CHAPTER XXIV

THE LESSONS OF THE WAR

HE World War offered an opportunity to test the effects

of restriction of immigration under the most favorable

conditions. During the war immigration was reduced to a very low level. Departing aliens at times outnumbered both the newcomers and returning immigrants. Though the outbreak of the war was followed by a year of industrial depression in this country, the United States soon became the chief producer of war supplies for the Allied nations. Beginning with the spring of 1916 the supply of labor in the United States fell short of the demand in the labor market. The entrance of the United States into the war withdrew more than two million workers from industry. The government assumed the function of regulating wages in the leading industries, with the co-operation of the officers of the American Federation of Labor. Prominent men of avowed labor sympathies were placed at the head of the War Labor Board. If the economic condition of the American wage earner can be improved by suspension of immigration, here was the opportunity to observe its beneficial effects.

Indeed, the final report of the Commission on Industrial Relations, prepared by Mr. Basil M. Manly, Director of Research and Investigation, contains the following statement: "The great diminution of immigration as a result of the European war, has already begun to show its salutary effects." The report does not specify the particulars in which these "salutary effects" had manifested themselves by August 9, 1915. which is its official date. It baldly asserts that the "evidence presented to the Commission" warrants

1 Industrial Relations: Final Report and Testimony, vol. i, p. 144

the conclusion "that the enormous influx of immigrants during the past twenty-five years has been the largest single factor in preventing the wage scale from rising as rapidly as food prices." The evidence was not published by the Commission; reference is only made in the Director's letter of submittal to reports presented to the Commission by Professor Lauck and Mr. Sydenstricker. The data contained in these reports were perused by them in a book published in 1917.2 This is what they actually have to say on the subject:

The recent advances in wage rates which have been occasioned by the unusual demand for labor at a time of restricted immigration constitute, of course, a certain advantage in economic status to wage earners in many instances. . . . How far these increases in rates, aside from the increases in earnings made possible by steady employment during a period of great industrial activity, have kept pace with increases in prices of necessaries and of the ordinary comforts used by wage-earning families, is impossible of statement until accurate statistics are obtained and published.3

A vast amount of statistical data on every aspect of the economic situation has since been published. A brief summary of the available evidence will be sufficient to disprove the optimistic assurance of the Industrial Commission.

At the annual meetings of the American Economic and the American Statistical Association held at Atlantic City in December, 1920, two series of index numbers of physical production were presented, one by Dr. Walter W. Stewart, the other by Dr. Edmund E. Day. Though their indices differ for particular years, yet both show a growth of production during the war period much in excess of the rate of the preceding quadrennial period.

A comparative summary of the principal items of both series for the years 1910, 1914, and 1918 is presented in Table 133 next following, where the index numbers are con

1 Industrial Relations: Final Report and Testimony, vol. i, p. 144. 2 W. Jett Lauck and Edgar Sydenstricker: Condition of Labor in American Industries, p. xi.

3 Ibid., pp. 70–71.

verted to the base of 1914 as 100. The comparative growth of manufactures, mining, agriculture, and population, during the war and the preceding period beginning with 1899, is shown graphically in Diagram XXIX, reproduced from Doctor Day's Chart A.

TABLE 133

INDICES OF MANUFACTURES, MINING, AND TRANSPORTATION, 1910, 1914, 19181

This unparalleled growth of industry was marked by extraordinary profits. The following analysis is quoted from a survey presented to the United States Railroad Labor Board by Prof. W. Jett Lauck, on behalf of a number of labor unions. His evidence is taken from the financial reports of 205 large corporations, with an aggregate capital stock of over $5,000,000,000. Their annual net income increased from an average of 8.7 per cent for the pre-war period 1912-1914, to an average of 23.9 per cent for the war period 1916-1918.

After all expenses of operation and maintenance had been paid (says Professor Lauck), after all charges for replacement of capital had been set aside in fact, after every conceivable or imaginary expense had been met—these great groups of corporations, controlling the various products essential to our life, made profits which were sufficient to replace the entire value of the capital stock within a period of slightly over four years. This is proved by their own published reports.

1 "An Index Number of Production," by Walter W. Stewart. American Economic Review, March, 1921, p. 68. "The Measurement of Variations in the National Real Income," by Edmund E. Day. Quarterly of the American Statistical Association, March, 1921, p. 555.

XXIX. Indices of Physical Production for Agriculture, Mining and Manufacture, 1899-1919.

Those corporations were not at all exceptional. The extraordinary profits of industry during the war appear in a document submitted to the Senate by the Treasury Department, entitled "Corporate Earnings and Government Revenue." This document shows the incomes of approximately 20,000 corporations. Altogether they earned in 1917 an average return on capital stock of 33.5 per cent, after all taxes had been deducted.

Over one-fourth of these corporations, 5,724 in number, showed net profits of over 50 per cent on capital stock. And over one-tenth of them (2,030) showed net profits of over 100 per cent. In other words, there were over 5,000 corporations which, in 1917, earned over one-half the value of their capital stock and over 2,000 that earned the entire value in a single year.1

1 W. Jett Lauck: The Relation Between Wages and the Increased Cost of Living, pp. 7, 9-12.

The preceding analysis was made by a representative of organized labor. The same conclusions, however, are reached by Professor Friday, who, in his study of the relations between profits, wages, and prices, endeavors to take a judicial attitude, although inclining at times toward the capital side. The net income of all corporations, as reported to the Bureau of Internal Revenue, amounted in 1914 approximately to $3,700,000,000; in 1916 it more than doubled, reaching well nigh $8,600,000,000. When the United States entered the war, the corporations were made to yield to the government in excess profit taxes about $2,000,000,000, and yet their profits for the year 1917 remained at the level of the previous year. Of course the net earnings of the various classes of corporations widely varied. The earnings of mining and manufacturing corporations in 1917 were nearly 330 per cent of those of 1913, the largest pre-war year. A classification of manufacturing, mining, and mercantile corporations according to the percentage ratio of their net income to invested capital shows that more than one-half of the total net income was earned by concerns which made 30 per cent or over. The profits of railroads and other public utility corporations, being regulated by the public authorities, did not rise to such heights, yet in 1916 they were 53 per cent above the 1913 level, and in 1917 they still remained 30 per cent above the pre-war level. "The popular impression," sums up Professor Friday, "that the war has brought a large increase in profits is fully borne out by the facts. The growth has been large, even after the payment of income and excess profits taxes." 1

A glance at Diagram XXIX will show how far the growth of population lagged behind the industrial expansion of the war years. This was directly due to the decrease of immigration. The annual net immigration or emigration of breadwinners from July 1, 1914, to June 30, 1919, is shown in Table 134.

'David Friday: Profits, Wages, and Prices, pp. 14, 15, 18, 36, 38, 39.