Victor Berger’s drain-the-swamp essay was originally published under the title “Why the Panic Came” in December 1907 by the Social-Democratic Herald and republished in 1912 as part of Berger’s Broadsides, a collection of his writings.

Some big trust companies and some banks have failed in New York, and Wall Street was paralyzed for a day or two. Interest went up to 100% on “short calls.”

Stocks went to the bottom. It looked for a while as if an industrial crisis — a so-called “panic” — was coming.

Of course, some of our trust magnates most interested in the industrial stock, which shrank the most, by force of necessity threw themselves into the gap. J. Pierpont Morgan, John D. Rockefeller, and the rest of the big gentlemen, put in about $100,000,000, loaned them to the brokers at 6% on short calls. Our government, through Secretary of the Treasury Cortelyou, put in also $25,000,000.

Thus the situation was saved once more.

But for how long? No one knows.

* * *

True, all capitalist papers are shrieking at the top of their voices, “Everything is all right. Everything is secure.

“No one need to fear, etc.”

They want to restore “confidence.”

And since capitalism is very largely a confidence game, this may have some effect.

* * *

And whether an industrial crisis is now due or not I do not know. In the past, crises used to come in cycles of about twenty years ever since the capitalist system reached its full development. Thus we had crises in this country in 1819, 1837, 1857, 1873, and in 1893. According to cycles a crisis would be due about in 1913. But there are so many causes and conditions acting on this, that it is impossible to foretell the year exactly.

Besides, we have entered into an entirely new phase of capitalism through the development of the trusts. It is less possible than ever to predict when the industrial crisis will set in, or what its character will be.

***

For there are several causes for an industrial crisis. One is the old and rather stereotyped explanation which originated with Proudhon.

Under the capitalist system — the wage system — which is based upon the employer making a profit out of the work of the employees — the employer cannot pay the working man the full value of his product.

The employer must make a profit if his business or his factory is to continue. Thus the workingmen of the country, not getting back in wages the full value of the production of that country, cannot buy back the production of that country. The capitalist class, that is the employing class, is too small in number to use up the difference, because, with the aid of machinery, production has greatly increased.

***

This surplus has to look for foreign markets.

But conditions are the same in every civilized country; all nations look for foreign markets.

Everywhere we find that the producing class of the country cannot buy back the production of the country with the money it gets for that production. Therefore the competition for the world market is very keen, and when there is any trouble about it, and the “foreign market” gets clogged up, we have our industrial crises.

In other words: We have a forced under-consumption of the workers. And this forced under-consumption of the workers brings about an artificial over-production.

Factories, workshops and mines close because we have too much, although there are still millions of people who never had enough. People go ragged because there are too many clothes in the country; others starve because there is more wheat than can be sold.

***

To the orthodox Socialist this is the only reason for the crisis — although Marx wrote both for and against this theory. Yet there are many other causes just as important. Of course, the plan-less production of the capitalist system, by which every employer and manufacturer produces at random without knowing how much is really needed to cover the demand — thus creating a surplus of articles and an overproduction in that branch — has been largely eliminated through the trusts.

The trusts know exactly how much the market needs in their respective branches of industry. By controlling that branch they are in a position to

tell. And in that respect, the trusts have been beneficial. The competitive system is being modified and partly transformed by the trusts.

The only trouble is that the benefits of this economy have gone only to a handful of men, instead of going to the people.

And the trust owners, by withdrawing tremendous sums from industrial life — the profits of the Standard Oil magnates alone amounted to $900,000,000 — not all of which is re-invested, on the other hand hasten crises.

And so do the high prices of all the commodities controlled by the trusts.

***

And there is also another element inherent in the capitalist system, which is apt to make trouble. I mean the speculation in stocks of the industrial undertakings.

And also in wheat and the necessities of life.

This speculation with our life’s necessities is in the nature of gambling, and has very little to do with actual values. Still it is very apt to influence our commercial and industrial life at times. And speculation also gives rise to all sorts of swindling undertakings and fictitious values.

