The Menace of New Privilege

FEBRUARY, 1921

BY GEORGE W. ALGER

I

HISTORY repeats itself when its lessons have been misunderstood. What the American people have to consider to-day is the return, in an entirely new and menacing form, of one of the outworn dogmas that were overthrown by the French Revolution — the doctrine of privileged classes. More precisely, it is the doctrine which in application purports to confer, by form of law, upon certain favored classes the right to perform with impunity acts expressly declared to be criminal if done by others not of the favored group. We have to consider it, moreover, not simply in the abstract, as the return of a once-hated feudal principle, but with respect to some of the already present concrete consequences of its adoption.

If history tells democracy anything, it is that the creation of privileged classes inevitably presages, not peace, but class-war. We have to deal with a crop of dragons’ teeth, not sown merely, but now coming up.

At the very root of democracy lies the great principle of equality before the law. Its establishment has taken generations. It has required the shedding of blood, the wreck of feudalism, the pitiless destruction of a régime under which classand caste-distinctions had grown and thriven, under which unjust privileges, hoary with age, had made certain classes rich and powerful and had sapped the vitality of others. In its youth democracy declared itself against classes. It affirmed the equality of all men before the law, and tried to establish a system of justice in which neither rank, creed, nor class conferred privilege before the courts.

As we read history, no page is more inspiring than that which tells of the great day in France, in August, 1789, when the National Assembly adopted the Declaration of the Rights of Man; when, in an outburst of patriotic enthusiasm, the great nobles themselves moved the renunciation of the feudal privileges of their class and proposed that thereafter all citizens should submit to the same penalties and punishments; when, at a single session, on the memorable 4th of August, the hereditary privileges of individuals, of cities, of towns and provinces, disappeared; when even parliamentarians professed themselves willing to renounce hereditary judgeships; when the National Assembly demolished, by the voluntary offering of its beneficiaries, the entire feudal system, unshackled the land and the person of the citizen, and left him free and equal before the law and with all careers open to him. ‘The law,’ declared the Assembly, ‘is the expressed will of the community. It should act upon all alike. All should be equally restrained and protected; all should be equally eligible to honors, employment, and office.’

This was one of the high spots of history. Neither men nor nations, to be sure, retain continuously the elevation of special moments in their history. The special classes of the feudal period were minorities, small groups, favored individuals, privileged nobles. The principle of equality before the law, which abolished their ancient rights, did not proceed upon this fact alone. It was of a more general character. Its foundation was the foundation of democracy itself, the equality of all before one law, which recognized no special or privileged class, before which the noble, the peasant, the farmer, the artisan were alike. It proposed to set up a system of law before whose tribunals no man could answer, when charged with an offense against its decrees, ‘I am a privileged person to whom the common law does not apply.’

It would indeed have amazed the members of that National Assembly if they could have foreseen a time when, in a democracy still purporting to be based upon this theory of equality before the law, not the noble, but the farmer could raise the plea of privilege, and could say in its courts of justice, when charged with an offense punishable if committed by others, ‘I am of a privileged class.’ The farmer, or artisan, of France, as pictured by La Bruyère or Arthur Young, could have imagined no such miracle. Even in his dreams, he could imagine only a state in which he should attain justice — equality before the law. That he would ever attain a state when he should seek for himself the feudal privileges of the noble would have been beyond the realm of his imagination.

In my morning paper a few days ago I found the following announcement, dated Wichita, Kansas, under the heading: ‘Growers urged to hold wheat after Oct. 25 for $3 a bushel’: —

The Wheat-Growers’ Association of the United States, with a membership of 70,000 iri Kansas, Oklahoma, Texas, Nebraska, and South Dakota, has issued from its office here a proclamation to all its members urging them to refrain from selling any wheat after 8 P.M., Oct. 25, until such time as the price of good wheat is raised to $3 a bushel at the growers’ terminal market. Agricultural colleges, farm bureaus, State Boards of Agriculture, and similar organizations are urged to coöperate.

