Kitabı oku: «Vanishing Landmarks», sayfa 7

PIONEER CAPITAL

Does it occur to you that pioneer capital should be accorded pioneer rewards? Pioneer people make sacrifices, endure hardships, suffer privations; but in America they take no risks and their rewards have been certain and speedy. But their rewards would be neither certain nor speedy did not pioneer capital precede them, blaze the way and assume all risks. During the period when pioneer capital was liberally rewarded, development outstripped the imagination of men. It will do the same again if given like encouragement.

I assume that a return of six percent would be ample on capital, let us say, to construct an additional track for the Pennsylvania Railroad between New York and Philadelphia. That would be improvement capital. Would the same rate be satisfactory for money invested in an unbuilt road into an undeveloped country? To state the case is to state the argument, and yet no railroad commissioner has yet been created with both the wisdom and the courage to stand openly for a distinction between development capital and pioneer capital. Unless returns are permitted large enough to induce a reasonable man to take a risk none will take it, for the unreasonable man has no money to risk.

In a preceding paragraph I referred to the attempt of Mr. Spreckels to build a railroad across, or rather through, and much of the way under, the most barren succession of mountain peaks and defiles I have ever seen. An automobile road has been built at great expense across the mountain. Nine-tenths of the way not a green leaf or living thing – not even a bird or insect – will be seen.

Mr. Spreckels is a very wealthy man. He is supposed to own over fifty-one percent of the gas, electric light, street railways and ferries of San Diego. He does not, however, consume fifty-one percent of the food cooked by the gas he generates; he does not enjoy fifty-one percent of the light that illuminates that beautiful little city; he does not take fifty-one percent of the rides on street car or ferry; and not one percent of the unearned increment, the advance in the value of property occasioned by his public-spirited enterprises, inures to him. Having more money than he can use and more than his children can legitimately spend, why does he risk everything on a railroad involving an aggregate of more than twenty miles of tunnel through solid granite? I will tell you why.

For some reason, let us hope a sufficient reason, the All-wise Father has implanted in certain natures somewhat more than the average vision, somewhat more than the average courage, somewhat more than the average desire to achieve, and He seems to have ordained that these men shall be happy only when achieving. Service expresses the thought admirably when he put into the mouth of the returning Klondiker:

 
“Yes, there’s gold and it’s haunting and haunting;
It lures me on as of old.
But it isn’t the gold that I’m wanting,
So much as just finding the gold.”
 

So it has ever been, and thus it is and ever will be. These daring, progressive souls risk their past, their present, their future and the future of their families, upon gigantic propositions, the consummation of which makes the appellation, “I am an American,” the proudest boast of man.

CHAPTER XIX
UNEARNED INCREMENT

Originally the government permitted each to enjoy the natural advance in the value of his holdings – the unearned increment. In recent years it has discriminated and in certain classes of investments has sought to limit rewards to the equivalent of reasonable interest rates.

The first piece of land I ever owned was a half interest in one hundred and sixty acres. My law partner and I got four hundred and eighty dollars together and we bought one hundred and sixty acres at three dollars per acre. We put part of it under plow, rented it and within a few years, sold it. That land is no more productive today than when we sold it, but the rascal who owns it has watered the capitalization until when I buy a pound of butter or a dozen eggs I am helping to pay him a dividend on two hundred and fifty dollars per acre. We watered it a little, ourselves. We sold it, I remember, for twelve dollars and fifty cents an acre. That was the first dollar I had ever received that I had not earned in the hardest way. It was the first dollar of unearned increment that ever came my way. It was the first water, so to speak, I had ever tasted. I liked it.

I remember when John Trumm purchased that land of us. If he had said to me: “The country is new, population sparse, commerce limited; if these conditions change and the land advances in value, to whom will belong the unearned increment?” Very promptly I should have told him it would belong to him. There was not only a competency but a speculation in the purchase of that land.

But suppose he had said to me: “If I do not buy this land, I shall put my money into the Chicago, Milwaukee & St. Paul Railroad that is now building through the county. The country is new, the population sparse and commerce limited. If these conditions change and the railroad advances in value, to whom will belong the unearned increment?” In my innocence, I should have told him it would belong to him. I might have warned him that if it resulted like the first three attempts to build a railroad across Iowa, he would lose every dollar he invested, but if the time had then arrived, and if the road was built economically and operated efficiently, and did prove a success, it doubtless would advance in value and the unearned increment would belong to those who had shown great vision, taken great risk and exercised great skill.