Yet as long as capitalism lasts, speculation is absolutely necessary and unavoidable in order to protect the system from stagnation.

***

So this is another evil that is inherent in this system.

It cannot be avoided any more than malaria in a swampy country. And the speculators are the mosquitos.

We should have to drain the swamp — change the capitalist system — if we want to get rid of those mosquitos.

Teddy Roosevelt, by starting a little fire here and there to drive them out, is simply disturbing them. He is causing them to swarm, which makes it so much more intolerable for us poor, innocent inhabitants of this big capitalist swamp.

***

Yet there is one more great cause of industrial crises which must be taken into consideration, although formerly some Socialists used to overlook it. That is the money question.

The standard of values under the capitalist system is gold.

Gold is capital per se under capitalism. And all other goods, commodities and wares are measured by gold.

Very nonsensical, of course, because there is not gold enough in the world to pay for one-fiftieth part of the real value of production and distribution. Yet the capitalist philosophers claim that this is not necessary, since gold is only the standard — not the actual measure.

That may be so. But the curse of the capitalist is that in a “panic” only money — cash money — is the “summum bonum” — the sum of all good in the world. In that pinch all other values do not seem to amount to anything when compared with cash money.

***

But every epoch has its own money, its standard of value.

Originally everything was barter. They would exchange a coat for so many sheep, or a bow and arrow for so many fish.

Afterwards cattle was the standard of value in many countries, particularly so in Italy, where the Latin word “pecunia,” money, comes from “pecus,” cattle.

Later on metal, which could be handled more easily and did not have to be fed, and did not spoil readily, was made the standard of value, particularly bronze, copper and silver, although iron money was used in Greece and China at some time.

By the way, copper and silver were first used in the lump and by weight. Thus a shekel of silver in the Bible denotes a certain weight of silver. And in England they still speak of a pound sterling, while in France all money is still called “argent” from “argent,” silver.

By the discovery of America, and the great silver mines of South America, silver was cheapened and therefore unsettled in value. Gold became one of the standards and finally the sole standard.

A double standard of silver and gold, as Bryan wants it, was found to be impracticable. It is nonsensical and unjust in finance, just as a double standard is unjust and nonsensical in morals.

A double standard would continually disturb the equilibrium and therefore disturb business under the capitalist system. It would bring about continual changes in the value of the money and thereby commercial disease.

And the poor fellows who would be innocent of the whole business — that is the workingmen — would suffer the most.

***

Yet there can be no question that gold is an insufficient standard of value, even for the capitalist system, as capitalism develops further.

The capitalist theorists and magicians try to help themselves and defend this standard by declaring that it is only an ideal standard — whatever that means — and that most of the business is done with checks, that is, with paper.

This last, is true, of course. But it only gives an additional proof of the insufficiency of gold.

As a matter of fact, “the gold standard is a Chinese wall of the capitalists’ own creation,” as Karl Marx says. [PW: Marx did not say this.]

And capitalism bumps its head against that wall every little while.

And it usually does so in the midst of its greatest prosperity.

And the reason is simple enough: because that is the very time that this gold cover gets too short for the capitalist bed.

***

All kinds of artificial remedies have been proposed.

The most stupid was the 16-to-1 proposition, the great Populist panacea of a double standard.

The most simple and naive was the proposition of the Greenbackers, who would make artificial money by keeping the printing presses busy turning out greenbacks until — well, everybody had money enough.

Simple, indeed. The good Greenbackers forgot only one little thing — that the production of the country, the factories, railroads, mines, etc., are owned by individuals who would not part with their property and goods unless they got for them something which they considered valuable. Not for something of which everybody else would have plenty.

***

In other words, as long as the capitalist class controls all the good things of this world, they would not give them away for greenbacks of that kind, unless they could be compelled to do so. But the government has no way of compelling them to part with their goods. That has been tried and failed in several countries — even the terrorists of 1793 and 1794 failed with their “greenbacks.”

