Thorstein Veblen: "The Modern Point of View and the New Order." III. THE STATE OF THE INDUSTRIAL ARTS. The Dial. A Fortnightly (New York) Vol. LXV (June 20 to December 28, 1918) No. 777, Nov., 16, 1918, pp. 409-414 --------------------------------------------------------------------- [409] The Modern Point of View and the New Order III. THE STATE OF THE INDUSTRIAL ARTS THE MODERN point of view, with its constituent principles of equal opportunity, self-help, and free bargaining, was given its definitive formulation in the eighteenth century, as a balanced system of Natural Rights; and it has stood over intact since that time, and has served as the unquestioned and immutable ground of public morals and public policy, on which the advocates of enlightened and liberal views have always been content to rest their case. The truths which it holds to be self-evident and indefeasible are conceived to be intrinsically bound up. in an overruling order of nature, in which thoughtful men habitually believed at that time and in which less thoughtful men have continued to believe since then. This eighteenth century order of nature, in the magic name of which Adam Smith was in the habit of speaking, was conceived on lines of personal initiative and activity. It is an order of things in which men were conceived to be effectually equal in all those respects that are of any decided consequence in intelligence, working capacity, initiative, opportunity, and personal worth; in which the creative factor engaged in industry was the workman, with his personal skill, dexterity, and judgment; in which, it was believed, the employer ("master") served his own ends and sought his own gain by consistently serving the needs of creative labor, and thereby serving the common good; in which the traders ("middlemen") made an honest living by supplying goods to consumers at a price determined by labor cost, and so serving the common good. This characterization of the "obvious and simple system" that lies at the root of the liberal ideals may seem too much of a dream to any person who shuns "the scientific use of the imagination"; its imponderables may .seem to lack that axiomatic self-sufficiency which one would like to find in the spiritual foundations of any system of law and custom. Indeed the best of its imponderables are in a fair way now to drop back into the discard of uncertified make-believe. But in point of historical fact it appears to have stood the test of time and use, so far as appears on the face of law and custom. However, the subsequent course of events has shown no indisposition to depart from this "natural state of man," on the effectual reality of which the modern point of view rests its inviolate principles of law and morals and economic expediency. A new order of things has been taking effect in the state of the industrial arts and in the material sciences that lie nearest to that tangible body of experience out of which the state of the industrial arts is framed. And the new order of industrial ways and means has been progressively going out of touch with the essential requirements of this established scheme of individual self-help and personal initiative. Under the new order the first requisite of ordinary industrial production is no longer the workman and his manual skill, but rather the mechanical equipment and the processes in which the mechanical equipment is engaged. And this new industrial equipment and process embodies not the manual skill, dexterity, and judgment of an individual workman, but rather the accumulated technological wisdom of the community. Under the new order of things the mechanical equipment the "industrial plant" takes the initiative, sets the pace, and turns the workman to account in the carrying-on of those standardized processes of production that embody this mechanistic state of the industrial arts, very much as the individual workman in his time held the initiative in industry, set the pace, and made use of his tools according to his own discretion in the exercise of his personal skill, dexterity, and judgment, under that now obsolescent industrial order which underlies the modern point of view, and which still colors the aspirations of Liberal statesmen and economists. The skilled workman still is always indispensable to the due working of this mechanistic industrial process, of course, very much as the craftsman's tools, in his time, were indispensable to the work he had in hand. But the unit of industrial organization and procedure, what may be called the "going concern" in production, is now the outfit of industrial equipment, a works, engaged in a given mechanical process designed to turn out a given output of standardized product; it is the plant, or shop. And under this new order of industrial methods and values it has already come to be a commonplace of popular "knowledge and belief" that the mechanical equipment is the creative factor in industry, and the "production" of the output is credited to the plant's working capacity and set down to its account as a going concern; whereas the other [410] factors engaged, as, for instance, workmen and materials, are counted in as auxiliary factors which are indispensable but subsidiary. Under the new order the going concern in production is the plant or shop, the works, not the individual workman. The time, place, rate, and material conditions of the work in hand are determined immediately by the mechanically standardized process in which the given plant is engaged; and beyond that all these matters are dependent on the exigencies and maneuvers of business, largely by way of moderating the rate of production and keeping the output reasonably short of the productive capacity. The workman has become subsidiary to the mechanical equipment, and productive industry has become subsidiary to business, in all those countries which have come in for the latter-day state of the industrial arts, and which so have fallen under the domination of the price system. Such is the state of things throughout in those greater industries that are characteristic of the new order; and these greater industries now set the pace and make the standards of management and valuation for the rest. At the same time these greater industries of the machine era extend their domination beyond their own immediate work, and enforce a standardization of much the same mechanical character in the community