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Economics and Socialism 
 
 A DEMONSTRATION OF THE CAUSE AND 
 
 CURE OF TRADE DEPRESSIONS 
 
 AND NATIONAL POVERTY 
 
 BY 
 
 U. LAYCOCK LL.B. 
 n 
 
 "I cannot play upon any stringed instrument, but I can tell you how 
 of a little village to make a great and glorious city." 
 
 Themistocles 
 
 UNIVERSITY 
 
 California 
 
 SWAN SONNENSCHEIN & CO 
 
 PATERNOSTER SQUARE 
 
 1895 
 

 k^z^i 
 
 Butler & Tanner, 
 
 The Selwood Printing Works, 
 
 Frome, and London. 
 
narHlVBRsiTT 
 
 PREFACE 
 
 The discovery of the truth endeavoured to be set 
 forth in the following pages is the outcome of a 
 project which, in one aspect, was an attempt to 
 show the absurdity of the socialism which is at 
 present exerting so great an influence for evil. This 
 fact has doubtless affected the contents of these 
 pages, although the original plan was practically 
 abandoned. 
 
 My first idea, briefly expressed, was to discounten- 
 ance socialism, but on the other hand to advocate 
 the method of taxation suggested by Mr. Henry 
 George. 
 
 The arguments against socialism, it appeared to 
 me, included not only its interference with liberty, 
 which is the plea generally urged against it, but also 
 its tendency to a reduction of the whole nation, and 
 particularly of the poorest, to greater poverty ; and 
 furthermore, its antagonism, in effect, to the very 
 equality its supporters profess to advocate. On the 
 other hand, taxation of ground values I conceived 
 
IV PREFACE 
 
 to be a just and natural system of taxation, and its 
 adoption a beneficial measure of reform striking at 
 the very roots of an undoubted evil. I proposed to 
 show, more perhaps in detail than in these pages I 
 have done, that this method of taxation was quite 
 opposite in principle and method to socialism. I 
 saw that it was not, as is generally imagined by 
 front-rank Socialists, merely a less efficacious re- 
 medy than their own. Still less was it, as thought 
 by more obscure Socialists, the practical recognition 
 of an evil, the demonstration of which was a proof 
 of the correctness of their own teaching. 
 
 But although I had realized so much which did 
 not appear to be generally known and admitted, I 
 was, as I afterwards found, still very far from the 
 truth. It was easy to show that socialism fully 
 developed was the reduction of economic error to 
 an absurdity. I might at once have seen that in- 
 jury to a smaller extent was already being done by 
 the error in its milder form, and could only be 
 avoided by the entire uprooting of the doctrine 
 from its first beginnings. Yet although the coal war 
 of 1893 had strongly impressed itself upon my 
 mind as a gigantic mistake on the part of the men, 
 it had only appeared mistaken in that the state of 
 trade was so utterly disregarded and the laws of 
 supply and demand so visibly set at defiance. For 
 
PREFACE V 
 
 awhile the truth only slowly dawned on me that the 
 error was still deeper, and a principle once started 
 into operation must work itself out to its logical 
 conclusion, and must result in good or evil propor- 
 tionate to the extent it is followed. It then ap- 
 peared to me that such was the case, and that 
 Mr. Henry George's teaching in " Progress and 
 Poverty " had lacked greater success for the very 
 same reason as he himself called attention to with 
 regard to free trade in his " Protection or Free 
 Trade," namely, that he stopped short of the whole 
 truth. It is beyond doubt that some good might 
 be accomplished by the adoption of his method of 
 taxation, but that it is not an all-sufficient remedy 
 New Zealand furnishes some evidence, and I hope 
 these pages will show the reason of its failure. 
 The evil of trade combinations may, however, be 
 averted by showing, as I have attempted to show, 
 that in the matter of real wages, as opposed to 
 money wages, the combination method is entirely 
 powerless to Increase them. 
 
 But there was still something wanting for a com- 
 plete solution of the problem. So far I had been 
 content with what I thought to be my discovery 
 with regard to the Labour question. As to taxation, 
 I knew I had no claim to originality, except, perhaps. 
 In the method of treatment of the subject. But in 
 
VI PREFACE 
 
 view of the benefits to accrue from the system of 
 taxation proposed, and also in view of the truth with 
 regard to labour, I imagined that the whole problem 
 of poverty was solved. I was at that time inclined 
 altogether to disregard the currency question as a 
 matter of indifference, although I knew that there 
 were existing arrangements which were by no means 
 perfect. What I conceive to be my discovery in 
 that respect is rather an indication of the import- 
 ance of strict method. With regard to the labour 
 question, I had for, at any rate, some days been 
 expecting to reach the conclusion indicated, before, 
 in fact, I did reach it. As to the currency, the idea 
 of charging for coining and its full importance came 
 upon me quite suddenly when I was endeavouring 
 to find a natural system of coinage. And although 
 it has since given me greater difficulty in being 
 sure of the exact results, and of the necessity of 
 putting a limit to the amount of metal coined, 
 than has the Labour question, yet I have never had 
 any doubt of the advisability of adopting the con- 
 sistently natural system. 
 
 The examination of the whole subject has been 
 made as brief as seemed consistent with clear 
 explanation. The appeal for evidence to historical 
 events or tendencies has been avoided, because such 
 evidence is too uncertain to be relied upon, except. 
 
PREFACE Vll 
 
 perhaps, as negative evidence. It is obviously im- 
 possible to postulate of historical tendencies that a 
 given result was due to a particular cause, without 
 having the most reliable and minute knowledge of 
 other possible causes, together with some proof that 
 the circumstance alleged could have the supposed 
 tendency, and not an opposite one. All this would 
 imply such an examination as is now offered before 
 the evidence of the experience could be accepted at 
 all. Any experience may, however, be properly used 
 in illustration, and further verification of theories 
 the correctness of which is otherwise established. 
 And the theories cannot be considered established 
 unless they will explain the experience. 
 
 The subject is possibly a difficult one to make 
 simple enough for popular reading. But it is, of 
 course, essential that the mass of the people be 
 taught if advantage is to accrue from any demon- 
 stration of the truth in this matter. Indeed, 
 amongst the schemes I first thought of for making 
 clear the important difference between Henry 
 Georgism and Socialism, was the formation of a 
 society for which " Land and Liberty League " 
 seemed a desirable designation. I conceived that 
 such a society should have for its objects the secur- 
 ing of the imposition of the single tax on land 
 values, with a view to making land more accessible 
 
Vlll PREFACE 
 
 on the one hand, and on the other hand the avoid- 
 ance and discouragement of what at present is 
 known as sociaHstic legislation, as also of any un- 
 doubted attempts to disregard the laws of supply 
 and demand, or to raise prices by diminishing 
 supply. That scheme is still open, and the dis- 
 covery of the fact that, carried to their logical 
 conclusion, the League's principles must compel it 
 to teach more than I at first anticipated, will not 
 detract from its usefulness or success. It will 
 rather, by offering a more harmonious doctrine, and 
 consequently a better hope of strong conviction, 
 give increased power to convince others. At the 
 same time there will be no lack of moral force when 
 once inquiry has been aroused and conviction 
 secured. 
 
 Throughout the civilized world there seems abun- 
 dant need for the better application of the truths 
 of economic science. For some time poverty and 
 trade depression have been subjects constantly 
 demanding attention. The condition of political 
 parties is an indication of this fact. Politics, in the 
 strict sense of that word, have become much less 
 important in most countries than economics. And 
 I venture to hope that a return to first principles 
 will result, not only in the amelioration of poverty, 
 but in the clearer definition of the policy of parties. 
 
PREFACE IX 
 
 For to my mind party government, in one form or 
 another, is the only reHable guarantee of constant 
 progress. I need hardly add that such progress is 
 essential to the well-being of a people in other 
 respects than the mere supply of the necessaries of 
 life. 
 
 The literature of the subject I have attempted to 
 deal with has grown to such proportions that I can 
 scarcely hope to have mentioned every instance on 
 which I have been anticipated. But I am not with- 
 out confidence that I have contributed something 
 new to the discussion of the subject, and con- 
 sequently to mankind's knowledge of truths which 
 have the most important bearing on human life, and 
 which have too long remained hidden from human 
 view. 
 
 F. U. LAYCOCK. 
 
 Sheffield, February, 1895. 
 
CONTENTS 
 
 CHAPTER 
 
 
 
 
 
 PAGE 
 
 
 Preface . . iii 
 
 I 
 
 Introduction . 
 
 
 
 
 I 
 
 II 
 
 Postulates 
 
 
 
 
 20 
 
 III 
 
 Definition of Wealth . 
 
 
 
 
 29 
 
 IV 
 
 Elements of Production 
 
 
 
 
 40 
 
 V 
 
 Exchange and Distribution 
 
 
 
 
 59 
 
 VI 
 
 Money .... 
 
 
 
 
 76 
 
 VII 
 
 Division of Wealth 
 
 
 
 
 97 
 
 VIII 
 
 Rent of Land . 
 
 
 
 
 113 
 
 IX 
 
 Taxation .... 
 
 
 
 
 131 
 
 X 
 
 Interest on Capital 
 
 
 
 
 154 
 
 XI 
 
 Wages of Labour . 
 
 
 
 
 167 
 
 XII 
 
 Wages of Subsistence 
 
 
 
 
 181 
 
 XIII 
 
 Trade Combinations 
 
 
 
 
 202 
 
 XIV 
 
 Competition and Co-operation 
 
 
 
 
 223 
 
 XV 
 
 Politics .... 
 
 
 
 
 246 
 
 XVI 
 
 Cost of Production 
 
 
 
 
 265 
 
 XVII 
 XVIII 
 
 Coinage and Currency . 
 Collection of Results . 
 
 
 
 
 288 
 320 
 
 XIX 
 
 Application .... 
 
 
 
 
 348 
 
 XX 
 
 Ethics and Philosophy . 
 
 
 
 . 
 
 370 
 
TJHIVERSITT 
 California^ 
 
 ECONOMICS AND SOCIALISM 
 
 CHAPTER I 
 
 INTRODUCTION 
 
 It may be that in some communities a knowledge 
 of the natural laws which influence and more or less 
 control the production and distribution of the wealth 
 essential to human existence and comfort is not of 
 great importance. At any rate it is clear that the 
 fullest command of the science of economics would 
 be of little avail to any people who had not the 
 political power to secure the conditions which a 
 study of the laws of the science proves to be favour- 
 able. And in a period of war and turbulence, when 
 the most perfect division and distribution of wealth 
 amongst its producers would be constantly liable to 
 be entirely set aside by the forays of war, or the 
 unjust exactions of some powerful soldier, little 
 benefit could accrue from theoretically exact know- 
 ledge of what ought to be. But when a nation 
 emerges from its early state and begins to enjoy 
 settled peace internally, together with political 
 freedom ; when the only war in which the nation 
 engages is carried on abroad, and by mercenary 
 troops, who adopt soldiering as a profession, or even 
 under a conscription, in which each must take his 
 
2 ECONOMICS AND SOCIALISM 
 
 turn ; then it is likely that the mass of the people 
 will betake themselves to the production and con- 
 sumption of wealth. The necessity will, therefore, 
 more evidently arise for conditions favourable to its 
 proper division and perfect distribution. Moreover, 
 in an age of political freedom and activity those 
 conditions are likely to be the result of artificial 
 arrangements of one kind or another, over which 
 the people themselves have, and exercise, consider- 
 able power. So that a fairly general knowledge of 
 the laws which regulate the various operations 
 implied becomes essential, if artificial arrangements 
 are to accord in any degree approximately with 
 abstract justice or even expediency. Indeed, most 
 will admit that justice is always the highest ex- 
 pediency, and the fact that, in special instances, it 
 may advantageously be tempered with mercy does 
 not detract from the truth of the general rule. 
 
 The science which deals with this subject is not 
 only little understood by the great bulk of those 
 who ought to regard a knowledge of it as essential 
 to the performance of their duties, but it is as yet 
 imperfectly explained by all the ability which has so 
 far been brought to bear upon it. Some even of 
 those truths which have received the fullest demon- 
 stration have not yet obtained the general assent 
 of those who have made a study of the science. 
 There are still wide divergencies of opinion on 
 questions the settlement of which is of the utmost 
 importance to human welfare. This state of affairs 
 is not the result of any want of study of the subject 
 by men of undoubted learning and ability. But the 
 reading of the views and statements of various 
 
INTRODUCTION 3 
 
 authors, together with the arguments those authors 
 give in support of them, has a tendency to make 
 them part of the reader's habit of thought, and 
 prevent him discovering for himself what fallacies 
 have crept into the arguments. This probably 
 accounts for the slow progress of the discovery of 
 the principles and explanations underlying observed 
 facts, and not any deficiency even in original powers 
 of thought — certainly not in reading and research. 
 In face of the great mass of what has been written 
 on the subject by able and learned men, all that can 
 be attempted here, even with regard to the prin- 
 ciples with which alone this book must be occupied, 
 is to point out the chief landmarks of the progress 
 hitherto made, with such reference as may be 
 absolutely necessary to the errors or confusions 
 which have prevented further progress. 
 
 Exactly at what point such an inquiry should 
 commence is, perhaps, a subject which affords con- 
 siderable free play to private opinion without in any 
 way doing great violence to the truth. The 
 literature of Greece might conceivably claim an 
 examination in this connection. But the real rise of 
 the science of economics is much more recent than 
 the aofe of Greek literature, and it is undesirable 
 here to go into a study so purely academical. Nor 
 vv^ill Rome furnish any matter for present discussion. 
 The teachers and scholars of Rome were lawyers. 
 They touched this science less than the philosophers 
 who occupied a parallel position in Greece. The 
 truth is that there was little need or scope for the 
 science until men had learnt that slavery was an 
 institution contrary to nature and justice. Nor 
 
4 ECONOMICS AND SOCIALISM 
 
 could there be much hope of the subject receiving 
 practical attention until commerce had made con- 
 siderable headway. 
 
 The first name, therefore, which will be mentioned 
 is that of Antonio Serra, an Italian who wrote in 
 1613. In his time wealth was so much confused 
 with the precious metals that it has since been 
 imagined the people of the period generally con- 
 sidered wealth to consist of treasure in the way of 
 gold and silver. That such confusion should exist 
 is not difficult to understand in the light of what 
 will be found in the subsequent chapter on money. 
 Particularly is this the case when it is reflected that 
 there was more need then to store up treasure in 
 the form of a generally acceptable commodity than 
 in more recent times. It cannot be too well re- 
 membered that it is a mark of the imperfectly 
 developed mind of the human race to do and desire 
 many things without any adequate reflection on the 
 reason why these things are done or desired. By 
 far the greater portion of the most advanced nation 
 now on the face of the earth (whichever nation it 
 may be) have not realized the difference between 
 wealth and money. Moreover, the economic error 
 which still remains even amongst writers on the 
 science is founded on this confusion to a greater 
 extent than can be easily believed. So that there 
 is little room to wonder that a similar confusion was 
 made when money was much more in the form of a 
 tangible commodity than it is at present. 
 
 Now, although Serra did not definitely dispute 
 the notion that money in the shape of gold and 
 silver was wealth, he nevertheless showed himself 
 
INTRODUCT 
 
 In advance of his time. An attempt was being 
 made and advocated to obtain a plentiful supply of 
 treasure by the artificial expedient of forcibly 
 lowering the high rate of exchange, which resulted 
 from scarcity, and which was in fact the natural in- 
 ducement to increase the supply. Serra showed 
 that money was likely to be abundant from the same 
 causes that any one might readily see would tend 
 to make wealth abundant. Fertility of soil and 
 convenience of situation (matters which no Govern- 
 ment or people could control) were likely to attract 
 abundance of treasure. Beyond these natural ad- 
 vantages, skilful and industrious artizans, an exten- 
 sive trade, and the order and security which could 
 only be had under a Government based on principles 
 of justice, were the available means of attaining the 
 same object. There could be no better doctrine 
 than this even in the present time, after centuries 
 of study of the subject. Whatever wealth consisted 
 of, there could be no denying that these means 
 would be advantageous in rendering it more abun- 
 dant. And it is a doctrine worthy of consideration 
 in these days also that even supposing money to 
 be properly an object of desire, the most efficacious 
 means of increasing its supply is to give every 
 facility and encouragement for an abundant produc- 
 tion of useful commodities. Serra's teaching in this 
 respect was greatly in advance of much which now 
 receives favour, and ought alone to rebut the error 
 on which many vaunted economic institutions are 
 based. 
 
 A dialogue published in England even before 
 Serra's time, under the initials W. S. (William Staf- 
 
b ECONOMICS AND SOCIALISM 
 
 ford), contained interesting matter favouring trade In 
 at any rate the more substantial wares, but it cannot 
 receive any considerable notice here. Serra's name 
 has been mentioned because, whether or not he 
 fully realized the true nature of wealth, he seems 
 at least to have mastered the foundation principle 
 that a nation would be most likely to become rich 
 by trade and industry, and not by artificial con- 
 trivances of Governments. 
 
 The age was, however, an age of restrictions, and 
 such progress as has been made has necessarily 
 been from restriction to freedom. Venice had 
 grown rich by free trade. Being rich, she had im- 
 posed restrictions, In spite of which she had re- 
 mained still wealthy. Charles V. of Spain, full of 
 confidence in the silver to be had by him from 
 America, retaliated on Venice. His example was 
 followed on every hand. Nowhere were such strin- 
 gent restrictions imposed as in Spain. But other 
 countries were only less unwise in the matter. In 
 France, however, a modification was made when 
 the Due de Sully gave a measure of freedom to ex- 
 port produce. This freedom benefited the agri- 
 culture of his country, and he rightly calculated that 
 a king might more easily obtain taxes from a people 
 who were thriving than from a nation bound down 
 in poverty. 
 
 From the policy of absolute restriction two or 
 three chief steps may be noticed as tending towards 
 freedom. Of these the first is the system known as 
 the Mercantile system. The expression is here used 
 in a comprehensive sense. Dr. Friedrich List, who 
 was a great admirer and advocate of the system even 
 
INTRODUCTION 7 
 
 after other writers had passed beyond it, preferred 
 to call it the Industrial system, a name which has, 
 however, been applied to the subsequent teaching 
 of Adam Smith, shortly to be noticed. 
 
 There is no great author or even school of authors 
 who can be said to be responsible for the Mercantile 
 system. It simply grew. The name most con- 
 nected with it is that of Colbert, a French minister, 
 who for the encouragement of manufactures pro- 
 hibited the export of corn, with the result, which he 
 could hardly have anticipated, of causing land to 
 go out of cultivation. He furthermore placed a tax 
 on the importation of manufactured goods. It was 
 to this Colbertism that List was anxious to apply 
 the expression Industrial system. But the doctrine 
 to which the term Mercantile system is more pro- 
 perly applied is somewhat different. 
 
 Bearing in mind the importance which was at- 
 tached to the acquisition of the precious metals, gold 
 and silver, it is easy to understand that their export 
 was regarded with considerable disfavour. The 
 East India Company found it necessary to pay for 
 their imports from India in silver. For this they 
 had to defend themselves, notably against the Turkey 
 Company, whose trade suffered by the competition, 
 and who endeavoured to make out that the East 
 India Company would ruin England by importing 
 manufactured goods cheaper than the Turkey Com- 
 pany could import them. The gist of the East 
 India Company's defence of their export of treasure 
 was that the goods imported were resold to other 
 nations so as to produce at least as much treasure 
 as had been exported. With this notion of the 
 
8 ECONOMICS AND SOCIALISM 
 
 balance of trade is connected the name of Thomas 
 Mun. Sir Josiah Child had after him to defend 
 the Company against the Turkey Company. 
 
 The next system demanding notice is what has 
 been called the Agricultural system, proposed as a 
 substitute for the system of Colbert. In this we 
 come upon the rise of Political Economy in the 
 proper sense. Professor Jevons made himself re- 
 sponsible for attributing its suggestion to Cantillon, 
 whom he therefore called the father of the science. 
 But this view is not commonly adopted. The 
 names generally associated with the teaching are 
 those of Quesnay, Gournay and Turgot. This is the 
 order of importance of the three names in connec- 
 tion with the system. Quesnay expounded the 
 doctrine and was looked upon as its author. Gour- 
 nay was, however, associated with him, and is re- 
 sponsible for the now famous phrase Laissez faire 
 laissez passer, Turgot was the statesman of the 
 school. They were called Les Economistes, but are 
 better known by the other name they adopted — 
 namely, the Physiocrats, because they advocated a 
 natural system. 
 
 This was the middle of the eighteenth century. 
 That the doctrines of this first attempt at a com- 
 plete science were imperfect need hardly excite sur- 
 prise. Its authors had not yet fully realized the 
 nature of wealth. They confused wealth with 
 matter. Value as an element of wealth was dis- 
 regarded or misunderstood. They conceived that 
 only agriculture and the raising of raw material pro- 
 duced wealth. That alone seemed to increase the 
 quantity of matter available for human use, and that 
 
INTRODUCTION 9 
 
 alone, they imagined, gave a surplus. The surplus 
 we shall notice as rent. But althouofh we shall 
 see that all wealth must come from the earth, yet 
 the raw produce of the soil is not the only form of 
 wealth, nor is the raising of raw produce the only 
 means of increasing wealth. The increase of utility 
 in objects is the increase of wealth. The mere 
 carrying of an object from a place where it is use- 
 less to one where it is required will be seen to be 
 an addition to the means of human happiness and a 
 production of wealth. 
 
 The distinguishing feature of this school was its 
 great preference for agriculture. But it must be re- 
 membered that Quesnay, though Court physician, 
 was the son of a farmer. It must also be remembered 
 that under Colbertism agriculture had suffered 
 heavily from the restrictions placed upon it. Hence 
 it was not without reason that the cultivation of the 
 soil found its champions. Besides which it must be 
 conceded that the Physiocrats asked for no restric- 
 tions in favour of agriculture, — only that it should 
 be set free. Their great remedy besides freedom 
 for agriculturists was the imposition of the impot 
 unique — the single tax on the net produce of land, of 
 which more must be said in its place. An impor- 
 tant error of Quesnay's was that low prices were 
 prejudicial to the lower orders of the people. It 
 should be mentioned in passing that Bandini in Italy 
 is said to have anticipated the Physiocrats in their 
 doctrines, having written in 1737, although his 
 treatise was not published until 1775. 
 
 Following the Physiocrats in point of time, we 
 come upon the great Dr. Adam Smith. No man 
 
lO ECONOMICS AND SOCIALISM 
 
 before or since has exercised anything approaching 
 the influence that he did upon the science, though it 
 must not be concluded that no improvements have 
 been made upon his teaching, nor even that no one 
 has shown as great ablhty to grasp the subject. 
 There was, however, a completeness about his work 
 which has compelled subsequent writers to go over 
 the ground he had already covered. And it must 
 be confessed that his errors have been to a large 
 extent copied by his followers. On some points 
 this will appear as we proceed. 
 
 Not only was his observation of facts wondrously 
 complete, but he adopted his own method and exer- 
 cised his own thougrht in dealinof with them. The 
 Physiocrats had realized the importance of land in 
 the matter of wealth production. He gave great 
 prominence to the importance of labour. So long 
 before as 1667 Sir William Petty had referred to the 
 influence of labour in the creation of value. He 
 had even then said that " labour is the father and 
 active principle of wealth, lands are the mother." 
 Locke had said that differences of value were owing 
 to differences of labour. But Smith was the first to 
 take this as a basis of economic doctrine. It will 
 be seen that the taking of labour as the basis of 
 value was an error. But the great service Adam 
 Smith rendered to mankind was to show what 
 wealth really was. 
 
 The confusion between wealth and money has 
 already been referred to. The prevalence of this 
 error, with the great regard paid to the possession 
 of treasure, was probably the cause of most of the 
 restrictions placed upon trade. The underlying con- 
 
INTRODUCTION I I 
 
 fusion is very difficult to eradicate from men's minds, 
 even from those of great thinkers who treat of the 
 science, and still more from those of clever speakers 
 and writers of less clear perception. When the 
 history of the nineteenth century is fully and faith- 
 fully written, it will be found recorded that, in the 
 last decade of the century, a great deal of commotion 
 was caused with regard to what was termed a living 
 wage. Newspapers seriously reported the speeches 
 of so-called Labour Leaders, in which it was stated 
 that a new and valuable principle had been adopted 
 in the relations of capital and labour. When in- 
 quiry is made as to what the living wage and the 
 principle consisted of, it will transpire that it was a 
 fixed minimum payment, calculated in money, with- 
 out any ratio or regard to the prices of the wealth 
 necessary for living, and that even as a minimum 
 money wage it depended on a doubtful demand for 
 coal (the commodity to be produced by the labourers 
 concerned) at such a price as would secure an ex- 
 change. Thus it will appear that it was totally un- 
 certain whether even the opportunity to earn the 
 money would be available. And beyond that there 
 was no connection between the quantity of money 
 and any standard of living. Yet the historian must 
 state that many apparently intelligent men were 
 found to support this plan as that of a living wage, 
 and of the remainder very few realized the absurdity 
 even of the expression. 
 
 This, however, was not because no one had seen 
 the difference. Hume had vigorously attacked the 
 error before Smith. And Adam Smith fully realized 
 that wealth was not money, but the useful things 
 
 C^L/FORNlA- 
 
12 ECONOMICS AND SOCIALISM 
 
 which satisfy human desire. On the other hand, he 
 showed clearly that the Physiocrats also were in 
 error when they confused wealth with matter and 
 force. 
 
 The second great service rendered by Adam 
 Smith was to advocate free trade with all the world, 
 the breaking down of the commercial barriers which 
 had separated nations. In England, at any rate, 
 that lesson has been learnt from him. x\nd to him 
 apparently belongs the credit of being the first to 
 advocate it, though its adoption was a long way off 
 when he wrote. 
 
 In Adam Smith's work we have the foundation 
 of the greater part of the succeeding economic 
 science. And only a very brief reference can be 
 made to the writers who developed, qualified, or 
 added to his doctrines. 
 
 First in point of time amongst those who mate- 
 rially influenced economic teaching was Malthus. 
 His work is important rather on account of the 
 influence it exerted than because of any truths he 
 enunciated. His teaching is open to obvious and 
 fatal objections, but it had the advantage of sup- 
 porting existing institutions. He endeavoured to 
 show that poverty was not the result of any imper- 
 fect distribution of wealth, but of the tendency of 
 the human race to increase up to the limits of sub- 
 sistence. Food and subsistence he conceived could 
 only increase by arithmetical progression, — that is, 
 by additions of further quantities, — while population 
 would increase by geometrical progression, — that is, 
 by multiplication. The absurdity of this method of 
 argument is not difficult to perceive, even supposing 
 
INTRODUCTION 1 3 
 
 that there is an indisputable truth underlying the 
 whole. As a matter of fact, however, there is every 
 indication that mankind find it easier as civilization 
 advances to increase the earth's production beyond 
 the needs of human existence. The professed 
 object of Malthus, it ought to be mentioned, was to 
 show what was the principle which prevented popu- 
 lation increasing beyond the means of subsistence ; 
 for the tendency to do that was hardly doubted. 
 The principle he at first found in the positive checks 
 of misery, disease, etc. But he afterwards found 
 also a preventive check in the prudential regard 
 which men had to the need for subsistence, and the 
 care accordingly exercised not to undertake the 
 burden of a family without the prospect of being 
 able to maintain it. When the doctrine had reached 
 that point it did not amount to much. In truth 
 there is no reason why the ideas should ever have 
 affected economic science. But there is no denying 
 or forgetting that they did. And the influence on 
 the science was not good. It must, however, be 
 conceded to Malthus that he helped to wean the 
 notions of the time from the prevailing inclination to 
 recklessly encourage increase of population. 
 
 The other writers who must be mentioned dealt 
 more with economic science in the strict sense. 
 J. B. Say in France urged Smith's free trade doc- 
 trines and made himself famous for his treatment of 
 the subject of gluts in the market, showing that they 
 were the result, not of over-production of commodi- 
 ties, but of under-production of other commodities 
 to exchange for them. David Ricardo in England 
 established the truth of the suggestions previously 
 
14 ECONOMICS AND SOCIALISM 
 
 made (first by Anderson) as to the law of rent, thus 
 making clear the proportionate share which, in a 
 country where competition is free, the owners of the 
 soil will take of its productions. When we deal with 
 the subject of wages of subsistence, RIcardo must be 
 severely criticised for the share he took in sending 
 inquirers on the wrong track. But his ability as an 
 economist, and particularly with regard to the 
 currency, is undeniable, though it has perhaps been 
 much over-rated. J. R. McCulloch is well known as 
 an editor of Smith's great work, but there is nothing 
 in his own original writings calling for special atten- 
 tion here. Nassau William Senior was an economist 
 possessing powers of criticism and original thought. 
 His name will be mentioned in connection with 
 some of his views. James Mill, though less known 
 than his son, nevertheless made some contribution 
 to the discussion of the subject. To him apparently 
 belongs the credit of pointing out that all man can 
 do In the production of wealth is to move the 
 objects of nature. The importance of this is to 
 show that the production referred to when the 
 restricted meaning of producing raw material Is 
 attached to the expression is not so distinguishable 
 from other efforts as might be imagined. When 
 reduced to the consideration of what exactly the 
 various services of farmers, manufacturers, carriers 
 and merchants consist of, the effect on external 
 objects is the same. Other names might be men- 
 tioned, as Torrens, Wakefield, Babbage, Jones, 
 Bastiat and Bagehot (who wrote after J. S. Mill), 
 but it will be enough to refer here to John Stuart 
 Mill, whose work marks an epoch in the study of 
 the science. 
 
INTRODUCTION 15 
 
 It would probably be too much to say that the 
 position occupied by J. S. Mill with regard to 
 economics is entirely the result of his own labours. 
 He had the good fortune to write just about the 
 time when the labours of Smith and his school had 
 culminated in the adoption by England of the free 
 trade in commodities which they had advocated. 
 The success of the measure was so much beyond 
 dispute that an impression began to be felt that the 
 last word had been said on the science, although 
 events have shown that much remained to be done. 
 Mill was the last important writer on the subject in 
 England, and something like a feeling grew up that 
 the science which it was half imagined had begun 
 with Smith was now completed by Mill. Erroneous 
 as this was, there can be no denying that Mill had 
 striven to deserve the position. He prepared a 
 comprehensive work dealing with the subject in 
 detail, and embodying as far as he could the work 
 of his predecessors from Smith onwards. He even 
 included in his survey much of what has reference 
 to schemes of social regeneration rather than of 
 economic science. A full examination of the errors 
 of his work would occupy much time and space, but 
 a few points must be noticed in their place. 
 
 In passing John Stuart Mill the subject can no 
 longer be treated as flowing in a single channel. In 
 one direction there has been a great tendency 
 (which indeed he also fell into in the course of his 
 life) to re-involve the science. This involution has 
 been an avowed one, in spite of the fact that 
 the theory of evolution has been more and more 
 generally accepted in almost all human thought. 
 
1 6 ECONOMICS AND SOCIALISM 
 
 The method which consists of re-involvlnof the 
 subject cannot but be described as entirely vicious. 
 There is a very great difference — a difference as 
 between good and evil — between, on the one hand, 
 showing the relation of a science, and what it reveals, 
 to other sciences and their teaching ; and, on the 
 other hand, confusing the proper subjects of one 
 inquiry with those which belong to another. 
 Generalization is not confusion ; it implies speciali- 
 zation. To heap together physiology, morals, 
 economics and the fine arts into one heterogeneous 
 mass, as has become almost habitual in some quarters 
 in these days, is certain to do harm, even though 
 some good thoughts may be found by readers who 
 have the skill to separate the various constituents 
 of the motley collection. Although this is true, 
 however, it is also quite true that the expounders 
 of the science must have regard to its place as a 
 study relating to human well-being. It cannot be 
 said that economists have always brought their con- 
 clusions to this line. In short, it has not been kept 
 well in mind that the sphere of economics is the 
 satisfaction of human desires, not the determination 
 of their quality, nor, on the other hand, the further- 
 ing of objects merely subsidiary to that satisfaction. 
 In another direction we have Professor J. E. 
 Cairnes, who endeavoured to explain away Mill's 
 errors and to put the teaching of the latter into 
 an aspect which might receive acceptance. Pro- 
 fessor Henry Fawcett was a great admirer of Mill, 
 and followed him closely into his more important 
 errors, though it must be confessed he also effected 
 some improvement in certain directions. Dr. 
 
hjnivbrsitt) 
 
 INTRODUC-fiQN ^,,J^^^^ I? 
 
 Amassa Walker must also perhaps be placed in 
 Mills school. W. T. Thornton is chiefly noticeable 
 as having controverted some of the doctrines of this 
 school relating to wages. 
 
 In America a body of protectionist doctrine 
 sprang up under the influence of List, who has 
 already been mentioned. Following List, its first 
 and chief exponent was Henry Charles Carey. 
 The doctrine held and put forward with con- 
 siderable subtlety of argument was that free 
 trade might be advantageous for old countries, 
 but a measure of protection was necessary for the 
 establishment of manufactures in a new country. 
 
 Another school demanding passing notice is 
 known as the historical school. It has its home 
 chiefly in Germany. Not much importance can 
 here be attached to its methods, although their evil 
 is not confined to Germany. As a study there can 
 be no harm in ascertaining various historical eco- 
 nomic conditions. But it must be retained in its 
 place as an historical study. When this method is 
 put forward as a ground for advocating certain 
 doctrines and institutions because of observed ten- 
 dencies in that direction, much injury is capable of 
 resulting. For instance, there are those who ima- 
 gine they see by this method that Socialism is fast 
 hastening into the region of practical application. 
 They observe that industry is being gathered into 
 large concerns preparatory to that consummation. 
 And they look particularly for signs of it in the 
 United States of America — a country with abun- 
 dance of natural resources and a population of little 
 over twenty to the square mile, but which with 
 
 c 
 
1 8 ECONOMICS AND SOCIALISM 
 
 that sparse population has its people out of work 
 and starving by the thousand. The wonder is that 
 any one ventures to handle such an argument at 
 that end. 
 
 A more important school must, however, be 
 mentioned. Even before Mill's work was written 
 Augustin Cournot, a Frenchman, had dealt with 
 the science of economics in a strictly mathematical 
 method. A famous follower of his in this respect 
 was Professor W. S. Jevons, to whom a prominent 
 place must be given. As belonging to a great 
 extent to the same school, Professor Marshall should 
 be mentioned ; but he and Mrs. Marshall have done 
 most service in the industrial department of the 
 subject. The views and explanations of this school 
 belong to a deeper study of the theory of the science 
 than need enter the discussions which will follow, 
 and which are of more immediate practical impor- 
 tance. 
 
 Two other names may be mentioned as not ex- 
 actly belonging to the mathematical school and not 
 to be classed under it. Professor Sidgwick is the 
 author of a work remarkable chiefly for its criticism 
 of various views which have obtained in the science. 
 Professor F. A. Walker, an American, has done 
 good and independent work relating to wages — a 
 subject which in recent years has occupied much 
 attention among economists. 
 
 Mr. Henry George, another American, occupies a 
 different but by no means a less important position. 
 He has demonstrated once more the benefits of free 
 trade in commodities, and the futility of the so- 
 called protection. This was rendered necessary by 
 
INTRODUCTION 1 9 
 
 the 'fact that in the United States of America the 
 protection fallacy had been both advocated and 
 adopted. But his chief addition to the science has 
 been in his book with regard to taxation. The 
 single tax of the Physiocrats has been disregarded 
 since their day. To him belongs the honour of 
 reviving it. In a few places the principle has al- 
 ready been adopted. In coming to his conclusions, 
 however, he had occasion to notice the current 
 theories of wages and to controvert them. And 
 some credit is perhaps due to him in this respect. 
 
 This rough survey will be enough to indicate 
 that the subject has been a good deal discussed, 
 and it would be impossible even to attempt to 
 follow all these writers through even a portion of 
 their views. The inquiry will proceed indepen- 
 dently of them, and the theories previously put 
 forward will only be mentioned when it seems 
 necessary to adopt or to refute them. 
 
CHAPTER II 
 
 POSTULATES 
 
 The postulates of the science appear to be : — 
 
 1. Man, for his continued existence and the 
 gratification of his desires, requires to be constantly 
 provided with certain material commodities which 
 are known as wealth. His necessities extend be- 
 yond those things of which the supply is free and 
 unlimited. 
 