This proclamation was signed by the National President and Secretary of the Wheat-Growers’ Association.

If this announcement had been made by an association of steel manufacturers, urging the holding of structural steel for a rise of three dollars a ton over the current price, with Judge Gary’s name at the bottom of it, asking the coöperation of members of the Iron and Steel Institute, indictment would have followed in a week. The Sherman Anti-Trust Act would instantly have been brought into operation.

Are artificial prices in bread less important to our people than artificial prices in steel? If people who produce steel cannot combine to create these prices, why should people who produce wheat be allowed to do so? The question raised is quite apart from the general problem involved in the AntiTrust law. The problem of monopoly has many aspects. It is but one of these aspects that is here considered — the desirability and propriety of class-privilege and exemption from the operation of these statutes.

Our recent census returns show an enormous increase in the number of city-dwellers, commonly, and quite inaccurately, classed as consumers. It shows a corresponding decline of farming or agricultural population, called, by an equally faulty description, producers. It is a common heresy that the man who works with his brain, or the man who, in the intricate processes of modern life, devotes his energies to the organization of industry, to the manufacture, distribution, marketing, storage, sale, or transportation of goods, is not a producer, and that his rights are subordinate to the rights of those who raise crops, or work in manufacturing processes, or labor with their hands and bodies. Class-war, indeed, based upon these distinctions, is one of the postulates of Russian Sovietism.

The falling-off of farm population is not, as many suppose, in all aspects an alarming thing. It represents, in large part, the improvement which has been made by the city-dweller and the manufacturer in the processes applicable to the farm. New forms of machinery adapted to farm use have been devised, which make it possible for far greater acreages to be handled by these machines, with far less human labor. This contribution made by the manufacturer to the improvement of the conditions of the farm renders unnecessary the continued employment there of human labor to the same extent as before. Farming sections that show a falling-off in number of inhabitants are very largely sections to which agricultural machinery has gone in large quantities. In the argument often made, therefore, that something drastic must be done to keep our farming population as large as before, this essential feature is overlooked — the contribution of intelligence from the city, and from the manufacturing plant located in or near it, to the solution of the problems of the farm. It only shows how artificial is the attempt to classify our people into groups, on the Russian basis. It overlooks the essential healthful interrelation of these groups acting in economic concert rather than through strife, and producing results beneficial, not to one class, but to all.

Section 6 of the Clayton Anti-Trust Act of 1914, provides: —

The labor of a human being is not a commodity or article of commerce. Nothing contained in the Anti-Trust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purpose of mutual help and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade under the Anti-Trust laws.

This somewhat cloudy language has not as yet received judicial construction by the United States Supreme Court. Efforts are now being made, in legislation pending before Congress, to clarify and extend the exemption of these classes from the Anti-Trust laws of the nation.

In the meantime, the words of the Clayton Act have been given a practical construction, which is well illustrated by the announcement of the Wheat-Growers’Association quoted above. Under this construction, accepted by the Department of Justice, any form of hoarding, pooling, price-fixing, or market manipulation is assumed to be lawful, if it is done or conducted by organizations which have no capital stock and whose profits accrue to the members in other forms than by way of dividends. The distinction between such corporations and capitalistic corporations with capital stock and dividends is ingenious but illusory. Corporations of either form are but the means by which individuals who combine in them their money or their produce expect to make a profit in return, either by dividends or by an enhanced price for the produce contributed. An agricultural combination for mutual help means nothing more or less than one which produces a greater money return to its members by its corporate action.

Is the Russian distinction between peasants and workers and the rest of organized society consistent with the law of the land in a democracy which has not wholly abandoned its ancient conception of equality before the law? The question was answered eighteen years ago in the negative. Illinois had adopted an Anti-Trust law, which, after the usual penalties imposed upon those violating its provisions, made the following exception: —

The provisions of this Act shall not apply to agricultural products or livestock while in the hands of the producer or raiser.

