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What is capital ?

arisen, what its usefulness is, and what are some of the dangers that go along with this power.

Capital is as old as tools. When a savage took some of his time to make a stock of arrow heads he was accumulating capital: he was putting work and time not directly into food but into tools by which to get a larger supply of food than he could get without them. Taming a horse or an ox to do work was accumulating capital. Getting an education is sometimes spoken of as accumulating capital, for the education will help one to earn a larger income than he could earn if he did not take time to study. In the Middle Ages and down to the time of the Industrial Revolution, the weaver who had a loom had so much capital. The farmer who owned cattle, horses, tools, had this much capital. But to build a large factory and stock it with machinery, and to buy the wool or cotton needed would evidently call for more capital than was required before the invention of the machine. It did not need very much capital in the old days for a man to start a stage route and carry passengers, but to build a railroad and equip it required a large expenditure which must be met before the railroad could be useful. After the factory is once built or the railroad is ready, it is, of course, enormously more efficient, but the construction of it demands that much more time and work be put into tools or machinery. Practically all the iron that is mined is made into machines and tools and represents, therefore, capital, by which we may get a better living. We get some idea of how our capital is increasing if we see how fast the amount of iron used is increasing. In 1800 the world produced 825,000 tons; in 1870, 11,900,000 tons; in 1905, 53,700,000 tons; in 1911, 134,150,000 tons. There are perhaps between three

and four times as many people now in Europe and America as there were one hundred years ago, but more than sixty times as much iron is used.

The increased use of gold and silver has been very Money as convenient in this increase of capital. In the early capital days a man could not conveniently pile up a great stock of wheat nor could he conveniently accumulate great numbers of tools. If, however, he could exchange his surplus for gold or silver, he could have his accumulation in a convenient form. Gold and silver could be used to pay workmen or to buy raw materials. A man who could accumulate a large amount of gold with which he could employ men to build or to weave or to transport goods could, in this way, unite their energies and their strength just as the king could unite the energies of the men under his command.

But in recent times business men not only use money The use of and in this way get the advantage of combining the credit strength of many; they use credit. If I wish to build a factory and do not have the money with which to buy lumber and pay workmen, I can still do it provided the man who has lumber to sell and the workmen who have labor to sell will wait for their pay until the factory is running. Of course, they cannot do this unless they themselves have at least a supply of food and clothing sufficient to last until my factory is doing business. Very likely the workmen may not have this. There is still another way out of the difficulty. If my neighbor, or some one else who knows me, has a supply of food, or, what is the same thing, of money, which he will loan me, I can then pay the workmen and build the factory. The great factories and railways and businesses of today are very largely carried on by some form of credit. Men make plans for building automobiles or

as owner

some other article for which they believe there will be a demand. They go to banks or other sources and borrow money or arrange for credit. In this way, the earning power of an invention or of a large number of men is organized, or, as we may say, capitalized. The capital required to build a great steel plant is between twenty and thirty million dollars. The United States Steel Company, which owns several mills and a great amount of iron ore, was capitalized at about a billion dollars. The great railways have capitals of hundreds

of millions. The

In the beginnings of the Industrial Revolution a corporation factory might be built by one man; a small steamship

or even a short railway might be owned by one indiand

vidual; but as larger and larger factories were built, manager

as railroads connecting distant points and costing vast sums were planned, it was soon found to be far safer and more convenient for many persons to unite and form a corporation to own and manage such a great plant. People in early times had sometimes united in partnership. But in a partnership, if the business should not be successful, each partner would usually be liable for all the debts. This would make partnership risky. The corporation is a very convenient plan for limiting the amount to which any single member can be held responsible. If a thousand men subscribe a thousand dollars apiece to form a million-dollar corporation, then no one is liable for more than a thousand dollars. If one member of the corporation dies, his share can be sold to some one else without difficulty and the corporation itself can continue permanently carrying on the business. Practically all our railways and great businesses are now managed in this way. In 1889, although there were more establish


ments owned by individuals than by corporations, the corporations produced sixty-five per cent. of the product. In 1909 corporations produced seventy-nine per cent. of our manufactures, so that nearly four-fifths of the business of the country was in this latter year done by corporations. This corporation plan is undoubtedly advantageous or it would not have had such an extraordinary growth. It has, however, certain dangers which are very easy to see. A corporation enables a great number of people, sometimes many thousands, to unite their savings in a profitable busi

But just because there are so many, no one of them has very much responsibility. They elect directors, but the directors cannot consult all the stockholders, and many things may be done by them which the stockholders would not approve. Many of the conflicts between the corporations and workmen have arisen because the real owners of the property did not know the workmen. To work for a corporation is often said to be like working for a machine.

Another danger in the corporation is that it is formed for one single purpose; that is, for profits. A man may wish to make money, but he is likely also to be a neighbor, a friend, a citizen, and all these relations tend to make him kind, reliable, and publicspirited. The corporation may be reliable, for it can be sued in court if it does not pay its debts or carry out its promises. But no one expects a corporation to be very considerate of people beyond what is required by law, and no one expects the corporation to be public-spirited in the same sense in which we may expect this of a citizen. Of course, the managers of corporations may themselves be considerate and publicspirited. In many cases, they may find it to be good

business policy so to conduct the corporation as to serve the public and make friends. But the primary duty of the managers has usually been regarded as that of so conducting the business as to secure profits for the stockholders. This has frequently brought such great corporations as the railroads into conflict with the public, and now the courts hold that certain corporations, which are, as they say, “affected with a public interest," must consider their duties to the public as well as their duties to their stockholders. In many cases, indeed, the duty to the public is held to be superior.



We ask now how these great changes in the way Industrial of making and transporting goods and carrying on Revolution business affect liberty, union, and democracy. sets new

First of all, they have set up a new power in the problems

world. A thousand years ago, if you had come into (1) It

any town or country of Europe, you would have found created a

two sorts of men who were powerful. One was the

warriors with the king at their head. They owned power

the land, for the most part. The other was the leaders of the church. The beautiful and massive cathedrals which men built during the Middle Ages show how important a power the church was. Men were then much poorer than today and lived in very small and uncomfortable houses, but they built wonderful churches and cloisters; the church itself was a well-organized institution, and the heads of the church had power greater in some respects than the heads of the armies and states. Today, if you were asked who were the most powerful men in the country, you would perhaps name the President of the United States, the judges of the Supreme Court, and a very few

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