 2. Of some commodities nature makes plentiful 
 and free provision, but the provision thus made 
 has always to be gathered or dug for, and fre- 
 quently to be carried to the place where it is re- 
 quired for man's subsistence and enjoyment. It 
 has also In many Instances to be adapted to man's 
 wants ; besides which, it is found that of many 
 commodities human beings can assist to make 
 nature even more productive. 
 
 3. Each man will seek to gratify his desires, in- 
 cluding his necessary appetites, as easily as he can 
 — that is, with the least possible expenditure of his 
 labour and trouble. 
 
 These postulates stand related to each other as 
 subject complement and copula respectively. 
 
 The first is man's desire for consumption — the 
 demand, the struggle for existence, impelled by the 
 instinct of self-preservation and the desire for hap- 
 
POSTULATES 2 1 
 
 piness. It will be convenient to speak of this as 
 the demand. 
 
 The second is man's ability to provide for his 
 needs and desires, the supply, human capacity for 
 increasing, adapting, and distributing nature's pro- 
 ductions, and the competitive effort to do so. It 
 will be convenient to speak of this as supply. 
 
 The third postulate is the connecting link of 
 the other two — the law, norma, or rule, which lies 
 at the root of the science, guiding every action of 
 which the science takes note, and establishing a first 
 principle to which all right conclusions must con- 
 form. 
 
 It may be convenient to say here with regard to 
 both demand and supply that there is no evidence 
 of any ultimate limit. Man's desires increase in 
 variety as they are supplied. In this he differs 
 from all plants and all other animals. So that, un- 
 like them, he is not merely confined to his own re- 
 production as a means of increasing consumption. 
 Although his physical appetite may not increase, 
 his desires for gratification, if not infinite, may in- 
 crease indefinitely. The mind, at any rate, refuses 
 to be limited. The satisfaction of present desires 
 impels a human being to seek fresh modes of en- 
 joyment, and not merely cessation from effort. This 
 fact will sufficiently account for the want of any 
 general surplus of wealth, and for the continued 
 desire for further productions requiring additional 
 effort, however great the possibilities of wealth 
 production may be. 
 
 On the other hand, it is acknowledged that in 
 various parts of the earth the possibilities of present 
 
22 ECONOMICS AND SOCIALISM 
 
 production are more than enough for the world's 
 needs. A very Httle effort could vastly increase 
 these possibilities. There is no lack of evidence, 
 for instance, that of vegetable substances, even com- 
 paratively barren land, can by the application of 
 more scientific and perfect cultivation be made much 
 more prolific. This improvement is possible to an 
 extent as yet unascertained. It appears, therefore, 
 unnecessary to discuss at any length the doctrines 
 taught by Malthus. There seems also no need for 
 any of the artificial restraints on population which 
 have frequently been advocated. Before their 
 necessity could be admitted it would require to be 
 shown that, in spite of the application of the labour 
 available in all ranks of society, there was still a 
 dearth of commodities. This seems to be nowhere 
 shown even with regard to particular political divi- 
 sions. 
 
 Nor does it seem likely that any possible restraints 
 could be of service towards the end proposed. 
 Certainly there can be no advantage in limiting the 
 supply of wealth with a view of keeping down the 
 population. It is noticed that plants in their natural 
 state flower most profusely at the margin of their 
 habitat — that is, under those conditions in which they 
 can only just exist. It is as though nature would 
 have them make up in the reproductive effort for 
 the want of favourable conditions for vigorous growth. 
 Such places and conditions would not be where we 
 should look for the most perfect plants. And much 
 the same considerations apply to mankind. The 
 largest families are generally found amongst the 
 poorest people. If any conclusion is to be drawn 
 
POSTULATES 23 
 
 from experience on this point, it must be that in the 
 long run the human race is more likely to keep its 
 numbers within bounds by increased wealth than by 
 diminished subsistence. Increased prosperity may 
 increase population, but a prosperous person or nation 
 will exercise greater foresight than a less prosperous 
 one in securing a prospect of subsistence for the 
 children to be born. Moreover, though it is true 
 that the high birth-rate experienced in great poverty 
 is somewhat compensated for by a high death-rate, 
 yet on a comparison with lower rates in both re- 
 spects the balance of desirability is entirely in favour 
 of the latter. 
 
 At any rate, it is certain that any artificial restraints 
 (unless literally in chains) would be more likely to 
 be adopted by the best of the race than by the 
 inferior types. If heredity has even the least modi- 
 cum of truth and applicability to humanity, those re- 
 straints would operate to cause only such progress 
 as is from better to worse. It is indeed probable 
 that the imperfect conditions of wealth production 
 and distribution have that tendency at present ; facts 
 and experience point to that conclusion. What is 
 here desirable to be made clear, however, is that 
 artificial restraints on population, which appear in 
 the first place not likely to diminish want and suffer- 
 ing or to conduce to the desirable progress of the 
 race, are in the second place not at all necessary. 
 And there is no evidence that ever they will be 
 necessary. The point does not in truth come within 
 the present science. If after the economist has 
 completed his work and the truths of his science 
 have been applied to human life it is found that 
 
24 ECONOMICS AND SOCIALISM 
 
 there Is still insufficient wealth, it will be for some 
 Other science or department of social science to 
 find means of increasing subsistence or diminishing 
 population. 
 
 The question of whether or not the wealth avail- 
 able for man's use which is to be found in distant 
 regions is or is not applicable to his needs will not 
 be discussed here. It is a question for settlement 
 by considerations of industrial science and the possi- 
 bilities of transit. But that there is now no difficulty 
 in that respect is amply proved by the observations 
 very frequently made by men whose thinking powers 
 are altogether untrained. Such men frequently say 
 that the cause of poverty and distress is over-pro- 
 duction or under-consumption, and never by any 
 chance do they speak of under-production. This is 
 evidently inconsistent with over- population. It is 
 true that wealth does not always reach the people 
 who need it, but the cause of that is exactly what 
 the science now under consideration sets itself to 
 discover. 
 
 It is important, however, to make quite clear what 
 the economist may safely take as his data, to what 
 particular domain his inquiries must be directed, 
 and how far, if at all, other considerations should 
 cause him to hesitate about drawing the conclu- 
 sions to which his inquiries lead him. 
 
 And, first, he may surely take the demand as 
 proved without his arguments. The physiologist 
 tells him that besides air man must have food and 
 drink. The air may be free and frequently the 
 water, but the food is seldom accessible without 
 considerable effort of some kind, and that by or on 
 
POSTULATES 2$ 
 
 behalf of every individual. Beyond this clothing 
 may be considered necessary and beneficial ; shelter 
 in the way of houses will be required by most of 
 the human race, not to mention the endless variety 
 of comforts and luxuries which in the progress of 
 the race are invented. 
 
 The question may be asked whether the economist 
 may treat all these desires as legitimate, or whether 
 he should attempt to find means of preventing their 
 gratification to the full extent ; and if so, to what 
 extent the supply should be limited. If this question 
 appear too absurd to be worth stating, the objection 
 can only be met by saying that in effect it frequently 
 finds place in the writings of some who attempt to 
 treat of the science. But, in answer to the question, 
 it must be replied that the economist, as such, has 
 nothing to do with the consumption of wealth con- 
 sidered merely as the satisfaction of human desire. 
 So far as it may have an effect on future production 
 he may consider it ; but as to whether certain kinds 
 or quantities of wealth are beneficial to humanity 
 h*^ can take no notice. That is a question for the 
 physiologist, the moralist, or it may be the artist 
 or the general biologist. But as an economist he 
 must rigorously confine himself to his own science 
 if the issue is to be clear. 
 
 Were the fact otherwise, the study of the subject 
 must at once cease, and the whole of the conditions 
 be left to mere haphazard. For if an individual 
 cannot choose the kind and quantity of wealth re- 
 quired for his own consumption, who is to choose 
 it for him ? What means can be found for discover- 
 ing a person more fit than himself to exercise this 
 
26 ECONOMICS AND SOCIALISM 
 
 discretion ? and how will such a person exert his 
 authority? It may be that some kinds of wealth 
 are wholly deleterious, and a wise Government will 
 prohibit their use, but that is beyond the province 
 of the economist. It is equally impossible for him 
 to consider the quantity of wealth to be provided 
 for each individual except by reference to that in- 
 dividual's desires. 
 
 Fortunately, no such fetters are put on the inquiry. 
 Nowhere is there any evidence of any injury likely 
 to be caused by a constant and plentiful supply of 
 wealth to every human being. Alternate fasting 
 and feasting may be injurious, but such a condition 
 could not be the result of a perfect supply, for per- 
 fection in that respect would imply constancy. 
 Whether the race, or the nation, or the individual 
 be considered, no good can come of attempts to 
 starve either the weak or the strong. The life of 
 the individual will be fuller and more perfect for an 
 ample and easily attainable supply of subsistence. 
 Any artificial attempt to secure the survival of the 
 fittest will be to hinder nature in the work which 
 she alone can, and in the long run will, do of herself. 
 And the obstruction will cause pain and injury. 
 
 In the second place, a question may be asked 
 on the subject of supply. Need the inquiry be 
 hampered by considerations as to whether man 
 should be prevented from obtaining easily the 
 wealth which it has just been seen he may without 
 injury enjoy plentifully ? Already men have shown 
 great aptitude for making use of the forces of 
 nature so as to save bodily labour. There are 
 not wanting those who look upon this as a lament- 
 
POSTULATES 
 
 27 
 
 able fact. But Professor Marshall has shown that 
 the use of machinery is not injurious to the human 
 being. Man, he shows, is better for the work he 
 can have done by steam and electric power, not 
 only in the increased production, but in his own 
 physical and mental constitution. What workmen 
 lose in mere manual dexterity they gain in enlarged 
 perception and judgment. The physical frame can 
 be thereby saved from injury, which it would other- 
 wise have suffered. With a view to mere develop- 
 ment, it is evident that exercise of body or mind 
 can be obtained better and more beneficially without 
 its being compulsory for wealth production. 
 
 By these considerations the scope of the inquiry 
 is limited and more clearly defined. The economist 
 has only to suggest conditions for the efficient 
 supply of wealth constantly and abundantly to 
 every individual. He may disregard the so-called 
 social organon, which is in fact a mere mental crea- 
 tion. Society is an aggregation of individuals : the 
 individual is not an organ of society. It is only 
 by analogy that society can be said to be organized 
 at all. The unit is the individual : he has wants 
 and desires of his own, and the economist must con- 
 sider him as an individual in studying the supply of 
 those wants and desires. 
 
 Something ought perhaps to be said with regard 
 to the third postulate, and the subject in hand will 
 then be defined. The inquiry starts without any 
 apparent necessity for poverty. Poverty is unsup- 
 plied need. The need is the subject of the science, 
 but the complement spoken of in the second postu- 
 late is amply sufficient for the present (and^so far 
 
 {tjniversity) 
 V ^ OP y 
 
2S ECONOMICS AND SOCIALISM 
 
 as can be seen, for the indefinite future), if it can be 
 properly applied. The one link by which it must 
 be applied is laid down in the third postulate. 
 Each individual will satisfy his desires as easily 
 as he can. The truth of this postulate is not taken 
 for granted, as in the case of the other two ; it is 
 self-evident, and, in fact, an axiom. For it is incon- 
 ceivable that a person could desire anything and 
 wilfully spend unnecessary trouble in obtaining it ; 
 unless, indeed, he had another object in the expen- 
 diture of the trouble, which would be another desire 
 to be satisfied and a further instance of the truth of 
 the proposition. It is not a truth which requires 
 qualification. In itself it affords the fullest scope 
 for the most self-denying altruism. It, moreover, 
 leaves ample room for the fact that men are not 
 always perfect in their judgment or vigorous in 
 their actions. Their desires may be weak, or their 
 lethargy may be strong. As to man's altruism, 
 it is a form of desire or nothing at all. The demon- 
 stration of the science does not require a non- 
 existent, perfect economic man. It takes man as 
 it finds him, and assumes nothing concerning him 
 except what is universally true. Each man is a 
 more or less perfect business man ; how much less 
 perfect it is impossible to estimate and unnecessary 
 to know. Nor is the motive or object of the man's 
 desire a disturbing element in the inquiry. The 
 desire in its relative intensity, not in any way its 
 perfection, is to be measured, in order that it may 
 be supplied. This only is within the province of 
 the economist. 
 
CHAPTER III 
 
 DEFINITION OF WEALTH 
 
 If any true conclusions are to be reached with 
 regard to the subject now entered upon, it will be 
 necessary first to have clear definitions of the terms 
 to be used. The meaning of the word wealth in its 
 general acceptation is not by any means as precise 
 as is required for scientific demonstration. The 
 objects of which wealth consists cannot well be 
 enumerated, but the expression must be sufficiently 
 defined to make clear what is referred to, and to 
 make it possible, when the character and circum- 
 stances of an object are known, to say whether or 
 not it is included in the total sum of wealth. 
 
 In the first place, it should be noted that, for the 
 purpose of this inquiry, wealth consists of material 
 objects. To speak strictly, it should be stated that 
 the quality of wealth inheres in those objects 
 according to certain ascertainable circumstances, as, 
 for instance, situation. So that the same objects 
 are wealth at one place and at another not wealth. 
 But for practical purposes it is enough to say that 
 the wealth consists of the objects. And these are 
 material objects. This at once distinguishes wealth 
 from personal services — that is, from labour. Wealth 
 may render service, but it cannot be said that what- 
 ever renders service is wealth. Labour renders 
 
 29 
 
30 ECONOMICS AND SOCIALISM 
 
 service, it may produce wealth, but it is not itself 
 wealth. And although such wealth, when trans- 
 ferred, includes, or is the result of, human labour, 
 the labour is one thing, the wealth is another. By 
 the labour the material objects have been moved, 
 and by various considerations the quality of wealth 
 is now found to be in those objects. 
 
 In the second place, the objects referred to must 
 be necessary or desirable to human beings for their 
 maintenance or gratification. This quality is spoken 
 of as utility. The expression value in use referred 
 to by Adam Smith should be entirely discarded 
 from this connection. For the word value has now, 
 and without doubt had then, a different meaning 
 from utility. Professor Jevons spoke of disutility. 
 This might be a convenient expression for his then 
 present purpose, in order to give him the sign 
 minus for his mathematical demonstrations. But 
 disutility must be because of the situation of the 
 liquid or solid matter referred to, as, for instance, 
 water in a mine or solid earth which must be re- 
 moved to make way for the foundation of a building. 
 Moreover, such disutility of matter is invariably 
 owing to the difficulty it causes in obtaining, adapt- 
 ing, or using other material wealth. It will, there- 
 fore, be sufficient to disregard this negative wealth 
 as though simply valueless material, making other 
 wealth more difficult of access. We thus treat only 
 of positive wealth, all of which must have utility — 
 that is, it must be useful to mankind, either in the 
 sense of being really beneficial or, at least, desired. 
 
 A third limitation is that nothing can be con- 
 sidered wealth if and where it can be freely taken 
 
DEFINITION OF WEALTH 3 I 
 
 in unlimited quantities, or in quantities which so far 
 exceed the demand as to be practically unlimited. 
 Nothinof is more essential or desirable to human 
 beings than atmospheric air. But on the earth's 
 surface it cannot be considered wealth, for the reason 
 which underlies the common expression " free as the 
 air we breathe." When, however, the air has by some 
 means been conveyed into deep mines, it there has 
 all the qualities of wealth. Water is not wealth 
 where every one may take as much as he requires 
 without payment or permission. But in the middle 
 of a large city only that water can be had which has 
 become wealth. The quality of wealth now re- 
 ferred to may be described as scarcity. 
 
 The union of the two qualities last mentioned — 
 namely, utility (in the sense explained) and 
 scarcity — is what is really meant by the expres- 
 sion value. It is a quality which combines the 
 other two. Nothing has value except what is 
 desired, nor has anything value, even though 
 desired and useful, unless it is more or less 
 scarce. If these two qualities are united there 
 is value without further qualities. It is not 
 necessary that any object should be exchange- 
 able or transferable in order that it may have 
 value. This will immediately be seen in the 
 case of skill, which is valuable and frequently 
 costly, but not exchangeable. The determin- 
 ing influences of value in exchange open out a 
 wider inquiry, which will be noticed in another 
 chapter. 
 A fourth limitation is that wealth must be such as 
 can be exchanged. It is not essential that it be 
 
^2 ECONOMICS AND SOCIALISM 
 
 transportable, but at least the right to its use and 
 the power of enjoyment of it must be transferable. 
 Thus the skill of labourers, of whatever grade, is not 
 wealth. For although a physician may sell his ser- 
 vices, he cannot sell his skill, and accordingly it is not 
 wealth. Nor is the skill of any other person, though 
 it be such as will directly assist him to produce 
 wealth. The skill may be, and often is, valuable to 
 the individual, and in the probability of its exercise 
 valuable to the nation, but it cannot be transferred or 
 exchanged. Even though it be considered to be a 
 quality inhering in a material object, and conse- 
 quently not offending against the first limitation, yet 
 it is eliminated from the subject of wealth by the 
 impossibility of its exchange. It must be confessed 
 that did the skill or other good quality belong to one 
 of the lower animals it would indeed be wealth. 
 For it would be a quality inhering in a material 
 though living object. And it is in the qualities of 
 objects that wealth is really found. But such skill or 
 good quality in the animal would be wealth only in 
 that it could be transferred. The whole animal 
 with its attributes could be sold from hand to hand. 
 In the fifth and last place is a limitation which has 
 frequently been overlooked, but which for a proper 
 understanding of the subject must be made and kept 
 quite clear. The expression wealth ought not to, 
 and in this book will not, include that which has not 
 been adapted by man to his use. Nor does adapta- 
 tion as here used mean appropriation. Unexplored 
 land has already been eliminated from the total sum 
 of wealth. For as yet it cannot be said to possess 
 value, except it may be to a nation as territory, and 
 
DEFINITION OF WEALTH 33 
 
 not to an individual as useful land. Even though 
 there may be gold or diamonds lying on its surface, 
 these precious things are still not wealth. They 
 can perhaps hardly be called valuable before their 
 existence is known of. But it is certain they have 
 not been adapted for man s use, although in their 
 case the mere carrying of them away would be 
 sufficient adaptation to constitute them wealth. 
 Even after appropriation, as in the case of gold 
 reefs and diamond mines, care must be taken that 
 the reefs and mines with their ungotten gold and 
 diamonds are not looked upon as wealth in the 
 scientific sense. They are still land, and must be 
 kept distinct in the mind from wealth, though their 
 products are certainly wealth. In the same way all 
 land must be clearly distinguished. In so far as it 
 has been adapted by human labour, the fertility or 
 other usefulness inhering in the land is wealth. But 
 the extension or space, the situation, and the natural 
 fertility of the land are all independent of man s 
 adaptation. He cannot carry away or otherwise 
 adapt, although he may appropriate, the situation or 
 extension of the land. And, although also he may 
 increase or diminish natural fertility, yet so far as it 
 is natural it must not be considered wealth. This 
 extends to all that is usually spoken of as natural 
 wealth, such as rivers, virgin forests, and ungotten 
 minerals. Occasionally all the utility of land is the 
 result of man's adaptation, and is therefore wealth — 
 sometimes only a portion is wealth. But as in this 
 science we deal always with values, no difficulty 
 arises in the separation of wealth from land. The 
 value of the one and of the other is a question of fact 
 
 D 
 
34 ECONOMICS AND SOCIALISM 
 
 to be ascertained in each case — and that without 
 great difficulty. 
 
 There seems to be no English word which ex- 
 actly expresses the condition of artificial fitness for 
 man's use now under consideration. The words 
 adaptation and preparation both refer to the act 
 rather than the condition. The word adapted when 
 used to describe the condition of any object refers as 
 much to a natural condition as to an artificial one. 
 The word prepared is not open to the latter 
 objection. So that in coining a word to express the 
 fifth quality the better plan seems to be to take 
 prepared as the basis, and, for want of a better 
 expression, to describe the quality as preparedness — 
 the condition of having been artificially adapted. 
 
 These limitations will determine what is included 
 in the expression wealth as it will be used. The five 
 qualities which must be combined in the quality of 
 wealth are materiality, utility, scarcity, exchange- 
 ability, and preparedness. 
 
 Substituting for utility and scarcity their equivalent, 
 the one word value, we have as a definition of 
 wealth — 
 
 The valuable and exchangeable material objects 
 prepared by human effort for human use — that is, by 
 the efforts of man for the satisfaction of his needs 
 and desires. 
 
 With this may be compared the portion of a 
 sentence of Mr. Henry George's which appears to 
 contain his definition of wealth — a definition in one 
 aspect better than that just suggested : ** The natural 
 substances or products which have been adapted by 
 human labour to human use or gratification." 
 
DEFINITION OF WEALTH 35 
 
 In both cases, however, it must be borne in mind 
 that the objects which are not yet finished products, 
 in being directly appHcable to human satisfaction, 
 use, or gratification, may, nevertheless, be wealth. 
 They are in the course of adaptation, or are assisting 
 man to obtain other requisite wealth. The utility 
 required by the definition may be direct or indirect. 
 
 Professor Nassau Senior's definition is clear and 
 excellent so far as it goes. He says of wealth : 
 "Under that term we comprehend all those things, 
 and those things only, which are transferable, are 
 limited in supply, and are directly or indirectly pro- 
 ductive of pleasure or preventive of pain." The 
 definition includes the second, third and fourth 
 qualities mentioned, but does not make clear the 
 need for the first and fifth, unless perhaps the 
 first is to be implied from the use of the word 
 things. That, however, is not clearly evident. 
 
 In order to make quite clear what wealth consists 
 of, it may be advisable to mention or recapitulate 
 what the definition excludes. 
 
 The first limitation, as was pointed out, excluded 
 labour — that is, personal services — as not being 
 material or tangible substances. Nor are such ser- 
 vices qualities inhering in such objects, which might 
 perhaps be said of skill. Even the services of an 
 animal, a cart-horse, for instance, are not wealth, 
 though direcdy productive of wealth, and though the 
 strength by which the cart-horse renders those 
 services may be considered as wealth, because it 
 inheres in a material and transferable object. 
 
 The same limitation will apply to mere rights. 
 If a right is to a material object as against all the 
 
36 ECONOMICS AND SOCIALISM 
 
 world, the person having the right may be said to 
 own the object, and consequently to possess wealth. 
 But if the right is against a person who is merely 
 under obligation to render wealth, the right cannot 
 be called wealth. If wealth exists on which some 
 mortgage is held, it must be counted only in the 
 hands of the person actually in possession of it. 
 
 A national debt must not be considered as wealth. 
 To the nation it is, it need hardly be said, not even 
 valuable. But, beyond that, even to the individual 
 it is not wealth, although commanding wealth. It is 
 merely a right to future taxes, created by the 
 authoritative power in the state for the benefit of the 
 individual on grounds not now under discussion. 
 Similar remarks would apply to monopolies. Some 
 monopolies, such, for instance, as those granted to 
 inventors, appear wholly beneficial in encouraging 
 invention, as well as just in securing to each the 
 result of his labours. But though the article pro- 
 duced under a monopoly may be .wealth, the 
 monopoly itself is not wealth. 
 
 The objects above mentioned would not offend 
 against the second, third and fourth limitations, and 
 would consequently satisfy Nassau Senior s definition 
 so far as it is clearly expressed. But to admit them 
 as wealth would cause obvious confusion. For to 
 admit labour might lead to the conclusion that a 
 vigorous man could satisfy his need for wealth by 
 his own exertions, without natural objects on which 
 to exert them. Further, if rights were admitted as 
 wealth, the same wealth might be counted as be- 
 longing both to the possessor of it and also to the 
 man to whom he owed a debt, which would obviously 
 
DEFINITION OF WEALTH 37 
 
 be confusing the subject. So that labour and mere 
 rights must be excluded ; although by labour wealth 
 may be produced, and by a right it may be com- 
 manded. 
 
 The second limitation excludes all those objects, 
 even though material, which a man who possesses 
 is willing to freely part with. The third excludes 
 those which he would not willingly be entirely with- 
 out, but which under his present circumstances are 
 so plentiful to him that he does not consider them 
 to possess any value ; and he desires no more of 
 them. An instance is atmospheric air on the 
 earth's surface. In the remainder of the inquiry 
 these two qualities will always be taken together 
 and spoken of as value. 
 
 The fourth limitation excludes qualities of persons, 
 as natural or acquired skill, strength, learning, good 
 health, affections, personal reputation, and many 
 valuable possessions which cannot be transferred. 
 
 The fifth limitation excludes what will hereafter 
 be spoken of as land — nature's free gift. It is 
 either unadaptable, as the extension of the earth's 
 surface with its material foundation, and the course 
 of a stream with its constant supply of water, or 
 it is, at least, unadapted, as minerals still ungotten, 
 and virgin forests still uncut. 
 
 This should make clear the objects to be treated 
 of; but one important distinction is still undealt 
 with. Value and the possibility of exchange 
 naturally call for some measure of value. If value 
 alone existed there would be no need to measure it. 
 It is true that law courts attempt to estimate the 
 value of that which is not transferable. This 
 
3^ ECONOMICS AND SOCIALISM 
 
 occurs when they pronounce judgments for damages 
 as a solace for wounded affections, compensation 
 for injured health or limbs, or amends for detri- 
 mented reputation. But, apart from the question 
 of whether or not the value of these things can ever 
 be satisfactorily estimated, it is evident that no 
 recompense could be afforded for their loss were 
 It not for the fact that other things are transferable. 
 The idea is to give something which Is valuable 
 and transferable in place of that which was of value, 
 but could not be transferred, although it could be 
 lost or destroyed. The possibility and frequency 
 of exchange call for the use of a medium, and this 
 medium of exchange (known as money) naturally 
 becomes a measure of value. Money frequently 
 consists of a valuable commodity or portion of 
 wealth. But it is not essential that the medium 
 used be intrinsically valuable or possess even orna- 
 mental worth for Its own sake. It Is merely a 
 representative of value. Paper with certain authen- 
 ticating marks is frequently made legal tender 
 money. Such money does not derive its value 
 from its Intrinsic worth in even the least degree. 
 The nature of the money commonly used by 
 civIlLzed communities will, however, be more pro- 
 perly dealt with after the subject of exchange. 
 The object at present is to distinguish wealth from 
 money. The important distinction Is found in the 
 different purposes to which wealth and money are 
 respectively applied, the one being for use, the other 
 for exchange. Some money consists of what is 
 really wealth. But It does not derive its value from 
 that fact. For indeed it is not intended to be used 
 
(tlNIVER 
 DEFINITION OF WEALTH m 
 
 as wealth. Its use is in being passed on by way of 
 exchange. When metallic coins are melted for use 
 in the arts, the metal ceases to be used as money, 
 and becomes really wealth, possessing a value for 
 its own sake. But in the usually known instances 
 the coins passing between two persons are not 
 intended to be used as wealth, but merely as money. 
 For that purpose a piece of paper bearing the 
 proper marks, and not in itself worth a farthing, 
 is in England quite as valuable as five gold sover- 
 eigns. Indeed, it is more valuable for the pur- 
 pose than a hundred silver shillings. Similar 
 statements would generally apply to other nations. 
 
 The two things, wealth and money, are thus 
 clearly separated. Wealth is valued and acquired 
 for its own sake. Money may or may not possess 
 value in itself. That is a matter of indifference. 
 But it possesses value by representation, and is 
 sought after as a means of commanding wealth or 
 services. If, as in the case of corn (which has been 
 used as money), it will probably soon be consumed, 
 its use is not purely as money, although it does duty 
 for money. The true use of money is merely to be 
 passed on during the whole course of its existence 
 as money. Money is used by being transferred ; 
 wealth is used by being retained or consumed. It 
 will be necessary to bear in mind the various 
 distinctions here mentioned if true conclusions are 
 to be arrived at. 
 
CHAPTER IV 
 
 ELEMENTS OF PRODUCTION 
 
 The scope of the inquiry has now been further 
 defined. It will, therefore, be more possible to reach 
 definite and clear conclusions than it otherwise 
 would have been. For instance, if land in any 
 sense had not been rigorously excluded from the 
 term wealth, it would have appeared that the inquiry 
 was in part how to increase the amount of land in 
 a country. If labour or skill had not been excluded, 
 the question might have seemed how to add to the 
 total sum of labour available in any community, or 
 how to improve technical education. It is needless 
 to say that such questions are simply absurd from 
 the economist's point of view. But by the process 
 of delimitation we ascertain once for all what it is 
 we seek, and consequently obtain a better chance 
 of reaching the object desired. Having stated what 
 we mean by wealth, we can at once inquire how, 
 if at all, it may be created or increased, and man's 
 requirements thus satisfied. 
 
 In the first place, it is obvious that land — the 
 earth on which we live — is a necessary element in 
 the production of wealth. Wealth consists of 
 material substances which must inevitably be ob- 
 tained from the solid globe on which man exists. 
 Land is essential to him, even though no such thing 
 
ELEMENTS OF PRODUCTION 4 1 
 
 as wealth were necessary. On it he must find 
 support for his material body. There are means 
 of floating in the atmosphere, but it is only by the 
 use of materials taken from the more solid earth, 
 and only for short periods at a time. In a some- 
 what less degree the same is true of the sea. Be- 
 yond this support, however, if man must have 
 wealth, he must obtain it from the earth. 
 
 It is quite true that some wealth is obtained from 
 the portion of the earth which is covered with 
 water. Not only does the ocean supply man with 
 a way which is more easy to traverse than a desert 
 land of similar area would be, but it supplies him 
 with many useful commodities, and particularly with 
 fish for use as food. Even the atmosphere is 
 material, though gaseous, and it also has some share 
 in wealth production. But what will occupy more 
 of the attention of the student of economics is the 
 land strictly so called. It is capable of monopoliza- 
 tion in a way in which the sea and atmosphere are 
 not. On it also the homes of mankind are found. 
 Men and women, for the most part, are born, live 
 and die on it. From it the greater part of the 
 wealth is obtained. Nations fix their boundaries 
 on it. Besides which, it would be impossible to use 
 even the sea without certain help to be had from 
 the land. 
 
 Land being so important a part of them, it will be 
 convenient to speak of the whole of nature's free 
 gifts as land. That is the term which (partly from 
 their associations, no doubt) has been generally 
 adopted by writers on political economy. No 
 confusion is likely to occur from this use, and it 
 
42 ECONOMICS AND SOCIALISM 
 
 would be more difficult to convey a true meaning 
 by means of any other term than by continuing the 
 use of that already adopted. Meantime it may be 
 borne in mind that what is meant by the expression 
 is the earth : that which exists independently of 
 man, and would have existed had he not lived, or 
 even had he lived as a plant only. Indeed, we may 
 go further, and say that which would have existed 
 if he had had the power to move himself, but no 
 power to move external objects. Once grant him 
 the power of moving external objects, and there 
 is a possibility that he will begin to create wealth 
 by adapting external objects to his use. 
 
 Here, then, is the first element of the production 
 of wealth — an ultimate element not capable of 
 further subdivision for the purpose of the science. 
 It is true that it includes organic and inorganic 
 substances, objects which have life and those which 
 have not. But although there is a gulf such as the 
 chemist would recognise between these two kinds 
 of objects, and although the biologist has to admit 
 man cannot bridge over that gulf by his own efforts, 
 yet, and for the very reason last mentioned, the 
 distinction is one which the economist has not to 
 deal with. He must take nature as he finds it, 
 organic and inorganic ; for his business relates only 
 to what man has to do with nature. 
 
 The next and only other ultimate element to be 
 noticed as an agent in the production of wealth is 
 labour. As already pointed out (in the first chapter), 
 this consists of moving the objects of nature. All 
 that labour accomplishes consists only of this moving. 
 It must also be remembered that all useful human 
 
ELEMENTS OF PRODUCTION 43 
 
 effort must be under the guidance of human mind, 
 even though the mind only guides certain muscles, 
 and does no planning or thinking, as thinking is 
 generally understood. When this is kept in view it 
 can be seen that all human effort, the effect of which 
 is so exerted as to influence other persons or things, 
 is essentially the same. It is the internal act of the 
 mind directing the muscles of the body, and their 
 movement causing movement in external objects. 
 This is so whether those objects consist of the solid 
 substances of which the earth and its strata are com- 
 posed, or the atmospheric air by the vibration of 
 which the human voice transmits thought by the 
 sound of speech. The same truth appears whether 
 the implement used be a plough or a pen. 
 
 The difference between physical exertion and 
 mental labour is thus only one of degree — the relative 
 extent to which the brain or the muscles enter into 
 the effort. Now, seeing how inseparably connected 
 and inter-dependent are the body and mind in their 
 animate existence, it is evidently impossible to 
 entirely separate into two distinct classes avocations 
 in which mind and body respectively predominate. 
 Whether the effort or the effect be considered, the 
 result is the same. The difference is only one of 
 degree. Such a division as is suggested must, 
 therefore, be an artificial one. 
 
 This will explain how it is that those who attempt 
 to set up distinctions and avowedly legislate for 
 certain classes find such difficulty, or rather impossi- 
 bility, in drawing a line of demarcation about which 
 they can agree even amongst themselves. The 
 truth is no such distinction exists in the nature of 
 
44 ECONOMICS AND SOCIALISM 
 
 things. A comparatively small section carrying on, for 
 instance, a particular department of a certain industry 
 may separate themselves into a class having charac- 
 teristics common to themselves and to no others. 
 They do a known kind of work to a specially named 
 material. But if they once admit even those most 
 nearly approaching them in the nature of their work, 
 they can never afterwards consistently stop until 
 they have admitted every individual of the com- 
 munity who receives rewards for his personal ser- 
 vices. There may be occupations mental, more or 
 less, in degree, and there may be grades of society. 
 But in all cases of large communities the gradation 
 is insensible, and the relative degrees of physical 
 and mental activity cannot be measured with such 
 exactness as to give a satisfactory line of division. 
 
 Nor can any distinction between productive and 
 unproductive labour be at all conclusive. Supposing 
 that services are useful, or thought to be useful (and 
 the test of that is whether they will be paid for and 
 to what extent), then it is impossible to say that 
 some are productive and others not so. All that 
 man can produce is utility ; he cannot create a 
 particle of matter. Nor can he convert a particle 
 of inorganic matter into organic matter, as would be 
 the case if he could entirely by his own efforts pro- 
 duce corn or vegetables. He can move the objects 
 of nature ; that is all he can do : nature herself must 
 do the rest. In this respect the farmer and the 
 miner, the manufacturer and the merchant, are alike. 
 
 Moreover, the series does not stop there. The 
 services of some professional men, such as engineers, 
 are called into requisition directly to give advice to 
 
ELEMENTS OF PRODUCTION 45 
 
 persons as to processes of wealth production. A 
 little more indirectly perhaps, but none the less truly 
 than in the case of the persons they advise, their ser- 
 vices are productive. Some teach by means of 
 lectures those who are to produce. Others again 
 give them the foundation of knowledge on which 
 they will build their future powers of industry. Still 
 others, like the last, giving services purely personal, 
 give entertainment and amusement, or it may be in- 
 citement to good deeds. But it is impossible to say 
 to what extent this is also instructive and inspiring, 
 and therefore to what extent indirectly productive. 
 He would be a bold man who should dare to draw 
 hard and fast rules and act on distinctions where in 
 the nature of things none exist. 
 
 Nor, as already intimated, is it possible to draw 
 a line of delimitation between grades of evidently 
 productive employments. Economists have fre- 
 quently recognised as a distinct class that of 
 employers or entrepreneiirs as distinguished from the 
 employed. But there is no essential difference. 
 And no particular purpose is served, at any rate, in 
 a broad inquiry into the subject by adopting the 
 method. It could only be useful in answering on 
 their own ground the arguments of those who have 
 adopted the method. Those who wish to see the 
 plan followed will find it worked out by Professor 
 F. A. Walker. The results are practically the same 
 in the end. In the absence of fallacies, this must be 
 the case. It will, therefore, not be necessary to refer 
 to the method in detail in this inquiry. No distinc- 
 tions will be drawn but those which can be clearly 
 defined. This is partly in order that the greater 
 
46 ECONOMICS AND SOCIALISM 
 
 definiteness and simplicity may afford the better 
 opportunity to the reader of criticising the argu- 
 ments and discovering fallacies. Fallacies are fre- 
 quently hidden in what appears to be subtle reason- 
 ing ; and when subtilty means mystification, the 
 less subtilty the better. 
 
