A foreigner might suppose that our politicians had similarly become terror-stricken at the extent of our wealth and the rate at which it was growing. They may well give the impression that there has been created in the “money power,” a Frankenstein monster, the control of whose murderous propensities has put them at their wit’s end.

Figures are notorious liars; they may arouse emotion if looked at in any light, but they must be looked at in many lights if we would get an emotional effect that is truly worth while. Some very large figures relating to Savings Banks have lately been published. The deposits in these banks amount to over four and two-thirds billions of dollars, and the number of separate accounts is about ten and two-thirds millions. Savings deposits in all banks are about $7,000,000,000, the number of accounts being 17,600,000. Probably the interest paid on the savings banks deposits is 160 millions of dollars a year. I confess that these figures give me much pleasure. I like to think that so many men have taken pains to guard their wives and children against miserable want; that so many women have to some extent made sure of their independence. It would not be surprising to find that twelve millions of families, possibly half the people of the country, were in this way protected against extreme penury. Viewed in this light, the growth of wealth does not seem so terrible. One might paraphrase Burke and say that such wealth as this loses half its evil through losing all its grossness. Indeed one might go further and say that if there were twice as much of this wealth, and every person in the country had an interest in it, it would lose all of its evil.

To young people, this is all dry enough. They like to think of spending money, not of saving it. But it is not at all dry to their elders. It is what St. Beuve said of literary enjoyment, a “pure délice du goût et du coeur dans la maturité.” It is a “Pleasure of the Imagination” that can be appreciated only by those like the old Scottish lawyer, who justified his penurious prudence by saying that he had shaken hands with poverty up to the elbow when he was young, and had no intention to renew the acquaintance. We have not, at least in the Northern part of our country, had the terrible experiences of the people of Europe, who are even now hiding their money in a vague apprehension of danger, inherited from centuries of rapine; but there are few of those who have given hostages to fortune who have not had many hours, and even years, of distressing anxiety concerning the future of their families. The greater the provision made against this heart-corroding care by a people, the happier should that people be.

It seems so unselfish a luxury to revel in these comfortable statistics, that one is tempted to broaden his vision, and take in the four or five billions of assets heaped up by the six or seven millions of people who have insured their lives, and the one hundred and fifty or two hundred millions of dollars paid out yearly to lighten the distress attending the death of husbands and fathers of families,—to say nothing of a much greater sum repaid policy-holders. In many cases, happily, death causes no actual want; but against these cases we may offset the stupendous number of policies insuring against industrial accidents, possibly twenty-five millions of them, representing one quarter of the people of the country—for we may be sure that there are few payments made under these policies that do not actually alleviate suffering. We have here a colossal aggregate of altruism on the part of the policy-holders, an intangible national asset grander than all the material wealth which it represents; for the sordid element in all these savings is necessarily small. There is a point in the old story of the gambler on the Mississippi steamboat who listened attentively to the persuasive arguments of a life-insurance agent; he “allowed” that he was willing to bet on almost any kind of game, but declined to take a hand in one where he had to die to win. It is painful to think of the infinity of petty economies, of all the grievous deprivations, the positive hardships, undergone in so many millions of families, day by day, and year by year, to secure these policies of insurance; but, as Plato said, “the good is difficult.” There is no heroism where there is no self-sacrifice. Whoever is disquieted by the growth of “materialism” may be relieved by reflecting that when so many millions of people are denying themselves present enjoyments in order that others may be spared pain in the future, there is such a leaven of high motive among us as may leaven the whole lump.


It would be easy to keep on in this exalted strain, but perhaps it is a little too much in the style of a life-insurance advertisement. We may correct any such impression, by changing our point of view. When we consider the difficulties and the hindrances in the way of laying up these savings, while the moral effect of the self-sacrifice hitherto involved is enhanced, the question comes up whether this altruistic exertion can be maintained in the future. How many of the ten millions of depositors in the savings banks have considered that their rulers at Washington give away every year in military pensions a sum equal to all, and more than all, the income earned by the four billions of dollars in the banks? When after many years, it seemed that this burden might at last begin to be lightened, it was suddenly increased by the last Congress perhaps thirty millions a year. Why should so many people scrimp, year in and year out, when the equivalent of all the toil and all the self-denial is thus swept away?