SOME CONCRETE CASES

I recall a man who purchased in an early day large bodies of Iowa land at from three to five dollars per acre. His rentals must have equalled twenty percent per annum on his investment. Then he watered the capitalization and sold these lands at seventy-five dollars per acre. They are now worth over two hundred dollars per acre. But, even at seventy-five dollars, they made him a millionaire, financially. Then he assailed the railroads for watering their capitalization, though money invested in a railroad never yielded a quarter as large returns as his land investments netted. His opposition to railroads, however, made him a millionaire, politically.

Some years ago a man asked me to join him and some friends in promoting a railroad to the coal fields of Alaska. I asked him who owned the coal and was told that anyone could have all he cared to buy at a nominal price. I called attention to a statute that forbade the same men owning both the railroad and the coal. Then I proposed that I take the coal and let him and his friends build the railroad. If they succeeded, I would then go to the Interstate Commerce Commission and get a rate that would give them six percent on their investment and I would take all the profit. I reminded him that the public thought six percent was enough for money invested in railroads. The road has never been built.

I met a friend not long ago who, in explaining that the world had been good to him, told me that some years before he had bought a large body of badly located but excellent timber back in the mountains of Washington, at fifteen cents per thousand on the stump. Then a railroad was built up to his holdings. That was some years ago and during the period of national development. When the road was completed, he went to the Interstate Commerce Commission and got a rate so that he was then selling his timber, which cost him fifteen cents per thousand, for five dollars per thousand, while those who builded the road are presumably getting six or eight percent on their investment and will until the timber is exhausted, when their road will be worthless. My friend is not a reactionary but is far-sighted. I think he said he studied finance from the standpoint of a farmer.

A few years ago, at a Chamber of Commerce dinner in New York, Myron K. Jessup asked me if I knew that he was once president of a railroad in Iowa. The road extended from Dubuque to Farley. I asked him if he remembered when an engineer by the name of Smith made a preliminary survey from Farley to Sioux City, and reported that there was nothing west of Iowa Falls worth building a railroad into. “Remember it!” said he. “He made that report to me.”

Think of it. A man living and in good health in 1906 who was old enough to be the president of a railroad at a time when two-thirds of the north half of Iowa was considered not worth developing. Ultimately the road was constructed and I happened to be at Storm Lake when the last spike was driven connecting the two ends of the road. This was in 1870. That whole stretch of country could have been bought at that time at an average of less than five dollars per acre. I remember riding forty miles without seeing a house. The lands I saw that day could not have been sold for two dollars and are now worth two hundred dollars per acre.

These lands were worthless without the railroad and the railroad relatively worthless without the lands. The lands, exclusive of improvements, have paid in rentals more than twenty percent on their cost and their present value is ninety-nine-one-hundredths water. No money invested in railroads or any other industry ever yielded returns comparable with that.

The wealth of the United States, estimated at two hundred and fifty billion dollars, is probably ninety percent water. Farm lands, timber lands, mineral lands, oil lands, town lots, originally cost very little. Deducting improvements, interest and taxes from rents and returns already received, plus the market value, and the difference is the unearned increment or the water that has been added to the original capitalization.

Suppose, if you please, we are just opening a new country. What policy would you recommend? Would you expect each one to attempt everything? Or would you encourage a division of labor and enterprise? I fancy we would follow the policy the Fathers adopted. We would encourage the improvements of lands, the construction of transportation facilities, the building of mills and factories, of stores and banks, the opening of mines and the development of water power, and then we would tacitly agree that whoever contributed in any manner to the common good should share equitably in the resultant unearned increment.

CHAPTER XX
BUSINESS PHILOSOPHIES

This is a preliminary chapter intended to show that management is the most essential factor in every business proposition. Several illustrations are given, and some advice offered.

Before discussing government construction, ownership and operation of railroads, and other so-called public utilities, I want to call attention to some well-known but seldom recognized principles.

All business stands on three legs. No business can stand on two legs. Notwithstanding the persistent nonsense that has emanated from press and platform, from pulpit and professor’s chair, by thoughtless politician and thoughtful demagogue, capital and labor, unaided, have never accomplished anything and never will. But management, plus capital, plus labor, have done wonders and still greater achievements await the cooperation of this irresistible trinity.