In order to make money of that kind valuable, the government, that is, the people collectively, would have to own the production and distribution. Then the government could issue money for it and exchange its own products.

The Greenbackers put the cart before the horse.

Yet what the banks are doing just now all over the country, is very little better than what the Greenbackers proposed. During the scare of the present stringency, in all of the large cities the bankers got together and paid no money, but simply issued clearing house certificates.

They also take advantage of the legal provision that they have to be given notice in advance when deposits are to be taken out.

Now, paying clearing house certificates instead of money means credit money with a vengeance. It is credit money on the credit of the banks, not even backed by the government.

Of course, as long as people have confidence in the clearing house certificates they are all right, but in case of a real industrial crisis, a so-called general panic, these clearing house certificates would not be worth very much.

***

Besides, there is another danger. The banks are tightening the money stringency which has already compelled manufacturers to lay off many thousand men.

Our banks are, furthermore, disturbing the export business by not giving credit and “keeping the money in their respective towns.” And thus they may bring on a crisis for one of the other reasons mentioned above — that is by interfering with getting rid of our surplus production in the foreign markets.

A much better plan to relieve the money stringency would be the following, which, by the way, did not originate with me: Let the government issue money on bonds, to states, counties and cities for public improvements — for roads, street lines, sewerage, school house and public buildings, and payable without interest, let us say, in 20 yearly installments of 5%. The returned money to be canceled and destroyed as soon as paid back. And such public improvements to be carried out under the eight-hour day and at the highest current union wages.

Now, this would give employment to hundreds of thousands, even millions, very soon. It would, for a long time to come, absorb the “reserve army,” and money would get in circulation.

Besides, this kind of money would be absolutely safe, because it would be backed up, not only by these improvements, but also by the local taxation of the states or communities.

Furthermore, since the money paid back would be destroyed when paid back, it would not become “a drug on the market” and would not destroy the equilibrium.

In short, it would be as “elastic” a currency as could be invented under the capitalist system.

***

But, of course, all bankers and the speculators will bitterly oppose this kind of a money issue. They will oppose it although the national banks get government money of that type without so good a security. And although the government is assisting not only the bankers, but also the brokers on Wall Street every time they are in trouble.

And there is also this difference: The national banks can put up government bonds as security when they issue money, and then get interest twice. Once on the $90,000 banknotes the government issues on the $100,000 bonds, and the second time on the interest of the $100,000 bonds the bankers have deposited as security.

But since the above mentioned plan would make it possible for cities to bring about tremendous and unheard of improvements, without having to borrow money from the capitalist class, the capitalist class, as a whole, will also fight this plan.

And yet it is the only way to relieve the situation under capitalism.

***

So, to make a long story short, I cannot see very much help under the capitalist system. The great antagonism between the social form of production and the individual form of appropriation will continue to break loose in feverish industrial crises.

And while I do not want to create any scare among our readers and friends — and while I have been asked by several of them what they are to do with a few pennies they have saved for a rainy day — I will say this: That I would not guarantee any bank, not the best of them, in case of a panic.

A bank has to lend out its money in order to do business, and naturally in case of a crisis, is subject to the conditions of the market, and the industrial conditions.

***

But I would advise any workingman who has saved a little and can afford it, to buy a little house near the city with an acre or two around it. He will then at least always have a roof over his head. He can always raise his own vegetables, keep a goodly number of chickens, and have his savings invested more safely than in any bank. Modern conditions and transportation facilities are making this possible for the average city worker who has laid up a little money.

This plan, however, has some disadvantages, especially in small towns containing only one industry. In case of an industrial crisis, or lack of work, the man is tied to the place. Yet a man with a family is more or less tied down in any case. Besides, in time of a crisis, the conditions are not apt to be better in any other place, and the advantages of my suggestion surely outweigh the disadvantages.

The chief trouble is only that so very few workingmen have any savings to invest.