at large, in the ways and means of living as well as in the ways and means of work. The effects of their mechanically standardized production, in the way of goods and services as well as in the similarly standardized traffic through which these goods and services are distributed to the consumers, reach out into the everyday life of all classes; but most immediately and imperatively they reach the working class of the industrial centers. So they largely set the pace for the ordinary occupations of the common man even apart from any employment in the greater mechanical industries. It is especially the latter-day system of transport and communication as it works out under the new order highly mechanical and exactingly scheduled for time, rate, and place that so controls and standardizes the ordinary life of the common man on mechanical lines. The training enforced by this mechanical standardization therefore is of much the same order throughout the community as it is within the mechanical industries proper, and it drives to the same outcome submergence of the personal equation. So that the workday information and the reasoning by use of which all men carry on their daily life under the new order is of the same general character as that information and reasoning which guides the mechanical engineers; and this unremitting habituation to its scope and method, its principles of knowledge and belief, leads headlong to a mechanistic conception of things, ways, means, ends, and values, whether it is called by that name or not. The resulting frame of mind is often spoken of loosely as Materialism. This impersonal character of the workday habituation is particularly to be counted on wherever the latter-day scheme of mechanical standardization takes effect with all that wide sweep and massive drift with which it now dominates the larger centers of population. Since the modern era began, the state of the industrial arts has been undergoing a change of type, such as the followers of Mendel would call a "mutation." And in the course of this mutation the workman and his part in the conduct of industry have suffered a great dislocation. But it is also to be admitted that the typical owner-employer of the earlier modern time, such as he stood in the mind's eye of the eighteenth century doctrinaires this traditional owner- employer has also come through the period of the mutation in a scarcely better state of preservation. At the period of this stabilization of principles in the eighteenth century he could still truthfully be spoken of as a "master," a foreman of the shop, and he was invested with a large reminiscence of the master-craftsman, as known in the time of the craft-guilds. He stood forth in the eighteenth century argument on the natural order of things as the wise and workmanlike designer and guide of his workmen's handiwork, and he was then still presumed to be living in workday contact and communion with them, and to deal with them on an equitable footing of personal interest. Such a characterization of the capitalist-employer who was doing business at the time of the Industrial Revolution may seem overdrawn, and there is no need of insisting on its precisf accuracy as a description of eighteenth century facts. But it should not be extremely difficult to show that substantially such a figure of an employer-owner was had in mind by those who then argued the questions of wages and employment and laid down the lines on which the employment of labor would be expected to arrange itself under the untroubled system of natural liberty. But what is more to the point is that which is beyond question. In practical fact, almost as fully as in the speculations of the doctrinaires, the employer of labor in the productive industries of that time was, in his own person, commonly also the personal owner of the establishment in which his hired workmen were employed; and also again in passable accord with the facts he was presumed personally to come to terms with his workmen about [411] wages and conditions of work. Employment was considered to be a relation of man to man. That much is explicit in the writings which bear the datemark of this modern Liberal point of view; and the same assumption has continued to stand over as a self-sufficient premise among the defenders of the free competitive system in industry for three or four generations after that period. But the course of events has gone its own way, and about that time somewhere along in the middle half of the eighteenth century that type of employer began to be displaced in those industries which have since then set the pace and made the outcome for wages and conditions of work. So soon as the machine industry began to make headway, the industrial plant increased in size, and the number of workmen employed in each establishment grew continually larger, until in the course of time the large' scale of organization in industry has put any relation of man to man out of the question between employers and workmen in the leading industries. Indeed it is not unusual to find that in an industrial plant of a large or middling size, a factory, mill, works, mine, shipyard, or railway of the ordinary sort, very few of the workmen would be able, under oath, to identify their owners. At the same time, and owing to the same requirements of large-scale and mechanical organization, the ownership of the works has also progressively been changing character, so that today, in the large and leading industries, the place of the personal employer-owner is taken by a composite business concern which represents a combination of owners, no one of whom is individually responsible for the concern's transactions. The personal employer-owner has virtually disappeared from the great industries. His place is now filled by a list of corporation securities and a staff of corporation officials and employees who exercise a limited discretion. The personal note is no longer to be had in the wage relation, except in those backward, obscure, and subsidiary industries in which the mechanical reorganization of the new order has not taken effect. So, even that contractual arrangement which defines the workman's relation to the establishment in which he is employed, and to the anonymous corporate ownership by which he is employed, now takes the shape of a statistical reckoning, in which virtually no trace of the relation of man to man is to