CHAPTER VII.

THE ECONOMIC GAIN OF COOPERATION.

T is doubtless true that the popular imagination exaggerates

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the possible economic gain of cooperation. The reasoning

in regard to this and all other socialistic and semi-socialistic problems assumes certain conditions in the nature of mankind which do not exist. It is assumed either (a) that mankind is moved by a desire for the general good, or (b) that by legal enactment men can be made to act as if they were so moved; while, as a matter of fact, (a) mankind is moved by the desire of personal advantage, and (b) no legal enactment can produce any other condition.

I have no occasion here to consider the effect of this undermining of premises upon the doctrines of pure socialism, which have been expounded with clear and perhaps unassailable logic if all the premises are accepted, but all reasoners are aware of the fatal effect upon logical edifices of any insecurity in the premised foundations. Illustrations occur everywhere. For example, all engineers know that but for one thing hot air is a far more economical and safer source of power than steam, and one of our greatest engineers, in ignorance of that one thing, devoted years of his life, and several fortunes, to the construction of hot-air engines; the one fatal defect, which experiment only could demonstrate, was the fact that under the high rate of temperature necessary, the working parts of the engine could not be constructed of iron and operated profitably, if at all. Hot-air engines of high power are therefore impossible until science shall disclose some new methods of dealing with iron, or the use of some other metal becomes economically possible. In like manner I am sure that those who have had most experience in concrete dealings with mankind in business affairs will agree that many plans of social reform which seem perfectly feasible to many (257)

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earnest enthusiasts will be found practically unworkable until social evolution has wrought decided changes in human nature.

And yet I am convinced that, after making all allowances, there is a residuum of economic gain in cooperation quite sufficient to justify its application in many cases, and it also seems to me certain that as years go on the tendency to cooperation will increase, as the art of practicing it becomes better understood, and that it will become economically gainful over a gradually-increasing area of usefulness, all of which will be simply a manifestation of a social evolution which is leading us we know not where.

Promoters of cooperation commonly err not only in overestimating the present cooperative power of human nature, but also in overestimating the profits of competitive business. Having constantly before them the few great fortunes which have been the reward of exceptional ability, they forget the innumerable instances of failure which investigation would disclose. The so-called Bonanza mines of Nevada yielded great fortunes to a few men, but it is doubtless true that more money has been expended in the district around Mount Davidson than was ever taken out of it. It would not be difficult with sufficient study to make a fair estimate of the average profits of competitive business, and it has probably been done, although I have not met with it, but it is unquestionably true that cooperation offers no such possible field of economic gain as the popular mind pictures to itself. I have known enormous gains to cooperative societies in single seasons, as compared with the returns which competitive methods would have brought to the members, and I have known of small losses in other seasons; but it must be remembered that in the long run cooperation will have to deal with average conditions, and it will tend to solidity and permanence if those engaging in cooperation do not do so with expectations that can not be realized. It must never be forgotten that exceptional fortunes gained in competitive business are invariably the result of exceptional ability joined to the accumulating instinct, and that cooperation offers no inducement to those capable of such accumulations to engage in its service, or if in it, to devote to

it that strenuous effort which alone can produce such results. To illustrate the economic gain of cooperation let us suppose a problem which exhibits substantially an actual case. Suppose a product of twenty thousand car-loads of fruit produced by perhaps twenty-five thousand individuals in California to be distributed to the tables of say one million consumers living at an average distance of two thousand five hundred miles from the place of production. Let us eliminate from the problem the question of transportation, as not concerned with the aspect of cooperation which we are considering, and endeavor to ascertain what persons not connected with transportation are necessarily concerned in this distribution, their proper and actual compensation, and at what points and to what extent any saving can be effected by cooperative methods, whether to the consumer or producer.

Of the above volume of fruit, part would go forward in a fresh state, part dried, and part canned or otherwise specially prepared. As these different forms of the product do not all follow the same channels, we shall best avoid confusion by selecting some one form, preferably dried fruits, whose distribution is widest, and in which the methods employed are the simplest. The study of this example will indicate the method which any one familiar with the facts may apply to any other industry.

