(how profits are made under the present industrial system and what becomes of them.)

we have next to examine the structure of the capitalist order, basing our argument on facts which are admitted by everyone, including the most ardent defenders of the present system.

all men have to have certain material things which we describe as goods. as these goods do not produce themselves, it is necessary that some should work. the workers must have tools; also they must have access to the land and the sources of raw materials. these means of production are owned by some individuals in the community, and this ownership gives them power to direct the work of the rest. those who own the land and the natural sources of wealth we call capitalists, or business men, and those who do not own these things, or whose share in them is insignificant, are the proletariat, or working class.

if you state to the average american that there is a capitalist class and a proletariat in this country, he will point out that many who are now members of the capitalist class were originally members of the proletariat; they have worked hard and saved, and accumulated property. but this is merely confusing the issue. the fact that some proletarians turn into capitalists and some capitalists into proletarians is important to the individuals concerned, but it does not alter the fact that there are two classes, capitalist and proletarian. consider, by way of illustrating, a field with trees growing on it; we have earth, and we have trees, and the distinction between them is unmistakable. the roots of the trees go down into the earth, and take up portions of the earth and turn it into tree. the leaves and the dead branches fall, and in the course of time are turned once more to earth. there are all sorts of stages between earth and tree, and between tree and earth; but you would not therefore say that the word "earth" and the word "tree" are misnomers.

the working men go to the business man and apply for work. the business man gives them work, and takes their product, and offers it in the market at a price which allows him a profit above cost. if he can sell at a profit, he repeats the process, and the worker has a job. if he cannot sell at a profit, the worker is out of a job. here and there may be a benevolent business man who, rather than turn his workers out of a job, will sell his goods at cost, or even for a short time at a loss; but if he keeps the factory going simply for the benefit of his workers, and with no expectation of ever making a profit, that is a form of charity, and not the common system under which our business is now carried on.

so it appears that the worker is dependent for his wages upon the ability of the business man to make a profit. the worker's life is inextricably bound up with the profit of the capitalist—no profit for the capitalist, no life for the worker. the capitalist, going out to look for markets for his goods, is seeking, not merely profit for himself, but life for his workers.

now, the business man pays a certain percentage of his total receipts for labor, another percentage for raw materials, another percentage for his overhead charges, and the rest is profit in various forms, rent to the landlord, interest to the bondholder, dividends to the stockholder. all this total sum goes to human individuals, and each has thus a certain amount of money to spend. they pay it over to other individuals for goods or services, and so the money keeps circulating, and business keeps going. that is as deep as the average mind probes into the process.

but let us probe a little deeper. it is evident that, in the course of all this exchanging of goods, some individuals get a larger share than other individuals. our government collects an income tax, and thus we have statistics representing what people are willing to admit about the share they get. in 1917 it appeared that, speaking roughly, one family out of six had an income of over $1,000 a year, and one family out of twelve had an income of over $2,000. but there were 19,000 families which admitted incomes of over $50,000 a year, and 300 with over $1,000,000 a year.

now the families that get less than a thousand dollars a year obviously have to spend the greater part of their income upon their immediate living expenses. but the families that get $50,000 a year do not need to spend everything, and most of them take the greater part of their income and reinvest it—that is, they spend it upon the creating of new machinery of production, railroads, mills, factories, office buildings, the whole elaborate structure of capitalist industry.

exactly what proportion of the total product of industry is thus taken and reinvested no one can say; but this we know, our cities are growing at an enormous rate, our manufacturing power is increasing by leaps and bounds, we are perfecting processes which enable one man to do the work of a hundred men, which increase the product of one man's labor a hundredfold. all this goes on blindly, automatically; a niagara of goods of all sorts is poured out, and we call it "prosperity."

but then suddenly a strange and bewildering thing happens. all at once, and without warning, orders fall off, values begin to drop, business collapses, factories are shut down, and millions of men are thrown out of jobs. merchants look at one another with blanched faces; each one has been counting on paying his bills with the profits he was going to make, and now his profits are gone, and he can't pay. the newspapers and magazines keep insisting that it can't be true, that business is going to revive next week, that prosperity is just ahead. but the factories stay shut, and the millions of men stay idle.

this is the condition in which we find ourselves as i write this book. it has been happening regularly in our history every ten years or so, ever since america started; we have had a hundred years to reflect upon it and to probe into the causes of it, and such is business intelligence in the most enlightened country in the world, you may search the pages of our newspapers from the first column of millionaire divorce suits to the last column of "situations wanted," and nowhere can you find one word to explain this mysterious calamity of "hard times"—how it comes to happen to our social system, or what could be done to prevent it! to supply this deficiency in present day thinking is our next task.