be found. Yet the principles of the modern point of view governing this contractual relation, in current law and custom, are drawn on the old assumption that wages and conditions of work are arranged for by free bargaining between man and man on a footing of personal understanding and equal opportunity. That the facts of the new order have in this way departed from the ground on which the constituent principles of the modern point of view are based, and on which therefore the votaries of the established system take their stand this state of things cannot be charged to anyone's personal account and made a subject of recrimination. In fact it is not a case for personal discretion and responsibility in detail, but rather for concerted action looking to some practicable working arrangement. The personal equation is no longer a material factor in the situation. Ownership, too, has been caught in the net of the new order and has been depersonalized to a degree beyond what would have been conceivable a hundred years ago, especially so far as it has to do with the use of material resources and man power in the greater industries. Ownership has been "denatured." It used to be true that personally responsible discretion in all details was the chief and abiding power conferred by ownership; but wherever it has to do with the machine industry and large-scale organization, ownership now has virtually lost this essential part of its ordinary functions. It has taken the shape of an absentee ownership of anonymous corporate capital, and in the ordinary management of this corporate capital the greater proportion of the owners have no voice. In practical fact today, corporate capital is the capitalized earning-capacity of the corporation considered as a going business concern; and the ownership of this capital therefore foots up to a claim on the earnings of the corporation. Corporate capital of this kind is impersonal in more than one sense: it may be transferred piecemeal from one owner to another without visibly affecting the management or the rating of the concern whose securities change hands in this way; and the personal identity of the owner of any given block of this capital need not be known even to the concern, to its administrative officers, or to those persons whose daily work and needs are bound up with the daily transactions of the concern. For most purposes and as regards the greater proportion of the investors who in this way own the corporation's capital, these owners are, in effect, anonymous creditors, whose sole effectual relation to the enterprise is that of a fixed "overhead charge" on its operations. Such is the case, even in point of form, as regards the investors in corporate bonds and preferred stock. The ordinary investor is, in effect, an anonymous pensioner on the enterprise; his relation to industry is in the nature of a liability, and his share in the conduct of this industry is much like the share which the Old Man of the Sea once had in the promenades of Sinbad. No doubt, any reasonably skilful economist any [412] certified accountant of economic theory could successfully question the goodness of this characterization of corporate capital. It is, in fact, not such a description as is commonly met with in those theories of ownership and investment that trace back to the formal definitions of Ricardo and Adam Smith. Nor is this description here set down as a formal definition of corporate capital and its uses, nor is it designed to fit into that traditional scheme of conceptions that still holds the attention of the certified economists. Its aim is the less ambitious one of describing, in a loose and informal way, what is the nature and uses of this corporate capital and its ownership, in the apprehension of the common man out of doors. He is not familiar with the recondite wisdom of the past, or with subtle definitions; but he knows something of the subtleties of the market, the crop season, the blast-furnace and refinery, the internal- combustion engine, and such like hard and fast matters with which he is required to get along from day to day. The purpose is only to bring out, without undue precision, what these interesting phenomena of capital, investment, fixed charges, and the like may be expected to foot up to in the unschooled reflections of the common man, who always comes in as "the party of the second part" in all these maneuvers of corporation finance. He commonly has no more than a slender and sliding grasp of those honorable principles of certified makebelieve that distinguish the modern point of view in all that relates to property and its uses; but he has had the benefit of some exacting experience in the ways of the new order and its standards of reckoning. By consequence of much untempered experience the common man is beginning to see these things in the glaring though fitful light of that mechanistic conception that rates men and things on grounds of tangible performance, without much afterthought. As seen in this light, and without much afterthought, very much of the established system of obligations, earnings, perquisites, and emoluments appears to rest on a network of make-believe. Now, it may be deplorable, perhaps inexcusable, that the new order in industry should engender habits of thought of this unprofitable kind; but then, after all, regrets and excuses do not make the outcome, and with sufficient reason interest today centers on the outcome. To come to an understanding of the source and origin of this margin of disposable revenue that now goes to the earnings of corporate capital, it is necessary to come to an understanding of the industrial system out of which the disposable margin of revenue arises. Productive industry yields a margin of net product over cost, counting cost in terms of man power and material resources; and under the established rule of self-help and free bargaining this margin of net product has come to rest on productive industry as an overhead charge payable to anonymous outsiders who own the corporation securities. There need be no question of the equity of this arrangement, as between the men at work in the industries and the beneficiaries to whom the overhead charge is payable. At least there is no intention here to question the equity of it, or to defend the arrangement against any question that may be brought. It is also to be remarked that the whole arrangement