 It is evident that there Is no real and essential 
 difference between the employer and the employed. 
 Both must labour, and their labour is In its essence 
 the same. It includes the same internal effort of brain 
 and muscle, of mind and body. It includes also 
 the same external moving of material objects only 
 differing In relative degree. Moreover, a man who 
 has the necessary internal qualities may pass from 
 one erade to the other. Such transitions are so fre- 
 quent and Infinite in their variety that they cannot 
 be fully enumerated. Even In those employments in 
 which It Is most difficult to pass from a lower grade 
 to a higher one it depends much more on the quali- 
 ties of the individual than on the difficulty of the 
 transition. It is true that some employments offer 
 much greater difBculties In this respect than others. 
 But these difficulties vary so much in different em- 
 ployments that no conclusions could be drawn from 
 them. They are, in fact, another argument against 
 the artificial distinction. Nay, frequently the very 
 same grade in one establishment is occupied by a 
 person who is employed which in another and 
 exactly similar establishment Is occupied by an 
 employer. 
 
 Still further, the distinction is Inexpedient, In that 
 it neglects to take note or must make special excep- 
 tion of those occupations In which a man is, so to 
 
ELEMENTS OF PRODUCTION 47 
 
 Speak, his own employer. Such are those who 
 come directly into contact with their customers, the 
 consumers of wealth. The gradations from one 
 degree to another are so infinite and insensible that 
 it is impossible to draw a clear line of distinction. 
 Evidently all human effort must be included in the 
 one word labour, just as all nature's gifts are in- 
 cluded in the one word land. 
 
 It is thus seen that there are two distinct and 
 ultimate elements in the production of wealth. And 
 of ultimate elements there are only two. For 
 granted land and labour wealth to some extent can 
 be produced. But the extent of such production 
 would be very small. A naked savage without a 
 hut or a stick might by his labour prepare himself 
 wealth in the way of roots and berries. He might 
 even save it for future use. But no one would 
 expect a nation of such savages to become very 
 wealthy or even to lead desirable lives. It will 
 need no argument to prove that there is an 
 advantage for mere wealth production in having 
 wealth prepared beforehand, instead of consuming 
 all productions as soon as acquired. 
 
 Discarding the further use of the illustration from 
 savage life, it is evident that it is a distinct gain in 
 the matter of wealth production to sow a portion of 
 the crop of corn In prepared ground, instead of con- 
 suming the whole of previous gatherings and trust- 
 ing to the unaided bounty of nature. Animals 
 which have been caught and possibly tamed, domes- 
 ticated or trained become wealth. Their usefulness 
 in further production of wealth is readily seen either 
 in their mere growth and reproduction, or in their 
 
48 ECONOMICS AND SOCIALISM 
 
 actually assisting man to move objects. The same 
 is true with regard to inorganic substances prepared 
 for man's use. The tools which he uses, from the 
 smallest and simplest instruments to the most costly 
 machinery, are an assistance to his labours. It is 
 also of great advantage to have such a store of sub- 
 sistence that he is not hindered by the necessity of 
 gathering food and other necessaries for his imme- 
 diate maintenance. All which amounts to this, that 
 the store of previously produced wealth of various 
 kinds is useful as an aid to production. Wealth 
 considered in this aspect is called capital. It may, 
 however, be necessary to further make clear what 
 capital really is. 
 
 The meaning of capital, in spite of some good 
 definitions, is in a most desperate state of confusion. 
 Even economic writers have betrayed great confu- 
 sion of mind between capital properly so called and 
 capital improperly so called. Socialist writers are 
 particularly noticeable for their inability clearly to 
 distinguish between capital and land. Still more 
 frequently amongst writers of various shades of 
 opinion and in ordinary language capital is confused 
 with money. It is true that the ordinary use of a 
 word is the true index to its meaning. But when 
 persons discuss a science in which a word has a 
 precise meaning they should observe that meaning. 
 This rule is not respected as it ought to be with 
 regard to capital. Nor are the more prominent 
 writers on the subject free from the error, even 
 when they have stated the precise meaning they 
 intend to attach to the word. 
 
 John Stuart Mill showed great confusion between 
 
ELEMENTS OF PRODUCTION 49 
 
 wealth and money in his chapters on capital. At 
 the commencement of those chapters it is stated 
 that money is not capital. But the writer made the 
 fatal mistake of confusing the two together, because, 
 forsooth, money could be converted, as he thought, 
 into capital ; or, rather, was susceptible of such con- 
 version. Money in itself could not perform any 
 part of the office of capital, but, said Mill, ''anything 
 which is susceptible of being exchanged for other 
 things is capable of contributing to production in 
 the same degree." For example he might have 
 added, " A sieve bottomed with brass wire gauze is 
 susceptible of being exchanged for a cheap tin pail, 
 so that such a sieve is capable of being used to 
 carry water, which when carried generally becomes 
 wealth." It is a similar argument. Truly the latter 
 depends on the accidental possibility of effecting an 
 exchange of a sieve for a pail. But the former 
 depends on a similar accidental possibility of ex- 
 changing something which will not answer the 
 purpose required for something which will do so. 
 
 Such statements lack the exactness required for 
 scientific demonstrations. Mill amply showed this 
 to the confusion of the subject. Amongst several 
 instances of the borrowing of ten thousand pounds, 
 and a painful labouring to show the result of the 
 borrower's different modes of spending it, the author 
 speaks of the national capital being reduced by ten 
 thousand pounds. Such an expression is about as 
 full of meaning as if he had said the national capital 
 was reduced by ten thousand yards. The capital of 
 the nation knows nothing of a monetary pound or 
 ten thousand pounds. It consists of sq_many 
 
 P>\LIFORNlA- 
 
50 ECONOMICS AND SOCIALISM 
 
 houses, a certain length of road, canal, or railway, 
 a number of coal-pit shafts, with the necessary 
 engines and plant, some mills and machinery, a 
 quantity of raw material, or material in course of 
 adaptation, a supply of food, clothing, and other 
 necessaries, with so many ounces of gold, silver, 
 etc. That such a thing as a pound sterling exists, 
 and that an ounce of gold is worth at the mint 
 ;^3 17^. 10^^., is merely and entirely an artificial 
 arrangement. It is an arrangement which the 
 nation could alter at its will without by the altera- 
 tion itself increasing or diminishing in any degree 
 the national capital. It must not be concluded that 
 the price of an article is merely its value in gold. 
 Yet if there could be such a thing as the nation's 
 capital being reduced by ten thousand pounds, all 
 the nation would have to do to increase it to that or 
 any other extent would be to declare that an ounce 
 of gold should be worth more than ^3 ijs. io\d. 
 That would tend to diminish the value of the pound, 
 and the capital would tend to increase in price to a 
 commensurate extent. So that Mill was under the 
 most evident confusion between capital and money. 
 Other instances are easy to be found in his writings. 
 Several passages in his chapters on capital might be 
 adduced. He speaks of the capital of the nation 
 being reduced when money is spent, whereas it is 
 only reduced when wealth is consumed. 
 
 It may be objected that he referred to that which 
 the ten thousand pounds would buy. The answer 
 to that is that he did not say so, and did not argue 
 as if he attached that meaning to the expression. 
 There seems no other way of drawing conclusions 
 
ELEMENTS OF PRODUCTION 5 I 
 
 as to what he really did mean than by noticing 
 these two things. But for this confusion he could 
 never have reached the conclusion he did, that 
 wages were lent by capitalists, an idea which must 
 be referred to in another chapter. The detailed 
 examination of his writings on the subject would be 
 out of the purview of this book, but the confusion 
 may be readily traced by those who can follow the 
 thread of his intricate arguments. 
 
 Mill did not, however, wrongly define capital. 
 He only failed to observe his own definition, and 
 allowed himself to confuse the object with some- 
 thing which did not answer the definition. Mr. 
 Henry George examined the definitions of McCul- 
 loch, Ricardo, and Mill, with the result stated by 
 him that "the great defect that these definitions 
 have in common is that they include what clearly 
 cannot be accounted capital, if any distinction is to 
 be made between labourer and capitalist." But is 
 the drawing of that distinction by means of a defini- 
 tion any necessary part of the inquiry ? It surely 
 is no part of the office of the scientist to find or 
 support distinctions which do not exist. It is true 
 that a custom has grown up of speaking as though 
 there were really a distinction between capitalists 
 and labourers. But the seeker after truth cannot 
 trim and shape his definitions to suit the ideas of 
 those who may or may not be in the right in their 
 contentions, and who consequently may or may not 
 be correct in the expressions they get into the habit 
 of using. The scientist must be a student of nature. 
 He must, to speak figuratively, stalk over the sub- 
 ject he has in hand with long, slow step, and 
 
52 ECONOMICS AND SOCIALISM 
 
 restless, searchinor eyes, trusting nothing, fearing 
 nothing, seeking truth. Now, there is no real dis- 
 tinction between the capitalist and the labourer, 
 though there is a distinction between capital and 
 labour. At any rate, no distinction has been by any 
 one pointed out. When any one finds such a dis- 
 tinction he should apply it carefully to the case of a 
 hawker of fish or vegetables, who buys his stock in 
 the wholesale market, and then trudges his round 
 with basket or wheelbarrow (or it may be with a 
 horse or donkey) to sell that stock, and who lives 
 on the profits. The distinction should determine 
 whether the man is a capitalist or a labourer. No 
 attempt will be made to answer such a question in 
 this book ; and it Is believed that the question can- 
 not be answered except by saying that the man Is 
 both capitalist and labourer. That is the truth con- 
 cerning every man who has an occupation, whether 
 as employer or employed, unless in the most excep- 
 tional circumstances. The difference between men 
 in this respect Is one of degree only. 
 
 There Is, however, a distinction between capital 
 and labour. For capital Is at least a portion of 
 wealth, and the whole of wealth has already been 
 clearly separated from labour ; as It was also dis- 
 tinguished from land. Mr. George has perhaps 
 recognised the truth of the matter sufficiently for 
 practical purposes, in spite of his attempting to set 
 up differences which do not exist. But his definition 
 is open to some objections. He holds that capital 
 Is only part of wealth — that part, namely, which is 
 devoted to the aid of production. He quotes with 
 approval the words of Adam Smith, '* that part 
 
ELEMENTS OF PRODUCTION 53 
 
 of a man's stock which he expects to afford him 
 revenue." But the truth is that even to satisfy 
 Mr. George's definition the man need not have any 
 clear thought about the matter at all. Everything 
 depends on the object he has in view in using it. 
 His expecting a revenue from the stock is unneces- 
 sary. He may imagine his labour did everything, 
 but if it was helped by a portion of wealth that 
 wealth would be capital, were it but a joiner's plane 
 or a shoemaker's awl. If money, which will usually 
 command wealth, may be used as an illustration, it 
 may be made clear in this way. Suppose a man to 
 have money wnth which he proposes to enjoy a 
 holiday ; that, according to Mr. George, will not be 
 capital to him, it will produce him nothing. But if 
 he takes a business journey with it to produce him 
 wealth he will use it as capital even in Mr. George's 
 sense, although he has imagined he was only using 
 his labour. 
 
 Looked at in this way, wealth may be capital to 
 one man and not to another, though actually used 
 for the same purpose. A hunter used by a gentlcr- 
 man for his pleasure is no part of his capital if the 
 expression is used in the sense indicated. But if a 
 livery stable keeper had the horse it would be his 
 capital. Again taking this view, pleasure grounds 
 laid out to be used for public resort at a charge are 
 capital to the individual (so far as the adaptation or 
 preparedness is concerned), but not to the nation. 
 
 Now with Mr. George's definition as stated 
 above, in spite of his criticisms, the definition of 
 Ricardo sufficiently agrees. Ricardo says : — 
 
 *' Capital is that part of the wealth of a country 
 
54 ECONOMICS AND SOCIALISM 
 
 which Is employed in production, and consists of 
 food, clothing, tools, raw materials, machinery, etc., 
 necessary to give effect to labour." 
 
 Mill says : — 
 
 " What capital does for labour is to afford the 
 shelter, protection, tools and materials which the 
 work requires, and to feed and otherwise maintain 
 the labourers during the process. Whatever things 
 are destined for this use are capital." 
 
 This definition also agrees with the statement, 
 clearly expressed by Mr. George, that capital is the 
 portion of wealth devoted to aid production. But 
 it varies by a shade from that of Ricardo in the 
 direction Mr. George would not have it vary. His 
 idea is that capital is only that which is actually 
 paid for as capital. In the hands of the consumer 
 wealth with him is not capital. If a jeweller takes 
 diamonds from his shop for his wife to wear, they 
 cease to be capital. If he brings them back to 
 offer for sale, they become capital again. 
 
 By this means he attempts to get a distinction 
 between those who live on the reward paid for the 
 use of capital and those who live on the wages paid 
 for their labour. Such a distinction, however, can 
 never be perfect or useful. Apart from those who 
 use their capital in their own business, like the 
 hawker already referred to, there are many who 
 own capital for which others pay them interest, 
 whilst they also receive wages for personal labour 
 in other employments. This latter class includes 
 most of those known as thrifty working men. 
 They are at one and the same time both capitalists 
 and labourers. 
 
ELEMENTS OF PRODUCTION 55 
 
 McCulloch's definition departs a shade of mean- 
 ing further from Mr. George's ideal in this respect, 
 and offends also in other respects. McCulloch 
 says : — 
 
 " The capital of a nation really comprises all 
 those portions of the produce of industry existing 
 in it that may be directly employed either to sup- 
 port human existence or to facilitate production." 
 
 One of Mr. George's objections to this definition 
 is that it does not include many valuable things 
 which are really capital, but which may not be 
 directly employed either to support human exist- 
 ence or to facilitate production. Such he considers 
 to be the stocks that consist of articles of luxury. 
 Here again is the setting up of a distinction which 
 does not exist. It is not for the economist or any 
 one else to decide for a nation what are articles of 
 luxury and what are necessaries. If the articles 
 may be used for the purpose of gratifying human 
 desire they must be considered as capable of direct 
 employment to support human existence. And this 
 is so even though they may be more than is abso- 
 lutely essential to preserve life. Human existence 
 is more or less ample, but whatever the human 
 being uses for its support must be considered 
 capable of employment for that purpose. 
 
 The same objection is raised to the definition of 
 Ricardo. Mill's definition Mr. George considers 
 too vague, because it remits the distinction between 
 capital and not-capital to the mind of the capitalist. 
 That is to say, the distinction consists in his will to 
 employ it for one purpose rather than another. It 
 is difficult to get out of that vagueness if any portion 
 
56 ECONOMICS AND SOCIALISM 
 
 of wealth is to be excluded from the total sum of 
 capital. 
 
 A further objection made to McCulloch's defini- 
 tion is that it includes products of industry which, 
 though they are not necessarily luxuries, are yet 
 used as such. They are capable of supporting 
 human existence or facilitating production, but are 
 being consumed in ostentation or useless luxury. 
 This is, as may be seen, really another form of the 
 previous objection. It attempts to determine what 
 are luxuries and what are not The same reply is 
 accordingly open to it as to the other. There is no 
 determining for this purpose whether hats and boots 
 are necessaries or not. They are not essential to 
 support life. And yet most people would now 
 regard them as necessaries. The same might be 
 said of many other things. Clearly there is no 
 distinction here except such as is a matter of 
 opinion. 
 
 Mr. George's great object, however, with regard 
 to all the definitions is to exclude the wealth whicli 
 is in the hands of the labourer himself Such an 
 exclusion serves no useful purpose. Nor does Mr. 
 George succeed in his attempt. The wealth, in 
 whatsoever hands, is useful in aiding production, 
 if it is so used. The labourer may, in fact, benefit 
 himself by means of it. Even a week's subsistence 
 beforehand will enable the labourer to obtain better 
 wages than If he were without any means of sub- 
 sistence. 
 
 The only possible line of distinction to be drawn 
 between wealth, as a whole, and capital, a portion of 
 wealth, is that which is obtained by saying that 
 
ELEMENTS OF PRODUCTION 57 
 
 capital is wealth devoted to production of further 
 wealth, and not the wealth used in mere pleasure. 
 Such a line of distinction is, however, problematical 
 and very unsatisfactory. It is impossible to say 
 what is mere pleasure, and what is recreation of 
 mental and physical powers. If used for the latter 
 purpose, with a view to further labour, it is directly 
 devoted to the production of wealth. 
 
 Another reason for avoiding any such distinction 
 as attempted by Mr. George is that already men- 
 tioned ; namely, that the same wealth would be 
 capital in the hands of one person and not in those 
 of another. A house or mansion would be capital 
 if let out on hire, and not capital if the owner lived 
 in it and saved -paying rent to another. This is 
 clearly a distinction arising purely from the different 
 ways in which .the same commodity is regarded. 
 
 It appears, therefore, better to say at once that 
 capital is wealth regarded in the special sense of an 
 element of production. McCulloch's definition is 
 the one which most clearly meets this view. Ac- 
 cording to it capital is the produce of industry ; as 
 all wealth is. It is, moreover, such as may be 
 directly employed, either to facilitate production, 
 as mills, mines, and tools, or to support human 
 existence, which will include the whole remainder 
 of wealth — necessaries and luxuries. 
 
 We have to deal with the capital of a nation. 
 Clearly that must include all the wealth that is 
 directly or indirectly used to aid production. In 
 view of the impossibility of ascertaining clearly 
 what is productive and what is not productive, we 
 can only treat capital as labour was treated. That 
 
38 ECONOMICS AND SOCIALISM 
 
 is, we must conclude that if the use of wealth Is paid 
 for it is productive wealth. The test is whether it 
 will be paid for or not. If paid for, it must be 
 concluded that it found its uses as an aid to the 
 production of that out of which it was paid. And, 
 moreover, if it saves the owner from having to pay 
 for other wealth, it is sufficiently remunerative to be 
 considered as paid for to him. If it contributes to 
 his support it is an aid to his further production. 
 
 We thus, therefore, arrive at our third element. 
 We had, first, land — the earth apart from man's 
 efforts ; secondly, labour — man's personal efforts 
 devoted directly or indirectly to the adaptation 
 of natural substances and consequent production of 
 wealth ; thirdly, we have capital — namely, previ- 
 ously prepared wealth used or regarded as an aid 
 to the production of further wealth. This com- 
 pound of the two ultimate elements enters as a 
 distinct agent and acquires the character of an 
 element of production. We thus distinguish three 
 elements, land, labour, and capital, having their 
 distinct offices in production. 
 
CHAPTER V 
 
 EXCHANGE AND DISTRIBUTION 
 
 The three agents in the production of wealth have 
 been noticed, and taken together they completely 
 account for the production of wealth and its reaching 
 the consumer. But the method requires a more 
 detailed consideration. If every man or every 
 family produced directly from the earth all the 
 wealth required, even with the aid of implements 
 previously prepared, the human race would still 
 remain in a condition of comparative poverty and 
 live a life of a very low standard. Different places, 
 however, offer facilities for the production of different 
 kinds of wealth. As only a limited number can be 
 at each of those different places, it is very evident 
 that benefits may accrue from an exchange of wealth 
 between the various districts. For human happi- 
 ness and wellbeing is generally increased by variety, 
 and the demand frequently takes the form of a 
 desire for something different, instead of for more of 
 the same kind. 
 
 Moreover, labour becomes more efficient by being 
 specialized. The man who has confined his atten- 
 tion chiefly to a certain industry is more likely to be 
 proficient in that industry than he would be in 
 another. He will also excel another individual who 
 has equal abilities and general training, but has 
 
6o ECONOMICS AND SOCIALISM 
 
 never devoted himself to that particular occupation, 
 though the latter may excel in another occupation. 
 Besides which, men have often special aptitudes for 
 different kinds of work. 
 
 From these facts arise the necessity and advan- 
 tage of exchange of wealth and of services. The 
 objects of human desire are so various in their 
 character that it would be difficult for any one to 
 catalogue his requirements and desires for a year or 
 even a much less period. And with regard to both 
 land and labour, there may be almost infinite variety 
 in both natural and acquired adaptation for the 
 satisfaction of those requirements and desires. By 
 means of exchange, however, the various objects of 
 desire may be passed from producer to consumer to 
 their mutual advantage. 
 
 It was pointed out that value and exchangeability 
 were necessary ingredients of wealth. Value was 
 stated to be a compound of the two qualities utility 
 and scarcity. So that from the very definition of 
 value it may be seen that it is fixed by the state of 
 demand and supply. The utility in the sense it is 
 here used exactly corresponds to the demand. It is, 
 in fact, that which causes the expression of desire. 
 The scarcity is the limitation of supply. Thus value 
 rises with increased demand or diminished supply. 
 It falls with diminished demand or increased supply. 
 Now price is value calculated in money. It is the 
 expression of the measure of value. That is to 
 say, money is the instrument, price is the extent of 
 measurement. Fixing the price is the balancing or 
 measuring of the value with money. And seeing 
 that value is itself fixed by the state of demand and 
 
EXCHANGE AND DlsF^WlSi^^ S I T T ) 6 I 
 
 supply, its measure, price, must be fixed in like 
 manner. Price also will rise with increased demand 
 or diminished supply, and fall with diminished 
 demand or increased supply. And only in this way 
 can value and price be affected. 
 
 It is true that an alteration in the proportionate 
 quantity of money with which the wealth is to be 
 measured may influence prices, but any such varia- 
 tion will be an alteration in the measure itself. 
 The apparent alteration in price will be merely a 
 variation in the standard. 
 
 " The law of supply and demand'' is an expression 
 frequently made use of, and the idea represented is 
 often vigorously attacked as an iniquitous law made 
 by men. It need hardly be said that those who 
 take up such a position are not much addicted to 
 clear thinking. It perhaps cannot be said that there 
 is any one law which may be called the law of 
 supply and demand. If any such one law may be 
 -spoken of it will be expressed in this way : no sale 
 (or exchange for money) will take place except at 
 the price which one party is able and willing to give, 
 and the other able and willing to accept, for the 
 commodity or service. That law which shall be 
 called the first law of supply and demand seems 
 very truthful and very innocent. It is not, however, 
 a mere truism, as it may seem. It means that the 
 demand and supply must at least meet in price, 
 and that if they fail to meet by ever so small a 
 measure it will be exactly as if they had been 
 separated by a more appreciable difference. If the 
 prices overlap, so that the seller is willing to take 
 much less than the buyer is willing to give, and the 
 
62 ECONOMICS AND SOCIALISM 
 
 buyer consequently willing to give more than the 
 seller is willing to take, not only will there be an 
 exchange, but it is probable that a larger quantity 
 will be exchanged. Stated in that way, however, it 
 depends entirely on the particular circumstances of 
 the case, and to get at the truth it will be necessary 
 to return to the consideration of the nature of 
 value. 
 
 Of even useful objects the quantity which can be 
 used has some limit, and when that limit is reached 
 the objects cease to have the quality of scarcity. 
 Consequently, though useful, they are not valuable. 
 Of many objects of which wealth consists that limit 
 of utility is scarcely ever reached in the condition of 
 supply of any one. But some things are much 
 more essential than others; they are more useful, 
 more desired. Each person (though perhaps un- 
 consciously) puts these first in his mind, and the 
 object most desired will vary greatly with different 
 individuals. As each, however, obtains a supply of 
 the objects most desired, his mind will naturally turn 
 to other objects of which the supply is now relatively 
 smaller. Those objects, though less useful to him if 
 he had no supply of the others, have now become 
 more valuable. For they have always had greater 
 scarcity, and are, now that other wants are supplied, 
 more desired— that is, possess greater utility for the 
 satisfaction of desire. 
 
 In the most absolute necessaries of life a very 
 little scarcity will cause an increased value. And 
 the value will continue to increase rapidly in pro- 
 portion to the increase of scarcity. For these things 
 must be had at all cost. When once, however, the 
 
EXCHANGE AND DISTRIBUTION 63 
 
 full supply is reached their value rapidly falls off 
 with an increase in supply. For of those neces- 
 saries there is by no means an unlimited demand. 
 The quantity which can be used has a limit, and 
 when that limit is reached no further supply has 
 value. If the supply is much increased the scarcity 
 is less felt, and value rapidly falls in proportion. It 
 is important to bear in mind that the value of the 
 whole is fixed by the greater or less desire ex- 
 pressed for more. This proportionate scarcity has 
 been expressed by economists as the final or mar- 
 ginal utility. However they may be regarded, the 
 determining influences of value include a com- 
 bination of utility and scarcity. If of those desiring 
 a commodity no one possessed any of it already, 
 the value might be exceedingly high. But when 
 what they now have is taken out of the market, and 
 they begin to be satisfied to some extent if it still 
 appears that there is much to sell, the prices will 
 fall. This fall in price may perhaps be below what 
 they have given. On the other hand, if it begins to 
 appear that more will be wanted than can be 
 supplied, the prices will go up, although many are 
 already satisfied. The value of the whole is 
 ascertained by the price of that which is in the 
 market. 
 
 But some other facts must be noticed. In the 
 first place, even with regard to necessaries, it is clear 
 that there are possibilities of substitution. If, for in- 
 stance, one kind be very scarce and the price very 
 high, and if another kind be substituted for it, the 
 other kind will be bought in place of the first. The 
 value of the first kind will thus be hindered from 
 
64 ECONOMICS AND SOCIALISM 
 
 rising, as it otherwise would have done. The sub- 
 stituted kind will then tend to become more scarce, 
 and consequently more valuable. Moreover, with 
 regard to less necessary objects of desire, there will 
 be less fluctuation, with a small variation in supply. 
 Necessities will be supplied first with one thing or 
 another. But beyond those commodities required 
 for that purpose there will be many which will 
 partake more or less of the nature of luxuries. 
 For several reasons these will generally remain 
 more constant in value. They can more easily be 
 altogether spared. A larger quantity of them can 
 be used without reaching the limit of their utility, 
 for of luxuries human beings seem never to have 
 had all they desire. Luxuries taken together are 
 more various in form, and the law of substitution, as 
 it is called, is likely to have more effect. 
 
 In all cases it must be remembered, in the second 
 place, that the value of the total quantity of any 
 commodity is regulated by the proportionate scarcity 
 of what is in the market — that is to say, the less there 
 is in the market in proportion to what is desired 
 the higher the price will be, and vice versa. The 
 price, therefore, may become so high that some stock 
 of that commodity which is not really in the market 
 has become much more valuable than when its owners 
 bought it ; or, as the case may be, has exceeded the 
 value they have previously put upon it in deciding 
 not to bring it into market. It is clear that in such 
 cases the owners will reconsider their attitude. Some 
 will be induced to bring their saleable objects into 
 the market, and either spare them altogether or 
 substitute some other object of desire. Whilst on 
 
EXCHANGE AND DISTRIBUTION 05 
 
 the Other hand, as already mentioned, those also 
 who thought to buy will reconsider ; some will 
 decide on abstinence or substitution. Thus the 
 rising of prices through increased demand or di- 
 minished supply will tend to induce supply and 
 discourage demand, and consequently to bring back 
 the prices to the same level. This may be called 
 the second law of supply and demand. 
 
 Similar reasoning will make it clear that a fall of 
 prices will have a tendency to cause sellers to prefer 
 what they had put in the market to anything for 
 which the money realized by it would exchange ; 
 and, consequently, to stop supply. On the other 
 hand, as to those who intended to abstain from 
 purchasing, the fall in price will incline them to 
 give money to satisfy the desires which, in fact, did 
 exist, but were relatively weaker than other desires. 
 Or if they had intended to buy something else, the 
 fall will induce them to substitute that of which the 
 price has fallen for what they proposed to buy. 
 Thus the fall in prices through decreased demand 
 or increased supply tends to decrease supply and 
 increase demand, and consequently to advance the 
 prices again to the same point. This may be called 
 the third law, and is the converse of the second. 
 
 These two are, therefore, further laws of supply 
 and demand. It might be better to speak of de- 
 mand and supply, for the demand is the subject, the 
 cause of the supply, while the supply is the com- 
 plement. The order in'which the words are uttered 
 is not of great moment, but the proper realization of 
 the order of the ideas is of the utmost importance. 
 Much confusion would have been saved if it had 
 
66 ECONOMICS AND SOCIALISM 
 
 always been borne in mind that supply existed for 
 demand, and not demand for supply. 
 
 With regard to these laws, it must be noted that 
 in each case what is spoken of is a tendency. It is 
 true that sellers occasionally hold for a rise and 
 buyers wait for a fall. And if they have rightly 
 interpreted the market their thus acting will pro- 
 bably accelerate and increase what would have taken 
 place. The tendencies indicated are not interfered 
 with by the temporary suspension of their action, 
 or the tacit or expressed combination. On the 
 other hand, it may be the market has been mis- 
 calculated. If so those who attempted to turn it 
 more quickly, or to a greater extent, in their favour 
 find that they are in a worse condition than they 
 would have been. Their holding has lowered prices, 
 for there is still more in the market. Or their 
 waiting has raised prices, for now they must have 
 the commodities almost at any cost, and the sellers 
 know it. The schemers find that there was a greater 
 or less supply in proportion to the demand than 
 they imagined, and they have defeated their own 
 purpose. 
 
 All these considerations with regard to value and 
 exchange will apply not only to wealth and com- 
 modities, but also to land and labour, which are 
 exchangeable. There are other considerations, how- 
 ever, which do not apply equally to land, wealth, and 
 labour. For the total supply of wealth can be 
 increased, while the supply of land cannot be so 
 increased, although more may be brought into the 
 market. The total supply of land being thus limited, 
 the value is ultimately fixed entirely by demand. 
 
EXCHANGE AND DISTRIBUTION 67 
 
 The importance of this will be seen in its place. 
 On the other hand, it is the labourer for whom the 
 whole proceeding takes place. If, therefore, a rise 
 of price occurs with regard to a particular kind of 
 labour, although it will tend to bring others into the 
 trade, it will probably not induce a greater amount 
 from the individuals already in the trade ; rather the 
 reverse. 
 
 Moreover, while land obtains its total value entirely 
 from the need for it — the supply being limited — 
 labour as a whole tends to be withdrawn from the 
 market as the supply of wealth reaches more nearly 
 to the satisfaction of the desires of labourers. This 
 increased supply of wealth reduces the value of land, 
 because it tends to decrease the demand for its 
 services as wealth producer. The same increased 
 supply of wealth increases the value of labour, be- 
 cause the desire, for the satisfaction of which the 
 labour was called forth, is more nearly balanced, and 
 the supply consequently tends to decrease. 
 
 If the desire spoken of in the first postulate were 
 already entirely balanced the need for the supply 
 spoken of in the second would no longer exist, and 
 the third would be beside the question. The nearer, 
 therefore, that condition is approached the less is 
 the demand for another's labour, but (and this is the 
 important point to be borne in mind) the less the 
 supply of one's own. There is very great danger 
 of confusion here, and perhaps it is difficult to clearly 
 express the meaning intended. The demand which 
 raises prices is the demand by one for another's 
 land, wealth, or labour. If the desire, by any per- 
 son, be for his own land, wealth, or labour, the price 
 
6S ECONOMICS AND SOCIALISM 
 
 he will give for another's may be low, but the price 
 he will require for his own will be high. Now 
 every man s labour is his own, only he can give it. 
 And he only parts with it in exchange for something 
 he prefers. If, therefore, wealth is so plentiful and 
 cheap that he can easily satisfy his desires, he will 
 keep his labour, unless he is tempted with a higher 
 price. For he only offers his labour to obtain the 
 satisfaction of those desires. 
 
 Let the attention be strictly confined to one in- 
 dividual. He has desires for, say, wealth. His 
 first step towards satisfaction is an offer to supply 
 labour — the greater his desire the greater his offer 
 of supply of labour. That supply is to be balanced 
 by money in the first instance, and the greater the 
 supply of labour the lower the price. That is to 
 say, the greater the unsupplied demand for wealth 
 the lower the price of labour. But let it be well 
 remembered the demand referred to here is each 
 man's own demand for wealth, and not another's 
 demand for the wealth he supplies. On the other 
 hand, the less the unsupplied demand for wealth 
 the less labour will be offered and the higher the 
 price of it. In short, the more difficult the access 
 to wealth the lower the price of labour. The easier 
 that access is the higher the price of labour. Or, 
 still more briefly, the cheaper the commodities the 
 dearer the labour. 
 
 If it be preferred to trace the first method further, 
 we have, in the first instance (as the price of labour), 
 money which is to be exchanged for wealth. On 
 account of the great unsupplied demand for wealth 
 in the individual having exchanged labour, the labour 
 
EXCHANGE AND DISTRIBUTION 09 
 
 was SO freely offered that the money is small in 
 quantity. If the wealth be high in price money 
 will buy little. The individual will be left with a 
 large demand unsupplied. The labour, which is 
 what he attempts to balance it with, continues to be 
 offered at low rates. And thus the process con- 
 tinues. Dear goods mean poor wages. If the 
 wealth be low in price- or cheap, as it is expressed, 
 — his desire will be more nearly balanced. His 
 demand will be less, his supply of labour conse- 
 quently less, and the price he will require conse- 
 quently higher. Which is the result reached in the 
 previous paragraph. 
 
 It must, of course, be borne in mind that all this 
 arises from the consideration of the labourer's own 
 demand for wealth. And in truth it applies chiefly 
 with regard to the reward of labour relatively to 
 that of land and capital. But the consideration of 
 the demand for another's labour which is caused by 
 the demand for wealth just referred to does not 
 introduce any real modification of these conclusions, 
 whatever modification may be apparent. Because 
 such a demand can only make itself felt when it is 
 accompanied by a supply of what is valuable. This 
 consideration, rightly understood, bears out the pre- 
 vious one, that an abundant supply of cheap com- 
 modities raises the price of labour, while a mere 
 unsupplied demand lowers wages. 
 
 These, however, are perhaps wider considerations 
 than properly belong to this chapter. If not fully 
 grasped they may be left to a later stage, for they 
 open out on the final results. All that need be 
 grasped here is that, while in the market the same 
 
70 ECONOMICS AND SOCIALISM 
 
 laws of supply and demand rule prices with regard 
 to land, labour, and wealth, the considerations which 
 affect the supply outside the market are different in 
 each case. The ultimate or total values, if it may 
 be so expressed, of the three objects are settled by 
 widely varying considerations. In the market there 
 is no difference in the method of their treatment. 
 
 What in the long- run determines value is not at 
 present under consideration, but the reader must be 
 warned against hastily concluding that it is the cost 
 of labour. It is true the cost of bringing wealth to 
 market ultimately, though indirectly, determines the 
 prices of what can be produced as required. But 
 what that cost is must be inquired into, and not 
 rashly put down as this or that without further in- 
 vestigation. One thing may be concluded as certain, 
 that if labour must be specially directed to the pro- 
 duction of any commodity the commodity will have 
 value or cease to be produced. For labour is 
 always more or less scarce. It cannot be had 
 without some reward. 
 
 Many objects, however, have value not depending 
 on the cost of production. A much-appreciated 
 picture by a dead artist, an article desired for its 
 historic associations, a rare and beautiful gem 
 accidentally found, are instances in which commodi- 
 ties are valued entirely by the demand, as land is. 
 The supply is fixed. But in most instances the 
 cost of production, howsoever that may be fixed, 
 eventually tends to fix the price. 
 
 Once again, although in the market increased 
 demand raises prices, it frequently occurs that the 
 increased demand in the end lowers the price of a 
 
EXCHANGE AND DISTRIBUTION 7 I 
 
 commodity. For the larger quantity which can be 
 sold affords opportunity for better methods of pro- 
 duction. And thus it appears in a variety of ways 
 that the laws of supply and demand are but the 
 natural laws of the market, and even with regard to 
 wealth they must not be carried outside their proper 
 sphere. The market, it need hardly be said, how- 
 ever, includes potentially, not only what is already 
 on sale, but what may become so. 
 
 Exchange is really the means of distribution of 
 wealth in the sense in which the word distribution 
 will be here used. That sense is the natural and 
 true one — namely, distribution in kind to those who 
 require it of the wealth produced. What has been 
 generally called distribution, meaning proportionate 
 division of mixed wealth between rich and poor for 
 their shares in production, will in its place be called 
 division. There is a danger of confusion in using 
 the same word for both ideas, and fortunately the 
 language furnishes two distinct words, each well 
 fitted for a different one of the ideas. The con- 
 fusion has probably much to do with the suggestion 
 of socialists and kindred teachers that producers 
 should be considered first and distribution " wisely 
 and equitably regulated." Such a notion would 
 imply that the communal authorities are to determine, 
 not only whether people are to have beef or mutton 
 when they desire meat, but also whether they should 
 have fruit or flesh, and, indeed, whether they may 
 be given coal or bread, besides implying other 
 things if possible more absurd. 
 