Some have tried to make it appear that the public constitutes a fourth leg. While the public has rights, and affords markets, business succeeds only when the public does not interfere.

Take the case of the farmer. His lands, his tools, his teams and other livestock, constitute his capital. He performs the labor, furnishes the management, and all goes well. Occasionally a farmer prospers when he furnishes only capital and management, notwithstanding Benjamin Franklin’s proverb: “He who on a farm would thrive, must either hold the plow or drive.” The one absolutely indispensable element of success in farming is management. No man ever prospered on a farm simply because he worked. He must wisely manage if he lifts the mortgage. When the farmer’s management fails, the sheriff becomes his land agent, and it matters not how productive his land, or how willing his team, or how fruitful his flock or how hard he works.

You never knew a merchant to fail except when his management buckled. You may have thought some failures were due to want of capital; but even in these instances management was solely at fault, for it attempted too much with its available capital. Barring accidental and incidental fortune, good or ill, management or the want of it is the prime factor in every success and in every failure.

The president of a certain Chicago federation of labor, after listening to this thought, brought a party of friends to my platform and in the course of a brief visit said: “They have talked to us about capital and labor, capital and labor, nothing but capital and labor. We knew there was another guy in there but we couldn’t find him.” Then he added: “And you have got to pay that guy, too.”

ILLUSTRATIVE INSTANCES

Some years ago and during the period of evolution in harvest machinery, Marsh Brothers put upon the market what was known as the Marsh Harvester. It was the first radical improvement upon the old self-rake. Two men rode upon the machine and bound the grain as it was cut. For some reason, perhaps disagreement among the interested parties, the concern was reorganized into three independent companies and certain territory was allotted to each. A local preacher by the name of Gammon took one allotment, associated with him William Deering, and the largest manufacturing plant then in the world was built where nothing had stood before. The other two concerns took equally favorable territory, operated under the same patents, obtained their capital in the same market, hired labor at the same wage, and utterly failed. Five years thereafter nothing remained except court records to show they had ever existed.

Did capital build the Deering plant? It did not. Did labor do it? By no manner of means. The germ of management in the brain cells of William Deering, which no crucible would disclose and no scalpel reveal, was wholly and alone responsible. Do you suggest that able subordinates and efficient labor were in part responsible? My answer is that William Deering was wholly responsible for having able subordinates and efficient labor. Andrew Carnegie said to me: “I have never been able to discover wherein I have been more clever than others except in selecting men cleverer than I.” That is the acme of clever management, and affords the only certainty of success.

During a congressional investigation of the meat industry the president of one of the “big five” packing houses appeared, and in the course of his examination testified that while holding a position of considerable responsibility to which he had been gradually advanced, he was asked to organize a company to take over a certain concern, the stock of which was selling at about ten dollars per share. The necessary capital was tendered and he was offered a salary of one hundred and fifty thousand dollars per year, quite a large block of stock gratis and an option on thirty-five thousand shares at ten dollars per share, which he subsequently exercised. When asked if he thought his salary was unreasonably large, he called attention to the fact that within ten years his company had become one of the five largest in the world and that its stock had advanced from ten dollars per share to par. Thereupon the chairman of the committee remarked that while he was opposed to large salaries, he thought that one hundred and fifty thousand dollars per annum was not excessive for this particular witness. Did capital accomplish that? Did labor? No, management did it.

SUPPOSE A CASE

In a certain city a thousand men are out of employment. In a bank in that city a million dollars are out of employment. In the foothills near the city fifty million tons of coal are out of employment. The unemployed men see the opportunity and offer their joint note for the money with which to develop a coal mine. But the officers of the bank will not lend money that does not belong to them upon the signature of a thousand men, each out of employment. Then management walks in and says to the president of the bank: “I am a practical coal operator. I have had experience, and have associated with me a board of directors, each a successful coal producer. In proof that we understand what we are undertaking, here is the report of the best-known coal engineer in the world, who at our expense has bored every square rod of that tract of coal, showing the exact number of tons available. Here also is an assay showing the quality of the coal. It is worth so much per ton on the track. It will cost so and so to put it on the track. After we have invested a million dollars of our own money, we want to borrow a million to complete the development and for working capital.” By giving a majority of the stock, and all the bonds of the company as collateral, and by each director signing the note, the money is obtained. The hitherto idle men are now employed and a great industry results. Query: Locate the cause. Is it capital? Capital languished and earned nothing. Is it labor? Labor was in rags and labor’s children were crying for bread. That coal field is developed, the wealth of the nation increased, homes are warmed, furnaces made to glow, wheels to turn, by management, plus capital, plus labor. It is so everywhere, in each and every instance, in this and all other lands.