Senator Aldrich has told the country that its affairs could be carried on for three hundred millions of dollars a year less than it now pays. He is a very competent witness, and no one has contradicted him. If the attempt had been made, he could perhaps have shown—he could certainly show now—that three hundred millions was an understatement. But this sum is nearly equal to the income earned by the investments of all the savings banks and all the life-insurance companies of the country. If our rulers had borrowed ten billions of dollars at three per cent. and had wasted it all, the country would be financially about where it is now. They have not borrowed this ten billions of dollars, but if Mr. Aldrich is right, they are spending the interest on it. They have in effect mortgaged the wealth of the people to the extent of all their deposits in the savings banks, and all their investments in life-insurance companies, and are wasting the income of these funds faster than it is earned. If anyone thinks this is stating the case too strongly, he may add the waste of our state and municipal rulers to that of those at Washington, and Mr. Aldrich’s figure will seem moderate enough.


People who are comfortably off will reply to all this that we are getting on pretty well, and seem to be on the whole doing better from year to year. There is a well known passage in Macaulay’s History which may be thought to give support to optimism of this kind. “No ordinary misfortune,” he said, “no ordinary misgovernment, will do so much to make a nation wretched as the constant progress of physical knowledge, and the constant effort of every man to better his condition will do to make a nation prosperous.”

No one will deny that the history of England justifies this statement; but let us remember the reason that Macaulay gave for this insuperable prosperity. “Every man has felt entire confidence that the State would protect him in the possession of what had been earned by his diligence and hoarded by his self-denial.”

It is impossible to maintain that every man now feels this entire confidence. The income “earned by his diligence” is henceforth to be taxed at a progressive rate, and the demagogues are already complaining that the rate is not high enough. The inheritance of his family, “hoarded by his self-denial,” protected by the State until within a few years, now pays taxes which amount to the interest on a billion of dollars. We are assured by a railroad officer that three measures of legislation have increased the expenses of his corporation alone by a sum equal to the interest on $32,000,000, with no appreciable benefit to the public. The number of such laws is incalculable, and the cost of complying with them has become an almost intolerable burden. The income of the railroads declines, while their taxes increase, in some cases two or three fold. Lawyers and office holders thrive and are cheerful; investors suffer and tremble.

The people of New York seem just now to be in a way to find out how the enormous taxes which their rulers have levied on them are expended; but New York has no monopoly of corrupt rulers, and the cost of investigating extravagance is itself extravagant. And yet people wonder at the increased cost of living! Unfortunately the oppressions of government do worse than discourage business enterprise; they tend to demoralize society. There are too many men who hesitate to marry because they do not have confidence in the future, too many married people who do not dare to have more than one or two children, if they dare to have any, to make it possible to maintain that there is now no dread of more than ordinary misgovernment.


It is difficult to ascertain the total wealth of the country. The census bureau is notoriously dilatory. Its latest estimate was for 1904, when this aggregate was computed to be $107,000,000,000, or about $1,300 per caput. Assuming this ratio, the wealth of our people should now be over $120,000,000,000; but the figures are largely conjectural. It happens, however, that we possess some figures that are altogether trustworthy. In the year 1909 the Federal Government imposed a tax of one per cent. on the net income of every corporation, joint stock company, or association, including insurance companies, organized for profit, whenever this net income is over $5,000. There are some other exemptions, but they are not sufficient to demand consideration, and may be disregarded. Now we may be absolutely certain of one thing, and that is that the net income of those concerns will not be overestimated. Their net income may be more than what they report for the purposes of taxation, but it surely cannot be less. For the past year it seems probable that this tax will produce nearly thirty-five millions of dollars net income, after deducting all expenses, losses, depreciation, interest on debts and on deposits paid by banks, and dividends from other companies subject to the tax.

It may be more, but it cannot be less. Here our certainty ends. Guesses will vary, but in view of what we know in a general way of the conditions of business during the past year, we may perhaps venture to assume that the net income of these concerns is six per cent. of their real wealth. If this assumption is correct, their total wealth is 60 billions of dollars, or one half of the total wealth of the nation.

This estimate may be confirmed to some extent by other statistics. Calling the physical value of the railroads fourteen billions, their net earnings at five per cent. would be 700 millions, which corresponds well enough with the figures of the government, although some railroad men would make their net earnings much less. We do not know the net income of the untaxed corporations. Their returns would show its amount, but the government does not supply the information. As there must be now nearly 250,000 such corporations, if their average income is only $2,000 a year, the total could be $500,000,000. If it is $4,000, their income would be almost a billion dollars. On a 5 per cent. basis, the wealth of these corporations would be nearly 20 billion dollars. It seems, on the whole, that the wealth held by corporations is probably more than half our total wealth rather than less.