A consumer desiring dried fruit will apply to his family grocer. Living, as I do, in a fruit-producing district, if I needed some variety which I do not myself produce, I should order of my grocer rather than to spend the time necessary to effect the slight saving which could be made by hunting among my neighbors till I found it. Much more would one living where the article is not produced find the help of his grocer essential. It is self-evident that the consumer can not buy direct from the distant producer, and that the retailer, at least, is a necessary middleman, performing an economic function of certain value, and who can not be dispensed with.

It may, however, and often does happen that the retailer exacts a price for his necessary service in the way of such an excessive profit as tends to check consumption, and thereby

injures the producer by restricting his market. As a matter of fact, this condition does obtain as to many products, and in California it is a subject of continual complaint among producers.

The question is, By what means, if any, can cooperative associations of producers control the retail distributive agencies as to prices charged to consumers?* This can be best understood by a brief exposition of the customary profits of retailers. The expenses of conducting a retail business probably range from ten to fifteen per cent of the gross amount of business done; the profits range from five per cent or less on such staples as sugar and flour, to fifty per cent and even more on certain lines of fancy groceries. I have before me a retail catalogue which gives a rate of twenty-five cents per pound on some imported goods which, I happen to know, can be delivered in moderate lots at twelve and a half cents; there are doubtless many articles on the list with whose cost I am not acquainted, which yield an equal profit. In the ratio in which any article approaches the list of "staple" goods, in large demand, and of general sale, the retailer's profit tends to grow less. The average profit, of course, must exceed the cost of doing business, or the business must cease; every hundred dollars' worth of goods sold at less than the cost of doing business must be offset by an equal amount sold at an equal rate above such cost.

From the above it is evident that, in so far as any product can be brought into general demand, the retail profits tend to lessen, which in turn helps to extend the market. A very desirable product will, in the course of time, work its own way into consumption, as people learn about it from one another, and no undesirable product, however strongly pushed, can

*It is evident that this field, so far as it is covered by cooperation, properly belongs to cooperative societies of consumers, united to purchase supplies. This subject I do not wish to enter upon. It is evident, moreover, that any cooperative society of consumers is likely to be organized to escape high retail prices of any single product. If a cooperative "store" is started, it will be to secure lower prices on all ordinary supplies. I confine this discussion in the text to cooperative methods of selling.

have a permanent sale. But any product can be pushed into sale far more rapidly by judicious advertising, and the better the article, the more certain the profit in advertising. And advertising is any means whereby public attention is called to the product, whether by newspapers, circulars, expositions, public lectures, or any of the hundred forms whereby mankind is informed of what was before unknown. It is in this way that the thousand proprietary articles with which we are all familiar have been brought to our attention.

The special "advertising" of any product must invariably be done at the expense of the original producer, or not at all. No "middleman" of any kind will spend any money in this way, unless casually, in connection with some private "brand" of his own. Neither can any individual, or small group of individuals, afford, at their private cost, to do any important work of this kind, whose benefits are shared by everybody in the business. Of course the individual efforts of thousands of producers to sell their product, constitute, in the aggregate, a large amount of advertising, but this is simply the normal "pushing" which all products must obtain to find any sale. To rapidly introduce a new product, or one whose production is increasing faster than the consumption, an extra and systematic effort is required.

At this point, therefore, there is a distinct economic gain possible through cooperation, by enabling producers to unite for the purpose of advertising their product, pushing its sales vigorously, and finding and opening new markets.*

There are, of course, special methods of increasing markets by forcing lower retail prices, which cooperative societies may use, but they are hardly possible, or at least desirable, for

* Incidentally we may here note a difference between cooperation and socialism. The income of the average individual being fixed, all producers are struggling with each other to get the largest share of it. By as much as one's outlay is increased in one direction, it must be diminished in some other. Distributive cooperation of producers is the organization of one class for the purpose of more effectually competing with all other classes in the strife for a larger share of the purchasing fund. Socialism contemplates the abolition of all competition. It is best to keep in mind those distinctions.