In a decision concurred in by all members of the court who participated therein, with one exception, the Supreme Court of the United States, by Judge Harlan, declared the whole act unconstitutional, as a denial of the equal protection of the law. Judge Harlan says in this case, — Connolly vs. Union Sewer-Pipe Company: —

We conclude this part of the discussion by saying that to declare that some of the class engaged in domestic trade or commerce shall be deemed criminals if they violate the regulations prescribed by the state for the purpose of protecting the public against illegal combinations formed to destroy competition and to control prices, and that others of the same class shall not be bound to regard these regulations, but may combine their capital, skill or acts to destroy competition and to control prices for their special benefit, is so manifestly a denial of the equal protection of the law that further or extended argument to establish that position would seem to be unnecessary.¹ This was the law in 1902. The decision has never been overruled. Its authority has never been directly denied. But the theory of equality before the law, which, Judge Harlan declared, forbade such legislation, has not prevented subsequent enactments purporting to confer class-privilege of the same character. The Clayton Act amendment, which I have quoted, is only one type of this exception. If the reasoning of Judge Harlan’s opinion is still good law, it is perhaps an open question whether the Sherman Act in its entirety has not been affected by this amendment, if the amendment in fact authorizes such concerted action as that proposed by the wheat pool proponents. The Illinois Anti-Trust law was, as stated above, declared to be wholly vitiated by the exemptions of ‘producers and raisers’ contained in it.

The Lever Act, enacted as a warmeasure to prevent profiteering, expressly permitted profiteering, no matter how gross, provided it was done by farmers or laborers, and not by merchants. In several of the lower Federal courts, the act has been declared invalid because of this provision, and the United States Supreme Court has the question now before it for final consideration.

II

The question here considered, however, is not a mere abstract question of law. It is rather as a matter of public policy that it needs far wider consideration than it has yet received. The subject is one that exhibits the great temptation of the politician. Given a large class, of great voting strength, of distinct class-interests, and the temptation to win votes, from a constituency largely composed of such elements, by such enactments is one difficult to overcome. The Appropriation Act for the enforcement of the Federal anti-trust laws is an interesting example of these enactments. It expresses an indirect and adroit form of this favoritism, in that it provides that no part of the appropriation shall be expended for the prosecution of farmers who coöperate to obtain fair and reasonable prices for their products. The Department of Justice would, therefore, proceed at its peril against any such organization; since, if it should fail in its efforts to prevent an unlawful conspiracy, all the money spent in such prosecution would be unauthorized expenditure. Plausible and highly ingenious arguments have been put forward, purporting to justify these class-privilege laws. The food-producer should be allowed the legal right to profiteer, forbidden by the Lever Act to all others, because, we are told, the class is so numerous that there is little danger that such profiteering will in actual practice result in serious injury to consumers. The labor union should be allowed to profiteer for the same reason, and also because of the peculiar character of labor: ’the labor of a human being is not a commodity,’ and so forth.

One serious difficulty about this classprivilege legislation is that, once it begins, new privileges and exemptions follow and extend themselves. A few days after the wheat pool was projected, my morning paper contained another announcement. This time it was not wheat, but cotton. The headnotes indicated that merchants in Southern states had been ordered to close their doors until the price of cotton returned to the forty-cent level; that night-riders were enforcing the closing of cotton gins by threats of the torch. Along with it came the suggestion that the cotton-farmers are bitterly blaming the Wilson administration and the Federal Reserve Bank for the decline in cotton, because the Secretary of the Treasury and the Governor of the Reserve Board have not been willing to lend the banking resources of the Reserve banks to extend such credits as would enable cottonproducers to hold their cotton until the price had advanced to their satisfaction. The demand that the National Treasury should be used as an agency for a price-fixing pool of cotton-producers is analogous to the demand of the wheat-growers that the public institutions supported by tax-payers should coöperate with their efforts to raise the price of wheat. Their appeal was made to agricultural colleges, farmbureaus, state boards of agriculture, to help their price-fixing propaganda. Where is the legitimate stoppingpoint, if we make a beginning in recognizing class-rights of this character, and permit things that are criminal if performed by manufacturers and merchants to be done with impunity by the exempted classes?