The bearing of these figures on our subject is now apparent. All of this property is disfranchised. It is, economically, to a very great extent disfranchised; politically, it is altogether disfranchised. What I mean by this is that the owners of this wealth, as owners, have very little to say, and nothing to do, about its care and management. Probably more than half of our people are directly or indirectly interested in it as owners. They have been attracted by a desire to share, however humbly, in big and famous enterprises, by the freedom from liability of the portion of their estates outside the particular investments, and by the freedom at death or withdrawal of associates from appraisals and accountings and probable closing of the business, as is the inevitable practice in mere partnerships. Two centuries ago people who saved money could hardly find ways to invest it. The practice of incorporation has enormously increased our wealth by putting a stop to hoarding without interest, stimulating saving, and broadening industry. The number of individual owners of the bonds and stocks of corporations is incalculable, and their holdings added to those of savings banks, insurance companies, trust companies and other fiduciary institutions, churches, hospitals, and colleges, make up a total of almost fabulous extent. It is true that large sums are loaned to persons, and on mortgages of real estate; but for most people such investments are not desirable or convenient, and they are altogether inadequate to absorb the vast sums that are available. In fact probably most investments of this character are now made by corporations who gather the savings of little depositors and premium payers; and it would cost much more to make them in any other way.


Corporations, therefore, are necessary, but they necessarily separate the ownership of wealth from its management. To invest is generally to entrust your money to another, and those who invest in corporations, unless they control them, are economically disfranchised, because the stockholders in all large corporations almost never influence the management of their property, and as a rule do not know anything about it. They don’t because they can’t. A few years ago a very large number of people were much worried by the exposure of some scandalous doings by the managers of certain great life-insurance companies. They would have been very glad to combine and choose better managers if they could; but they couldn’t. Laws were passed for the purpose of enabling the policy-holders to select their trustees, but the only result has been a ridiculous and rather expensive fiasco. As in politics, the rank and file select the managers selected for them by a few men who understand the situation. When many thousands of people own stock in a concern, they live all over this continent and in foreign parts, and it is a physical impossibility to bring them together. They do not know one another, and very few of them know much about the affairs of the concern, and if they know anything of the candidates that may be suggested, it is generally only by hearsay.

How many of the eighty-eight thousand stockholders in the Pennsylvania Railroad, for instance, have ever attended a meeting? For that matter, how many of them have ever studied the report of the railroad? Not one in ten could spare the time to read it, perhaps not one in a hundred could master it. The report may be read in a few hours; it would take as many months, if not years to verify it. Very nearly half these stockholders are women; the average holding is 120 shares, (par $50), and one-sixth of the stockholders own less than 10 shares each. Ten thousand of them are abroad. Much stock is held by trustees, whose beneficiaries are probably very numerous, and totally incompetent to understand railroad management. There are also more than twenty thousand holders of stock in subsidiary corporations controlled by the Pennsylvania Railroad. No one can tell the number of bondholders; perhaps there are as many as there are employees, making an aggregate of almost half a million.


Sometimes trustees abuse their office; but on the whole they have done pretty well, and whether they have or not, there is no other way in which large capitals can be managed. All civilization rests on confidence. Such a vast fabric could not be built on confidence unless confidence was deserved. As a matter of fact, a man invests his money just as he invests in a surgeon. He does not think of directing the surgeon how to operate. If the operation does not succeed, he tries another surgeon next time—if there is a next time.

Of course all this applies chiefly to the large corporations. There are many thousands of small ones, having few stockholders, who reside where the business is established. These stockholders know more or less of the details of the business; they can judge to some extent how it is carried on, they are often acquainted with the managers, or are the managers themselves, and if not, they are able sometimes to combine and change the management. And I will anticipate a little and say here that the property of such a corporation located in a small town is often to some extent not politically disfranchised, because the people of the town understand that they are directly interested in the prosperity of the business. But it seems almost impossible for the stockholders to change the management of a large corporation. It has been done a few times. Mr. Harriman notoriously did it by using the money of one concern to buy the stock of another, and that is almost the only way in which it has been done. No doubt there has been an immense deal of combination which has resulted in change of management, but this has not been because the stockholders combined to oust their trustees, but because they thought they saw a good chance to sell their stock to those who would pay high for the control, or to participate in these combinations. There have been a good many cases where an enterprising speculator has managed to get hold of a majority of the stock and change the control, and powerful bankers can sometimes get proxies enough to put a stop to bad management; but spontaneous movements of this kind on the part of the mass of the stockholders are extremely rare.