 A few words may be of use with regard to in- 
 ducements to exchangee. A person or *^4ocality 
 
 f ^ CFTHF ^ \ 
 
 njNIVERSITT • 
 
72 ECONOMICS AND SOCIALISM 
 
 producing a particular kind of wealth and compara- 
 tively or absolutely not producing other kinds will 
 naturally be able to supply that kind of wealth much 
 more easily than other kinds, and will also be will- 
 ing to part with it to obtain those other kinds. The 
 commodity produced will be less valuable to the 
 producers than will the commodities required for 
 consumption. This is because of its smaller relative 
 scarcity. Such wealth will be cheaper than it would 
 be in the hands of a person or in a locality where it 
 was not produced. In the latter case it is not less 
 useful, but more scarce, and therefore dearer. 
 
 The business of exchanging and conveying goods 
 between the producers and consumers (that is, of 
 distribution) is carried on by merchants and carriers. 
 They engage in the work for profit. As between 
 merchants and carriers no strict distinction exists, 
 some being more exclusively merchants and others 
 more distinctly carriers. Still others are between 
 the two descriptions. The descriptions themselves 
 are only descriptions of degree. Both merchants 
 and carriers are frequently also producers. It will 
 be convenient to speak of all those engaged in 
 distribution as traders. Seeing that they engage in 
 the business for profit, it is evident by the third 
 postulate that there will be a natural tendency on 
 the part of each of them to buy in the cheapest 
 market and sell in the dearest. This tendency is 
 independent of what social reformers may say, and 
 is a tendency in the nature of things. It is not 
 one which can be altered by maxims and precepts. 
 But while the tendency is natural, it is also bene- 
 ficial, and should be encouraged rather than dis- 
 
EXCHANGE AND DISTRIBUTION 73 
 
 couraged. Every man ouorht to buy in the cheapest 
 market, and sell in the dearest. For in those 
 markets is the greatest relative desire expressed to 
 sell or to buy. The trader, while answering his own 
 purposes, is best answering the purposes of his 
 fellow-men by adopting that natural maxim. The 
 attacks which have been made on the maxim can 
 only be attributed to a mode of thought betokening 
 the last extremity of mental inversion. 
 
 The practical result of the consideration of this 
 natural tendency is not less important. It is to 
 indicate that, so far as those are concerned who wish 
 to exchange their productions with others, the 
 method to be adopted is as far as possible to reduce 
 their cost, and sell them cheaper. The trader for 
 his own sake will be continually on the alert to find 
 where he can buy most cheaply, and also where he 
 can sell at the highest price. Some profit he must 
 have or cease distributing. Moreover, he cannot 
 convey any goods from place to place free of cost. 
 Consequently, in addition to his own profit, he must 
 have cost of carriage. This cost will vary with the 
 commodity in the proportion it bears to the total 
 value. A variety of considerations must be taken 
 into account in settling whether the exchange and 
 carrying will be a profitable employment. The 
 more or less perishable nature of an article must 
 be considered, as well as its bulk and weight, in 
 proportion to value. But it may be laid down as 
 a natural law that the greater the difference in price 
 of any commodity at two different places, or in the 
 hands of two different sets of individuals, the more 
 exchange is likely to take place between them. For 
 
74 ECONOMICS AND SOCIALISM 
 
 the greater Is the inducement offered for the ex- 
 change. 
 
 Naturally the tendency to produce cheaply 
 (known as competition), and the tendency by pur- 
 chase to raise the prices of the productions of others 
 (which should be known as the struggle for exist- 
 ence), goes on, as it should, up to the limit of 
 individual desire. It is only artificially that the 
 tendency to exchange is checked, so as to leave 
 human desires with less satisfaction than the indivi- 
 duals would be willing by their labour to attain. In 
 plain language, when men are out of work and 
 " trade is bad " it is the result of some artificial 
 interference with the free play of supply and demand. 
 This is not generally admitted, but it is proposed to 
 demonstrate it. 
 
 Some Governments avowedly attempt to prevent 
 other nations sellinof in their markets — that is, to 
 prevent their own people buying from other nations 
 the things they desire. From some humour this is 
 termed protection. The whole subject has been so 
 thoroughly dealt with by economic writers that no 
 attempt will be made here to set out at length the 
 absurdity of the expression or of the idea expressed. 
 Protection presumes the possibility of oppression. 
 It is evident that no people can be oppressed by 
 having their wants supplied. It is also evident that 
 unless the people want or desire the commodities 
 the foreigners will invade their markets in vain. 
 Nor can the term protection be properly applied to 
 those who are by it enabled to greatly increase their 
 profits. Protection only extends to securing justice. 
 Justice can never require or permit that a man be 
 
EXCHANGE AND DISTRIBUTION 75 
 
 hindered from buying from one in order that he 
 may be compelled to buy from another. 
 
 The idea expressed by the term is, if possible, 
 less defensible. That men should have their law- 
 ful desires for subsistence thwarted is no benefit to 
 them. That their wealth should be made more 
 expensive is in itself an immediate injury. More- 
 over, it has been pointed out that such a proceeding 
 cheapens their labour, though some have pretended 
 that " protection " was for the raising of wages. 
 Still further, badly paid labour is less efficient, and 
 the commodities of those who get themselves " pro- 
 tected " are apt to be more costly in production. 
 They thus keep themselves out of the markets 
 because of the higher prices. While if they were 
 to attempt to ensure that their workmen should 
 have as much wealth at the higher prices as at 
 the lower ones, the additional cost of their main- 
 tenance must be added to the cost of the com- 
 modities, and the same effect produced. This 
 takes no account of the waste of irregular work. 
 But this protection is not the only interference 
 with wealth production under the mask of pro- 
 tection. The evils of it will accordingly have to 
 be noticed in various aspects. 
 
CHAPTER VI 
 
 MONEY 
 
 In dealing with exchange and distribution It seemed 
 advisable that consideration should be given to value 
 in its simplest aspect, and merely to state that price 
 was value measured in money. That was quite 
 true so far as it went, and it was the simplest, and, 
 perhaps, on account of its simplicity the only, means 
 of getting at the truth. A complicated machine 
 must be considered in detail as well as in the whole, 
 if it is to be understood. In the same way the 
 complicated conditions of wealth supply must be 
 examined in detail, or the subject must ever re- 
 main the bewildering maze that to most persons 
 it is at present. 
 
 The conclusions of the last chapter, however, 
 though true in respect of value, must be taken, 
 when considered with respect to price, with this 
 qualification : that the standard of measure is a 
 perfect one, and does not vary. It will, however, 
 be seen that, for one reason or another, prices do 
 not always seem to follow the conclusions arrived 
 at. Those conclusions are not for that reason un- 
 true. The movements examined were, as would 
 be noticed, perfectly explained. If the appearances 
 
 do not agree with them, there must be other move- 
 
 76 
 
MONEY ^^ 
 
 ments affecting them. The truth is that there are 
 several such movements. 
 
 One fact to be taken into account is that as 
 wages rise more wealth is demanded, and thus it 
 occurs that statistics of prices only occasionally 
 furnish instances of labour at naturally high prices 
 side by side with low prices of wealth. Human 
 beings, if not engaged in producing wealth, will 
 consume it unproductively, and thereby raise its 
 value. Another very important consideration, how- 
 ever, is that the standard is not perfectly invariable, 
 and what appears to be a general change is often 
 an alteration in the standard. 
 
 These and other considerations show that from 
 price considered generally it is practically impossible 
 to reach true economic conclusions. The conditions 
 are so complicated, the varying causes so numerous 
 and difficult to understand, that to take observed 
 prices as data from which to argue is, to say the 
 least, little better than tossing up a coin and ob- 
 serving on which side it falls, as a means of ascer- 
 taining whether a certain artificial arrangement is 
 good or evil. Prices generally are matters to be 
 explained, and not to argue from, while to pur- 
 posely interfere with them is like altering a steam 
 gauge as a means of getting up the steam. It is 
 even worse, for the price gauge is part of the 
 machinery, and to tamper with it is to throw the 
 whole out of order. 
 
 The subject of money has occupied much atten- 
 tion, and is badly understood even yet. It is 
 desirable to ascertain the truth about it. As with 
 other objects, the understanding of its origin will 
 
78 ECONOMICS AND SOCIALISM 
 
 help to make clear its nature. It will need no 
 argument to prove that the first attempts at ex- 
 change must take the form of barter. Barter is 
 the giving of one object desired for its own sake 
 for another object also useful in itself, without any- 
 further exchange. The most untutored savage has, 
 without doubt, his rudimentary notions of equi- 
 valence, and that even in the cases of barter pure 
 and simple. But it must be noted at the outset 
 that cases of barter pure and simple are much rarer 
 than appears to be imagined. As soon as exchanges 
 begin to take place with any considerable frequency, 
 there arises the necessity for some medium by 
 means of which the trade may be carried on. This 
 becomes the standard with which each compares 
 what he has to sell or buy. Such a standard arises 
 very early in the commercial history of a people. 
 In its earlier period, before credit has begun to take 
 much part in transactions, and while the essential 
 notion of money as a counter is not well understood, 
 the standard is invariably something which is in 
 itself valuable in the eyes of those who use it. 
 This must be so from the nature of things. Other- 
 wise the transactions would probably remain simple 
 barter. Because unless the things which the parties 
 to any transaction had to exchange were so related 
 to each other in value that each individual exactly- 
 preferred what the other had to offer, no exchange 
 could take place. But, by the aid of something 
 which is generally esteemed, an exchange can take 
 place in which the articles to be transferred are 
 unequal in value. The difference is made up by 
 means of the generally esteemed commodity. Fre- 
 
MONEY 79 
 
 quently also an article may be sold entirely for that 
 commodity. 
 
 Corn is obviously something which may be used 
 as money, and it has been so used. It is valuable 
 in every man's judgment, and is easily divisible for 
 the purposes of exchange. The same may be said 
 of cattle. They are less easy to divide with exact- 
 ness. But as the pastoral state, in which cattle are 
 likely to be used as money, is an earlier one than 
 the aofricultural staofe when corn is used, the tran- 
 sition is a natural one. It is quite sufficient, how- 
 ever, for the purposes of money, that the commodity 
 used be esteemed without any real and beneficial 
 usefulness. Consequently shells and other merely 
 ornamental articles have answered and still answer 
 the purpose. 
 
 But although these commodities are esteemed for 
 their own sake, they very quickly become uncon- 
 sciously recognised as the medium of exchange. 
 And whilst the value of other things is measured 
 according to the standard they furnish, they them- 
 selves gain a value from their common use as money. 
 In the community where they pass current they are 
 therefore the most advantageous commodities to be 
 used in the purchase of any article. The different 
 tribes of Africa have already taken to different cur- 
 rencies, and the traveller must provide himself with 
 the proper description of cloth, beads, wire, etc. 
 (the money there current), according to the tribe 
 he purposes to visit. Such transactions cannot, 
 however, be properly described as purely money 
 transactions. The civilized trader doubtless values 
 both objects in his own currency ; the savage values 
 
So ECONOMICS AND SOCIALISM 
 
 them In his currency such as It Is. But there is no 
 common currency. The savage may have sold an 
 article for what is to him money, but the civilized 
 trader has not given what is money to him. Still 
 the notion of money is not altogether absent, as a 
 little consideration will show. 
 
 As already mentioned, some commodities are 
 generally esteemed. That, with the scarcity, Is 
 what is really meant by intrinsic value as applied 
 to a money material. Many things are valuable to 
 certain people. Some things are valuable in all 
 eyes. Now as soon, as, in any exchange, one of 
 the parties accepts something which he does not 
 desire for his own use, or as stock in trade, but 
 because he knows It Is so generally acceptable that 
 he can readily get what he desires with It, the 
 notion of money has arisen. The money material 
 may possess Intrinsic value. It may acquire value 
 from the prestige it gives to its owner. But these 
 are not monetary notions. The monetary notion is 
 that the object received is not what Is itself required, 
 but it is what will buy something which Is required. 
 
 The first notion of money is, however, a long way 
 from the complete establishment of a currency. The 
 corn, cattle, or shells, cloth or beads, gold, silver, or 
 bronze, will have at the very beginning their In- 
 herent attractions. At first the possibility of their 
 use as money will only add a little value to them In 
 the judgment of him who receives them. This may 
 perhaps amount to just enough to induce him to 
 conclude a bargain with the feeling that he can at 
 any time get so much value for the commodity he 
 accepts. A few such exchanges will tend to give to 
 
MONEY 8 1 
 
 the commodity the quality of currency. Still the 
 idea of money is not fully developed. The commo- 
 dity is taken to be used (either consumed or retained 
 as stock or ornament), or, if need be, to be spent. 
 It is not intended merely to be spent. When the 
 idea of money has reached its full development the 
 object received as money is accepted for the express 
 purpose of being passed on. It is not valued as a 
 commodity, though it may have inherent qualities 
 which would render it valuable even as a commodity. 
 It is regarded purely as money. It is an object, 
 distinguishable from wealth, which has come into 
 existence. The person who receives it would not 
 accept it at all but for the known possibility of 
 transferrin Of it to another for value. It is of no use 
 to him until he parts with it. Until then he retains 
 it for use when required. To get more of it is of 
 no advantage to him whatever, unless by means of 
 it he can get a proportionately greater quantity of 
 wealth or services. 
 
 It was pointed out that the use of any object as a 
 medium of exchange naturally established it as a 
 measure of value. Persons trading are so used to 
 measuring the value of articles in terms of that 
 object that it becomes much the most convenient 
 measure. From the necessity of measuring value in 
 order to arrive at any transfer or exchange arises 
 the fact that as a measure money, or its equivalent, 
 though it be but a mental equivalent, must be present 
 in every commercial transaction. As Adam Smith 
 pointed out (in words which he evidently realized 
 did not clearly express the meaning he intended to 
 convey), the total sum of exchanges which have 
 
 G 
 
82 ECONOMICS AND SOCIALISM 
 
 taken place in any period, if each man counts all he 
 has bought and all he has sold, must be divided by 
 two in order to ascertain the actual exchanges that 
 have taken place. For in each case of exchange 
 one side of the bargain has been money, and only 
 the other actual wealth. But it is not necessary that 
 there should be as much money in a country as will 
 amount in value to all the exchanges which take 
 place in a year, or even in a month or a week. 
 Apart from questions of credit or promises taking 
 the place of money (which must shortly be noticed), 
 the legal tender money itself, whether it be coined 
 metal or authorized paper, is capable of acting as 
 money to a greater or less extent, according to the 
 rapidity of its transfer from hand to hand. Like the 
 yard-stick in a linen draper's establishment, it runs 
 along with the commodity to be measured and 
 traverses the whole distance. But to double the 
 rapidity of the one measure will answer the same 
 purpose as using an additional yard stick at the 
 original rate of work. 
 
 Moreover, the possibility of the entire absence 
 of the actual medium follows from what has 
 already been said. It is useless to give a man 
 money for goods if he must simply keep it for a 
 little time, and then hand it back to the same 
 person for goods which he will require. If the 
 vendor of the first goods can trust his purchaser, it 
 is just as convenient that the two lots of com- 
 modities measured in money be balanced against 
 each other without the medium itself ever passing 
 between them. Hence arise mutual debits and 
 credits. Even if the two sides do not exactly 
 
MONEY V <>,. ^J' . yoX 
 
 balance, it is only necessary to pay the difference in 
 money. And for that money it will be seen also 
 that paper can be substituted. 
 
 From the same considerations as show the possi- 
 bility of dispensing with the medium follows the 
 possibility of using as money paper, not in itself of 
 appreciable value, but bearing marks authenticating 
 promises of reliable persons to pay value. It is a 
 matter of indifference to any man whether he 
 receive the actual bulky and heavy object which he 
 accepts as money or whether he receive a paper 
 which will enable him to obtain the object at any 
 time he may desire it. The latter method is often 
 the preferable one. Such papers will, therefore, 
 pass from hand to hand, sustaining all the functions 
 of money. In one aspect they may be called money. 
 In another aspect they are but proofs of promises 
 to pay money, though this proof passes current as 
 money. Such are bank-notes. Such also are bills 
 of exchange given by one individual to another, 
 though they occupy an intermediate position be- 
 tween bank-notes and pure credit. They are only 
 current to a limited extent. Paper money may 
 indeed assume very various forms. 
 
 It must not, however, be concluded from these 
 considerations that the functions of money can be 
 neglected as easily as a substitute can be found for 
 the actual medium. Putting aside mere barter, 
 which seldom occurs amongst commercial peoples, 
 every sale is made by means of money, at least 
 as a measure. If the money is not actually present, 
 it is in the minds of the traders. Moreover, even 
 when for the time a promise to pay is accepted in 
 
84 ECONOMICS AND SOCIALISM 
 
 lieu of money, the promiser must be prepared to pay 
 at the time fixed. So that although by means of 
 promises the functions of money can be performed 
 in its absence, yet this is subject to an important 
 qualification not previously mentioned. Every 
 promise must eventually be followed by perfor- 
 mance to complete the functions of money — that 
 is, by payment or delivery of money or money's 
 worth. 
 
 In the case of mutual credits and debits wealth is 
 by this means exchanged for wealth. The promise 
 is performed by delivery of money's worth for like 
 value. But when money is passed from one to 
 another, or the promise of one person is passed by 
 his promisee to a third person, the money or promise 
 must in itself or its representative come back to the 
 person who first delivered it. As already intimated, 
 money in the proper sense of money is never 
 consumed. It is not intended to be consumed, 
 but to be transferred. A very few take metal 
 money and melt it for other uses. But a great part 
 of the money used is not at all useful for that pur- 
 pose. Silver money, for instance, in England would 
 be very unprofitable to be used in that way, for 
 silver can be obtained much cheaper than by 
 melting coin. With the trifling exception of using 
 money in this way, it is altogether useless except 
 as a measure to be transferred. 
 
 When a promise properly evidenced reaches the 
 person who gave the promise, and he gets command 
 of it by giving value, he may annihilate it, and by 
 that means a portion of the nation's money ceases 
 to exist. On the other hand, he may issue fresh 
 
MONEY 85 
 
 promises if other persons will accept them as money, 
 as they usually will on being satisfied that the 
 promises will command wealth. In this way virtual 
 money can be created and destroyed. Actual metal 
 money can only be created by bringing it into 
 circulation from stocks of gold and silver not pre- 
 viously circulating, or from what may be obtained 
 by mining. As money it is destroyed by being 
 taken out of circulation and used for ornamental 
 or other purposes. 
 
 Subject to these possibilities of creation and 
 destruction of money, it can be used by constant 
 circulation, and by that means only. Now the ratio 
 of the money to the wealth or other object to be 
 measured by it is the price. The total quantity of 
 virtual money in circulation multiplied by its average 
 rapidity is the total price of everything which is sold 
 in the given time, whether that time is long or short. 
 Supposing wealth the object to be sold, if more 
 wealth is brought into the market and sold in a 
 like time, either, on the one hand, more money must 
 be created (that is, put in circulation), or the average 
 rapidity must be increased, or, on the other hand, 
 the prices must fall. If less is brought into the 
 market, either, on the one hand, money must be taken 
 out of circulation, or the average rapidity decreased, 
 or, on the other hand, the prices must rise. Again, if 
 more money is brought into circulation or its rapidity 
 increased and no more wealth is offered, prices must 
 rise. If money is taken out of circulation and no 
 increase of rapidity takes place, either wealth must 
 also be taken out or prices must fall. It will be 
 observed that the possible contingencies are very 
 
86 ECONOMICS AND SOCIALISM 
 
 varied. Money may vary either in volume, or 
 rapidity of circulation, or both. The objects to be 
 measured with it include wealth, land, and labour, 
 and are all subject to the laws of the market noticed 
 in the last chapter. These in themselves, it will be 
 remembered, gave scope for very varied contin- 
 gencies affecting value. It cannot be too well 
 borne in mind that a variety of circumstances may 
 influence prices. For there are those who, confusing 
 money with wealth, cannot help thinking they will 
 do themselves good if they can by any means raise 
 the price of what they have to sell. And it is only 
 by fully realizing the nature of money and the 
 causes modifying prices that these errors can be 
 avoided. 
 
 Here may be noted the nature of a panic. Sup- 
 pose that on account of prospects of increased trade 
 and higher prices merchants have been buying 
 largely and circulating their promises to pay. The 
 result has been a great increase in the amount of 
 virtual money in circulation and constantly rising 
 prices. Now let something occur which gives the 
 impression that prices are about to fall and that the 
 promises of some money may not be performed. 
 The very fear that prices will fall will cause some 
 to sell at once, and thus hasten the result. The 
 very danger that some may have difficulty in keep- 
 ing their promises will cause people who hold those 
 promises to insist on their fulfilment at the earliest 
 possible date, lest the loss should fall on them by 
 delaying. Henc^ arises the panic. Merchants who 
 relied on sellinof their commodities as a means of 
 fulfilling their promises must then either sell at 
 
MONEY 8 7 
 
 lower prices, and lose by it, or fail to keep their 
 promises. In either case promises which have cir- 
 culated to some extent as money are annihilated on 
 their falling due. This decrease in volume must, if 
 possible, be made up by increased rapidity of cir- 
 culation. For a time there is great demand for 
 money or such credit as will pass as money. The 
 discount rate for it is accordingly very high. But 
 the volume of money is decreased, and after the 
 first panic its rapidity of circulation is also decreased. 
 So that there is quite sufficient to account for not 
 only lower prices afterwards, but also (and probably 
 because of the lower prices) fewer transactions at even 
 the lower prices. Doubtless much of the evil of 
 these panics would be avoided were it not for the 
 contagion of fear. But it is as useless to advise 
 men not to be afraid under those circumstances as 
 to counsel a timid or over-nervous person to be 
 brave and keep cool when danger is apparent. The 
 evil is before and beneath the panic, but how to 
 avoid it is a question for later chapters. 
 
 From the fact that money is not produced or con- 
 sumed, but circulates, another result follows. Money 
 may be said to be valued in terms of wealth, as 
 wealth is valued in terms of money. If, then, the 
 money which any person transfers represents in his 
 hands little wealth (that is, prices are high), he may 
 expect when it comes back to him that it will still 
 represent little wealth, and vice versa. That or 
 other portion of the same circulating medium must 
 come back to him if he would have money again. 
 In the main (that is, beyond a very small proportion) 
 it will not be created or destroyed. Whatever it 
 
88 ECONOMICS AND SOCIALISM 
 
 represents, therefore, of wealth parted with by him 
 he must expect it to represent when it reaches him 
 again. It will consequently be useless for him to 
 attempt to alter the natural value of his money by 
 artificial contrivances to get the money without 
 giving the wealth. Moreover, such attempts are apt 
 to cause a decrease in the rapidity of circulation 
 (if not of the volume of money), which in itself 
 will reduce the price of what he will have to sell 
 in a short time afterwards. This point will be 
 made clearer in a later chapter, when, however, the 
 circulation of the wealth itself will be observed. 
 
 These considerations should make clear the 
 essential nature of money. How little it has in 
 common with that of wealth, and how clearly the 
 two ideas should be distinguished, is readily seen. 
 There appear to be two reasons why they have 
 been so much confused toofether. One of them is 
 that, although money is essentially but a measure, 
 yet the possession of the money measure usually 
 gives command of that which is intended to be 
 measured by it, to a greater or less extent, according 
 to prices. Apparently men from this argue that 
 because one man can get wealth for money all can 
 do so. They forget that men only get wealth from 
 each other by means of money. Even if the money 
 could be indefinitely increased the increase would 
 be of no advantage to them. They, moreover, do 
 not trouble to think where eventually the wealth 
 must come from if their money is to purchase it. 
 
 The other reason is that although to the whole 
 community money is but a measure, and the nation 
 can be no more enriched by increasing its money 
 
MONEY ' 89 
 
 than It can be clothed with yard sticks, fed with 
 metal weights, or have its thirst quenched with pint 
 measures, yet money is a measure of a mental de- 
 sire, while the other measures relate to physical 
 properties. And it is more difficult for human 
 beings to analyse the operations of their own minds 
 than to understand the extension, weight, capacity, 
 and other qualities of the material world around 
 them. One man may with advantage w^ork for 
 money, for it is a means of obtaining wealth from 
 another. And it does not at all matter whether he 
 has realized the function of money in society or not. 
 But when any one undertakes to make laws or ar- 
 rangements for a number of persons he must realize 
 what it is they really require. He must not arrange 
 to give them money when they require wealth with- 
 out making sure that the money will command the 
 wealth desired. 
 
 Yet by statesmen and others responsible for in- 
 terference between buyers and sellers this confusion 
 has been and still is very rife. Nations and com- 
 binations have thought and still think they can 
 better their conditions by increasing the stock of 
 money or raising the prices of what they may have 
 to sell. But it is evidently futile to increase the 
 stock of money if wealth is the object to be aimed 
 at. For the money is not so much as desired for 
 its own sake, and it is a singular instance of the 
 limitation of mental powers that it should be treated 
 as if it were so desired. Moreover, this raising of 
 prices is exactly what is likely to hinder their obtain- 
 ing the very money they desire by hindering trade 
 with other communities. And the fact that for the 
 
90 ECONOMICS AND SOCIALISM 
 
 moment the money is drawn to the nation or com- 
 bination attempting the interference is exactly what 
 causes the hindrance. 
 
 We may now pass from the consideration of the 
 general nature of money and observe what is actually 
 used. Whether or not the monetary arrangements 
 of civilized nations are perfect is a matter for con- 
 sideration in a later chapter. 
 
 The materials commonly used amongst civilized 
 peoples as money are the precious metals, gold and 
 silver, and paper representing fixed sums of money. 
 The paper, it need hardly be said, must bear re- 
 cognisable marks ; in no respect is it accepted for 
 its intrinsic value. It is, moreover, always supposed 
 to represent the precious metals. No paper can 
 pass current with savage tribes. Nor are the pre- 
 cious metals profitable for use in trading with such 
 tribes. They have not learnt to appreciate those 
 metals at the value they bear amongst civilized and 
 even semi-civilized nations. And they do not 
 understand the uses of a currency. 
 
 Amongst civilized and semi-civilized nations the 
 precious metals are used as money. In most, if not 
 all, of them there is a system of coinage in which 
 certain weights of metal when coined bear certain 
 monetary denominations. It is these coins which 
 form the basis of the monetary systems of the 
 different nations, and paper money is made to refer 
 to them. 
 
 In international transactions the money used is 
 somewhat different. In fact it was at one time 
 thought that nations did not use money for inter- 
 national transactions, but bartered the precious 
 
MONEY 9 1 
 
 metals as commodities. This notion probably obtains 
 largely at present, but, with the exception of those 
 nations who mine the metals, and to that extent, the 
 idea is quite erroneous. When it first obtained it 
 was an improvement on previously held ideas. For 
 those who held it did at any rate advocate a free 
 trade in treasure, on the ground that the treasure was 
 a commodity, and it was, therefore, advantageous to 
 trade it away. When, however, it is fully realized 
 that wealth is more to be sought after than 
 money, there is no reason for pretending that 
 nations trade in the precious metals as commodi- 
 ties. To a very great extent the trade between 
 nations is exactly like that between individuals, 
 except with regard to the kind of money used. 
 It is purely a trade of buying and selling — not 
 of barter. The money passing between them is 
 gold or silver by weight. It is exported or imported 
 as money, and not as wealth. It is not intended to 
 be used for the purposes available to the precious 
 metals, but merely to be used or retained as money 
 for internal circulation or re-exported for com- 
 modities. Moreover, to only a very small extent is 
 it exported or imported. The greater part of the 
 commodities are paid for with bills of exchange, 
 which are balanced against each other by bankers 
 and their agents. Only the balance is transmitted 
 in gold or silver, and that only takes place when the 
 balance due from one nation to another is such that 
 the rate of exchange will afford a profit on the 
 carrying of the gold or silver. 
 
 The details of the process of the settlement of 
 balances belong rather to a treatise on banking than 
 
92 ECONOMICS AND SOCIALISM 
 
 to this work. But it may be stated generally that 
 even with regard to inland transactions a great pro- 
 portion of the larger transactions in a mercantile 
 country are settled by a process of balancing at a 
 clearing house. To this clearing house cheques and 
 bills are sent to be credited and debited to and 
 against their holders and payers. 
 
 In international transactions accounts are balanced 
 in a somewhat different method. The bills of ex- 
 change or cheques are made out in the denomination 
 of the coinage of one of the countries concerned. 
 In the case of two countries in both of which the 
 price of gold per unit of weight is fixed at the mint, 
 and there is unlimited coinage at that price, com- 
 parison of the money of the two countries is easy. 
 The weight of gold in the coin of each country 
 is known. There is nothing to be done but to as- 
 certain how many of each of the coins is contained in 
 a given weight of metal. This fixes a ratio between 
 them. In strict theory that ratio should be invari- 
 able. But it is evident that if a person has to send 
 gold from London to Paris it will be worth his 
 while to give the money to some one in London 
 to whom the same amount of money is owing from a 
 person in Paris ; by that means obtaining a bill on 
 the Paris debtor ordering that debtor to pay the 
 Paris creditor of the London debtor. By that 
 means the two creditors get their money and the two 
 debtors pay their debts. But instead of gold being 
 carried from London to Paris, and other gold from 
 Paris to London, a paper is sent from London to 
 Paris and back. The Paris debtor pays the Paris 
 creditor, and the London debtor pays the London 
 
MONEY 93 
 
 creditor, only the paper crossing the channel. Now 
 if more has to be sent to Paris from London than to 
 London from Paris actual metal must be sent in any 
 case. It will, therefore, be worth while for any one 
 of the London .debtors to give a London creditor, not 
 only the amount of the bill, but also a small addition 
 to it for a bill ordering some person in Paris to pay 
 the debt. He thus avoids having to send the 
 money. In such a case the exchange is said to be 
 against London. 
 
 Stated in this way, however, it would appear that 
 some debtors must seek out creditors in their place, 
 and pay them the additional rate of exchange, whilst 
 the creditors must send the metal. But in actual 
 practice the bills of exchange are sent in payment. 
 They are paid into banks, and from banks handed to 
 brokers, who buy the bills from each other. In Paris, 
 if it appears that money will have to be sent from 
 London to Paris, there is a proportionately greater 
 demand for bills drawn by London creditors ordering 
 Paris debtors to pay money to persons in Paris. 
 The exchange is thus in favour of the Paris debtors, 
 who accept these orders and promise to carry them 
 out, for they have but to pay some one in their own 
 city. In London, on the same fact appearing, there is 
 great demand for the same bills; the London debtors 
 are anxious to pay merely by paper, instead of 
 sending metal. There is less demand for bills 
 drawn by Paris creditors ordering London debtors 
 to pay money to London creditors. Of the latter 
 sort of bills there is a surplus. So that the exchange 
 is against the London debtors, who cannot, it appears, 
 pay all they owe to Paris by handing it to persons in 
 
94 ECONOMICS AND SOCIALISM 
 
 London. It need hardly be said that the brokers 
 must, In addition to the exchange, have some com- 
 mission to pay them for their trouble. 
 
 If there is no ratio of value with regard to one 
 metal fixed in the two countries, other considerations 
 have to be taken into account, as also when it 
 occurs that a currency is debased so that it does not 
 represent its nominal amount of metal. But even 
 after allowing for this it is important to remark that 
 the rate of exchange does not depend merely on the 
 question of which country has sold the greater value 
 of commodities to the other. Remittances may be 
 made by means of paper, not only for goods sold, but 
 also occasionally for personal services rendered, or as 
 gifts, loans, or Interest on loans. And these re- 
 mittances will pass into the ordinary channels, and 
 affect the rate of exchange accordingly. 
 
 Still another consideration must be taken into 
 account. The people who carry on this international 
 trade In money do it for profit. As they are in com- 
 munication with the various places between which 
 the exchange takes place, it Is obvious that they will 
 take care to have their money in the place where it 
 will earn them most. If, therefore, the rate of dis- 
 count is higher at one of the places than the other, 
 that will have a tendency to induce a supply of 
 money to that place, whether or not there is money 
 due from it. If money is much in demand the dis- 
 count rate will be high, even though the bills should 
 indicate that place to owe to another place. The 
 bills ordering persons there to pay money will pro- 
 bably be balanced by bills or cheques ordering 
 persons at the place where discount is lower to 
 
MONEY 95 
 
 pay the money. By this means the person giving 
 the bill gets the benefit of the exchange, which 
 was against him and his place, if money must be 
 sent, but is in his favour when he to some extent 
 reverses that condition of affairs by selling his own 
 paper to transmit. In short, a creditor will only 
 have his money sent to him in face of an adverse 
 exchange if he has use for it. But if he really wants 
 it to make use of, he will have it even though it 
 is costly to get it. For it must be remembered that 
 the rate of exchange can never exceed the cost of 
 transmitting the actual coin. As soon as it reaches 
 that point some one will be willing to ship the metal 
 required, and exchange will be influenced accordingly. 
 The rate of exchange is eventually fixed, therefore, 
 by the rate of discount — that is to say, money is 
 subject to the same laws of the market as were 
 noticed with regard to wealth. Higher discount rates 
 or prices induce supply, whilst obviously they will 
 discourage demand. Lower prices discourage supply, 
 whilst they tend to induce demand. It thus appears 
 how erroneous was the idea at one time held that 
 money should be retained in a country by artificial 
 means. The most efficacious method of retaining it 
 is to allow free play to commerce, and the very need 
 for it will cause it to come into the country for the 
 purposes of exchange. 
 
 From the fact that the rate of exchange cannot 
 exceed the cost of transmission it follows that as 
 money is carried for a very small sum in proportion 
 to its value, the value of money strongly tends to 
 retain the same level throughout the area in which 
 it circulates. This is what enable^^^l^iers viii cpm- 
 
 f ^ OFTHE ' "^ ^ 
 
 (UNIVERSITY;' 
 
96 ECONOMICS AND SOCIALISM 
 
 modities to carry on their transactions as though it 
 maintained an absolutely perfect level. Bankers 
 and money brokers undertake the transmission of 
 the money without the special interference of the 
 traders in wealth. Traders in commodities con- 
 sequently have little to do in their actual dealings 
 with rate of exchange, and carry on their transactions 
 as though money absolutely retained the same level. 
 In those instances in which there is such a consider- 
 able variation in the rate of exchange as to compel 
 their attention to it, it becomes a serious misfortune 
 and hindrance to trade. For it is obvious that trade 
 must be hindered if merchants and others are 
 seriously affected by contingencies which are entirely 
 outside the business they devote themselves to. In 
 the ordinary instances, however, the rate of exchange, 
 although it fluctuates from one side to the other, 
 does so to only a small extent, and that about 
 equally on each side ; so that it presents no serious 
 obstacles to trading, and money flows between 
 nations as between individuals. 
 
CHAPTER VII 
 
 DIVISION OF WEALTH 
 
 The distribution already referred to — namely, distri- 
 bution in kind — is that for which alone the word can 
 most conveniently be used. The expression has 
 always been used by economists to denote the 
 division of mixed wealth between landlord capitalist 
 and labourer. It will, however, be expedient to use 
 the word division for this purpose. The word 
 expresses the idea quite as well as, or better than, 
 the other. For this is evidently a question of dividing 
 a bulk. It is a question of size of pieces, of quantity 
 or unclassified number. Whilst the word distribu- 
 tion, which is the only one fairly applicable to the 
 other purpose, is one which (in spite of its near 
 relationship to the word division) carries with it 
 more of the idea of classification. The word divi- 
 sion will, therefore, be used in every instance in 
 which the separation into shares between the dif- 
 ferent productive agents is referred to. Distribu- 
 tion will refer always to distribution in kind by 
 merchants and carriers. 
 
 It has been tacitly assumed in the consideration 
 of exchange and of the economic laws which relate 
 to buying and selling that the persons engaging in 
 these transactions recognised the right of private 
 property. The basis on which the right to pro- 
 
 97 H 
 
98 ECONOMICS AND SOCIALISM 
 
 perty rests will receive notice hereafter. For the 
 present it will continue to be assumed that the 
 owners who have a right to the control and enjoy- 
 ment of wealth and the elements of its production 
 are at any rate ascertainable. It is for the moment 
 unnecessary to state whether they consist of indivi- 
 duals or communities. 
 