The time is coming,—and coming soon, unless the pressure of public opinion prevents it, — when our legislatures and Congress will be asked to finance these price-fixing coöperative ventures for the benefit of producers and at the expense of city tax-payers. The extent to which such movements can go without incurring legal obstacles is well evidenced by the Non-Partisan League legislation in North Dakota, which has successfully sustained all constitutional attacks upon it up to, and including, the United States Supreme Court. The growth of this legislation thus far has been rapid because of an almost complete absence of opposition. The city consumer has been greatly irritated at increases in the cost of living. He has been too readily convinced that the cause is the rapacity or inefficiency of the middleman, a personage for whom no civil word is ever said except at advertising rates. That he is simply registering for the consumer increased costs, due to the coöperation of farmers in the country districts from which he buys, and the increased cost of labor coöperation in the city, through which he distributes, is a proposition to which the consumer has as yet given almost no thought.

Subsequent newspaper accounts show that the wheat-pooling plan was meeting with success, and that wheat had moved up from eighteen to twentythree cents above the low point at which it stood when the announcement that I have quoted was made. With ninetysix million bushels of wheat in the bins and stacks of Kansas farmers, representing two thirds of the year’s crops, with empty box-cars on nearly every railroad siding in that state, and with the country elevators ready to purchase the grain, there were just eighteen carloads of Kansas wheat on the Wichita market on the date fixed by ihe Wheat-Growers’ Association in the notice I have quoted. In other words, we have a wheat strike against the consumer, followed by an announcement by the Secretary of the Growers’ Association, that the strike was in effect, and that the farmers were ‘in the fight to stay. Sixty days more,’ he declared, ‘will see the goal of $3.00 wheat attained.’

These wheat-growers are dissatisfied also with the failure of the Federal Reserve Bank to finance their wheat boycott with public money.

As I write, the milk-farmers of six states, whose milk is sold for consumption in New York City, combined under the leadership of the Dairymen’s League, a milk-producers’ association with some eighty thousand members, are proposing a price-fixing pool under which milk to the value of many millions of dollars will be handled by one of these coöperative associations. This scheme provides that the Dairymen’s League Coöperative Association shall sell and receive the money for all this milk, shall fix separate prices for milk for various uses, — for the condenser one price, for the cheese-manufacturer another, and for the children of New York a much higher price, — and that the moneys received shall be put into one pool, and the same price be paid to all the participants. Under this plan the city consumer and the children of the poor are to pay artificially high prices, to enable corporate purchasers of milk to receive lower prices. This pool, whose illegality would be apparent if it were not operated by an exempted class and organization, is permitted by a recent amendment of the New York penal law, enacted after the Dairymen’s League itself had been indicted as a conspiracy in restraint of trade. This provision, exempting cooperative associations from the State Anti-trust law, provides: —

Contracts, agreements, arrangements, or combinations, heretofore or hereafter made by such associations, or the members, officers or directors thereof, making such collective sales and marketing and prescribing terms and conditions thereof, are not conspiracies and shall not be construed to be injurious to trade or commerce.

Can anyone doubt that such a combination, if effective, as its proposers hope it will be, will in fact be injurious to trade or commerce, will be injurious to the consumers in the city, and will be unjust as well as injurious?

The latest public evidence of the growth of this price-fixing programme among producers is the deliverance of the National Grange, through its Master, at its recent annual meeting in November of this year, in which solemn warning is given to the consumer, to the bankers, manufacturers, railroads, and labor organizations, that, if no attention is now paid to the unrest and dissatisfaction of the farmer, and ‘if the Government continues to use its great power to import raw material, free of duty, to reduce costs, then the Grange will be the first to help organize nationwide selling organizations which shall fix the price of farm products.’