has this appearance of gratuitous handicap and hardship only when it is looked at from the crude ground-level of tangible performance. When seen in the dry light of the old and honest principles of self-help and equal opportunity, as understood by the substantial and well- meaning citizens, it all casts no shadow of iniquity or inexpediency. So, without prejudice to any ulterior question which may be harbored by one and another, the question which is here had in mind is quite simply as to the production of this disposable margin of net product over human cost. The relevant facts are neither particularly obscure nor particularly elusive; only, they have had little attention in the argument of economists and politicians. The partition of incomes is apparently more easily understood by them, and a more engrossing subject of argumentation than the production of goods. This would be particularly true for these economists and politicians who are well imbued with the legalistic spirit of the modern point of view. It is known to all, even to the most safely guarded persons who do riot come in contact with industry or production, that industry will always turn out something in the way of a net margin of product over human cost over human effort and necessary consumption. It holds true as far back as the records have anything to say. It is evidently a question of the productivity of the industrial arts. Men at work turn out a net product because they know how and are interested in doing it, and their output is limited by the industrial methods which they have the use of. But the industrial system of the new order will work at the high rate of efficiency of which it is capable only under suitable conditions. It is a comprehensive system of interdependent working parts, organized on a large scale and with an exacting articulation of parts works, mills, railways, shipping, groups and lines of industrial establishments, all working together on a somewhat delicately balanced plan of mutual give and take. [413] No one member or section of this system is a self-sufficient industrial enterprise, even if it is true that no one member is strictly dependent on any other one. Indeed no one member or section, group, or line of industrial establishments, in this industrial universe of the new order, is a productive factor at all, except as it fits into and duly gives and takes its share in the work of the system as a whole. Such exceptions to this rule of interlocking processes as may appear on first examination are likely to prove exceptions in appearance only. They are backward trades and occupations which have not had the benefit of the Industrial Revolution and do not belong under the new, mechanistic order of industry; or they are trades, occupations and works devoted to the consumption of goods or to the maintenance of the rules governing the distribution and consumption of wealth, as, for instance, menial service, police service and the apparatus of the law, the learned professions and the fine arts. It is also of the essence of this industrial system and its technology that it necessarily involves the industrial community as a whole, its working population and its material resources; and the measure of its successful operation is determined by the effectual teamwork of its constituent parts. Evidently the total output of product turned out under this industrial system, the "annual production," or the "annual dividend," is the output of the total community working together as a balanced organization of industrial forces engaged in a moving equilibrium of production. No part or fraction of the community is a productive factor in its own right and taken by itself, since no work can be done by any segment of the community in isolation from the rest; no one plant or works would be a producer in the absence of all the rest. The total product is the product of the total community's work. The question of productivity and net productivity may, therefore, be stated in general terms to the following effect: The possible or potential productive capacity of any given community, having the disposal of a given complement of man power and material resources, is a matter of the state of the industrial arts, the technological knowledge which the community has the use of; this sets the limit, determines the "maximum" production of which the community is capable. The actual production in such a community will then be determined by the extent to which the available technological efficiency is turned to account; which is regulated in part by the intelligence, or education of the working population, and in greater part by market conditions, which decide how large a product it will be profitable to turn out. The net product is the amount by which this actual production exceeds its own cost, as counted in terms of subsistence, and including the cost of the necessary mechanical equipment; this net product will then approximately coincide with the annual keep, the cost of maintenance and replacement, of the investors or owners of capitalized property who are not engaged in productive industry, and who are on this account sometimes spoken of as the "kept classes." Indeed, it would seem that the number and average cost, per capita of the kept classes, communibus annis, affords something of a rough measure of the net product habitually derived from the community's annual production. The state of the industrial arts therefore is the indispensable conditioning circumstance which determines the productive capacity of any given community; and this is true in a peculiar degree under this new order of industry, in which the industrial arts have reached an unexampled development. The same decisive fact may also be described as "the community's joint stock of technological knowledge." This common stock of technological knowledge decides what will be the ordinary ways and means of industry, and so it decides what will be the character and volume of the output of product which a given man power is capable of turning out. The working community is a productive factor only by virtue of, and only up to the limit set by, the state of the industrial arts which it has the use of. These of course are obvious facts, which it should scarcely be necessary to recite, except that they are habitually overlooked, perhaps because they are obvious. This body of technological knowledge, the state of the