 The right of property in wealth must be conceded 
 if the right of enjoying it is to be established. An 
 ownership by some right is essential to its consump- 
 tion. Now it has been seen that there are certain 
 requisites to the production of wealth. It will 
 hardly be disputed that the rightful ownership of 
 these elements of production will give a right to the 
 wealth they produce. It seems impossible to con- 
 ceive that any one can be entitled to wealth in the 
 production of which he had no share. There is an 
 apparent exception in favour of one to whom another 
 who had a share in its production is under obliga- 
 tion. In this case, however, the right is against the 
 person who is under the obligation. It is not an 
 independent right to the wealth itself, though the 
 person having the right may acquire the benefit of 
 the wealth by right of the person through whom he 
 claims. In the nature of things the rightful owners 
 of the elements of production (whoever they may 
 be) will in the first instance be entitled to the wealth 
 produced. 
 
 These elements of production have been seen to 
 be separate and distinct in their nature. They are 
 also capable of separate ownership. The question 
 then arises how, if at all, the separate shares of their 
 owners can be ascertained. In a country where each 
 
DIVISION OF WEALTH 99 
 
 is free to make the best bargain he can for himself 
 the exact payment will be determined by the con- 
 tract. But can any law or laws be found which will 
 indicate how the terms of the contract as to price 
 are likely to be fixed ? If contracts are not free 
 then reo^ard must be had to that which interferes 
 with the freedom. It is difficult to see how general 
 economic laws can be discovered which determine the 
 various shares in such cases. Where, however, free 
 contract obtains it is possible to lay down laws 
 which will indicate the relative shares of the owners 
 of land, labour, and capital in the wealth produced. 
 In many cases the division takes place by means of 
 the sale and conversion of the wealth into money. 
 
 The respective shares of land, capital, and labour 
 are usually spoken of as rent, interest, and wages. 
 But care must be taken in using these terms not to 
 give them the meaning generally attached in ordi- 
 nary language. Rent in the common acceptation 
 includes payment for the use, not only of land, but of 
 houses and buildings. But although the ground on 
 which they stand is land, the houses and buildings 
 are clearly capital. They are the result of adapta- 
 tion by means of labour. On the other hand, the 
 dividends on a railway company's shares or stock 
 are spoken of as interest ; indeed, the whole is 
 included as capital. But this revenue includes the 
 advantage from the possession of land, much of 
 which has become very valuable. Again the expres- 
 sion w^ages usually refers only to the wages of those 
 who receive weekly payments from employers. It 
 does not in ordinary language include payments 
 made to those who carry on business independently 
 
lOO ECONOMICS AND SOCIALISM 
 
 of entrepreneurs, and deal directly with their custo- 
 mers. It frequently excludes the higher grades of 
 employment, or those employments in which the 
 expression salary is used instead of wages. In the 
 economic sense, however, rent must include all 
 benefit from what has been described as land ; all 
 advantage accruing from the use of capital must 
 be spoken of as interest ; and the reward of all 
 labour, from the lowest grade to the highest, includ- 
 ing that of managers and employers, must be re- 
 garded as wages. 
 
 Rent in the economic sense must be understood 
 as payment for the use of that which by nature was 
 given free. It will include the annual value of the 
 land in the centre of a town, for instance, but not 
 the value of the buildings put upon it. It will 
 include also mine rents and royalties, with payment 
 for the use of the surface land used in connection 
 with the mine, but not interest on the outlay for 
 sinking a shaft or preparing necessary plant. It 
 will include the value of fertile agricultural land, 
 but not the improvements effected by the outlay of 
 capital and labour. That there is such a value be- 
 longing to the land in its original state will readily 
 be seen. The law of rent is called Ricardo's law of 
 rent, because apparently the truth of it was first 
 established by him, although he was not the first to 
 suggest the law, nor even the first to publish a state- 
 ment of it. It is, in fact, very difficult to ascertain 
 when an idea first took root in the mind of either in- 
 dividual or community. It is only when the individual 
 or community first realizes its truth and import that 
 it is found a scientific discovery has been made. 
 
DIVISION OF WEALTH lOI 
 
 The definition of rent being borne in mind, land 
 being considered as that which has not been pro- 
 duced by human labour, and all value which owes 
 itself to the latter source beinof excluded from con- 
 sideration : — 
 
 The rent of land is determined by the excess of 
 its produce over that which the same application can 
 secure from the least productive land in use. 
 
 From the fact that land varies in its utility it is 
 easy to understand that some land will generally be 
 left uncultivated and unused because much better 
 land is available. Some will just be worth using or 
 cultivating. Other land will be worth cultivatingf 
 even on condition of paying a rent for the oppor- 
 tunity of doing so. The land which will just pay 
 for cultivation if no rent has to be paid is said to be 
 at the margin of cultivation. That which will afford 
 a rent is above the margin. That which will not 
 pay for cultivation at all is below it. 
 
 What is below the margin of cultivation will evi- 
 dently not be cultivated. It is not worth while to 
 cultivate it. It will not afford a profit. Those who 
 might possibly cultivate it if a demand existed find, 
 or think they find, it better to engage in some other 
 employment In a word, it awaits an increase of 
 population. At any rate, no demand is shown for 
 its products at present. If there are any who lack 
 what it would supply, it is either because some one 
 holds it and will not permit it to be used by others 
 at any price, or it is because those who would be 
 willing to take and use it find that the land is not 
 such as to afford them as good a return after pay- 
 ment of expenses as they can obtain elsewhere from 
 
I02 ECONOMICS AND SOCIALISM 
 
 some Other employment. In either case it will be 
 seen that the evil is artificial. 
 
 The first case is not one which will extend over 
 very large areas. But it is not unknown. So far as 
 it exists, however, it is by the authority of some 
 crovernment, which enables the owner to exert ricrhts 
 over the land he does not use. Possibly he could 
 not retain without that authority the land he really 
 does use. And no complaint is made as to the exer- 
 tion of the gfovernment's authority on his behalf in 
 respect of the land he uses. Certain conditions 
 may possibly have to be suggested hereafter, but 
 not in this chapter. No complaint is at present 
 made with reference even to his retaining land which 
 he does not use. The contention at this point is 
 that his retaining it is only possible by the aid of a 
 government, and that a government is an artificial 
 arrangement. Government is not undesirable or 
 even of necessity contrary to nature. But as it is a 
 contrivance capable of human modification, it is 
 possible that care should be taken by those respon- 
 sible for government that when the products of 
 certain land are required for the nation's subsistence 
 the government's authority should not be exerted to 
 enable persons to retain the land unused. 
 
 The second cause of land not being used, although 
 its productions are needed, is want of adequate 
 return for its use. This will be due either to the 
 owners requiring a value exceeding that of the 
 actual usefulness of the land as a wealth producer 
 (a sense in which the phrase value in use might be 
 appropriate), or to some hindrance which prevents 
 the money or other value necessary to induce its 
 
DIVISION OF WEALTH IO3 
 
 cultivation from flowing to those who would culti- 
 vate it. 
 
 We may neglect for the present purpose those 
 who lack the productions of the land in question 
 for other than strictly economic causes. Instances 
 of this are found when they or those on whom they 
 depend are unable or unwilling to expend the labour 
 necessary to obtain those productions; or, whilst they 
 actually labour, yet waste the proceeds of their labour 
 without supplying what they more properly require. 
 These are considerations with regard to the impo- 
 tent, idle, and prodigal which will be neglected 
 throughout this inquiry. There is scope for their 
 special treatment in another work. 
 
 The case of the owners requiring a value exceed- 
 ing its usefulness is similar to that which was just 
 previously referred to as due to artificial causes. 
 There is no difference except in degree between 
 holding land at a prohibitive price and refusing 
 to let it be used at any price ; the effect is the 
 same. 
 
 The hindrance unduly reducing the price offered 
 to possible cultivators must clearly arise from some 
 artificial interference. For it was seen that under 
 the free play of supply and demand, if the supply 
 of a commodity was reduced, the price would tend 
 to rise until the demand was again supplied. And 
 there is nothing to indicate that the rise would stop 
 until such a price was reached that there was no 
 further need for advancing the price. At any rate, 
 the supply would reach the point at which buyers 
 preferred something else. 
 
 It is useless to argue that the persons requiring 
 
I04 ECONOMICS AND SOCIALISM 
 
 the production of the land in question have not the 
 money with which to buy. That is conceded. 
 They have, however, the labour ; and though it may 
 be admitted that they are possibly not competent, 
 through lack of training or of capital, to exercise 
 their labour on the land, they may still offer their 
 labour to others. And they may with advantage 
 to themselves offer it at such a price that the others 
 can make for themselves a profit out of it sufficient 
 to induce them to supervise and employ it. There 
 is thus no need for their lacking the wealth whilst 
 this land remains below the margin of cultivation 
 and their labour is unemployed. But if by some 
 means the flow of currency is, so to speak, dammed 
 up, then, while they may be attracted towards it 
 in the trade in which it happens to be, it will not 
 reach those who would cultivate this land. The 
 land consequently will not come within the margin 
 of cultivation. These means of damming up will 
 evidently be artificial means. 
 
 So that both the forms of hindrance to the 
 cultivation of land the produce of which is needed 
 are artificial. Remedies for these evils will be 
 suggested in succeeding chapters. For the present 
 purpose, what is important to note is that the land 
 which is uncultivated or otherwise unused for wealth 
 production is below the margin of cultivation. The 
 word cultivation is used in this sense as including 
 use of any kind in deference to established usage. 
 Margin of use is a phrase which might be used 
 without fear of confusion, even in view of the ex- 
 pression marginal utility, which refers to an entirely 
 different matter. 
 
DIVISION OF WEALTH IO5 
 
 The land which is used is either at or above the 
 margin of cultivation. As examples of that which 
 is at the margin of cultivation, we may take land 
 which is worth cultivating by its owners, but for 
 which no person will pay a rent. Many such cases 
 might be found in countries where it is the rule for 
 farmers to own the land they cultivate. It is also 
 seen in some instances where a rent is paid for a 
 whole farm but some of the land is so poor that 
 it is only in the times of greater demand for its 
 produce that it is worth the cost of cultivation. 
 
 All other land is above the margin of cultivation 
 or use. Now, it is evidently as profitable to any 
 one proposing to use land to pay the excess value 
 of the latter kind of land as to cultivate the worst. 
 That excess is rent in the economic sense. 
 
 We thus find proportionately the first share in 
 the total produce of the land. It is fixed by the 
 margin of cultivation. As the margin of cultivation 
 falls through increased demand for the products 
 of land rent must rise proportionately. For it is 
 now evident that worse land must be cultivated, and 
 the land which was at the margin is now somewhat 
 above it. Rent must be paid for this land, and the 
 value of other land which was already above the 
 margin is proportionately increased. If by any 
 means, as by the introduction of produce from else- 
 where, some of the land can be spared, the margin 
 of cultivation will rise, and rent will accordingly be 
 proportionately reduced. 
 
 Having a law which determines the share of rent, 
 we may proceed to ascertain the relative shares of 
 interest and capital. In this connection Mr. George 
 
I06 ECONOMICS AND SOCIALISM 
 
 has afforded considerable light. In the llrst place, 
 it is evident that of the total products rent is the 
 first definite and ascertainable share. The balance 
 of the total proceeds must be divided in some pro- 
 portion or other into the shares of capital and 
 labour. Other things beinij equal the sum of the 
 latter shares must, therefore, fall (since rent rises) 
 as the margin of cultivation falls, and rise (since rent 
 falls) as the margin of cultivation rises. That is 
 to say, the relative shares remaining for capital and 
 labour will be increased as it is found that land can 
 be spared, and decreased as worse and worse land 
 must be taken into cultivation or use. 
 
 For the moment we must part company with 
 Mr. George, and mention a fact which does not 
 accord with some of his views. It must be very 
 distinctly borne in mind that the shares here spoken 
 of are relative shares. Tlie actual value or benefit 
 of the share of rent may, in some cases, rise at the 
 same time as the shares of capital and labour. 
 This would happen if by means of improved 
 machinery or increased trade facilities a much 
 greater supply of wealth could be had in any place. 
 In such a case the relative share of rent would 
 decrease, whilst the shares of interest and wages 
 would increase. For less land would now be neces- 
 sary for the same supply of wealth. Hut the actual 
 share of wealth devoted to payment of rent might 
 be increased, because of the increased abundance 
 of wealth. The change which would take place 
 in the relative shares would consist of an increase 
 in the value of land calculated in terms of wealth, 
 but a still greater increase in the value of capital 
 
DIVISION OF WEALTH IO7 
 
 and labour. The relative share of rent has 
 decreased, whilst the actual share has increased. 
 The converse of this pro|)osition would also be 
 true. The same considerations mij^dit apply, even 
 though the margin had actually fallen, and the rent 
 consequently risen, if it were the result of a larger 
 consumption by capitalists and labourers. 
 
 We may again pursue Mr. George's views. We 
 have observed the relative shares of land on the 
 one side and capital and labour taken together on 
 the other. The fall of the margin of cultivation 
 increases the former and reduces the latter. The 
 qualifying sentence at the conclusion of the preced- 
 ing paragra[)h may for the time be disregarded. 
 We have now to find the shares of capital and 
 labour as between themselves. So far as wealth 
 can be produced by means of labour, without the 
 aid of capital, it need hardly be said that labour 
 takes all the remainder after rent is paid. It is 
 evident, therefore, that wages may be said to be the 
 produce which results from the application of labour 
 to the best land, which it is free to use without the 
 payment of rent. In other words, wages amount 
 to the total result of labour at the margin of cultiva- 
 tion that is on the land last required for use as a 
 wealth producer. It may be fertile or comparatively 
 barren. It may, in fact, turn out to be better than 
 some already used, but, on account of its situation 
 or otherwise, it hitherto has been and is now 
 treated as worse land than that cultivated. 
 
 The nature of the services rendered by capital 
 in wealth production has already been indicated. 
 The payment for these services must be considered 
 
loS ECONOMICS AND SOCIALISM 
 
 more in detail in a later chapter, and Mr. George's 
 errors pointed out. It is, however, clearly possible 
 to determine by a scientific law the share of capital 
 as against that of labour, assuming freedom of con- 
 tract. Capital is not like land in being strictly 
 limited in quantity and capable of monopolization. 
 It can be indefinitely increased by the application 
 of additional labour. Although, therefore, in the 
 first instance, the use of capital may even double or 
 otherwise multiply the productions which could have 
 been obtained without its aid, yet it is unlikely it 
 could long continue to obtain a reward commen- 
 surate with that result. Those who have to com- 
 pete with the owner of this capital would readily 
 discover the profitableness of its use, and devote 
 their labour to the production of a similar species 
 of capital. If, by the laws of supply and demand 
 already noticed, another species of capital becomes 
 more valuable by reason of its productions or use 
 being more in demand, it is evident that labour 
 will be directed to the production of that kind of 
 capital. By this means the share taken for the 
 use of capital will (neglecting special circumstances) 
 constantly tend to the same level in all its modes 
 of employment. 
 
 It is evident that capital will only be paid for 
 because of the advantage it offers, and it will 
 tend to find its most profitable employment. 
 Capital cannot, it is true, increase the supply of 
 wealth except in those employments where from 
 its nature it can either make labour more efficient 
 or by its reproduction increase its own quantity. 
 But when capital exists in other forms it must 
 
OP THE 
 
 DIVISION OF WEAL'l^'^^'^-^^SlfC)^ 
 
 evidently share in the proceeds of wealth produc- 
 tion, or that kind of capital would cease to be stored 
 or produced. As, however, its use offers advan- 
 tages, it Is paid for, and the payment for its use 
 will, on the average, be similar to that for the use 
 of other kinds of capital. Now the whole advan- 
 tage resulting from the use of capital has special 
 relation to the time of its use. The advantage 
 consists in the increase of wealth arising from 
 having it now rather than at a future time. The 
 increase arising from productive capital must, how- 
 ever, be spread over all capital ; and, in fact, over 
 some so-called capital which must, hereafter, be 
 noticed, but which is really spurious capital. What- 
 ever will command wealth, although it may give 
 no assistance in its production, will, nevertheless, 
 be valuable. If, therefore, a person can buy some- 
 thing which will give him an income, such as 
 government stock, he may profitably purchase it 
 as if It were capital. It is not capital, and may 
 be of no benefit to the nation which pays for it. 
 But a portion of wealth must be devoted to it, for 
 it is treated as capital, and commands wealth. In- 
 terest on capital, therefore, will be limited to the 
 total increase of wealth arising from its use and 
 spread over capital in all its forms. 
 
 But there is a further limitation to be noticed. 
 The greater supply of capital will, it is evident, 
 tend to reduce the amount which will be paid for 
 the use of any given quantity of it. The capital 
 may double itself, or increase itself manifold during 
 the period. But as it cannot in any case do so 
 without some labour (In the way of attention, at 
 
no ECONOMICS AND SOCIALISM 
 
 least) the amount which will be paid for its present 
 possession will be further influenced. It will vary, 
 not only with the actual advantage it will confer 
 (which it can never exceed), but also with the 
 amount of capital available. It may, therefore, fall 
 much below the actual advantage it confers, al- 
 thouorh it can never rise above that advantaore. 
 The possession of a certain quantity of capital may 
 enable a man to double his income compared with 
 what it would have been had he been entirely 
 without the capital. But if he already has as much 
 as he needs, or can use, he will not pay anything 
 for more of it ; and if there is much capital seeking 
 employment, its owners will be willing to accept 
 much less in payment for it than the advantage it 
 confers. In fact, the whole advantage will never 
 be paid for its use. Why should a man trouble 
 to employ capital at all, if he must pay away all 
 the benefit it confers.-^ It would be better to 
 use only his own labour. 
 
 Interest on capital, therefore, will amount to that 
 portion of the increase of productions arising from 
 its use which, from its relative scarcity, those who 
 employ it will be willing to pay for its use. Of 
 real and spurious capital, real capital alone pro- 
 duces increase, but spurious capital shares the 
 benefit. 
 
 The remainder is for labour. No actual limit 
 can be put to what labour will take except by 
 considering what must first be taken for the use 
 of land and capital. The labourer is also a con- 
 sumer. He works for the satisfaction of his desires. 
 It is for him to consider whether he will labour 
 
DIVISION OF WEALTH III 
 
 further, or rest content with the consumption of 
 what his present labour brings him. The exact 
 division between the various labourers of different 
 grades and employments will be noticed in a se- 
 parate chapter. Briefly, it may be stated that the 
 wages are fixed by competition for places. The 
 result of this is, as far as possible, to equalize the 
 wages of the same ability, training, and exertion 
 in the various employments. In this respect labour 
 resembles capital. It is free to pass from one em- 
 ployment to another. But, on the other hand, com- 
 petition cannot equalize ability, nor will it equalize 
 exertion. So that in this respect labour resembles 
 also land. As land is subject to natural differences 
 of situation and fertility, occasioning differences in 
 value, so labour varies in value on account of in- 
 herent differences of ability and energy. From 
 this has arisen the phrase *' rent of ability." 
 
 Wages, then, it will be seen, may be expressed 
 in two ways. They amount either to the produce 
 of the labour expended on the land at the margin 
 of cultivation, or to the remainder which is left 
 from the use of that land after payment has been 
 made for the use of capital. This latter payment 
 will amount to that share of the advantage of the 
 capital which, from its greater or less scarcity, 
 labourers are willing to pay for its use. 
 
 These results will require a more detailed con- 
 sideration. It has been assumed that land was 
 held under free contracts for its use, the owner of 
 land taking only the economic rent, the true owner 
 of capital taking the advantage accruing from its 
 use, and competition being entirely free. The 
 
I I 2 ECONOMICS AND SOCIALISM 
 
 effect of the absence of any of these conditions 
 must be noticed. Land Is held on various tenures 
 and contracts, some of which demand consideration. 
 The subject of Interest on capital offers some pro- 
 blems worthy of explanation. The subject of wages 
 also is one on which the utmost confusion is ap- 
 parent on every hand. Labourers of all grades 
 suffer loss from this confusion, and It Is Important 
 that the subject should be made clear. 
 
CHAPTER VIII 
 
 RENT OF LAND 
 
 The share of productions which constitutes rent 
 in the economic sense has already been indicated. 
 There is perhaps no perfect example to be found 
 of the separation of rent, in this sense, from the 
 shares due to the use of capital and labour. Rent 
 is, nevertheless, paid or enjoyed in various forms. 
 And to a large extent, by means of different kinds 
 of tenancies, this rent is enjoyed by others than 
 those who actually use the land. It is proposed 
 to notice in this chapter a few of these forms of 
 tenancy, so as to make clear the nature of economic 
 rent, and how it enters into the payments which, 
 according to the common acceptation, are known 
 as rent 
 
 We may take, as the first instance, rent paid for 
 land let for the purposes of cultivation. This 
 would include not only agricultural land strictly 
 so called — that is, so called in the sense of arable 
 land — but also garden ground on a large or small 
 scale, land used for pasturing purposes, and, finally, 
 land used for growth by cultivation of timber. In 
 all these cases the gift of nature consists of the 
 extension or space, the natural fertility of the soil, 
 such as it is, including the benefits of natural water- 
 courses, and the atmosphere, with its various in- 
 
 "3 I 
 
I 14 ECONOMICS AND SOCIALISM 
 
 fluences, summed up in the one word climate. All 
 of which are more or less modified by the contour 
 of the land. 
 
 In all the land comprised within this class it 
 seldom occurs that the rent paid includes only the 
 value of the natural agents. It usually includes 
 payment for the use of erections, such as farm- 
 houses and their buildings, as well as for fences 
 and fertility acquired through artificial works or 
 long cultivation by one person or another. These 
 additional advantages are capital, and are not In- 
 cluded In the economic meaning of land. Pay- 
 ment for them is, therefore, included in Interest 
 on capital, and not in rent of land. 
 
 There are, however, cases in which the capital 
 last mentioned does not owe Its existence to the 
 persons who receive payment for Its use, nor to any 
 one from whom they have acquired It by purchase. 
 This consideration opens out the question of the 
 various terms on which land Is held. To find a 
 clearly defined Instance of the payment of economic 
 rent, together with an additional sum for interest 
 on the capital expended by the landlord in the 
 improvement of the land, it is necessary to find 
 a tenancy in which the tenant receives full com- 
 pensation for the Improvements made by him. It 
 is not, perhaps, too much to say that this is the 
 exception and not the rule In the tenancies which 
 have hitherto obtained. In those newer countries, 
 where improvements have generally been made by 
 those who held the land as their own freehold, 
 the capital has usually been put upon the land 
 by those who afterwards reaped the benefit of it. 
 
RENT OF LAND II5 
 
 But in the older countries the case is different. 
 In England, in various parts, a system of tenant- 
 right customs has arisen, under which allowance 
 was made for improvements effected by the tenant 
 on the land of another. In a portion of Ireland 
 also a custom of tenant-right has obtained. The 
 copyhold land to be found in some parts of Eng- 
 land is an example of another mode by which 
 the tenants have acquired the benefit of their im- 
 provements. In the latter case, however, a con- 
 siderable portion of the rent, in the economic 
 sense, has also been acquired by the holder of 
 the land. But these are special instances. So 
 far as England is concerned, the various customs 
 have had to be supplemented by Act of Parlia- 
 ment, and the arrangements are still imperfect. 
 There seems scarcely any instance of a clear ar- 
 rangement giving to the holder of land the full 
 value of his improvements. 
 
 The difference between rent in the economic sense 
 and rent as commonly understood has already been 
 referred to. But a greater difficulty is presented in 
 those systems of land tenure which do not clearly 
 distinguish between improvements effected by the 
 landlord and those which are in natural justice 
 tenants' capital. No plan can be suggested of deal- 
 ing with such land so as to raise the condition of its 
 cultivators, and to get the greatest possible benefit 
 to the nation, except that of altering the system of 
 tenure so as to secure to the tenant the full value of 
 his improvements. Without this it is impossible 
 that men should be induced to put forth their efforts 
 to make their land more productive. With it 
 
Il6 PXONOMICS AND SOCIALISM 
 
 scarcely any difficulty will prevent their doing so, 
 although in this case, as in every other matter, one 
 man's efforts will greatly differ from those of an- 
 other. 
 
 Even a high rent (in the common acceptation) is 
 much less of an evil than insecurity with regard to 
 improvements. But it must be clearly understood 
 that the rent must not exceed what the tenant can 
 pay. Very great injury has been wrought in Ireland 
 by the rents being fixed higher than the tenants 
 could by any means pay, and allowing them to get 
 continually into arrear. Under these circumstances 
 they were constantly in the position of insolvent 
 debtors, or perhaps even of slaves, who could not 
 hope to have property of their own. Their only 
 plan was so to cultivate their land as to appear poor, 
 and thus be allowed to remain on the farm, paying 
 what they could afford. The principle is the same 
 in both cases. The conditions of tenure are not 
 such that the holder of the land can have any 
 reasonable hope of enjoying for himself the improve- 
 ments he may make to the land and the additional 
 produce which may result from the greater applica- 
 tion of capital and labour. 
 
 Men will accomplish great tasks if the induce- 
 ment is sufficient and there is hope of success, but 
 if they have no hope of success they will make no 
 effort. On the other hand, it has sometimes been 
 remarked with what poor rewards men would be 
 content if they were sure of that little. This 
 tendency has been called the magic of property. 
 But there appears no ground for the use of the 
 expression magic. It is a natural tendency. There 
 
RENT OF LAND 117 
 
 would be more need for the art of the necromancer 
 to induce men to put forth additional efforts the 
 benefit of which was to go to others, and not to 
 themselves. It is especially so in this case, seeing 
 that those who would obtain the benefits of their 
 labour need those benefits less than the labourers 
 themselves do. There is no question here of self- 
 denying effort for the wretched and suffering. 
 
 It need hardly be stated that the economist can 
 have nothing to say in favour of any arrangement 
 which fails to secure to each the result of his own 
 labour. The mischief from his point of view is not 
 so much that it enables the landowner to take for 
 his own benefit the value which justly belongs to the 
 tenant, but that it prevents the tenant creating the 
 value. It is not that the tenant is robbed of his 
 improvements, but that he is robbed of the incentive 
 to make them. It may readily be conceded that 
 few cases of actual forfeiture of such improvements 
 exist, but few opportunities are offered. The nation 
 is the poorer for the inefficient occupation of the 
 land. This result follows from all systems which 
 are inconsistent with a definite contract rigorously 
 carried out and giving to each party to it an enforce- 
 able right to his own creation of value. Not to give 
 a tenant a right to the full value of his improvements 
 is to prevent his making those improvements. To 
 permit him to continue occupying land at a nominal 
 rent, which, on account of his poverty, he does not 
 pay, is to encourage him in that poverty as a means 
 of avoiding payment. It is, moreover, to keep out 
 of occupation some one who would make better use 
 of the land. These evils have existed in England 
 
Il8 ECONOMICS AND SOCIALISM 
 
 and particularly so in Ireland amongst agricultural- 
 ists. 
 
 Closely connected with the evils already men- 
 tioned, and coming under a similar condemnation, 
 differing only in degree, are some older customs. 
 One of these is the metayer system, under which the 
 tenant pays by way of rent a fixed proportion of the 
 produce of his farm. It is true that under this 
 system he has a perpetual holding of the land, but it 
 is evident that of any improvement he may make or 
 of any additional industry he may exert a portion 
 must go to the landowner. So that the difference is 
 only one of degree between this tenancy and that 
 which gives the landowner the right to all the 
 tenant's improvements. 
 
 Once more, and for a similar reason, the economist 
 cannot commend communal holding of land in any 
 of the various forms which have obtained in the 
 earlier stages of civilization. They were doubtless 
 enough for the times in which they obtained, but 
 they fail to enable each one to enjoy his own im- 
 provements. 
 
 These various defects in land tenures have the 
 one feature in common that, by failing to offer an 
 inducement to it, they do not tend to the improve- 
 ment of land as a wealth producer. It may be laid 
 down as an axiom that any perfect system of land 
 tenure must secure to each the benefit of his own 
 capital and labour. And something will have to be 
 said in another place as to how this is to be done. 
 Speaking generally, all these defective tenures belong 
 to the era of civilization to which, as will hereafter 
 be pointed out, socialism belongs. The rule of 
 
RENT OF LAND 119 
 
 persons is apparent in each of them. They are sur- 
 vivals of the notion that certain persons have by 
 nature, or rather by conquest, a pre-eminent right to 
 own and enjoy the land. In the worst of them it 
 would seem that all not so favoured should be 
 thankful for the opportunity of cultivating the land, 
 paying the landowner a portion of its productions for 
 the privilege. Indeed, there is in these customs a 
 flavour of personal servitude. 
 
 Even with regard to the communal form of hold- 
 ing there seems to be the absence of any provision 
 for permitting the introduction of new members, as 
 though those already in the place had an exclusive 
 right to that land. 
 
 A use of land differing in its nature from the 
 various forms of cultivation is that which includes 
 mining, quarrying, and other forms of taking the 
 actual substance of the land. In this connection 
 some views of Ricardo's maybe noticed. He states 
 that •* rent is that portion of the produce of the 
 earth which is paid to the landlord for the use of 
 the original and indestructible powers of the soil." 
 In many cases the rent is not paid to any landlord. 
 For economic rent exists even when the land is in 
 the hands of the freeholder. And in other cases, 
 such as those of long leases, the lessee enjoys a por- 
 tion of the true economic rent. An objection more 
 to the present purpose, however, refers to that part 
 of the definition which speaks of the rent being for 
 the original and indestructible powers of the soil. 
 It will readily be seen that the soil is only a portion 
 of what is paid for. But we need not lay stress on 
 merely verbal incompleteness. This Ricardo would 
 
I20 ECONOMICS AND SOCIALISM 
 
 perhaps have admitted. He realized that agricul- 
 tural land (even in its wider sense) was not the only 
 land for which rent was paid. He spoke of the 
 rent of mines. 
 
 There is still another objection to the definition, 
 and that is found in the word indestructible. It is 
 submitted that the word is misleading, and vitiates 
 the definition. There is no need that the qualities 
 for which rent is paid should be indestructible. 
 Indeed, it is difficult to say what powers or qualities 
 are indestructible. Most qualities of land are de- 
 structible if means of destruction be taken. A 
 stream may be diverted ; the land may be flooded ; 
 even the constant cropping of virgin soil will de- 
 stroy its original fertility ; to say nothing of the 
 breaking up of fertile land for mining or building. 
 And yet these powers are natural and inherent in 
 the soil, and are, therefore, the proper subjects of 
 rent. 
 
 Now Ricardo used this expression advisedly. 
 He proceeds to enforce it. He objects to the use 
 by Adam Smith of the term rent in its economic 
 sense for natural forest lands. Because, says he, 
 the benefit of holding them is to take away the 
 timber, and not to use the soil. He also objects to 
 the use of the term rent as applied to coal mines 
 and stone quarries. It is a compensation paid for 
 the value of the coal or stone which can be removed, 
 and has no connection with the original and inde- 
 structible powers of the soil. This objection does 
 not seem capable of being sustained. These pay- 
 ments are payments for the use of land in any rea- 
 sonable meaning of that expression. They are 
 
RENT OF LAND - 12 1 
 
 subject to the same law of rent as payments for 
 land of the previously mentioned class. Whether 
 with mines, quarries, or forests, the most profitable 
 will be used first, the less profitable afterwards. 
 And a rent will be obtainable for the best when a 
 w^orse must be taken into use. As with other land 
 it may occur that a more fertile mine or forest is 
 left until after a less fertile mine has been worked, 
 because of the greater convenience of access of the 
 latter. In all cases of economic division of wealth 
 we have to do with relative shares as shown by 
 value, and not with actual quantities of the com- 
 modity available. If this objection of Ricardo's 
 were allowed, the science would have no place for 
 the payment of mine and similar rents. It certainly 
 is not interest on capital or wages of labour. And 
 all payment for the use of land in its natural con- 
 dition must be included in rent of land, or endless 
 confusion will ensue. With regard to forests as 
 included in this class of land, it must be borne in 
 mind that only timber lands remaining in their 
 original condition are included. If the timber has 
 been planted and otherwise cared for, the land is 
 included under the first class mentioned in this 
 chapter. 
 
 As to the land included in this class, none of the 
 difficulties mentioned with regard to the previous 
 class seem to exist. The whole matter belongs 
 more to modern days. The holder of the land 
 generally expends all the capital which is expended 
 in preparing the land for profitable working of the 
 substance to be taken from it. The payment to the 
 landowner is purely economic rent,.^~A4l-interest on 
 
 fXJlTIVERSITT) 
 
122 ECONOMICS AND SOCIALISM 
 
 capital is included in the tenant's profits. Where, 
 however, the landowner is the actual holder the rent 
 is not already separated. None the less, however, 
 it is generally easy in the matter of value to separate 
 land from capital. It may also occur in a few 
 instances that on account of the existence of a long 
 lease the actual payment made for rent is greater or 
 less than the value of the mine. The true economic 
 rent of that mine or forest may have varied by the 
 opening of better mines or forests, or by the in- 
 creased demand for its products. But this is not 
 a matter which need be discussed here at any 
 length. The true economic rent is sufficiently as- 
 certainable, although the party gaining by the 
 change would scarcely be willing needlessly to re- 
 open the contract. 
 
 The use of land for building purposes is a third 
 distinguishable form of occupation. In this instance 
 the natural elements of utility are the space, the solid 
 foundation, and the light and air. The light and 
 air are, of course, closely connected with climate, but 
 climate does not as a rule enter into the advantages 
 in the same way as in the case of the land used for 
 cultivation. An exception occurs in the case of 
 some manufactures in which certain atmospheric 
 influences are important for the proper working of 
 the material. In the case of houses for habitation 
 the climate is also a consideration of comfort. But 
 the class will include, not only sites of dwelling- 
 houses and of mills and works for manufacturing 
 purposes, but also such land as is required for shafts 
 and head-gear of coal mines, and other similar forms 
 of capital. It should, moreover, include sites of 
 
RENT OF LAND I 23 
 
 railways, docks, and markets. In this class the 
 chief point considered is situation ; as in the second 
 class desirability and accessibility of natural sub- 
 stances to be carried away, and in the first class 
 soil and climate, are considered in choosing land. 
 Not that these are the only considerations taken 
 into account. In the last case, for instance, it is of 
 importance that even with a good soil and climate 
 the market should not be too distant. But the 
 essential qualifications for the production of the 
 wealth are those stated. Other considerations show 
 that the requirements of the other classes must not 
 be entirely absent. This applies to each of the 
 classes. 
 
 With regard to the third class of occupation, the 
 division into rent of land and interest on capital is 
 not particularly difficult. But it must not be con- 
 cluded that the ground- rent fixed by contract be- 
 tween two parties is invariably the true economic 
 rent. In numerous instances the land and the 
 buildings are held as the property of the same 
 person. In these instances it seldom or never 
 occurs that there is any difficulty in ascertaining the 
 relative values of the buildings and the site on 
 which they stand. This would be so, not only in 
 the case of actual erections, but also of such works 
 as railways, docks, wharfs, shafts, and all artificial 
 ways. 
 
 In other cases, however, leases have been made 
 for longer or shorter periods at fixed rents. The 
 lessees usually covenant to erect certain buildings, 
 and to hand them over in good repair to the land- 
 owner at the expiration of the term for which the 
 
124 ECONOMICS AND SOCIALISM 
 
 lease Is granted. This is an arrangement which 
 merits to the full the condemnation already passed 
 on the various systems which fail to secure to each 
 the result of his labour. In the case of building 
 leases for short terms much hardship exists in this 
 respect. It is not here complained that the lessee 
 is in any way defrauded. He makes the arrange- 
 ment in full view of the consequences. It must be 
 confessed that frequently he must make the arrange- 
 ment or suffer loss in another direction. But the 
 complaint is chiefly that these conditions defer per- 
 sons from building or using the land. The conse- 
 quence of this is the nation's poverty. Particularly 
 it may be mentioned that the poor are wretchedly 
 housed. It would be altogether contrary to the 
 spirit of this book to say a word against freedom of 
 contract. But there can be no denying that the 
 conditions which compel such leases are amongst the 
 evils to be removed by the right understanding and 
 proper observation of economic laws. And there is 
 every possibility of removing these evils by obvious 
 and just methods, which shall be suggested. 
 
 The rent fixed by these leases cannot always, it is 
 evident, be the true economic rent. It must be more 
 or less invariable. So that when the margin of use 
 rises or falls, decreasing or increasing economic rent, 
 the result must be that the fixed rent is above or 
 below the economic rent. This is so even if the 
 rent fixed in the first instance was as nearly as 
 possible the true rent in the economic sense, which 
 is not always the case. Economic rent will ac- 
 cordingly often be found partly in the hands of the 
 lessor and partly in those of the lessee. But there 
 
RENT OF LAND I 25 
 
 can be little or no difficulty in any of the cases 
 included in this class in ascertaining what it is and 
 who is in enjoyment of it. 
 