III

How far can a democracy go in the stratification of its social life into classes without danger to the very fabric of democracy itself? This is a pressing problem, which has received almost no consideration by the classes most immediately affected—those who dwell in cities, those persons outside of labor unions and farm organizations, who have not organized themselves, as they are doing in England, into a middle-class union. Must we have the further stratification of American society into a middle-class union for self-protection? Must this middleclass union be required to show by their votes, by their political action, that they too constitute a class, that they too have interests which need special nurture by special legislation?

That the farmer has many just causes of dissatisfaction with the return for his labor, no one can question. That many defects and some rankly fraudulent practices exist in the methods of distribution of his products is equally true. Much can be done, and should be done, to improve those distributive processes, of which the waste and injustice are injurious to farmer and consumer alike.

The trouble with the coöperative trust movement is that it adds confusion and discord, ill-will and passion, to the consideration of problems which need careful study and discriminative judgment and a spirit of fair play. To try to understand marketing conditions and rules, to try to meet market demands with a corresponding supply, to avoid, wherever possible, the creation of glutted markets, and to try to organize a marketing system under which unnecessary losses are avoided and unnecessary costs eliminated, is a course which common sense imperatively demands. Such a programme, however, requires coöperation between the producer and the middleman, and an understanding of one another’s problems, which need joint action for successful solution. The adoption in a friendly and constructive spirit of such a policy and programme would be of immense value.

The coöperative trust movement has no such plans or purposes. It proceeds upon the assumption that the laws of supply and demand need not be understood, but can be controlled; that prices can be fixed and maintained in conflict with these laws, provided a spirit of loyal obedience can be maintained among the rank and file of farmer producers. To produce this spirit of loyalty, under which these price-fixing plans can be promoted and carried on, there follows inevitably a form of propaganda which these officers feel themselves constrained to maintain in their own organization papers, in the country newspapers, and through press agents whose activities are increasingly evident in the city press— the constant purpose being to convince the producer member that any established form of distribution not immediately controlled by his organization is a method of extortion or oppression, to be dominated or destroyed. They insist that loyalty to the coöperative trust movement can be maintained on this postulate only.

This propaganda finds further support in political circles subservient to these class-organizations. Curiously enough, it also finds support, for other reasons, in the yellow journals in the cities. The general result is that organized systems of distribution, which refuse to buy and sell commodities on terms so dictated, find themselves, both at Washington and in the several states, subject to an almost continuous attack. The meat-packing industry has long been pilloried. The movement for disintegrating these large meat-distributing systems is to-day as popular as was the movement for the destruction of the original Standard Oil Company, before subsequent experience taught us what the effect of disintegrating the trust into a series of separate oil companies would be. In the same fashion, continuous attacks are being made upon the grain and cotton marketing systems, under which values are found by the application of the law of supply and demand in the great exchanges. The milk-distributer finds himself under attack in all great American cities, notwithstanding the repeated investigations, which have almost uniformly found his profits surprisingly low, and the service by the larger companies such as to justify the finding of a recent legislative investigation in New York, which declares that It can safely be said at this time that no product of the farm is more economically handled in distribution to the city consumer than the quart of milk to be had every morning at his doorstep.

One injurious collateral effect of this class-war propaganda, organized by the coöperative trust movement for purposes of price-fixing by producers, has been this: the organized and efficient systems of distribution are being obliged to spend thousands upon thousands of dollars in self-defense against legislation injurious to them, and are finding difficulty in maintaining the efficiency of their organizations. There is, however, an almost entire absence of a much-wanted critical attention, either in city or country, to grossly inefficient forms of distribution, which today waste millions of dollars’ worth of food and food-products through lack of adequate or intelligent distribution facilities. When we consider that, in New York alone, a fourth of the perishables received at the wholesale markets goes to the public dumps; that a third of the oranges and a fifth of the eggs received are rotten and unsalable; that, annually over seven million pounds of fruit and three million pounds of vegetables are carried by the dump-scows to the sea, we have but a partial and incomplete illustration of this waste, which goes on daily through uneconomic distribution, while economic and relatively efficient distribution alone seems to be subjected to unthinking criticism, political attack, and every form of discouragement injurious alike to producer and consumer. It is wholly against public policy that this should continue.