Beyond dispute then, the great mass of wealth held by corporations is almost wholly under the control of their managers, and not the mass of the owners. Mr. Hill has recently testified that he never knew a stockholder to attend a meeting except to make trouble; by which he perhaps meant that when a single stockholder appeared, it was to get paid for not making trouble.


It need hardly be said that no such thing as legitimate representation of corporate wealth is known in our politics, and the representation of individual wealth is very limited. The theory of government by manhood suffrage, so far as there is any theory, is now entirely personal. In early times the freemen of the town, or little commune, met and legislated according to their needs. To be a freeman one had to own property; to “have a stake in the country.” Nowadays nearly all the men who have no property can vote, and some that have property cannot. In England, they are doing away with “plural voters.” Heretofore it was thought just, when a man owned land in more than one place, that he should have his say in the government of all; but this is now forbidden. The right was never recognized in this country, partly because formerly men seldom owned property in two places, but as transportation improved the conditions changed. The “commuters” are legion. Their business and their capital are under one jurisdiction and their dwellings and families under another; but they can vote in only one. Many thousands of men own houses in both city and country. They could help in the government of both, but are disfranchised in one or the other. Under our complicated systems of registration, they are often disfranchised at both.

Of course when population increases, the town meeting becomes a physical impossibility. There is no more direct legislation; it has to be delegated. The power is transferred to the city councils, and to the state and national legislatures. In other words, the interests of the owners of wealth are put in charge of trustees. According to Hamilton, the theory of our government is that the people will “naturally” choose the wisest of their number to represent them. There is not much basis for this assumption. Rousseau scouted it. According to him, the volonté générale could be ascertained only in the town meeting, and he seriously maintained that the ideal government for the Roman empire was by the gangs of rioters that the politicians marshalled in the Forum at Rome under the name of comitia. All that the theory of our government requires, is that our rulers shall be such men as are designated by the majority of the voters. That they should be wise and good men may accord with the theory of aristocracy; it is no part of the theory of democracy, and is certainly a very small part of the practice.

When I say that half of the property of this country is disfranchised, I mean that the nature of this property is such that it is peculiarly subject to the power of rulers, and that the owners of it have hardly any legitimate way of defending it against the arbitrary exercise of this power. The corporation is created by the legislature; men cannot combine their capitals and avoid unlimited liability for the debts of the combination, unless the law specifically authorizes the proceeding. Of course, if the legislature has power to make such grants, it must have power to alter them. In short, property held by a corporation is held at the will of the legislature, and in a way and to an extent that property held by an individual is not. It is not very easy for the legislature to plunder or blackmail individuals, even when they are disfranchised, because it has to be done by general laws, and direct methods arouse direct opposition. But, as we have seen, stockholders as a class cannot defend their rights, and as things are now, their trustees cannot have much to say concerning the laws that affect their property. Managers of large corporations are now commonly denounced as unfit to be legislators, and are practically excluded from the halls of legislation. In some states they are even specifically disfranchised, so far as holding office is concerned, and, under the new despotism, ironically dubbed the new freedom, every man whose wealth and ability make his aid important to many enterprises, is to be forbidden to participate in more than one. Yet property is almost entirely subject to the disposition of the legislature! not entirely, for the courts afford some protection; but even this is now threatened: we may “progress” so far as to make it unconstitutional for a judge to declare any law unconstitutional.

It goes without saying that half the property of the country will not submit to spoliation without a struggle. If it cannot have representation legitimately, it will try to get it illegitimately or extra legitimately. The managers of corporations have in the past found many ways to influence legislation. Despite the prejudices against them, some of them have had themselves chosen as legislators; even as judges. Some have brought about the election of legislators who would act in their favor, and have even bribed legislators. Until recently it was not even unlawful for these managers to use the money of their stockholders in political contributions; some managers acted on the “Good Lord! Good Devil!” principle. Probably most of the politicians paid no railroad fares. Many of them got passes for their families and their friends; and it was certainly to be expected that they should listen to the requests of those who granted these favors. The situation became grotesque when a great ruler, seeking a nomination to office with the proclaimed purpose of enforcing the laws against rebates and passes, required the railroad managers to furnish him free transportation on his righteous mission.