 Reference was made in the previous chapter to the 
 difference between absolute and relative shares. It 
 was stated that the absolute or actual share did not 
 necessarily follow the rise and fall of the relative share 
 with which this science has to do. This may be 
 further illustrated and enforced in the case of rent. 
 To adopt Ricardo's favourite method of argument, 
 suppose a district or country in which land is culti- 
 vated of five different degrees of fertility. Suppose 
 that on the worst (on which no rent is paid) capital 
 and labour produce for themselves four ; and that on 
 the other portions five, six, seven and eight re- 
 spectively are produced. Of these quantities natur- 
 ally rent will take one, two, three and four respec- 
 tively. Total for rent, ten. Total for capital and 
 labour, twenty. The share of rent is one third of the 
 whole. Now suppose that by better facilities for 
 cultivation or trade the produce is exactly doubled 
 without any increase of population. This will 
 give sixty, instead of thirty. But, for convenience of 
 illustration, let it be supposed that only fifty-two are 
 required for the maintenance of the population. This 
 is a sufficiently considerable increase on thirty to 
 give to consumption of wealth. We then have each 
 of the different portions of land producing double its 
 former amount. But the portion formerly producing 
 four can be spared altogether, although it now pro- 
 duces eight. Rent will accordingly cease to be paid 
 on the portion producing five, which now produces 
 ten. The other three produce, respectively, twelve, 
 
126 ECONOMICS AND SOCIALISM 
 
 fourteen and sixteen, of which two, four and six are 
 rent. Total rent now, twelve, an actual increase of 
 two on the former rent. Total for capital and 
 labour, forty, double the former amount. The share 
 of rent is less than one-fourth of the whole, a de- 
 crease relatively on the former share of one-third. 
 
 What, then, does Ricardo mean when he says : "It 
 is obvious that the landlord is doubly benefitted by 
 difficulty of production. First, he obtains a greater 
 share ; and, secondly, the commodity in which he is 
 paid is of greater value" ? As stated and argued b)'' 
 him this statement is very plausible. But it requires 
 careful examination. First, we are told the land- 
 lord obtains a greater share by the difficulty of pro- 
 duction. This is true ; but it is a greater share in a 
 smaller total. And one half of five is less than one 
 fourth of eleven. That is, to double his share will 
 give him actually less, if the total produced is re- 
 duced more than one half. Always it must be 
 considered whether the greater relative share is in a 
 greater or less total, so that the landlord may 
 possibly not be benefitted by the greater share. 
 
 Secondly, we are told the commodity in which the 
 landlord is paid is of greater value. We should 
 naturally expect so from the fact that scarcity is one 
 of the elements of value ; though, doubtless, the 
 notion of value never occurred to Ricardo in this 
 way. Perhaps, for the moment, Ricardo confused 
 value with utility. But he knew the difference, and 
 could never have thouorht that the corn or other 
 
 o 
 
 commodity possessed greater utility because of its 
 difficulty of production and scarcity. He, however, 
 seems to show that he meant value calculated in 
 
RENT OF LAND I27 
 
 money. But value in money may or may not be a 
 benefit, according as the money will exchange for 
 commodities. In the true notion of it money, as 
 already seen, is only valuable as a means of 
 obtaining other commodities. If, then, the landlord 
 obtains a share more valuable in money, he will have 
 to consider whether the money will produce more of 
 other commodities. If it will not, he will not be 
 benefitted ; and if other commodities have been sub- 
 ject to the same increased difficulty of production, 
 evidently it will not command more of those com- 
 modities, and, therefore, if in the matter of other 
 productions the same has occurred as in those pro- 
 duced on his land, he will not be benefitted at all in 
 the way of value by the reduced production. 
 
 His greater share may amount to less because, as 
 we saw, the whole of which it is a part is proportion- 
 ately more diminished. The greater value is of no 
 benefit to him unless it will command, not merely 
 more money, but more commodities. So that 
 Ricardo seems to have been in a state of confusion 
 in making this assertion. There is just one thing 
 more possibly in his favour. He evidently intended 
 to treat money as a commodity. This is not strictly 
 allowable, but suppose it be conceded for this 
 instance. The necessary inference is that the com- 
 modity money has not increased in difficulty of pro- 
 duction. Otherwise the commodity of the landlord in 
 question would not have been increased in value com- 
 pared with it. So that, even allowing this strained in- 
 terpretation of what Ricardo meant,it does not amount 
 to much. It supposes only land producing a parti- 
 cular commodity. All the land producing other 
 
128 ECONOMICS AND SOCIALISM 
 
 commodities must continue to bring forth as much as 
 before. The particular commodity in question must 
 not be otherwise producible, or the scarcity and high 
 value will not be felt. Even with this monopoly the 
 landlord only gets a larger share in a smaller 
 quantity. It is lamentable consolation for making 
 the actual producers poorer. 
 
 The practical bearing of the point is this. If the 
 holders of the land which produces a certain com- 
 modity can prevent that commodity from being im- 
 ported from elsewhere, they will keep for themselves 
 a larger proportionate share of it, and also make it 
 more valuable compared with other commodities. 
 They will benefit themselves at the expense of the 
 community. But the holders of all the land in a 
 place cannot obtain more wealth by taking care to 
 reduce supply, with a view to obtaining a greater 
 share. The increased value in money would be 
 spent in a higher value of other things. 
 
 It would be unfortunate if it could be shown that 
 difficulty of production would absolutely benefit a 
 whole class of people. Happily it cannot be so 
 shown, whatever may be true with regard to single 
 individuals. It is true that this does not disprove 
 the fact that greater scarcity causes greater de- 
 pendence of the poor on the rich. It will not be 
 even disputed that the difficulty of production, and 
 consequent poverty, is a barrier to independence. 
 Those who wish to see this personal servitude, as 
 it may without impropriety be called, must be left to 
 advocate at their will the restrictions which tend to 
 the poverty which supports it. Even more than this 
 may be admitted to those whose desires lead them 
 
RENT OF LAND I 29 
 
 in the direction indicated. The relative share of 
 rent is capable of being increased by reducing 
 supply. And men often count themselves rich by 
 comparison with those around them, rather than by 
 their actual advantages. So that there is some 
 reason to account for the owners of the soil oppos- 
 ing free trade. 
 
 As to the effect of free trade in commodities on 
 rent, it may be expressed as a letting in of the 
 margin of cultivation of the whole world. If the 
 importation of a particular commodity can be pro- 
 hibited or made costly, worse land for its culti- 
 vation must be used than would be if trade were 
 free. The margin of cultivation is artificially de- 
 pressed to the advantage of rent and the dis- 
 advantage of wages and interest. If trade be again 
 set free, the land of that country is treated as that of 
 other countries, and the margin of cultivation rises 
 to the natural level at which it stands in the whole 
 world. In the case of an artificial depression of the 
 margin for one commodity, it must follow that a 
 corresponding artificial rise will take place with 
 regard to another, and, even to the landowners, the 
 country, as a whole, will give less wealth for the 
 interference and consequent difficulty of supply ; 
 while to capitalists and labourers the difference will 
 be even more material. 
 
 It was pointed out that the laws of supply and 
 demand considered as economic laws of the market 
 applied to land in the same way as to wealth. But 
 beyond the market they do not apply in the same 
 way. Land is not capable of increase as wealth is. 
 It is the gift of the Creator of the earth. The 
 
 K 
 
130 ECONOMICS AND SOCIALISM 
 
 supply of it, though enough to all appearance for 
 man's needs, is not capable of increase by man. 
 Land in the economic sense refers only to nature's 
 free gift. So that ultimately, and outside the market, 
 land is not subject to the influence of further supply 
 and consequent fall of price. Its value depends 
 entirely on the demand for it. In the market there 
 may be rises and falls of price caused by and 
 affecting supply and demand. But if the demand 
 continues to increase, as with increased population 
 it must, there are no means of meeting the greater 
 demand by a correspondingly greater supply. The 
 price must rise. In other words, the value of 
 land depends entirely on the needs of the people. 
 It does not depend on any difficulty overcome or 
 labour necessarily exerted by individuals. The land 
 was once free and valueless, although potentially 
 useful. Now it is valuable because scarce, and the 
 greater the scarcity of wealth, and the consequent 
 need for it, the greater its value. 
 
 Hitherto the value and other incidents of land 
 have been discussed without any reference to the 
 question of who in natural justice was entitled to 
 that value. The point must receive consideration 
 in the next chapter. 
 
CHAPTER IX 
 
 TAXATION 
 
 Although taxation in its origin usually owes its 
 existence to might rather than to right, it does 
 not follow that there is no justice in it. But even 
 when the right to tax is fully established, it has still 
 to be considered that there may be a right way and 
 several wrong ways of carrying out that which in 
 itself is by nature lawful and expedient. Nor does 
 the justice of the claim of the community oi] the 
 individual, any more than that of any other claim, 
 cure the injustice of the mode of obtaining its 
 satisfaction. 
 
 Yet, taking England, even in recent years, for 
 instance, careful consideration will convince any one 
 with the ability to grasp the subject that no proper 
 principle of taxation has hitherto been adopted in 
 this country. And he will look in vain for any 
 appreciable measure of justice or true expediency 
 in any one of the methods in which taxation is 
 carried out. To examine each one in detail is 
 beyond the scope of this book, and not necessary 
 for the present purpose. 
 
 The modes of taxation adopted in most other 
 
 countries are even worse than those of England. 
 
 For in them appears the still generally received 
 
 idea that various industries should be protected. 
 
 131 
 
132 ECONOMICS AND SOCIALISM 
 
 This is done by as far as possible preventing those 
 who carry on these industries from having what 
 they desire, unless what they desire is produced 
 in their own country. It will, of course, be remem- 
 bered that some persons having considerable gov- 
 erning power there own the soil of the country. 
 They do not own the soil of other countries. They 
 would, therefore, be unable to make good any claim 
 for rent on the goods imported from abroad. The 
 effect of this protection on landowners has been 
 sufficiently noticed. What was said applied even to 
 a country where a class exists subsisting on the 
 share of rent. But where land is owned in smaller 
 portions by persons who must also labour the evil 
 is much more contrary to the interests of all classes. 
 
 The question of a government's right in the 
 abstract to demand taxes from the people under its 
 rule need not be discussed. It belongs more to 
 political philosophy than to economics. So that the 
 right of taxation will be conceded to every properly 
 constituted government without further consider- 
 ation. Nor will the expenditure of the taxes 
 raised be dealt with at any great length in this 
 book. 
 
 The only question arising, therefore, is : granted 
 the right of taxation, how shall it be carried out ? 
 We require a principle of taxation. Economists 
 have usually offered only maxims. Some others 
 have endeavoured to abstract and point out 
 principles of taxation. But, as will be seen, the 
 proper principle of taxation is a question for the 
 economist. The philosopher who deals only with 
 principles of legislation or of morals, even including 
 
TAXATIOr^ ^ OP THE ^^i'^^ 133 
 
 the institution of property and its regulation, can 
 have no particular concern with the principle of 
 taxation. He may say that it should be fair, just, 
 equitable, and in those senses equal to all. The 
 economist will concede that, and observe it. But 
 this taxation is a question of the production and 
 supply of wealth in the economic sense, and not 
 rnerely a question of property. To deal with the 
 subject as it should be dealt with requires a know- 
 ledge of the conditions of the supply of wealth, its 
 production, distribution and division. Clearly no 
 principle beyond the obvious ethical principle that 
 taxation should be according to natural justice can 
 be reached without such knowledge and its applica- 
 tion. 
 
 It is true that even such an ethical principle 
 carries with it the conclusion that taxation should 
 be compulsory. Were it not so, were every man 
 permitted to contribute as he would, the exchequer 
 would be filled accordinor to the consciences of 
 individuals, which are not equally enlightened or 
 active. To admit the principle that men may con- 
 tribute according to their liberality or selfishness 
 would be a sure means of injustice. To permit a 
 person to withhold his contribution to the revenue on 
 the ground of his disapproval of the government 
 expenditure would be equally inexpedient. It is 
 much better to leave to private benevolence all 
 supposed government duties, on the importance of 
 which there is not sufficient concensus of opinion. 
 
 But the duty of the economist is not so much 
 with the ethical principles as with other consider- 
 ations, whilst not neglecting principles of justice. 
 
134 ECONOMICS AND SOCIALISM 
 
 The various maxims of taxation only touch the 
 fringe of the subject. Taxation should certainly be 
 equal, if equality here means justice. It should be 
 certain, and conveniently and economically imposed. 
 These are the leading ideas of Smith's maxims of 
 taxation. But there is nothing in them or in his 
 application of them which goes to the root of the 
 subject, and applies the science of economics to the 
 subject of taxation. Mr. Henry George adopts as 
 his first maxim that taxation should bear as lightly 
 as possible upon production. Which is certainly 
 what would be expected from an economist who 
 puts before him the task of finding the most perfect 
 conditions of wealth supply. But we are still with- 
 out a principle of application. It is proposed to 
 reach one by proceeding from first principles and 
 the foundation facts of the science, and not by 
 stating maxims, as Adam Smith did, or by enquir- 
 ing for the cause of poverty, as Mr. George did. 
 Neither of these methods would produce a true 
 principle. Smith's lacked application. Mr. George 
 happened to hit the right method, but did not reach 
 the true principle. And the conclusion to which 
 he had come before, and on which, he stated this 
 maxim of taxation, was, as will be shown, incorrect. 
 The maxim was but a maxim, and not a foundation 
 principle. 
 
 It may be stated as a preliminary principle that 
 justice demands the rendering to every man of his 
 own. That is a truism. For the sense in which 
 the expression '* his own " is here used is that of 
 strict natural justice. What the more or less imper- 
 fect laws of any state may accord to the man is 
 
TAXATION 135 
 
 another question. In the first place, natural justice 
 would certainly accord his own self to any man. 
 The inherent powers of his body and mind are his 
 own. He may owe a debt of gratitude to his 
 Creator, to the race of men who have gone before, 
 to the nation who gave him his existence. But 
 gratitude is not a debt which is capable of exact 
 estimation. It is even a matter of opinion for every 
 man whether his existence is a blessing to be grate- 
 ful for or not. Certainly no one outside himself has 
 the right of determining to what extent he should 
 show his gratitude for bare existence. This applies 
 in his relations to the vague set of individuals 
 known as the race, nation, or community, with all its 
 force. It would even seem to apply to those who 
 are the direct ancestors of any individual, to whom 
 alone he can be considered Indebted for existence. 
 His nearest collateral relatives have no claim on him 
 for his existence. And the remarks just made 
 seem to apply even to those who have actually 
 conferred an existence which may seem to any one 
 a blessing or a curse, according to its nature and 
 circumstances. 
 
 The considerations, however, apply only to the 
 individual's own self. He may, nevertheless, be 
 under obligation to others on account of contracts 
 he has made with them. And certainly he is under 
 obligation to those for whose existence in the world 
 he is responsible. The extent of these latter 
 obligations is made to vary according to the differ- 
 ent laws of various states. But a natural instinct 
 exists in the average person, which goes a consider- 
 able way towards causing him to meet them. 
 
136 ECONOMICS AND SOCIALISM 
 
 Moreover, it must be understood that this right 
 of the individual does not apply to anything outside 
 himself. Particularly, as will shortly be pointed out, 
 it does not apply to the land. That is a portion of 
 the earth, and must receive different treatment. It 
 does, however, apply to his own labour ; a right to 
 that must be conceded to every one. It may be 
 objected that the hopelessly invalid and helplessly 
 deformed must on this argument be left uncared for. 
 So far as the community is concerned, that is the 
 case. Those who cause their existence are in strict- 
 ness responsible for their care. But it may possibly 
 be found that there is no need to carry this point to 
 its final logical conclusion. 
 
 That the community should undertake the pro- 
 tection of its members implies that the strict right 
 now under consideration is likely to be invaded. 
 Such an undertaking by the community does not 
 militate against the principle now contended for. 
 Even a tax levied for this protection, if justly applied, 
 cannot be called an invasion of the rights of the 
 subject. The small injustice it inflicts is more than 
 compensated for by the protection it affords against 
 a greater injustice such as is likely to be suffered 
 from the most dishonest of the community. On 
 abstract principle each has a right to justice from 
 the rest of the community free of cost to himself. 
 But, as some are far from being honest, it is not 
 inequitable that all should be compelled to contribute, 
 if contribution must be had, towards restraining all 
 possible injustice. Those who attempt the injustice 
 will rightly be caused to suffer punishment. 
 
 There is no question here as to whether men 
 
TAXATION 137 
 
 should Stand on their just rights in selfish indiffer- 
 ence to those less fortunate by nature or circum- 
 stances. They may, of course, give voluntarily more 
 than is just. But if they are compelled to do more 
 than is just it becomes unjust. Still, the right here 
 contended for does not extend to any right beyond 
 that of mere existence and the use of inherent 
 powers. The additional advantages offered by a 
 civilized community are often such that a person 
 enjoying them may be called upon to contribute in 
 proportion to what he receives of them. That, how- 
 ever, is a question which scarcely arises at present. 
 Every individual man or woman having a separate 
 existence has a right to himself or herself and the 
 exercise of his or her powers. This naturally sup- 
 poses that the rights of others are not invaded. To 
 suppose otherwise is to deny the right itself. And 
 were this principle of individual right not admitted, 
 it would amount to the assertion that some had a 
 right to themselves and others. Whoever might 
 attempt to interfere with the liberty of even one 
 person would by that act be asserting more than an 
 equal right. Though the persons interfering should 
 amount to all save the one interfered with, they 
 would be asserting a right to themselves together 
 with rights over that person. Unless he had be- 
 come, or was likely to become, aggressive on the 
 rights of others the interference could not be justi- 
 fied. 
 
 This should surely be enough to show that taxation 
 should not be based upon the exercise of the labour 
 of the subject. It should not be proportioned to 
 his natural abilities or the exertion put forth by him. 
 
138 ECONOMICS AND SOCIALISM 
 
 This appears to dispose of one element of produc- 
 tion. But the subject may be taken in hand after 
 other facts have been taken into account. 
 
 Another element of production is land. Its case 
 is very different from that of labour. The human 
 race claims to have a right to the enjoyment of the 
 earth on which men find they have their existence. 
 Man cannot properly be indifferent to the sufferings 
 of the lower animals. At any rate, he has no right 
 unnecessarily to inflict such sufferings. But it will 
 scarcely need to be argued that so far as they militate 
 against his enjoyment of the earth his right is para- 
 mount. As the highest of living creatures, it is but 
 fitting that he should have as much of the earth as 
 he requires. There may possibly be other reasons, 
 as that the human race utilises the land better than 
 other creatures. But since the invention of gun- 
 powder there has been no great necessity for arguing 
 this point at great length. Indeed, the right to use 
 and own the lower animals has already been con- 
 ceded in a former chapter. 
 
 But what as between members of the human 
 species itself ? The rights of the lower animals are 
 admittedly subservient to those of the human race. 
 But may any of the human race itself be excluded 
 from an equal right to the earth ? If so, on what 
 ground ? It is difficult, and it would seem impossible, 
 to find any ground for the exclusion of any man or 
 number of men from their natural right to enjoyment 
 of the earth. To concede to any particular nation, 
 race, or colour of mankind a pre-eminent right im- 
 plies their superiority over others. That claim must 
 be proved before it can be admitted. It can only 
 
TAXATION 139 
 
 be proved by events. The nation or race must 
 exhibit and exert its superiority. That which ulti- 
 mately survives will show that it was superior. 
 There is no a priori method of ascertaining that 
 any section of mankind should have an exclusive 
 right to the earth. . To say that the strongest should 
 enjoy it is merely to contend that the present holders 
 should retain it until others are strong enough to 
 turn them out of possession. In abstract justice, 
 assuming that the earth is for the human race, it 
 must evidently be for the human race equally. If, 
 then, a tax can be fairly applied to land in any way 
 there will be no injustice in it. 
 
 We have in the two elements now mentioned the 
 ultimate sources of all wealth. Capital is itself the 
 union of the two. Land and labour are entirely 
 distinct. Any tax on capital may fall on both land 
 and labour, for both these elements are found in it. 
 There might be a tax on land, excluding labour, 
 or on labour, excluding land, but if on capital, it 
 might include all three, or not, according to complex 
 considerations of its incidence. The question of 
 taxing capital, therefore, will be left until it is fully 
 determined on which of the original sources of wealth 
 taxation ought more properly to be placed. 
 
 We have here, then, the earth given to all, and 
 labour in the just and true ownership of individuals. 
 It was said at the outset that taxation must have 
 special regard to wealth production. The struggle 
 for existence is, to a considerable extent, the cause 
 of the expenditure of taxation. The need for wealth 
 which that struggle implies is still more certainly 
 that which produces the need for taxation. Could 
 
I40 ECONOMICS AND SOCIALISM 
 
 men live without wealth government might be 
 carried on without it. But it is impossible to do so. 
 And the source or sources from which wealth is 
 drawn must be carefully considered in fixing a basis 
 of taxation. Shall the incidence of taxation be on 
 the labour, or on the land entering into the produc- 
 tion of that wealth ? 
 
 The condition of the nation must be considered. 
 In the case of a wandering tribe of people living on 
 what they found growing naturally, it might be fair 
 that all should contribute equally. The same op- 
 portunities would be open to all, and granted a right 
 of taxation, there could be nothing unfair in such a 
 tax. It might even occur that each should con- 
 tribute in proportion to his revenue. Good fortune 
 would have something to do with that revenue. 
 The more fortunate would, under such an arrange- 
 ment, keep at least a portion for themselves of their 
 larger gettings. And if the revenue were through 
 the keeping of cattle, it would have to be considered 
 that those of the larger revenue had obtained a 
 better share of the pastures. A more just arrange- 
 ment still would be a tax in proportion to those 
 cattle. But this only applies to such a wandering 
 tribe. They need no exact scientific economics. 
 Their government is not kept up by a payment of 
 wealth, but by a rendering of unpaid services. 
 Each is, moreover, free to take of the fruits of the 
 earth at his will. 
 
 The governments for whom a system of taxation 
 is required are very different. They are territorial, 
 rather than personal. They have left the wander- 
 ing condition, with its purely personal bond. The 
 
TAXATION 141 
 
 King of the Angles becomes King of England. The 
 King of the Franks becomes King of France. 
 Colonists join themselves into territorial states. 
 States federate themselves for united government 
 of a larger tract of land. This is the condition in 
 which we have to deal with nations in treating of 
 taxation. There is nothing inconsistent with justice 
 in this territorial sway. But it must be clearly 
 understood that a nation which announces itself as 
 the owner for all time of a tract of land must hold 
 itself open to take in all comers. The earth is given 
 to man. No section has a right to say that of some 
 considerable portion of a continent they are the 
 exclusive owners. Nations may claim to own con- 
 tinents whilst they retain the expansive principle 
 of including all who may choose to become members 
 of the nation. Only on this condition can they 
 justly monopolize nature's free gift. 
 
 We have now, therefore, a government ruling 
 over and demanding taxes from all the people dwell- 
 ing in a given area. A further fact must be noted. 
 Not only have the people ceased to wander, but they 
 have ceased to depend on the unaided productions 
 of nature. The soil has fallen under cultivation. 
 The ground is monopolized for the various purposes 
 which go to make up the sum total of wealth pro- 
 duction. Much of the ground capable of producing 
 wealth is eagerly sought after. For some of it a 
 payment is willingly made in order to obtain its 
 possession. That for which no one is willing to 
 pay is comparatively useless. That which seems 
 most desirable is taken up. On and from it, in fact, 
 the wealth is at present produced. From the nature 
 
142 ECONOMICS AND SOCIALISM 
 
 of things it must be monopolized for at least a period 
 at a time if wealth is to be produced at all. 
 
 Now this is the land over which the government 
 requiring taxes rules. It was given free for all. It 
 is and must be monopolized for wealth production. 
 Its value is unequal. So that some are put at a 
 disadvantage compared with others in the matter 
 of wealth production. Can there be a better prin- 
 ciple of taxation, therefore, than this — namely, that 
 taxation should be in proportion to the value of the 
 monopoly held by the individual of that which by 
 nature is given for the free use of all ? 
 
 This alone is an equal tax. To tax that portion 
 of the community's property which each retains for 
 his own use is the only true mode of equalizing 
 taxation. The statement of the principle is its own 
 justification. The community may rightly base its 
 claim on the individual upon his monopoly of what 
 it has a right to by nature. The need for wealth 
 with the struggle for existence renders the tax 
 necessary. The community bases its claim on the 
 value which, as mentioned in the previous chapter, 
 arises from that need. Because the individual in- 
 vades the equal rights of the whole community he 
 is required to pay what he obtains beyond his true 
 share. 
 
 The tax offers, moreover, great advantages in 
 respect of its expediency. Reference was made to 
 the holding of land by some at a prohibitive price, 
 and to the consequent possibility of its being un- 
 cultivated, whilst its productions were needed for 
 the maintenance of the nation. A tax on the 
 monopoly each held would be the most efficient 
 
TAXATION 143 
 
 means of ensuring that he should use what he held 
 and hold none besides what he used. Here is the 
 solution of the problem, if the difficulty is in that 
 direction. 
 
 This is the true principle of taxation. Not the 
 taxation of what the individual gets, but the taxa- 
 tion of what he keeps from others, whereby alone 
 he can injure them. It is the taxation of land as 
 opposed to the taxation of labour. It is the com- 
 munity claiming its own, and not that to which it 
 has no right. In view of it the taxation of capital 
 need not be discussed. For to tax capital, which 
 includes labour, is to tax labour, wliich should be 
 left free. Land alone should be taxed. This con- 
 clusion is reached by an independent method. It 
 is the remedy advocated by Mr. George. But it 
 was advocated by him on the ground that land 
 monopoly was the great and only cause of poverty. 
 When it is shown, as it is proposed, that his argu- 
 ment was incorrect, there is a danger lest it be from 
 that stated that the conclusion was necessarily in- 
 correct. Many conclusions have been found true, 
 although the reasons given for them have been 
 false. This same tax was advocated by the 
 Physiocrats in France. But their arguments were 
 mixed with error, and for that reason the tax was 
 stated by writers, who at least ought to have known 
 better, to be entirely disposed of. Others have dis- 
 cussed and argued in favour of what were, in fact, 
 modifications of the same principle, but have not 
 boldly advocated the tax in its purity. 
 
 A few comparisons may serve to show more 
 clearly the nature of this tax. At the very opposite 
 
144 ECONOMICS AND SOCIALISM 
 
 end of the scale from It is communism, more recently 
 advocated under the name of socialism. Those who 
 have advocated socialism have frequently stated 
 that they do not mean by it what communism 
 means. They only desire the municipalization of 
 the means of production. But for the present pur- 
 poses this modification is of no moment. If the 
 community should take to itself the instruments of 
 production, it would of necessity also take the 
 labour required for the use of them. Whatever 
 means, therefore, were taken of paying the labourers, 
 whether in wealth, or in money or counters re- 
 presenting wealth, the labour itself must first go to 
 the community. There could be no free sale of it. 
 There could be no market for it, because the com- 
 munity would have taken the instruments required 
 for its exercise. This is but a means of appropria- 
 ting all the labour of the community, the government 
 in return undertaking to pay wages in one way or 
 another. Whether the wages should be equal or 
 unequal is for this purpose a matter of indifference. 
 Indeed, more than that might be said with regard to 
 how much of the subject is a matter of indifference. 
 This taxation of land, then, is the opposite to 
 socialism. 
 
 Between the two there are very various degrees. 
 A tax on income is a near approach to socialism. 
 Many incomes are entirely wages. A tax on them, 
 therefore, is purely a tax on labour. Several argu- 
 ments have been used in favour of an income tax. 
 It is not proposed to deal with them specifically ; 
 but this will be a convenient place to mention Adam 
 Smith's first maxim of taxation somewhat more in 
 
TAXATION 145 
 
 detail. He says, ** The subjects of every state 
 ought to contribute to the support of the govern- 
 ment as nearly as possible in proportion to their 
 respective abilities : that is, in proportion to the 
 revenue which they respectively enjoy under the 
 protection of the state." 
 
 The first clause of this sentence leaves the word 
 abilities very vague in its meaning. If it means 
 natural abilities, then the maxim is entirely contrary 
 to the contentions previously put forth in this 
 chapter. It seems, however, that the expression is 
 to be interpreted by the latter clause as referring to 
 the respective revenues of the subject. This is 
 clearly an advocacy of income tax. It may be said 
 at once that ability to pay is no just ground of taxa- 
 tion. Such ability may arise from additional industry, 
 and surely a man must not be called upon to pay 
 more because he has worked harder than another of 
 equal powers and opportunities. The other had 
 denied the ability, if he would have exercised it, 
 and the maxim by referring to revenue makes no 
 allowance for this. 
 
 Not much precise meaning, however, seems to 
 have been attached to the maxim by its author. 
 He likens the expenses of a government to the 
 expense of management to the joint tenants of a 
 great estate who are obliged to contribute in pro- 
 portion to their respective interests in the estate. 
 This would appear almost like the land tax ; for, no 
 doubt, the services rendered to the joint tenants 
 would be paid for in those expenses. Surely one 
 would not have to do all the work and another 
 enjoy the proceeds without his beingD^iid* ._. Yet the 
 
 UNIVERSITY 
 C-^UFORNIA* 
 
146 ECONOMICS AND SOCIALISM 
 
 author of the maxim goes on to say that every tax 
 which falls exclusively on one of the three sorts of 
 revenue above mentioned, is necessarily unequal. 
 It therefore offends against his maxim. 
 
 The three sorts of revenue are, of course, rent, 
 interest and wages. It is true that he had not 
 mastered the division of wealth as it has now been 
 explained. But in dealing with rent he had men- 
 tioned an interesting instance or two which ought to 
 have been sufficient to cause him to avoid the state- 
 ments of his maxim. He spoke, for example, of the 
 kelp covered by the sea half the day and gathered 
 in time of low water from the sea-shore. It owed 
 no existence to human cultivation. But the owner 
 of the adjoining land took a rent for the privilege 
 he conceded of gathering it. Another instance 
 mentioned is that of the habitations which some 
 inhabitants of the Shetland Islands must have on 
 the land in order to fish in the sea. It is stated 
 that ** the rent is in proportion, not to what the 
 farmer can make by the land, but to what he can 
 make both by the land and by the water." And 
 then the great economist says that taxation should 
 be in proportion to the revenues of these people, 
 and of the landlord to whom they pay the rent. 
 They produce the revenue of both themselves and 
 the landlord. There is no pretence that he has 
 done anything for it. They get much of the in- 
 come from the sea, which surely he did nothing to 
 make fruitful. But taxes are to be imposed equally 
 on what these poorer men keep for themselves and 
 what they pay him for being permitted to fish in the 
 sea. There would be less mockery in saying that 
 
TAXATION 147 
 
 poor people who own no land should pay all the 
 taxes, and also maintain themselves and landlords. 
 Income tax and this maxim, on which it appears to 
 be based, will not be further discussed. 
 
 Another principle of taxation has been advocated 
 under the name of equality of sacrifice. It is a 
 modification of Smith's equality. But it signally 
 fails to meet the difficulty. It supposes accurate 
 knowledge both of revenue and need. It would 
 have to take note of the difficulty with which each 
 secures his income ; of the expenditure necessary 
 for keeping the requisite establishment to secure 
 that income, which, in the case of many professional 
 men, is an absolute business expense; and of the 
 conditions of himself and his family, so as to 
 determine how much of his income he can properly 
 spare. Such a principle is little less than absurd, 
 because of the utter impossibility of applying it. 
 
 Taxes on capital, as already mentioned, are also a 
 stage between taxes on labour and taxes on land. 
 If the tax is paid only when capital has been put 
 upon the land, then it acts as a deterrent on using 
 the land. The income must be enough not only to 
 pay interest on the outlay, but also the taxation 
 which will result from making the outlay ; whilst a 
 tax placed on the land, whether used or not, tends 
 rather to induce the holder to put capital upon it. 
 Under the injurious class of taxes just referred to, 
 will be included taxes on the occupation of better 
 houses, which are clearly a tax on industry, and a 
 premium on living in inferior dwellings. Taxes 
 will, of course, include both local and imperial tax- 
 ation. 
 
148 ECONOMICS AND SOCIALISM 
 
 Nothing can be more injurious than the imposi- 
 tion of a tax upon the occupation of land or capital. 
 This is a method which greatly obtains in England. 
 It is said that many farms may be had rent free, if 
 the occupant will pay the local rates. But this is 
 more than they are worth, and they consequently 
 are out of cultivation, whilst men are out of work 
 and needing their productions. The question arises, 
 what security a possible holder would have for any 
 improvements he might make. But it appears that 
 the local taxes, known as rates, do have the effect of 
 preventing the occupation of land. The idea seems 
 to have recently obtained that economy in govern- 
 ment is of no importance compared with the 
 advantage of public bodies taking upon themselves 
 more and more of the duties suggested for them. 
 But in view of the deterring influence of the in- 
 creased taxation required for the multiplied duties, 
 there is something of irony in the fact that amongst 
 the duties so advocated is that of taking land 
 forcibly and putting men upon it for its cultivation. 
 It need scarcely be pointed out that the taxation of 
 land herein advocated would leave the land just 
 mentioned entirely free of taxes, local and imperial. 
 Only ground values would be subject to taxation, 
 not ground areas. 
 
 Taxes on commodities are also more or less a tax 
 on labour. They are amongst the most injurious of 
 taxes, offending particularly against Smith's third 
 maxim, that the tax should be so arranged as to 
 take out of the pockets of the people as little as pos- 
 sible beyond the amount received by the govern- 
 ment. The duty on commodities has to be paid 
 
TAXATION 149 
 
 whilst they are in considerable bulk. But they are 
 ultimately paid by the consumer. The producer 
 will only continue to produce the commodities if he 
 can put the taxes on the commodities ; otherwise it 
 would be better to produce commodities on which 
 no tax must be paid. The result of this is that 
 profits must also be paid on the duty or tax before 
 it reaches the consumer. These taxes also indirectly 
 operate to the creation of monopolies. 
 
 Duties by way of stamps on documents are fre- 
 quently collected. This system of taxation is said 
 to have ease of collection to recommend it ; but that 
 does not justify an unjust demand. And it is diffi- 
 cult to see on what grounds the community steps 
 between two persons, who would make a bargain, to 
 levy blackmail on the transaction. It certainly is an 
 express penalty on carrying on the business of ex- 
 change. 
 
 Death duties have frequently been suggested as 
 equitable taxes. The community has, however, no 
 more claim on the results of a person's labour at one 
 time of his life than at another. If any person has 
 property actually the result of his labour (as opposed 
 to that which still remains land), he ought, in justice, 
 to have a right to dispose of it as he will, either 
 during his lifetime or at his death. The subject of 
 limitations which are contrary to the policy of the 
 law is not now under consideration. The question 
 is, whether or not the community has a right to step 
 in between a dying man and the person for whose 
 benefit he has purposely been labouring and take a 
 portion of what he has left. There seems no warrant, 
 in justice, for such a proceeding. 
 
150 ECONOMICS AND SOCIALISM 
 
 Nor does there seem any justification for the 
 graduated taxation which has frequently been 
 advocated by economists. If a man has produced 
 what he enjoys, the fact that it is more than another 
 enjoys is no reason for taxing him at a higher rate. 
 The community should be grateful that he has pro- 
 duced a larger total to be taxed at the same rate : it 
 will produce a larger total of taxes. If it has be- 
 come money by sale, it is evident that those who 
 purchased it considered it more valuable to them 
 than the money they gave for it. The community 
 has already been benefited to the full extent of 
 the money. If the tax be that upon land, which is 
 now urged, it is evident that the person paying it, 
 even at the same rate as another, is making better 
 use of the land than any one else is prepared to do, 
 or he would not retain it. 
 
 The tax should be collected year by year from the 
 first takers of the benefits of the land. This would 
 ensure that the tax would fall upon economic rent, 
 a value which owes its existence not to any human 
 labour, but, as already mentioned, to human needs. 
 There could be no shifting of the tax from the 
 owner, who did not use the land, to the actual occu- 
 pier. For the occupier would in any case have to 
 pay all the land was worth in the market. The 
 price could not, therefore, be increased because of 
 the tax so as to shift the burden from the person 
 taxed. 
 