The basis of a great part of this continuous attack upon organizations for the distribution of farm-products is not understood by the consumer. That basis is found largely in the desire of those in control of these producers’ organizations, now freed, or believing themselves to be free, from all restraint by law, to dominate what they do not understand, attempting to substitute crude forms of so-called coöperation for established forms of distribution, and to place a relatively small, and wholly inexperienced, group of farmer-officials in control of price-fixing pools in food-products of enormous value — products which must be handled efficiently and with due regard to market conditions, in order to avoid injury to the farmer as well as to the consumer. The effect of Russian Sovietism, to which it is a close parallel, on the methods of distribution is one of the most marked features of its failure. The repetition of anything like this failure in America by the development of the same class-war would be a public calamity.

What I have said should not be considered as a sweeping defense of all forms of so-called capitalistic distribution. There are many things that may be done, and must be done, to improve methods of production and distribution and to cheapen the cost of both. It is a singularly inviting, undeveloped field. To prevent unfair practice, to destroy opportunities for overreaching, extortion, and fraud, or marketcontrol, is highly desirable. But to give to radical groups of any class the unlimited right of combination, to enable them thereby to control prices, to manipulate markets, to dominate or disrupt distribution, and often to coerce unwilling producers themselves into action that their own sound judgment disapproves, is quite another matter.

What the consuming public should be made to understand is that the animus of a large part of the current attacks upon present methods of distribution is consciously or unconsciously hostile to the consumer himself. With all their faults, the great existing instrumentalities of distribution are nevertheless, in the main, between producer and consumer, free agencies, which, because of their own interest, have some regard for the rights of both, these agencies being dependent for their success upon competition, upon the development of economies of operation, and upon conforming their efforts to the law of supply and demand. The thing sought by these new groups is the transformation of these systems of distribution into more passive instrumentalities, through which united producers express their price-fixing demands: their transformation into mere toll-gatherers for the producers from the consumer.

It is doubtless true that these crude and clumsy price-fixing pools, which have been previously discussed, will prove to be ineffectual in accomplishing their purpose. They can, however, cause great harm in disorganizing distribution.² It is because of this latter fact, and because of the development of the spirit of class-war, actively engendered and promoted by their official representatives, both in public office and in control of the industrial politics of farm coöperative movements, that the public should be induced to reconsider the desirability of exempting these organizations from the applications of all laws, of permitting them to operate conspiracies in restraint of trade, which are forbidden to the manufacturer and the distributer.

Along constructive lines many things can be done to improve the welfare of our agricultural population, which is the backbone of American life. This paper is written in no spirit of hostility. The trouble with these measures is that they constitute a wrong start in the wrong direction, that they are crude, unjust, and unworkable substitutes for constructive legislation, helpful to the community as a whole, by which help and encouragement can and should be given to agriculture. It is because these laws tend to accentuate and increase the class-cleavage between the agricultural population and the country of which they are an essential part, that this legislation needs reconsideration, to the end that other legislation, conceived in a different spirit and with a different purpose, may take its place.

In the final analysis, the question resolves itself into whether we desire the development in America of classwar by recognizing class-distinctions, class-rights, and class-privileges, which make, not for peace, but for inevitable conflict. The time has arrived when this great question must receive a far more thorough and consistent study by the American people, not as classes, but as citizens; not as petitioners for special privileges, which the nobles of feudalism surrendered, but as the willing participators in a system of law whose basis is equality, a system which can have no basis other than equality, if democracy is not to perish from the earth.