Capital can usually be had upon approved security, and labor is most always available at a satisfactory wage, but management, the one essential of every achievement, is the most difficult thing in the world to find and, when discovered, imposes its own conditions and names its reward.

A WORD OF ADVICE

If teachers of economics and of sociology would somewhat oftener and more generally teach the Benjamin Franklin brand of common sense and make their classes understand that there are in the United States vastly more twenty-five thousand dollar jobs than there are twenty-five thousand dollar men to fill them, bolshevism would diminish as rapidly as it has increased under the opposite tuition. Where do our editors and newspaper writers come from? Whence the principals of our high schools, teachers in our colleges, preachers and lawyers? Ninety percent of them are from our colleges and universities, and those who graduate with socialistic and bolshevistic tendencies have usually imbibed them either from imported professors or from American professors who have received their Ph.D’s in Germany.

In this connection I also want to say a word to parents: Would it not be well early in the life of your boy to impress upon him that he will probably get out of life something fairly commensurate with what he puts into life? You might also suggest that if he will observe he will probably discover that those who complain most because the world has been stingy with them, are seldom able to show a receipt for much that they have contributed to the world. If instead of giving wholesome guidance you permit to go unchallenged the teachings which your boy is certain to get in the school room, in the pew, at the theater and the movie, on the street, and especially from the demagogue, that those who make money are invariably dishonest, those who accumulate wealth are scoundrels and that those who amass fortunes should be in the penitentiary, I will go security for your son that he will never disgrace his parents by getting the family name on the letterhead of any big institution, or in the Directory of Directors.

CHAPTER XXI
THE GOVERNMENT’S HANDICAP

In this chapter an argument is made that no government, and especially no republic, can supply the necessary management for business enterprises. The effect of popular and political interference with public business is illustrated.

The principal reason why government business operations are always financial failures is that no republic can supply the all-essential third leg. Its management is always defective. It can furnish capital, it can employ labor, but in a government where the people have a voice, management always buckles.

Senator Aldrich was frequently quoted as saying that the government could save three hundred million dollars per annum if it would apply business principles to its affairs. The distinguished senator never said that. What he did say was that the government would save three hundred million dollars per annum if it could apply business principles. Experience had taught the senator what experience has taught everyone who has had experience and what observation has taught the observing: that it cannot be done.

During the campaign of 1916, I sat on the platform and heard the then candidate for governor of a great middle-west state tell an audience that if he were elected governor, he would apply business principles to state affairs. I followed him and told his hearers that, if elected, he would do nothing of the kind. In the first place, it was impossible, and, secondly, they would not consent to it even if it were possible. I reminded them that I knew better than their candidate, for I had tried it. I did suggest, however, that simply because business principles cannot be applied to public affairs, is no excuse for conducting public affairs in a thoroughly unbusinesslike manner. It is not necessary to violate every business principle because some cannot be applied.

The candidate was elected, as he deserved to be, and has made one of the best, many say the best, governor his state ever had. But he will have to admit that he cannot remove officials simply for inefficiency, and he cannot make appointments in the face of public opposition, however fit and worthy the applicant. In a thousand ways he cannot exercise the independent discretion which he would if president of a bank or the head of some industrial corporation.

When I took charge of the Treasury Department I found an appraiser at one of the principal ports who had outlived his usefulness. He was not dishonest. Dishonesty is the least of all evils of government service. He was simply inefficient. He had a good army record, was a very reputable gentleman, highly esteemed, absolutely honest, and Mr. McKinley had made him appraiser. There were many evidences of inefficiency. Importers at far distant ports were entering their merchandise at this city and shipping them back home, manifestly for the purpose of evading the payment of appropriate duties. I have no doubt that the government was losing a million dollars or more a year through the inefficiency of this good man.

President Roosevelt authorized a change. I informed the two senators from that state what had to be done, and asked them to select the best man they could find and I would arrange a vacancy to meet their convenience. President Lincoln is credited with saying that when he had twenty applicants for a position and appointed one, he made nineteen enemies and one ingrate. I wanted to protect these senators from nineteen enemies.