 The exact method of the imposition of the tax 
 will not be discussed ; it is more important to 
 establish the principle. It may be said, however, 
 that the tax would be easier to accurately assess, and 
 
TAXATION 151 
 
 also to collect, than any (beyond the most trivial) 
 now in existence. The owner of land would make 
 his own return, kept correct by a penalty of being 
 liable to be bought out at his own price. It would, 
 moreover, offer at once a solution of the problems of 
 leaseholds and land transfer. These matters have 
 been much discussed in England, but no reasonable 
 solution seems to have been suggested. 
 
 The tax would be entirely confined to rent in the 
 economic sense, so that the holders of land might 
 make improvements to any extent without any 
 additional tax being laid on them. So far as the 
 land might be occupied by the owner, this would be 
 everything required to secure to him his own im- 
 provements. But the imposition of this tax would 
 probably not only put land into the ownership of its 
 actual occupiers, but even, when it was let by 
 one to another, it would more probably ensure the 
 making of fair contracts. 
 
 These benefits, then, would accrue from the impo- 
 sition of what has been shown to be the only just 
 tax. It would prevent land from being held in idle- 
 ness when its productions were needed. It would 
 offer every encouragement to the fullest use of 
 land ; it would tend to introduce contracts securing 
 to each his own capital and labour. For it must not 
 be forgotten that if any one monopolised the land he 
 must either use it or pay for keeping it unused. 
 
 Nor could injustice follow from the imposition of 
 the tax. It would, of course, be introduced gradually, 
 so as to cause no more displacement of labour than 
 could be immediately absorbed. But it might com- 
 mence in any country as soon as a government 
 
152 ECONOMICS AND SOCIALISM 
 
 sufficiently enlightened and patriotic could be put 
 into power to introduce the reform. Those who 
 already used their land would find that taxes were 
 removed from the capital they had put upon it and 
 placed on the ground which formed the foundation. 
 Those who did not use their land would at once do 
 so, or part with it to some one who would do so. 
 
 Nor could any one really escape taxation. Every 
 one must have wealth ; and as wealth cannot be 
 produced without land, it would be impossible alto- 
 gether to escape its influence. Those who hold land 
 for which they must pay rent or taxes must neces- 
 sarily make the wealth they produce repay them the 
 cost. In this way rent enters into the cost of those 
 commodities. With regard to the land at the 
 margin of cultivation or use different considerations 
 apply, since no tax would be paid on it. But those 
 who hold this land find it more costly to produce 
 wealth than those on better land. Being driven to 
 the very margin of use, their natural difficulties are 
 greater. In view of this they escape taxation. The 
 need for taxes, however, which causes their neigh- 
 bours to have to pay more than they pay, whilst it 
 equalises their conditions as it should, also makes 
 more costly the wealth which they at the margin, as 
 well as others, must consume. And even with 
 regard to what they themselves produce, it is quite 
 enough of a tax by the community that they are 
 driven to this inferior land. 
 
 The principle underlying the foregoing considera- 
 tions amounts in the end to the same as that of Mr. 
 George. He, however, for reasons which only 
 apply to him, advocates taxing all the rent out of 
 
TAXATION I 5 3 
 
 the land. Nothing is here suggested but that taxes 
 for what may be required should be placed upon 
 the land. It may possibly amount in the end to the 
 same result ; but It is suggested as the true method 
 of taxation, and not as the great remedy for poverty. 
 There are other causes of poverty which will have 
 to be noted. 
 
 For the present it is enough to say that land is 
 the Inalienable heritage of the race. The com- 
 munity has an absolute right to It. It Is inexpedient 
 that the community should take the land from those 
 who hold It ; It could only do so equitably by paying 
 for the improvements they have made. The value 
 not owing to those improvements Is, however, the 
 proper fund for taxation. And though, through their 
 own past injustice, the governments of various lands 
 have put themselves under an obligation to those 
 whom they have permitted to purchase the land, yet 
 this only demands that they should proceed to intro- 
 duce a more just method, in such a way as to regard 
 the obligations they are under, and thus to do no 
 unnecessary Injury in the resumption of their rights. 
 
CHAPTER X 
 
 INTEREST ON CAPITAL 
 
 The relative share of wealth which constitutes rent 
 has now been sufficiently noticed both in its nature 
 and origin, and in the just and beneficial method 
 of its disposal. We now pass to a fuller considera- 
 tion of interest and wages, the two remaining shares 
 of wealth. And first we have to consider interest 
 on capital. 
 
 It must be clearly understood that only real capi- 
 tal is capable of producing interest. Money is fre- 
 quently spoken of as if it were thought that money 
 in itself would produce interest. But it need hardly 
 be said that money can produce no interest whatever 
 until invested. On that happening, it is the wealth 
 in which the investment is made which produces 
 the interest, and not the money itself. No one 
 would think of paying interest on money for which 
 he had no use, that is, for which he had not an in- 
 vestment. This needs to be borne in mind when 
 reading the absurd theories which some writers have 
 allowed themselves to fall into, through confusing 
 money and capital. It is only capital which earns 
 interest Interest which is apparently paid on 
 money is really paid on that which the money 
 bought. The money had passed to the lender in 
 respect of his land capital or labour by way of pay- 
 
 154 
 
INTEREST ON CAPITAL 155 
 
 ment for services rendered. He was at liberty to 
 buy wealth with it, or to lend it to another to buy 
 wealth with ; he chose to do the latter. The bor- 
 rower, therefore, took the wealth which the lender 
 might have had, and agreed to pay interest on the 
 money. Strictly, he pays the interest out of the 
 advantage the wealth gives to him. 
 
 If, therefore, the wealth in which the money is 
 invested fails to produce a return, the borrowing 
 has been unprofitable. There are cases of borrow- 
 ing by individuals merely for unproductive expendi- 
 ture, and this borrowing is, of course, unprofitable. 
 But a more important instance of such borrowing 
 is that of loans to governments. It is evident that 
 the wealth bought with the money which remains 
 on long-standing national loans has long ago ceased to 
 exist ; it cannot, therefore, produce any interest or 
 advantage at present. The interest paid on it is 
 really paid out of the productions of the nation, 
 which gets no advantage for the payment. 
 
 One other species of property, it must here be 
 noted, is excluded from capital in its proper sense. 
 Monopolies are not capital. In the cases of licences 
 granted to certain persons to carry on specified 
 trades, there may or may not be justification. There 
 can be no justification for granting licences for the 
 special benefit of the individual; there may, however, 
 be justification for protecting the public by permitting 
 only certain qualified persons to carry on those 
 trades. Monopolies intended to restrain trade are 
 evidently mischievous. To ensure that only quali- 
 fied persons shall carry on the business is another 
 matter. 
 
156 ECONOMICS AND SOCIALISM 
 
 If, however, a person invents some useful article 
 or mode of manufacture, it would be a loss to the 
 nation and himself if he were not protected to 
 some extent, so as to enable him to reap some bene- 
 fit from his invention. While the invention is a 
 secret he can keep it to himself, but neither he nor the 
 nation is much the better for it. If, in such a case, 
 the nation will grant to him a monopoly of its use 
 or sale for a period, and he, in return, will make full 
 disclosure of his secret, so that all the nation may 
 use it after that period, both he and the nation will 
 be benefited. Neither of them will lose : the indi- 
 vidual will gain an exclusive right to make profit 
 out of his secret for the period ; the nation will gain 
 a beneficial invention in return for permitting the 
 individual who gives it to enjoy some of the fruit. 
 And it is impossible he can have too much for his 
 secret, because he can only get the profit which 
 others are willing to pay rather than be without it. 
 By that means he must justify his claim to having 
 introduced a beneficial improvement. 
 
 All other monopolies, however, are to be con- 
 demned from an economic point of view, except so 
 far as they ensure that only fiit men shall carry on 
 certain trades. Nor should the number of those 
 men be restricted, so long as properly qualified men 
 present themselves for the work. The qualifications 
 may be more severely scrutinised up to any extent, 
 but the test of whether or not enough men are 
 already at the business is to be found in the relation 
 of supply and demand. 
 
 To the nation, however, none of these monopolies 
 are capital. Capital consists only of material wealth. 
 
INTEREST ON CAPJ 
 
 Interest on capital is the share ot ft:s''^oductIons 
 g^iven for the use of that material wealth. The 
 justice of the payment of interest has often been 
 questioned. But attempts to stop its payment have 
 invariably failed, and rightly so. The capital ren- 
 ders assistance in the production of wealth, and the 
 question why payment for its services should be 
 denied admits of no reasonable answer. Still, the 
 phrase wages of abstinence, by which it has been 
 attempted to defend interest, is not a good expres- 
 sion. It is not enough that men should merely 
 abstain from consuming their wealth ; they must be 
 willing to use it, or allow it to be used in the pro- 
 duction of further wealth. And in speaking of 
 interest, it must be understood that we refer to a 
 payment for actual services rendered in that pro- 
 duction. Every one has a right to the wealth he 
 produces. Nor is there any justice in compelling 
 him to give or lend it freely to others. But he will 
 get no interest for it if he keeps it idle. 
 
 The payment of interest has been attempted to 
 be justified in various ways. A true idea of the 
 subject can perhaps best be obtained by noticing 
 Mr. George's views on the methods suggested. 
 Not that it is suggested his theories are perfect, but 
 they will repay consideration and help to reach the 
 truth. It ought at once to be said that to him 
 belongs the credit of showing that wages are not 
 lent by capital or capitalists. But he fell into the 
 opposite error. From finding, contrary to generally 
 received views, that wages were not drawn from 
 capital by way of loan, he at once concluded they 
 were not drawn from capital at all. It is evident, 
 
I5B ECONOMICS AND SOCIALISM 
 
 however, that most of the wealth consumed by all 
 civilised peoples must have been prepared some 
 time previously. Yet that the wages are paid out 
 of such capital as a loan is quite erroneous. 
 
 It Is obvious on the smallest consideration that 
 the labourer of the grade, commonly known as wage 
 earning, must earn his wages before he can receive 
 them. The employer of labour advances nothing 
 but that for which he has received value in labour 
 and by which his own capital has been increased. 
 Moreover, in the light of what has already been 
 said, it is difficult to imagine how the error could 
 ever arise. In fact it could not have done so 
 except by means of the notion that capital em- 
 ployed labour, and the confusion between wealth 
 and money. Capital is, however, a thing utterly 
 unconscious of its office in wealth production. It Is 
 something which must be used by persons who in 
 the using of it are labourers. It has been seen that 
 all personal effort in wealth production must be 
 included in the one expression labour if any clear 
 notions are to be obtained. But some of the older 
 economists looked upon the farmer and manufacturer 
 merely as capitalists, and their personal efforts as 
 counting for nothing, as though capital was a thing 
 of life and managing Intelligence. Adam Smith 
 even treated it in that way after showing that he 
 fully realized the effect of the personal services of 
 the owner of stock — his expression for capital. 
 
 Capital, to be advantageous in wealth production, 
 must be used. The capitalist must be a labourer 
 also, or lend his capital to another labourer, not as 
 wages but as a loan. It is the labourer w^ho must 
 
INTEREST ON CAPITAL I 59 
 
 employ the capital, for the capital can never employ 
 the labourer. This agrees with Mr. George's views 
 literally, but not perhaps actually. For he means 
 the labourer who receives the wages. Here is meant 
 the master labourer who owns the capital or is re- 
 sponsible for its return. 
 
 The showing that wages were not lent by capital 
 is as much as can be attributed to Mr. George. He 
 was in error in stating without qualification that they 
 are not drawn from capital. He was thinking of 
 money wages, and consequently landed himself In 
 confusion. To a great extent real wages are drawn 
 from capital by way of exchange for the capital, 
 added by the labour for which the wages are paid. 
 There is no loan ; there is an exchange. The em- 
 ployer and his servants Increase the capital on which 
 they work. The employer gets for himself and his 
 men some money as wages. They purchase their 
 real wages from the various capitalists with that 
 money, and it is passed on for other exchanges. 
 Capital Is added In one department and consumed 
 In another. The Identical capital produced Is seldom 
 consumed or paid as wages for its production. With 
 a very few exceptions the wages do not come directly 
 and at once from the produce of the labour for which 
 they are paid, as Mr. George would have us Imagine. 
 It Is apparent on every hand. In some Instances it 
 takes months to finish a single piece of work. 
 Labourers are meanwhile fed and clothed : not out 
 of that capital but out of the stock of capital. It is 
 part of the office of capital to be drawn from, In 
 order that labourers should not wait until that work 
 Is finished. The labourer consumes the accumula- 
 
l6o ECONOMICS AND SOCIALISM 
 
 tions of the previous period, while his efforts get 
 ready a further stock, and are adding to the further 
 capital. 
 
 There is thus a modicum of truth in each of the 
 doctrines. The old doctrine, so far as it means that 
 labourers must actually consume previously prepared 
 wealth, is obviously true. Mr. George is also right 
 in saying that it is not lent to them, and that labour 
 employs capital ; not that capital employs labour. 
 He should have said, however, that the present con- 
 sumable capital was being constantly exchanged by 
 the labourers, and that the labourers who employed 
 capital were the employers and not the servants. 
 
 In discussing the cause of interest, Mr. George 
 offers new ideas. He refers to an illustration of 
 Bastiat's which has been constantly used by other 
 writers. James lends William a plane which has 
 taken ten days to make and will last two hundred 
 and ninety days. This is on condition of receiving 
 back an equally good plane with a plank for interest 
 Mr. George shows that William must do all the 
 work he would have had to do if he had not 
 borrowed the plane. He must still spend ten days 
 sooner or later in making the plane. And he will 
 be a plank the poorer. Moreover, if he goes on 
 borrowing on these terms, the income of the one 
 will progressively decline and that of the other will 
 progressively increase until James will obtain the 
 whole result of William's labour. This is reducing 
 an illustration to an absurdity. 
 
 Mr. George goes on to classify production into 
 three modes, adapting (which would apparently 
 include both mining, manufacturing and carrying), 
 
INTEREST ON CAPITAL l6l 
 
 growing (which would include the raising of pro- 
 ducts obtained from animal or vegetable life) and 
 exchanging. To the second and third only of these 
 modes he attributes interest. The first he imagines 
 is not a cause of interest. In the two later modes 
 there is the principle of natural increase by repro- 
 duction of the capital used. But strictly, the second 
 is the only instance of increase by reproduction. 
 In the third case there is no increase of the quantity 
 of the wealth, only an increase in value. And if, as 
 Mr. George would have us believe, interest is the 
 result of natural reproduction and consequent in- 
 crease of the quantity of wealth, this case of his 
 own must be omitted. 
 
 Mr. George seems to the present writer to have 
 missed the point entirely. And although Bastiat's 
 illustration may not be a happy one, it has not been 
 disproved. First, observe what is clearly Mr. 
 George's foundation idea. He sees that capital of 
 the organic or living nature, whether animal or vege- 
 table, is capable of natural increase by reproduction. 
 He conceives that this is why interest is paid and 
 the increase by exchange is analogous to it. The 
 interest paid for various aids to adaptation in the 
 way of machinery is in his view no cause of interest 
 at all, but merely an equalising of interest. 
 
 But suppose in a country where manufacturing 
 and exchanging were practically absent that this 
 animal or vegetable capital were so plentiful that 
 every one had as much as he cared to look after. 
 Would any interest be paid ? The increase by 
 reproduction would go on as before. The capital 
 might even double itself in a year, but so far from 
 
 M 
 
1 62 ECONOMICS AND SOCIALISM 
 
 any one being willing to give one hundred per cent. 
 for its use, he would decline to give anything. 
 When each has enough already, it is useless to 
 remind him that if he will use more it will increase 
 in his hands by reproduction. He desires no more 
 care and labour. 
 
 The same may be said with regard to capital 
 used in exchange. If every one had a sufficient 
 stock of all productions for his present needs, and 
 was continuing to produce further wealth with which 
 to obtain more of the productions of others, when 
 he needed them, he would pay no interest to any 
 one. It might occur that the process of exchange 
 was long and tedious. The goods might be re- 
 quired to be carried long distances. But whilst 
 each had a sufficient stock of what he required, and 
 a further stock in course of transportation and 
 exchange, interest could not arise. The carriers 
 would require paying, but that would be wages, not 
 interest Neither party to an exchange would pay 
 the other interest. Each gains by the transaction, 
 and that is his reason for entering into it. In truth, 
 this analogy of increase ought not to have been 
 brought in even if natural reproduction had been 
 the true cause of interest. 
 
 But increase by reproduction is not the great 
 cause of interest. Nor is increase of value by 
 means of exchange any reason for it above other 
 forms of assistance to labour. The cause of interest 
 is the desire to have wealth now rather than at a 
 future time. It is true William must make another 
 plane in addition to giving his plank. But if he 
 borrows a plane which he could make in ten days, 
 
INTEREST ON CAPITAL 1 6 
 
 J 
 
 it is because he wishes to be using it in those ten 
 days and not making it. He will get the advantage 
 out of it or he will not borrow it, if he is prudent. 
 And his reason, like the reason of every man for 
 borrowing capital, is that by having it at once he 
 can materially increase the results of his own labour. 
 He cannot afford to wait until he has got his own 
 stock ready ; his life , is going ; and he had better 
 pay some one a portion of the benefit for the use of 
 their capital than wait until he has saved it. 
 
 The immediate possession of wealth may enable 
 a man to produce treble what he could produce 
 without it. Seed should produce a harvest. Ewes 
 should bear lambs. But still more than this the 
 possession of tools and machinery will assist his 
 labour. The great need is to have them at once. 
 Those who by their previous prudence, industry 
 and thrift, have gotten these things, can either assist 
 their own labour, or have something for the loan of 
 them to those who wish to increase the products of 
 their labour. But the capital needs using if it is to 
 be of benefit. It cannot tend itself And interest 
 will vary according as those who are willing to use 
 it are or are not sufificiently supplied. 
 
 The cause of interest, therefore, is the relative 
 scarcity of useful capital. Interest is a value deter- 
 mined like every other value by utility and scarcity. 
 This is another instance in which the expression 
 value in use might conveniently be taken into the 
 science. It does not mean mere utility, as it did 
 with Adam Smith. It means value for the use of 
 the capital for a time, as opposed to the value of 
 the whole capital on sale or exchange. In the same 
 
164 ECONOMICS AND SOCIALISM 
 
 way rent was value in use of the land temporarily, 
 as opposed to the absolute value of the land itself. 
 
 In view of these considerations, it is evident that 
 the rate of interest can be reduced by increasing 
 the amount of available capital. The same might 
 occur by more or less dispensing with its use. The 
 value of the use of capital for a time is, in fact, 
 subject to the same laws of supply and demand as 
 the value of the capital itself. 
 
 Certain older confusions require to be noticed. 
 As already mentioned, interest on capital was at 
 first spoken of as profits. The whole of the profits 
 of the farmer or manufacturer were treated as the 
 profits of his stock. Nassau Senior then invented 
 the expression wages of abstinence (already con- 
 demned) to express the idea that the employer was 
 only paid according to his deserts. This was 
 approvingly quoted by John Stuart Mill, who pro- 
 ceeded to separate profits into three constituents. 
 These were interest at the rate current on the best 
 security, compensation for risk, and remuneration 
 for the devotion of time and labour. The division 
 has been faithfully followed by Mill's school of 
 writers. But it needs further examination. Of the 
 three constituents the last is clearly wages of labour, 
 and will be dealt with as such in its place. We 
 have left, therefore, the interest at the rate current 
 on the best security (which has retained the name 
 wages of abstinence) and compensation for risk. 
 Wages of abstinence is a phrase which should be 
 abandoned as inexpressive of the truth. Compen- 
 sation for risk should be remerged in interest for 
 reasons which will appear. 
 
INTEREST ON CAPITAL 1 65 
 
 It is perfectly true that a person lending money 
 or capital to another, or determining to use it, will 
 take into consideration the risk involved when he 
 considers the interest obtainable or the profits likely 
 to be had. But he will take other things also into 
 consideration. He will probably consider the effect 
 of the investment on his reputation. Possibly he 
 will take into account the effect upon others of 
 employing his capital in that way. He may desire 
 an investment which will set him free to attend to 
 other duties ; or he may be prepared to use the 
 capital himself. In the latter case he may desire a 
 pleasant occupation even though his return be small. 
 He will consequently take perhaps a farm instead 
 of manufacturing or trading premises. Some modes 
 of investment are regarded by various people as 
 not only safer but more honourable than others. 
 The ownership of land (with the capital upon it) 
 appears to give importance. Hence a lower rate of 
 interest will suffice to induce investment in such 
 property. There are, therefore, it seems, several 
 considerations to be taken into account as influencing 
 the rate of interest. To separate compensation for 
 risk would be inconvenient, and clearly an imperfect 
 means of arriving at true interest. 
 
 Moreover, what place could be found for this 
 compensation if it were separated ? Wages of labour 
 have been separated. It is not included in that. 
 Interest on capital will of course be reduced by 
 actual losses. But this will not be included at all. 
 If the compensation for risk refers to the cost of 
 making these losses good, it ought never to have 
 been included in profits. The truth is, that interest 
 
1 66 ECONOMICS AND SOCIALISM 
 
 will vary In different employments, just as will be 
 seen hereafter wages must vary. 
 
 The Interest on a particular quantity of capital 
 will be more or less than the interest on another 
 quantity. Other things being equal, there will be a 
 constant tendency to equalise interest in all employ- 
 ments. But this equlllsatlon will be more or less 
 imperfect when different kinds of capital are con- 
 sidered, although it will be as nearly as possible 
 perfect in the same employment. 
 
 The inequalities just referred to will not Include 
 those which arise from the more skilful and viororous 
 employment of the same species of capital. Such 
 inequalities will be due to the exertion of labour and 
 must be included in wages. But there are still 
 other inequalities which remain even after deducting 
 all the influences of extra skill or exertion. 
 
 The method of arriving at the proper rate of 
 interest In any country by observing the rate paid 
 for government loans is thoroughly bad. This 
 mode grew up amongst the followers of Mill. It 
 scarcely needs to be mentioned, however, that so 
 far from this being a true test, the property referred 
 to cannot even be called capital at all In the proper 
 sense of the word. Interest on capital can only be 
 ascertained by considering the various rates earned 
 by the different species of capital. And this, It need 
 hardly be said, can no more be accurately ascertained 
 than the rates of money wages. 
 
CHAPTER XI 
 
 WAGES OF LABOUR 
 
 The shares of rent of land and interest on capital 
 having been allowed for, the remainder is for wages. 
 This appears from what has already been seen. 
 But it will be further enforced in a succeeding 
 chapter. 
 
 There is great possibility of a disturbing influence 
 on this division in the case of land. For supposing 
 that the soil of a country, while not fully occupied, 
 is nevertheless fully held in ownership, wealth can 
 only be obtained by the consent of the owners of the 
 soil. If no tax is placed on the land except as the 
 land is used, the owners can make practically their 
 own terms with the landless. There is nothing to 
 prevent their putting the burden of taxation on the 
 shoulders of those who wish to occupy the land. It 
 has sometimes been contended that rates of the 
 nature of taxes levied on the occupation of land fell 
 ultimately on the landlord. The argument is that if 
 the rates were not levied, the landlord would be able 
 to charge more for the land. This is true as refer- 
 ring to a single farm. If one landowner could be 
 set free of these rates, he certainly would be able to 
 increase his rent. But if all the others were also set 
 free, then he would have to take the old rate. So 
 
 that applied as the taxes are to the whole, they do 
 
 167 
 
1 68 ECONOMICS AND SOCIALISM 
 
 not ultimately fall on the landlord. The farmer who 
 would occupy land must pay these rates in addition 
 to the rent, if he intends to stay in that country. 
 He can only escape them by going to some place 
 where they are not levied. In the case of local 
 taxes, however, there are differences for him to con- 
 sider between one place and another in the same 
 country. 
 
 Another disturbing influence arising from the un- 
 taxed ownership of land, is that which arises from 
 its occupiers having no security for the full enjoy- 
 ment of the improvements they may make. The 
 full discussion of this subject w^ould require a more 
 extended reference to the history of land tenures 
 than is compatible with the object of this enquiry. 
 Some little reference has been made in the chapter 
 on Rent of Land to the nature of the economic 
 difficulties connected with these systems. Speaking 
 generally, they are survivals of conditions arising 
 from conquest. The feudal system followed the 
 older system (or rather systems) of the Roman 
 Empire. In both of them the idea of personal 
 superiority played a prominent part. So that these 
 land systems in which the true economic ideal is im- 
 possible of being attained are merely relics of slavery 
 which must pass away in the course of the progress 
 of the race. 
 
 The difficulties arising from the monopolisation of 
 the land do not apply in any degree to capital. It 
 is capable of indefinite increase. Given land and 
 labour, capital may be created to any extent desired. 
 So far as capital is concerned, therefore, if there is 
 any lack of it, or its owners require too much for its 
 
WAGES OF LABOUR 1 69 
 
 use, all that Is requisite to be done Is that other 
 capital should be created. And, as already seen, the 
 greater the amount of It, the smaller proportion of 
 the value of the service rendered can Its owners 
 obtain for the service. The capital Itself Is some- 
 thing which, except to the loss of the owner, Is not 
 capable of consuming wealth unproductlvely. It 
 does not usually Increase In value by being retained ; 
 rather the contrary. A very small reward, therefore, 
 beyond the maintenance of the capital itself would 
 Induce the owner of it to let it be used rather than it 
 should remain unoccupied. 
 
 The wages of labour, on the other hand, can 
 never be limited by any strict laws. For a long 
 time It was half imagined that they were limited to 
 bare subsistence. This might perhaps apply to 
 slave labour. And many treatises on economics 
 have compared for various purposes slave labour 
 with free labour. But slavery as an Institution has 
 now been thoroughly discredited amongst all civilised 
 nations, and It is useless to discuss It here. The 
 subject of bare subsistence wages will be discussed 
 in another chapter, as the theory has not yet ceased 
 to exert a practical Influence. It will be sufficient 
 to remark here that the advocates of this theory 
 never attributed the condition to the untaxed mono- 
 poly of land. Under certain circumstances that 
 monopoly would in some sense justify the theory. 
 Where tenants know that what they make above 
 such a bare subsistence must go In rent, and their 
 rent be still not fully paid, it Is natural that they will 
 produce only enough for their bare subsistence 
 beyond the minimum rent, with payment of which 
 
170 ECONOMICS AND SOCIALISM 
 
 they hope to escape. Their productions as pro- 
 ductions will be limited in this way. But even then 
 it must be confessed that there will be no law keep- 
 ing the subsistence of one equal to that of another. 
 Some will make a little more effort than others, and, 
 perhaps, secretly live better or save money. 
 
 But the advocates of the theory of wages of sub- 
 sistence suppose the balance after payment of those 
 wages to be the profits of capital. Profits were per- 
 haps loosely defined and more loosely grasped in the 
 minds of the economists. But if there was any- 
 thing at all in the theory, the contention was that 
 the balance, after payment of subsistence wages, was 
 interest on capital. That such is not the case has 
 been amply proved. Interest is limited to a portion 
 of the benefits conferred by capital ; and the por- 
 tion is determined by its relative scarcity. As 
 between capital and labour, labour alone is capable 
 of taking the balance, because labour alone is in- 
 separably connected with the consumer of wealth. 
 
 Without doubt, the advocates of the subsistence 
 theory made the error of confusing the interest of 
 capital with the wages of the capitalist who superin- 
 tended and used it. But that necessarily brings the 
 balance, supposing the wages of subsistence theory 
 were true, into the consideration of the present 
 chapter. It would mean that the wages of the super- 
 intending labour of the capitalist who employed the 
 labour of others included all the balance after he had 
 paid wages of subsistence to his servants. That 
 being the case, the considerations of this chapter will 
 apply to such labour as well as to other labour. As 
 was mentioned almost at the outset, there Is no In- 
 
WAGES OF LABOUR I7I 
 
 superable barrier between one grade and the other. 
 It is purely a question of ability and energy. And 
 these are matters to which attention must now be 
 given. 
 
 This enquiry is not as to what wages ought to be 
 paid, or what ought to be the principle on which they 
 are fixed ; it is rather what are the determining 
 influences which naturally do fix them, just as the 
 influences were noticed which determined the shares 
 of rent and interest. So far as the total share 
 devoted to wages is concerned, the enquiry is com- 
 plete. But wages are not equal for all persons. 
 The question still remains, What determines the in- 
 equalities ? Some have contended that all wages 
 should be equal. Such an arrangement is not likely 
 to occur in the nature of things. It is difficult to 
 realize that any means of securing such an equality 
 could be possible. It certainly could not be just or 
 beneficial. Very little consideration will show this. 
 
 Equal wages would surely presuppose equal 
 labour. In the first place, the hours must be sup- 
 posed to be equal. This would be very irksome 
 and unfair to those who preferred short and intense 
 application, but who found themselves compelled to 
 drawl out their labours for a longer period to be 
 equal to others. For, in the second place, equal 
 intensity of exertion must be supposed. This 
 would be disagreeable and unjust to those who 
 preferred less exertion even at the expense of less 
 wages. 
 
 In the third place, it would suppose equal effici- 
 ency of labour. Answer is made to this by some, 
 that those who have greater powers should be will- 
 
172 ECONOMICS AND SOCIALISM 
 
 ing to exert them for those who are less favoured. 
 But such an answer neglects to take note of the fact 
 that by nature large powers are coupled with large 
 desires and smaller powers with smaller desires. 
 There can be no pretence to justice in the idea that 
 those to whom large desires have been given with 
 corresponding powers are made amiss ; that they 
 should give up their powers and sink their desires to 
 obey the will of others, especially of those whom 
 nature has clearly endowed with more limited 
 desires, and has accordingly fitted with more limited 
 powers. Such notions are utterly false notions of 
 equality. Human beings are not mere machines 
 capable of being artifically rendered exactly alike in 
 form, stature, weight, strength and appetite. There 
 is a difference physically as all may see. It is still 
 more the case mentally, as may be realized by those 
 who possess minds of any importance. 
 
 Further, and in the fourth place, this equality 
 supposes that all employments are equally agree- 
 able. But as that is not the case, and as they are 
 not capable of being rendered equally agreeable, 
 some have so far retreated from absolute equality 
 as to suppose that agreeableness of occupation, and 
 longer or shorter employment per day, should be 
 balanced against each other. If the territory of 
 any nation could be sufficiently converted into a 
 prison house, this would meet the first and fourth 
 difficulties, that is to say the difficulties which relate 
 to what is outside the individual. 
 
 Those who feel themselves compelled to retreat 
 still further from this absurd equality, propose to 
 meet the third difficulty and perhaps to some extent 
 
WAGES OF LABOUR 173 
 
 the second by conceding some inequality of wages. 
 This is, of course, a very decided retreat. The 
 contention of equality is practically given up. But 
 the prison house idea of the artificial fixing of 
 wages is not entirely abandoned. The natural rate 
 fixed for the various abilities, exertions, employ- 
 ments, and grades of employment is supposed to 
 be capable of being improved upon. The utility 
 of the kind of labour is a matter of indifference or 
 one to be determined by some person or body of 
 persons on behalf of the community. This itself, 
 which was not included in the enumeration just 
 given, is enough to condemn the whole theory of 
 enforced equality. For every one should be at 
 liberty to express his own desires. These desires 
 he expresses by means of his money, and this in- 
 fluences the price of labour as of other things. 
 
 Perhaps enough has been said to show the folly 
 of the contention that other than the true value 
 of labour should be paid for it. The true value is 
 of course the natural value. It is determined, like 
 any other value, by its utility and scarcity. There 
 is no just method of determining the value of the 
 service rendered by one to another except by 
 regarding the benefit it confers. Of that benefit 
 he who receives it must be the judge. If the 
 benefit conferred is not to him of the value put 
 upon the service by the person who has the labour 
 to sell, then it is iniquitous to propose that the two 
 should be compelled to exchange. That inequali- 
 ties of wages should arise is inevitable from the 
 fact that unequal benefits are conferred by different 
 individuals. If the benefits desired require quali- 
 
 (XJITIVERSITT 
 
174 ECONOMICS AND SOCIALISM 
 
 ties or exertions more scarce than other benefits, 
 they will for that reason have greater value. In- 
 deed, many of the inequalities are difficult to under- 
 stand, except by reference to these considerations 
 of scarcity. 
 
 One of the first of these considerations is that 
 which relates to ability. All have not the same 
 mental and physical ability. Even of those whose 
 ability is perhaps equal, when taken as a whole 
 some have abilities of a rarer type. If these abilities 
 are such that their exercise is much sought after, a 
 high rate of payment will result. 
 
 Another consideration is that of energy. Abilities 
 may be dormant for want of energy to exercise 
 therr. The number of those who possess abilities 
 is therefore reduced for the present purpose by 
 the number of those who lack the energy to use 
 them. This will further tend to raise the rate of 
 payment of those who both have abilities and use 
 them. Closely connected with this energy, and to 
 be included under the same considerations, are 
 persistency and perseverance of effort, together with 
 a determination fixed on a definite object. 
 
 A third great consideration is that of character 
 or reputation for trustworthiness. This has special 
 reference to the moral character as opposed to 
 merely mental and physical characteristics. It Is 
 evident that a man who has proved himself worthy 
 of trust is for many purposes more sought after 
 than one who has no such reputation. And in 
 proportion to the scarcity of proved, trustworthy 
 labourers the rate of payment rises. Perhaps moral 
 qualities, other than mere questions of honesty with 
 
WAGES OF LABOUR 175 
 
 regard to property, should also be included in this 
 category. 
 
 These are rough generalizations indicating some 
 of the causes of inequality of payment. These 
 three, and perhaps particularly the first two (al- 
 though even the third cannot be excluded) indicate 
 inequalities in the nature of things. But there 
 are qualities of importance which have not been 
 specially mentioned. Appearance and manner 
 frequently afford means of increasing wages. This 
 may seem at first sight unaccountable in a scientific 
 sensed But people pay for the gratification of their 
 desires. And appearance and manner give a 
 pleasure for which payment is unconsciously made 
 even when it is imagined only goods are being 
 bought. Such qualities as these, however, must be 
 supposed to be included in the first of the consider- 
 ations named. 
 
 It must be borne in mind that the various quali- 
 ties named give a cumulative value to labour. The 
 lack of any one of them will materially reduce the 
 wages a person can earn. They are all of them, 
 however, capable of material improvement by train- 
 ing. The three qualities named are, so to speak, 
 the foundation on which the sum total of wage- 
 earning qualities is built. To the first particularly 
 the expression rent of ability has been applied. 
 But abiHty must be backed by energy, and usually 
 both by character. Moreover, ability may be 
 trained. Business habits giving a power to resist 
 temptations to ease and pleasure may be acquired. 
 Such habits would correspond to energy. Character 
 may be strengthened and reputation can only be 
 
176 ECONOMICS AND SOCIALISM 
 
 attained after trial. All these go to make up the 
 person, apart from skill or knowledge of external 
 objects. 
 
 Further, by means of ability technical skill is 
 attained. By training it is possible, not only to 
 develop natural ability but to acquire external 
 knowledge or skill. This knowledge and skill, 
 whether general or particularly relating to special 
 industries, naturally commands more wages whilst 
 it is scarce, and less as it becomes more common. 
 This effect on the rate of wages is analagous to the 
 similar effect on interest. The greater diffusion of 
 education and skill corresponds to increase of 
 capital. 
 
 All these are considerations affecting particular 
 persons. There are other considerations which 
 vary the rates of payment obtainable in different 
 employments. This is analogous to the variation 
 of interest in different employments of capital. 
 
 In the first place, some employments are cleaner, 
 pleasanter, and more agreeable than others. For 
 these there will be many applicants and a conse- 
 quent tendency to lower wages. To this cause 
 may be attributed the small wages of the lower 
 grades of clerks and light employments not requir- 
 ing special mental aptitude. Dirtier and more 
 laborious work will command better wages for the 
 same skill and training. This is even seen in 
 occupations which are equally manual labour. The 
 waees of coal-miners are higher than those of farm 
 labourers and that for fewer hours. 
 
 In the second place, the necessity and difficulty 
 of learning trades will deter applicants for places. 
 
WAGES OF LABOUR 177 
 
 This makes the difference in wages between skilled 
 and unskilled workmen. 
 
 In the third place, there are various degrees of 
 security that the wages hoped for will in fact be 
 earned. Some employments are more irregular. 
 Workmen engaged in the building trade are fre- 
 quently out of work for weeks at a time, on account 
 of the season, whilst others are not affected by 
 seasons. Trades are sometimes irregular in the 
 employment they afford on account of artificial 
 interference with the course of employment, but 
 that is a subject for later discussion. Apart from 
 that, however, there are other considerations affect- 
 ing security of income. A foreman or manager at 
 a fixed salary has to consider, before he gives up 
 that fixed salary, whether it is wise to give up such 
 a certainty for the possibility of a better reward for 
 carrying on business on his own account. It 
 certainly will not pay him to give up his certainty 
 for the mere chance of an equal reward, and no 
 better, if it is possible that the actual results will fall 
 short of it. 
 