industrial arts, of course has always continued to be held as a joint stock. Indeed, this is the substance of the community's civilization on the material side, and therefore it constitutes the substantial core of that civilization. Like any other phase or element of the cultural heritage, it is a joint possession of the community, so far as concerns its custody, exercise, increase, and transmission; but it has turned out, under the peculiar circumstances that condition the use of this technology among these civilized peoples, that its ownership or usufruct has come to be effectually vested in a relatively small number of persons. The machine technology requires for its working a large and specialized mechanical apparatus, an ever increasingly large and increasingly elaborate material equipment. So also it requires a large and diversified supply of material resources, both in raw materials and in the way of motive power. It is only on condition that these requirements are met in some passable fashion that this industrial system [414] will work at all, and it is only as these requirements are freely met that the machine industry will work at a high efficiency. At the same time the settled principles of law and usage and public policy handed down from the eighteenth century have in effect decided, and continue to decide, that all material wealth is, rightly, to be held in private ownership, and is to be made use of only subject to the unhampered discretion of the legally rightful owner. Meantime the highly productive state of the industrial arts embodied in the technological knowledge of the new order can be turned to account only by use of this material equipment and these natural resources which continue to be held in private ownership. From which it follows that these material means of industry, and the state of the industrial arts which these material means are to serve, can be turned to productive use only so far and on such conditions as the rightful owners of the material equipment and resources may choose to impose; which enables the owners of this indispensable material wealth, in effect, to take over the use of these industrial arts for their own sole profit. So that the usufruct of the community's technological knowledge has come to vest in the owners of such material wealth as is held in sufficiently large blocks for the purpose. Therefore, by award of the settled principles of equity and self-help embodied in the modern point of view, the owners of the community's material resources that is to say the investors in industrial business have in effect become "seized and possessed of" the community's joint stock of technological knowledge and efficiency. Not that this accumulated knowledge of industrial forces and processes has passed into the intellectual keeping of the investors and been assimilated into their mentality, even to the extent of a reasonably scanty modicum. It remains true of course that the investors, owners, kept classes, or whatever designation is preferred, are quite exceptionally ignorant of all that mechanics of industry whose usufruct is vested in them; they are in effect fully occupied with other things, and their knowledge of industry does not, and need not, extend to any rudiments of technology or industrial process. It is not as intelligent persons, but only as owners of material ways and means, as vested interests, that they come into the case. The exceptions to this rule are only sufficiently numerous to call attention to themselves as exceptions. As an intellectual achievement and as a working force the state of the industrial arts continues, of course, to be held jointly in and by the community at large; but equitable title to its usufruct has in effect passed to the owners of the indispensable material means of industry. The outcome is, in effect, that these owners have equitably become the sole legitimate beneficiaries of the community's disposable margin of product above cost. These are also simple facts and patent, and they should seem sufficiently obvious without argument. They have also been explained at some length elsewhere. But this recital of what should already be commonplace information seems necessary here for the sake of a more perspicuous continuity in the present argument. To many persons, perhaps to the greater proportion of those impecunious persons who are sometimes spoken of collectively as "the common man," the state of things which has just been outlined may seem unfortunate. And further reflection on the character and prospective consequences of this arrangement is likely to add something more to the common man's apprehension of hardship and insecurity to come. Therefore it may be well to recall that this state of things has been brought to pass not by the failure of those principles of equity and self-help that lie at the root of it all, but rather by the eminently unyielding stability and self-sufficiency of these principles. It is not due to any inherent weakness or shiftiness in these principles of law and custom, which have faithfully remained the same as ever, and which all men admit were good and sound at the period of their installation. But it is beginning to appear now, after the event, that the inclusion of unrestricted ownership among those rights and perquisites which were allowed to stand over when the transition was made to the modern point of view is likely to prove inexpedient in the further course of growth and change. Unrestricted ownership of property, with inheritance, free contract, and self- help, is believed to have been highly expedient as well as eminently equitable under the circumstances which conditioned civilized life at the period when the civilized world made up its mind to that effect. And the discrepancy which has come in evidence in this later time is traceable to the fact that other things have not remained the same. The odious outcome has been made by disturbing causes, not by these enlightened principles of honest living. Security and unlimited discretion in the rights of ownership were once rightly made much of as a simple and obvious safeguard of self-direction and self-help for the common man; whereas, in the event, under a new order of circumstances, it promises to be nothing better than a means of assured defeat and vexation for the common man. THORSTEIN VEBLEN. ----------------------------------------------------------------------