They found an excellent man and I had the old appraiser come to Washington. He fully recognized his utter failure, and willingly resigned. We parted friends. The inexperienced will suppose that was the end of the incident. It was not. It was the beginning of it. The removal was declared to be purely a political deal. The President was criticized, I was abused and the two senators maligned. Every prominent Grand Army man in the country was asked to protest, and most of them did, until this dear old fellow was made to believe he had been imposed upon. He published his grievances in an extended interview and in about three months died of a broken heart.

The people will not consent that public affairs shall be conducted as business is conducted. Had this man been in the employ of a business enterprise in any large city, his removal would not have elicited so much as a notice that he had resigned for the purpose of giving attention to his “long-neglected private affairs.”

Public opposition to the application of business principles to government affairs is well illustrated in the location and erection of public buildings. Chicago has a federal building which was intended to accommodate, and does hold, not only the post office, but serves as court house, custom house and shelters all other federal offices. It cost nine million dollars and is ill-suited for anything. There are plenty of architects who can design a court house, or a post office, or an office building, but no one has yet appeared, and no one ever will be found, who can combine the three without ruining all.

During the period of construction, the Chicago post office occupied temporary quarters on the lake front in a wooden building, veneered with brick, built expressly for the purpose. Unquestionably it was the most convenient, and therefore the best post office in the United States. This of course is from the standpoint of a business man. Everyone connected with it regretted its abandonment for the huge, imposing but outrageous new building. The architect’s pride centered in its enormous dome. All the mail had to be taken from the basement up a steep incline and, until they began using heavy gasoline trucks, it required four horses to pull out from under the building what one horse could haul to the depot.

Pittsburgh wanted a building equally imposing, and Congress appropriated a million dollars to buy a site. That sum would pay for nothing suitable in the central part of the city. The newspapers had all purchased property at the top of the hill, in the newer part of the city, and the Secretary of the Treasury was expected to locate the Federal Building accordingly. He did not do so and for this reason: There were no street cars going near the proposed site. It was before the advent of gasoline trucks and the mail would have to be hauled up the long inclines by teams. In slippery weather a team of horses, unless freshly shod, cannot climb that hill with an empty wagon.

Inspired by the experience at Chicago, the Secretary decided to give Pittsburgh the best post-office service in the world. An entire block near the principal depot was purchased, at fifty percent or more above its market value. But that was relatively cheaper than anything else offered, and less proportionately than what the government is usually compelled to pay. A suitable site for a business enterprise employing a like number of people, and doing an equal volume of business, would be tendered on a silver platter. The people’s government never got “something for nothing” until we entered the war. What it then got and where it got it is quite generally surmised.

The intention was to erect a steel-framed post office, not more than three stories high, with wide court, so the light would be abundant, install a system of pneumatic or electric carriers, with tubes extending to all the depots and substations of the city. This, I submit, is exactly what any business concern would have done. But it was not satisfactory. A perfect furore was raised, every bit of which had its root either in a hope of profit through the location of the building, or in a desire for a big and imposing public building with an enormous dome. The people thought it a shame that Pittsburgh should be asked to put up with the expenditure of a fraction of the money that had been thrown away in Chicago, and the fact that one hour would be saved in the distribution and delivery of every piece of mail, did not palliate the offense. A post office erected solely for the purpose of efficient mail service will satisfy no community.

There are quite a large number of ports of entry where the entire revenue collected is not enough to pay the expenses of the office. In my annual reports I recommend that several of these be abolished, but no congressman from those states would support such a recommendation and no congressman from any other state would favor it lest economies applicable to his own locality would be thus invited. Everyone insists upon economy in government matters, but all demand that it be exercised in a distant state, and preferably in some territory or in the District of Columbia where the franchise is denied.

Many will remember William S. Holman of Indiana, for many years chairman of the Committee on Appropriations. He was not only an able man but a wise and economical statesman, and merited the appellation by which he was internationally known, “The Watchdog of the Treasury.” The Committee on Rivers and Harbors, desiring his support, inserted an item for dredging a creek extending into Holman’s district, so ships could come to central Indiana. Of course Mr. Holman wanted to be returned and was therefore compelled to support the bill. He even made a short speech in favor of this particular item. When he closed, Tom Reed arose to remark in his inimitable drawl,

“’Tis sweet to hear the honest watchdog’s bark,

Bay deep-mouthed welcome as he draws near home.”