There were obvious objections to these practices, and public opinion finally compelled our rulers to pass laws prohibiting them. Theoretically the managers of corporations are now effectually disfranchised. They dare not offer themselves as candidates for office. They scarcely dare to favor, even secretly, the choice of rulers who will listen to them. Fortunately, however, they hardly longer dare to offer bribes. Anyone on friendly terms with them is politically a suspicious character. Any lawyer who has been employed by them becomes unavailable as a candidate for office. Our legislators, as was to be expected, at once showed the effect of release from restraint. It has been uncharitably said that in revenge for the loss of their passes and other favors, they attacked the railroads; but there has been considerable voting of more mileage, and our congressmen at least voted themselves ample indemnity in larger salaries, and they opened fire on corporations in general and railroads in particular, with a broadside of statutes. Against this fire the property of millions of small holders in the corporations has been almost defenceless. Some of these statutes are so drawn that the plain business man does not know whether he is a criminal or not; if he could afford to consult the best of lawyers it would not help him much. The only safe course to pursue is to agree with the adversary quickly; to plead guilty to whatever charge is made, and beg for mercy. That one is innocent is immaterial. The expense of litigation is nothing to the rulers of the United States; but it may be ruinous to their subjects. The cost of the commissions and investigations and prosecutions of the last few years has been enormous. Only lawyers can contemplate it without consternation.

True, the managers of large corporations can make their protests heard. They can publish their pleas in the newspapers, and issue pamphlets, and they can appear before committees and commissions, and submit arguments. The managers of small corporations cannot afford such measures. You might as well refer a servant-girl who couldn’t collect her wages, to the Hague Tribunal, as to send a plain business man to Washington to plead his cause.

The animus of these statutes is hostility to great corporations. But it is impossible to legislate against great corporations without hitting the small ones. Take the case of the recent corporation income tax; the 244,000 corporations exempt from the tax had to make out their inventories and keep their books and report their proceedings precisely as if they were liable to the tax. A fine of from $1,000 to $10,000 and a 50 per cent. increased assessment were the penalties for failure. But the cost of complying with all the requirements of the law, for a corporation having an income of two or three thousand dollars, cannot be figured at much less than the tax. Many corporations have no net income. The managers of these concerns are not expert book-keepers, and their returns must be in many cases so inaccurate as to expose them to prosecution if the game were worth the candle. If we assume that the average cost of making out the return is only ten dollars, we have a bill of $2,400,000, which the stockholders, or the employees, or the customers, must pay for the privilege of demonstrating that the small corporations are not liable to pay anything at all.

The corporation income tax law was really an act of popular dislike of corporations exercising great monopolies. Grouping all the little corporations with them was an absurdity and a cruelty.

Corporations have no feelings. They are not wounded by the hostility of legislatures. The managers of corporations of large capital have feelings, and some of them are wounded in their pride by this hostility. But they need not suffer in their pockets. They are abundantly able to protect their own property; they know how to make money on the short side of the market as well as the long side. But the managers of the concerns of small capital are seldom able to do this. Oppressive laws cause suffering to them, to the mere holders of stock in all corporations, to the creditors of all, to the employees, and to the customers. Many of these laws profess to be meant to favor small people as against big people—to restrain the rich corporations so that the poor ones may have more liberty. There is no evidence to show that this result is attained, or that the country would be better off if it were attained. But there is plenty of evidence to show that half the people of the country are suffering from these legislative attacks on their property. The men who manage the great corporations, whatever their faults, are men of enterprise and courage. They are the true progressives; the prosperity that they diffuse among the whole people is ordinarily more than can be destroyed by our progressive politicians. They are now beginning to feel that their rulers are discriminating against them as a class, and are uneasy and disheartened, and reluctant to embark in new enterprises; and the progress of the country is halted by their apprehension. It is not the rich who suffer most: it is “the unemployed,” and the millions of dumb, helpless, struggling thrifty men and women whose hard earned savings constitute a large part of the capital of the corporations; and who are already alarmed at the shrinking value of these savings. It is, perhaps most of all, the mass of ignorant unthrifty poor, whose chief wealth is the wages paid them by the corporations which they are taught to look on as their oppressors.