 In the fourth place, some employments and 
 positions require much more ability, character and 
 training than others. Without such ability and 
 training the person attempting the employment is 
 likely to fail altogether. Without approved charac- 
 ter he will scarcely obtain even the chance of a 
 trial. Thus in the case of the foreman or manager 
 considering whether or not to commence business 
 on his own account, it may be that, although well 
 fitted for his present position, he lacks some essen- 
 tial quality, without which he will entirely fail when 
 
 N 
 
178 ECONOMICS AND SOCIALISM 
 
 on his own account. Some employments require 
 abilities of a peculiar type. Such are those of 
 musical and other artists. And similarly, but more 
 directly concerned in wealth production, are inven- 
 tors. The learned professions also afford some 
 scope for similar exercise of special abilities. In 
 such employments it often occurs that a few can 
 command very high rewards, whilst others entering 
 the employment with similar hopes, find themselves 
 receiving less than the average they could have 
 obtained in other employments. 
 
 These considerations are somewhat different from 
 the ideas expressed by Adam Smith. There is no 
 pretence that they deal with the subject more 
 accurately, and certainly not so fully nor with so 
 much illustration. But this is the way in which the 
 subject occurs to the present writer. It is a some- 
 what different aspect of the same truth. 
 
 One or two general considerations are apparent. 
 There are some positions which at first sight appear 
 easy to be filled. But they nevertheless command 
 very high wages. The truth is, that in many cases 
 it requires much more labour in the way of untiring 
 mental effort and training than is generally imagined. 
 And beyond this it has to be remembered that 
 these positions require strength of mind and charac- 
 ter, which are more or less scarce. Frequently the 
 strength is of the nature of courage analogous to, 
 but not actually, physical courage. The skilful com- 
 mander of a ship is he who, in the most difficult, 
 trying and dangerous circumstances, so far from 
 losing his presence of mind, is more than ever cool 
 and at ease. Similar qualities go to make a success- 
 
WAGES OF LABOUR 179 
 
 ful business man, who must steer through similar 
 dangers. 
 
 That the best paid labour is, speaking generall}', 
 mental labour, can readily be understood. It is not 
 always more difficult or irksome. But it is gener- 
 ally more useful, for it is capable of calling into its 
 service the forces of nature. Steam, electricity, and 
 the other natural forces have been harnessed only 
 by the exercise of mental labour. In an advanced 
 state of- civilisation, where so much physical work is 
 done by machinery, it is evident that exceptional 
 powers of mind will be more useful than exceptional 
 powers of body. Hence, while the vast majority 
 possess bodily powers, and whilst even those who 
 have them exceptionally developed find no special 
 call for them, those who have mental gifts above 
 the average find them much in request. They are 
 accordingly able to demand a higher price on account 
 of the scarcity of their class of labour. This is so, 
 perhaps, even for qualities which, in a ruder state of 
 civilisation, would be comparatively more despised. 
 Those who have only average powers of body and 
 mind must naturally take their place amongst the 
 employments and grades of employments requiring 
 less ability and affording less wages. 
 
 Although it is true that these inequalities of 
 wages must exist in the nature of things, it should 
 be noted that the inequalities are not naturally so 
 great as it is possible, through uncalled-for inter- 
 ference, to make them. The natural inequalities of 
 wages will, under free and natural organization, be 
 limited to the inequality of the service rendered. 
 For the most part such inequalities would not be 
 
l8o ECONOMICS AND SOCIALISM 
 
 very great. At any rate, they would vary so in- 
 sensibly that a sharp division into upper and lower 
 classes could scarcely be possible. 
 
 Such are the obvious facts with regard to wages. 
 Concluding with these facts, the division of wealth 
 has been completely surveyed. There seems 
 nothing particularly abstruse or difficult to under- 
 stand in that division. It might have been ex- 
 pressed and even explained in very much fewer 
 words. But it seemed advisable sometimes to 
 enforce what was said. The same facts and 
 theories have been stated in varying language so 
 that, if possible, the danger of misunderstanding 
 might be avoided. Even now, however, the matter 
 cannot safely be left. Some long-standing fallacies 
 with regard to wages must be examined and refuted 
 in the following chapter. Succeeding that must 
 come a demonstration of the futility and injury of 
 external interference with wages. 
 
 The considerations already set forth should be 
 sufficient to show the superiority of the natural 
 modes of determining wages over any artificial 
 contrivances. But artificial contrivances have ob- 
 tained a strong hold on the popular mind in all the 
 countries which can be said to have any political 
 freedom. It is not sufficient, therefore, merely to 
 give negative indications of the absence of necessity 
 for interference. There must be positive demon- 
 stration of the futility of any artificial attempt to 
 raise wages, and of the injury likely to arise from 
 every such attempt, successful or unsuccessful. 
 
CHAPTER XII 
 
 WAGES OF SUBSISTENCE 
 
 In spite of the number and apparent variety of the 
 fallacies which have obtained and still flourish on 
 the subject of wages, a very little consideration will 
 show that they are all closely connected with each 
 other. Indeed, all the economic errors of the last 
 fifty or a hundred years have features in common 
 which are not difficult to recognise. The germs of 
 all of them will be found in Adam Smith's great 
 work — so completely has his personality dominated 
 the whole science of wealth. The single tax on 
 land had, as already mentioned, been advocated by 
 the Physiocrats in France, though by untenable 
 arguments. Smith did not adopt the tax. And 
 no one ever boldly ventured to dispute Smith's 
 maxim until Mr. George revived the single tax, 
 once more on inaccurate grounds. Curiously enough 
 those grounds were reached, as will shortly be seen, 
 by adopting the errors connected with Smith's own 
 writings. 
 
 The same domination of the science by Smith 
 appears with regard to wages. The Enquiry into 
 the Nattcre and Causes of the Wealth of Nations 
 perhaps contained what, if rightly used, might have 
 fully established the essential truths of the science. 
 
 i8i 
 
1 82 ECONOMICS AND SOCIALISM 
 
 It certainly did contain what were turned into the 
 flagrant violations of truth which have hindered 
 its progress. The law of rent was not reached 
 until after Smith's time, but he had facts enough 
 for it, and nearly reached it. With that exception, 
 all the theories advocated for more than half a 
 century might, in one form or another, have been 
 found in his book. 
 
 To understand the various theories of wages 
 which have arisen, it is only necessary to go back 
 and see what Smith wrote. He. clearly realized 
 that employers of labour must themselves use their 
 skill and industry. But he yielded to popular 
 language, and treated as labourers only those who 
 were commonly called by that name. He did not 
 include the profits of the farmer or any portion of 
 them in the wages of labour. He stated that in 
 fact a portion of those profits was due to the farmer s 
 labour, but he treated it all as the profits of the 
 farmer's stock. For nearly a century he was almost 
 implicitly followed in that respect. The modifica- 
 tions made were very slight indeed. The result 
 was necessarily confusion, especially as those who 
 followed put their errors much more concisely and 
 definitely. It can hardly be said that this method 
 of treating the labour of employers has even yet 
 been abandoned. The fact is very evident, however, 
 that it gives to interest a great deal which is really 
 wages, and leaves a number of persons of the very 
 small capitalist class almost entirely out of account. 
 Under this method, no clear consideration can be 
 given to the case of men who live, not as employers 
 or employed, but as small farmers, traders, or 
 
WAGES OF SUBSISTENCE 1 83 
 
 artificers, performing- their own labour, and dealing 
 directly with their customers. 
 
 Having separated what are known as the wage- 
 earning class from those who were not employed for 
 stated wages, Smith proceeded to deal with their 
 wages as if they were the only wages paid for 
 labour. He was not very precise, but his followers 
 took the same method, and in their hands it became 
 a precise one. In Smith's discussion of wages, after 
 referring to the disputes between employers and 
 employed, we find this statement : " Though in 
 disputes with their workmen masters must generally 
 have the advantage, there is a certain rate below 
 which it seems impossible to reduce for any consider- 
 able time the ordinary wages even of the lowest 
 species of labour. A man must always live by his 
 work, and his wages must at least be sufficient to 
 maintain him." He went on to say that they must 
 even upon most occasions be somewhat more. But 
 he constantly referred in varying terms to the lowest 
 rate at which labour could anywhere be paid — the 
 bare subsistence of the labourer. This was 1775. 
 Malthus about twenty years afterwards (1798), and 
 more fully somewhat later still, brought forth his 
 arithmetical and geometrical progression to show 
 that population would inevitably increase up to the 
 highest point at which subsistence was possible. 
 The only merit about this work of Malthus was to 
 persuade people that governments should not be 
 over anxious to increase their population but rather 
 to feed them. But between Smith and Malthus 
 it got established that wages were wages of bare 
 subsistence. Smith said they could not long be 
 
184 ECONOMICS AND SOCIALISM 
 
 less ; Malthus said they could not long be more. 
 In about another twenty years (181 7) Ricardo 
 brought out his book, which established the law of 
 rent previously suggested. In it he proceeded 
 entirely on the assumption that wages were properly 
 explained by referring them to bare subsistence. 
 This has been called Ricardo's iron law of wages. 
 Its subsequent history will shortly be noticed. 
 
 Smith, however, had gone to considerable trouble 
 to show that these wages of bare subsistence were 
 not the outside limit of wages. He showed by 
 observed facts that wages did not necessarily vary 
 with the price of provisions ; that in truth lower 
 wages were found with higher prices of food, and 
 vice versa. He showed this by reference to varia- 
 tions of season, place and periods of years. The 
 facts could not be denied. Wages of bare subsist- 
 ence were therefore supposed by later writers to 
 be wages of subsistence according to the standard 
 of comfort to which the labourer had grown ac- 
 customed. This was of course a convenient way 
 of meeting the difficulty. But it was a very un- 
 satisfactory way. For it amounted to saying that 
 wages were the produce enjoyed by the labourers — 
 a mere truism. The great master must not, how- 
 ever, be blamed for this aspect of the wages of 
 subsistence theory. The idea that the better 
 standard of comfort is the cause of higher wages 
 is directly controverted by him. Speaking of the 
 difference between the subsistence of the common 
 people of Scotland, and that of a similar class in 
 England, he says : — 
 
 " This difference, however, in the mode of their 
 
WAGES OF SUBSISTENCE 1 85 
 
 subsistence is not the cause but the effect of the 
 difference in their wages ; though by a strange 
 misapprehension I have frequently heard it repre- 
 sented as the cause. It is not because one man 
 keeps a coach while his neighbour walks afoot that 
 the one is rich and the other poor ; but because the 
 one is rich he keeps a coach, and because the other 
 is poor he walks afoot." 
 
 This should sufficiently have answered the theory 
 that the varying standard of comfort was the cause 
 of differences of wages. Smith clearly saw that the 
 difference of wages caused the varying standard of 
 comfort. With him, wages were wages of subsist- 
 ence always, and sometimes more than that. But 
 even what to all appearance were only wages of 
 subsistence varied, and this had to be explained by 
 the standard of comfort theory. Adam Smith did 
 not commit himself much with regard to wages of 
 subsistence. But Malthus and Ricardo, to their own 
 satisfaction, settled the whole matter to a nicety. 
 
 By Mill's time, and in his hands, the standard of 
 comfort theory amounted to this : that if by any 
 means wages were raised, the permanence of the 
 rise depended on the labourers' growing accustomed 
 to a better standard of comfort. Otherwise they 
 would propagate and increase until the old rate was 
 reached. On the other hand, a fall of wages might 
 make them grow accustomed to a lower standard of 
 comfort. This, it was supposed, would prevent 
 their exercising that prudential restraint which was 
 necessary to reduce their numbers as required to 
 again reach the same rate of wages. 
 
 The whole theory, so far as it differed from 
 
1 86 ECONOMICS AND SOCIALISM 
 
 Smith's ideas, was the work of Malthus, or rather 
 the result of the Malthusian theory of population. 
 Mill could not disguise from himself the- fact that 
 population did not exactly adjust itself to subsist- 
 ence, as the Malthusian doctrine would imply. His 
 views are not without reason. But he nevertheless 
 conceded too much to the standard of comfort theory, 
 with which the doctrine was inseparably connected. 
 For without staying to question the tendencies 
 referred to by him, or altogether denying the influ- 
 ence of a standard of comfort on population, one 
 obvious explanation of the tendencies is that poor 
 people are more helpless on account of their poverty : 
 and further, that even when better opportunities 
 offer themselves, helpless people do not always take 
 advantage of them. 
 
 There is, however, another fallacy to which Smith 
 gave shape. It has already been mentioned that 
 real wages must for the most part, be drawn from 
 capital in exchange for the capital added to the total 
 fund. The fund available for use as wages has 
 been spoken of as the wages fund. There is some 
 reason for speaking in this way of a wages fund ; 
 but it has been so much misunderstood that the 
 most glaring error may be observed in the discussion 
 of it. This wages fund theory is closely connected, 
 as will be seen, with the wages of subsistence theory 
 and, like the latter, it found place in Smith's book. 
 The author of the Wealth of Nations stated that 
 ** the demand for those who live by wages, it is 
 evident, cannot increase but by the increase of the 
 funds which are destined for the payment of wages." 
 These funds he conceived to be of two kinds : the 
 
WAGES OF SUBSL^^l^i'^^^^SITTirfey 
 
 surplus revenue of the landlord or moneyed man 
 who, on the increase of his surplus, would naturally 
 increase the number of his menial servants ; and 
 secondly, the surplus stock of the independent 
 workman, such as the weaver or shoemaker, who 
 had more than he needed to purchase the materials 
 of his own work and to maintain himself until he 
 could dispose of it. On an increase of this stock it 
 was said he would naturally increase the number of 
 his journeymen. 
 
 It would be difficult to find error more closely 
 packed into half truths than in these passages. The 
 author went on to enforce the position that *' the 
 demand for those who live by wages, therefore, 
 necessarily increases with the revenue and stock of 
 every country and cannot possibly increase without 
 it." But he contended that it was not the actual 
 greatness of national wealth, but its continual in- 
 crease, which occasions a rise in the wages of 
 labour. He had a wonderful command of facts, 
 but his explanations were not always perfect. 
 
 Now in these statements we have the foundation 
 of the wages fund theory. The connection with 
 that of wages of subsistence is evident. The con- 
 tention seems to be that an increase of funds will 
 not benefit those now employed. Only on this 
 ground could it be imagined that the increase would 
 cause a demand for others. This could only be the 
 case if the wages were practically fixed at wages of 
 subsistence. And yet truth underlies the erroneous 
 statement. 
 
 Suppose instead of demand for labour the phrase 
 supply of wages had been used. It probably would 
 
1 88 ECONOMICS AND SOCIALISM 
 
 not have seemed a great change. But it would 
 have made the first of these two statements true 
 instead of false. For the supply of wages can only 
 increase with the increase of the fund from which 
 the wages must be drawn ; that is, by the increase 
 of those desirable commodities and services which 
 go to make up wages. Nor would the statement be 
 a useless remark. For it would indicate the im- 
 portant fact that no good can come to labourers by 
 attempting to limit the production of desirable 
 commodities. This was the great argument used 
 by Nassau Senior against the restrictive action of 
 trade combinations. It is one still worth notice, al- 
 though the expression wages fund has been so often 
 misunderstood and perverted in its use. 
 
 As It was, however, the subject was brought into 
 utter confusion. The demand for labour may 
 increase before the funds for its payment have 
 increased. The funds for its payment will be 
 produced by the labour itself when a sufficient time 
 has elapsed. The demand for labour is the first 
 thing which arises. The increased funds for its 
 payment will come afterwards. This is the ex- 
 planation of what Adam Smith explained by refer- 
 ring it to the increasing state of the funds. In 
 speaking of the rise of wages being due, not to the 
 actual greatness of the national wealth, but to its 
 continual increase, he proceeded to enforce his point 
 by reference to new countries. He apparently 
 imagined that the increase of wealth in those 
 countries was the cause of the demand for labour 
 and higher wages. But the increase of wealth was 
 surely not the cause of more labour being required. 
 
WAGES OF SUBSISTENCE 1 89 
 
 People labour and demand labour because they 
 desire wealth, not because they have it. 
 
 The explanation is abundantly clear. The exer- 
 tion of the labour is the cause of the increase of wealth. 
 That must ever be so. The demand for labour in the 
 new countries arises from the fact that the return 
 for labour is so obvious, and that the institutions 
 of the country have not yet begun to hinder the 
 abundant production of wealth. Instances of new 
 countries will hereafter be cited, in which the 
 demand for labour has been hindered and the 
 increase of wealth stopped by bad economic in- 
 stitutions. It is not merely the newness of the 
 country which makes the difference. There may 
 be poverty in such places in spite of the benefit 
 of abundant natural resources. Economic evils 
 have something to do with it. At any rate, it 
 is certain that the demand for productive labour is 
 owing to a desire that wealth should be produced, 
 and not to the fact that wealth has been produced ; 
 whilst the supply of wages is owing to the fact that 
 wealth has been produced. 
 
 Neither the landlord nor moneyed man on the 
 one hand, nor the independent labourer, such as the 
 weaver or shoemaker, on the other, would demand 
 more labourers merely because he had the funds 
 with which to remunerate them. The demand 
 would arise because work was required to be 
 done. It would not at all follow that any man 
 would engage more servants merely because he 
 could afford it, though it is true there could be 
 no wages without the funds with which to pay 
 them. These are very obvious corrections and 
 
190 ECONOMICS AND SOCIALISM 
 
 seem almost unnecessary. But the errors were so 
 changed in form as to become very real and tangible 
 fallacies. 
 
 The fallacies just referred to have wandered 
 about until they have produced a goodly array of 
 error sprung from the original stock. The wages 
 of subsistence theory has been traced to Ricardo. 
 He used a method (Adam Smith's, like the others) 
 of making labour the foundation of the value of 
 commodities. He proceeded to treat of natural 
 and market price. Market price was conceived to 
 be merely an accidental and temporary deviation 
 from the primary and natural price. The latter was 
 determined by the comparative quantity of labour 
 necessary to the production of the commodities. 
 Natural price was alone to be dealt with. He went 
 on to deal with wages in this way : — 
 
 ** Labour, like all other things which are pur- 
 chased and sold and which may be increased or 
 diminished in quantity, has its natural and its market 
 price. The natural price of labour is that price 
 which is necessary to enable the labourers, one with 
 the other, to subsist and to perpetuate their race 
 without either increase or diminution." 
 
 This natural price which he thus described was 
 really what he treated of as wages throughout his 
 book. When this is remembered, and it is re- 
 flected that he paid no heed to the market price 
 which labourers actually did receive, but set it 
 aside in favour of this so-called natural price w^hich 
 was imagined necessary for subsistence, there can 
 be no surprise at any amount of confusion. He 
 continues : — 
 
WAGES OF SUBSISTENCE I9I 
 
 '* The power of the labourer to support himself 
 and the family, which may be necessary to keep up 
 the number of labourers, does not depend on the 
 quantity of money which he may receive for wages, 
 but on the quantity of food, necessaries and con- 
 veniences become essential to him from habit which 
 that money will purchase. The natural price of 
 labour, therefore, depends on the price of food, 
 necessaries, and conveniences required for the 
 support of the labourer and his family. With a 
 rise in the price of food and necessaries, the natural 
 price of labour will rise ; with the fall in their price 
 the natural price of labour will fall." 
 
 This is quite enough confusion to quote at one 
 time. In the previous passage he had satisfied 
 himself that the natural price of labour was what 
 would sustain the labourers and enable them to 
 propagate their species. Now he states that this 
 will be done, not by the money (which is of course 
 true), but by what the money will buy. So that the 
 natural price of labour becomes the amount of 
 money which buys this wealth. This natural price 
 will rise when food becomes dear, and fall as it 
 becomes cheap. 
 
 Now the last statement, if it refers to real wages, 
 that is, if it means anything at all, is untrue, as we 
 saw in an earlier chapter. The natural price being 
 assumed to be what will subsist the labourers, it 
 is concluded that it should rise and fall with the 
 price of maintenance. The whole thing is an 
 assumption. Ricardo goes on to show that the 
 market price may be above or below this natural 
 price. He might as well have said that the natural 
 
192 ECONOMICS AND SOCIALISM 
 
 price was purely ideal and had nothing to do with 
 actual life and fact He took the imaginary natural 
 price as the foundation of all his arguments. There 
 can be no wonder at the boundless confusion which 
 consequently fills his pages. It was this celebrated 
 iron law of wages on which Marx and his school 
 built the whole of their arguments for socialism. 
 Labour was supposed to be the cause of value. 
 The wages of labour were bare subsistence, though 
 even Ricardo showed that he knew the subsistence 
 was sometimes better and sometimes worse. The 
 capitalist exploited labour and took the excess value 
 beyond bare subsistence for his profits. 
 
 It is all mere imagination. Money wages are 
 not raised and lowered to suit the price of subsis- 
 tence, as labourers have often found to their cost. 
 It is contrary to experience and reason that a 
 higher money wage should be given because the 
 master finds the servant, on account of the higher 
 price of provisions, is somewhat more at his mercy. 
 He may even find that he cannot afford to engage 
 servants at all because the higher prices compel him 
 to reduce his own expenditure. This imaginary law 
 is the economic foundation of Socialism, and with- 
 out foundation the structure cannot hope to stand. 
 Let it not be concluded, however, that socialism is 
 thought to be entirely disposed of so easily. 
 
 The notion that wages tend to wages of sub- 
 sistence, and need artificial remedies to prevent 
 that result, has, however, obtained a very deep hold 
 on men's minds. Mr. Henry George puts his 
 inquiry into this compact form : " Why, in spite of 
 increase in productive power, do wages tend to a 
 
WAGES OF SUBSISTENCE 193 
 
 minimum which will give but a bare living ? " This 
 is the problem he sets before himself for solution. 
 Much depends on what is meant by the problem, 
 but in one aspect of it the answer is very simple. 
 The reason why wages tend to a bare living is that 
 men only work for a living, and when they have 
 that, there is no need for them to work more ; they 
 consequently cease. If anything more than this is 
 meant, the problem is a statement which should 
 have been well proved before it was taken as the 
 foundation problem of an inquiry. 
 
 What is meant by a minimum which will give but 
 a bare living ? If it means that wages universally 
 are, or tend to become, only sufficient to sustain life, 
 the statement is absolutely untrue. In these times, 
 for one reason or another, some fail to get even 
 that. Some finish their days in starvation, or put 
 an end to them by their own hands, rather than face 
 starvation. But it is not because they are starving 
 in spite of working, but because they cannot get the 
 opportunity of working. If for a similar cause the 
 wages of others are very low, it is not that wages 
 tend to a minimum ; it is that something hinders 
 the full employment of labour. 
 
 For the same amount of labour actually exerted 
 there can be no doubt that in most countries better 
 real wages are now obtainable than has ever pre- 
 viously been the case. A few special instances to 
 the contrary of perhaps newly-discovered fertile 
 plains may have to be excepted from notice on the 
 one hand, as also some cases of unnaturally abun- 
 dant casual labour in civilised countries on the other 
 hand. Speaking generally, however, no such natural 
 
 o 
 
194 ECONOMICS AND SOCIALISM 
 
 tendency as that spoken of exists. Even if it can be 
 shown that poverty has increased, it does not follow 
 that real wages tend to be lowered. It may only 
 show that by one means or another the production 
 of wealth is hindered, that, in fact, labour is not 
 exerted. In such a case it is incorrect to say that 
 wages tend to a minimum. The work is not done. 
 How, then, can wages be expected ? 
 
 It is 'Very true that, with the exception of those 
 who «ave, wages only amount to a living. But there 
 are those who save in all classes, and they must be 
 excepted. As for the others, they only work for the 
 living, and consequently get what they work for. 
 But there is no law or tendency establishing that it 
 shall fall to bare subsistence, or that it must of 
 necessity be even that. Without the work there 
 may not be even subsistence. So much for the 
 wages of subsistence theory strictly expressed. 
 
 The standard of comfort theory, which is evi- 
 dently a modification of the wages of subsistence 
 idea, need not be further discussed. Adam Smith 
 sufficiently answered it. And it needs little thought 
 to realize that the demand for labour is the first in 
 order of succession in the explanation of wealth 
 supply, that supply of wages is next, and that 
 standard of comfort comes after, and results from 
 the supply. The raising of the standard of comfort 
 will cause an increased demand for labour, it is true. 
 But the standard of comfort can only rise by in- 
 creased supply of real wages. The order is demand, 
 supply, standard of comfort. Then trace them in 
 the same order again, and again, and so on, while 
 the system of industrial activity continues. Only 
 
WAGES OF SUBSISTENCE I95 
 
 let this be clear — the demand is never lacking. 
 Man's desire for wealth is never satiated. But stop 
 the supply, and the standard of comfort will be 
 lowered. The effectiveness of the demand will by 
 the same means be diminished. For supply is what 
 gives effectiveness of demand. And this diminish- 
 ing of the effectiveness of the demand will be worse 
 than diminishing the demand itself. 
 
 The wages fund fallacy, as well as that of wages 
 of subsistence, has had a history. Nassau Senior 
 can hardly be said to have done much violence to 
 the truth in his treatment of it. But that cannot be 
 said of John Stuart Mill. His confusion between 
 wealth and money has already been referred to. 
 Add to this the theory that wages were determined 
 by a wages fund ; which, let it be remembered, was 
 an absolutely limited fund, though its extent was not 
 perhaps ascertainable. This was all that was 
 necessary to establish with him that wages were 
 fixed by what the capitalists had and intended to 
 pay out as wages. These wages would be lent to 
 labourers. This was the circulating capital the 
 employer kept for his wages. It was always 
 expressed as being advanced. That notion of ad- 
 vancement was probably another idea of Smith's, 
 though its appearance in his work is not nearly so 
 clear as in those of later writers. 
 
 With Mill wages were clearly stated to be limited 
 by the capital devoted to their employment. This 
 capital with Mill meant money. The wages fund, 
 as it appeared in his hands, took some root. By 
 means of it, and his confusion between wealth and 
 money, he had succeeded in showing to his own 
 
196 ECONOMICS AND SOCIALISM 
 
 satisfaction that a demand for commodities was not 
 a demand for labour. The examination of his 
 method of doing so is too complicated and not of 
 sufficient interest to be set out here at length. But 
 it may be stated that he practically relinquished the 
 position by saying that, when a demand for com- 
 modities was a demand for labour, it was because 
 of the vicarious employment of the labour by the 
 farmer or manufacturer who produced the com- 
 modities. That would have been admitted at once. 
 But he spent some pages in trying to show that 
 a demand for commodities would not result in a 
 demand for labour. What he really meant was 
 that a demand for labour condensed into expensive 
 luxuries for the personal consumption of the buyer, 
 was not a supply of food and other necessaries to 
 labourers. Stated in that way no one would deny 
 it. And he would have arrived at the result im- 
 mediately if he had kept wealth and money distinct 
 in treating the subject. But it is obviously incorrect 
 to imagine that a continuous demand for com- 
 modities can be supplied without the employment 
 of labour required for their production. It is, more- 
 over, useless to darken counsel by talking about a 
 demand for commodities not being a demand for 
 labour when, in fact, something else is meant. 
 
 There was, however, a decidedly evil tendency in 
 the wages fund theory as it was developed. The 
 notion was that the wages fund was controlled by 
 certain persons, and it was only as they were willing 
 to employ it productively that any benefit could 
 accrue to the mass of the people from it. This 
 notion perhaps reached its climax in the words of 
 
WAGES OF SUBSISTENCE 197 
 
 Dr. Amassa Walker: "Wages are not high in 
 proportion to the wealth of a community, but rather 
 to the disposition that exists amongst those possess- 
 ing wealth to pay it out for labour." Now, the 
 only fragment of truth which can be conceded to 
 any notion approaching this idea will not warrant 
 such a statement as the words convey. 
 
 It may be, and without doubt is, true that abilities 
 and qualities are required for organizing and em- 
 ploying labour which are not possessed by every 
 one. And it is also true that those who possess the 
 qualifications will not undertake the duties without 
 sufficient reward. It is not to be expected that 
 they should, when they can retain well-paid posi- 
 tions without the risks of independent business 
 undertakings. But if the demand for the results 
 of labour exists, and those who require those results 
 are able and willing to pay for them, some will be 
 ready to come forward and employ the necessary 
 labour. If some will not, others will, provided the 
 necessary conditions exist. It is not the confidence 
 of employers or moneyed people, but the effective 
 demand of consumers who are willing to supply 
 wealth in return, that causes good trade and high 
 wages. 
 
 These various fallacies are, it is true, capable of 
 separation and distinct treatment. But they are all 
 closely interwoven with each other. On them, or 
 at least in accordance with them, have been based 
 the various attempts to interfere with the natural 
 rate of wages, and regulate by combination the 
 relations between employers and employed. Dr. 
 Smith referred to these combinations without any 
 
198 ECONOMICS AND SOCIALISM 
 
 particular disapproval ; although he clearly saw 
 that if the conditions were favourable, their action 
 was unnecessary to raise wages. Of subsequent 
 economists, few have gone so far as Professor 
 Jevons. Yet he only ventured to express his 
 belief that their action had, on the whole, done no 
 good ; and that wages would have risen without 
 their interference as much as they had with it. Dr. 
 Smiles wrote against strikes, but he did not profess 
 to be an economist, and he has had very few 
 followers. No one seems to have come to the 
 conclusion that the combination was bad from the 
 beginning ; or its interference an evil, whatever the 
 immediate result with regard to apparent success or 
 failure. 
 
 Nor did the theories which have just been dis- 
 cussed militate against the idea that the combinations 
 were beneficial. 
 
 The idea that wages of labourers are those on 
 which they can and will subsist, and consent to 
 propagate their species, justifies as well as they can 
 be justified strikes for higher wages. The labourers 
 striking have a dim notion of the wages of subsist- 
 ence explanation, modified, perhaps, by the standard 
 of comfort theory, together with a sort of impression 
 that by striking they are refusing to subsist unless 
 they have higher wages. Their standard of com- 
 fort requires it. They must have a " living wage," 
 which is the latest phrase used. The same theory 
 supports the Trades Union and Socialistic idea of 
 restricting the hours of adult labour and otherwise 
 interfering with the labour of workmen besides 
 those who ask for the restrictions. It is essential. 
 
WAGES OF SUBSISTENCE 1 99 
 
 they think, that others should be prevented from 
 accepting less money wages in proportion to the 
 work done. For it is obviously impossible that 
 they should raise their own wages by refusing to 
 subsist, unless the others will likewise refuse or can 
 be hindered from subsisting by means of a^ legal 
 enactment. 
 
 But of course labourers on strike do not actually 
 refuse to subsist during the months in which they do 
 not work. Mr. George has compared strikes to the 
 Hindoo mode of compelling payment of a just debt 
 called sitting dharna — the creditor sitting down at; 
 the door of the debtor and refusing to eat or drink 
 until he is paid. Mr. George says that in their 
 strikes Trades Unions sit dharna, but, unlike the 
 Hindoos, they have not the power of superstition to 
 back them. There is, however, another important 
 difference : they never refuse to eat or drink. If 
 their productions are essential, their success or 
 failure depends on waiting until that is realized, 
 that is, on their being able to obtain enough for 
 themselves and their families to eat and drink to 
 sustain them for a sufficiently long time. Meantime 
 their work stands, and they, in common with the 
 rest of the nation, are the poorer for it. A creditor 
 sitting dharna, with a supply of provisions beside 
 him, brought to maintain him while he waited, or 
 one who asked others to bring him food and drink 
 for that purpose, would have been an object of 
 interest, not to say curiosity, to the Hindoos. 
 
 Mr. George is more correct in calling a strike a 
 destructive contest. But even in that he miorht 
 more nearly have approached the truth than by 
 
200 ECONOMICS AND SOCIALISM 
 
 comparing it to the contest proposed by the money- 
 king when taunted with meanness. The contest 
 proposed was that he and his taunter should go 
 down to the wharf and alternately toss twenty-dollar 
 pieces into the bay. But Mr. George should have 
 imagined the masters representing the class of 
 moneyed people, and particularly the wealthiest, 
 committing to destruction paper money created by 
 themselves. As far as regards the men representing 
 their class and the poorer employers, the contest 
 should be compared to destroying victuals, clothing, 
 and the comforts of life. This will more clearly 
 appear as we proceed. 
 
 The wages fund theory, moreover, has been so 
 developed as to encourage, like that of wages of 
 subsistence, the idea that capitalists can give 
 better wages if they choose ; that, in fact, the men 
 have only to combine to get practically what they 
 like. More than that, these theories help the 
 notion that unless they do combine they will be 
 crushed to starvation. Dr. Walker's words above 
 quoted amply support the idea. But wages do not 
 depend on the whims of a few wealthy people ; it 
 would be a sad calamity for mankind if that were the 
 case. And next to such a calamity the most disas- 
 trous thing is that such fallacy should have been so 
 prevalent. It would indeed be all the argument 
 required to support strikes, trade combinations to 
 raise prices, socialism, and all the economic ills from 
 which any nation could suffer. Fortunately it is not 
 true, and the mass of the people have a great deal 
 more power to determine what wages shall be than 
 such a notion gives them credit for. They must, 
 
WAGES OF SUBSISTENCE 20I 
 
 however, for this purpose take to understanding and 
 acting upon the laws of the science of wealth. The 
 standard of living can be raised by the supply of 
 which they are themselves capable. Such a supply 
 raising the standard of living will itself be a demand 
 for labour and a raising of wages, whatever those 
 possessing wealth may choose to do or not to do. 
 The demand will be supplied if the right course 
 be taken. Nor for this purpose will any political 
 measures be necessary ; but it will be necessary 
 that nothing be done to hinder any one from pro- 
 ducing wealth to any extent he may choose. 
 
CHAPTER XIII 
 
 TRADE COMBINATIONS 
 
 In dealing wkh Trade Combinations, it is as essen- 
 tial as in the case of other points already dealt with 
 to define exactly the scope of the inquiry. A com- 
 bination or society of any kind is not good or evil 
 because it is a combination, but because of the action 
 taken by the combination. The expression " Trades 
 Union " has a sufficiently definite meaning to most 
 minds ; but it is better to at once confine the atten- 
 tion to the essential characteristic which requires 
 examination. 
 
 The Societies known in common parlance as Trades 
 Unions frequently call themselves Trade Protection 
 Societies. In the United States of America the best 
 known expression is that of Knights of Labour. But 
 whether known by these names or others, the idea 
 to be conveyed is the same ; it is that of a Society, 
 existing, by combination of the workmen of a par- 
 ticular trade, for the purpose of raising the wages 
 of its members, and otherwise strengthening their 
 position against their employers. Such a combina- 
 tion usually extends only to one trade. It may be 
 one of several different trades engaged in the manu- 
 facture or preparation of a particular commodity. 
 Occasionally, however, those of two or more trades 
 
TRADE COMBINATIONS 203 
 
 will consider themselves to have interests sufficiently 
 in common to induce joint combination. 
 
 These combinations frequently have as subsidiary 
 objects those which are in all respects similar to the 
 objects of Friendly and Insurance Societies. But 
 whatever may have been true in the past, such 
 objects have now become quite subsidiary to that of 
 protection against the employer. These subsidiary 
 objects include provision for sickness, loss of tools, 
 and other misfortunes occurring to their members. 
 On this point nothing is intended to be said. The 
 principle of insurance against possible mishap, which 
 may occur to any one, but which is not likely to 
 occur to all at once, seems in all respects a good 
 one. In such a case the many who are, for the 
 time at least, free from misfortune, can, without 
 appreciable difficulty, render assistance which to the 
 one or the few is invaluable. To ask the one to 
 sacrifice himself for the sake of the many is a very 
 different thing, and will require further consideration. 
 The difference will be commented upon in a later 
 chapter. 
 
 Included in this principle of insurance is the 
 making of allowances to members who are really 
 out of work and unable to find remunerative em- 
 ployment. But it will not extend to making allow- 
 ances to members who might have employment if 
 they would accept lower wages than those fixed by 
 the combination as the ** Union rate of wages.'* 
 This latter kind of allowance is a part of the system 
 of controlling or attempting to control the wages of 
 the members, and must be included in the main 
 question. 
 
204 ECONOMICS AND SOCIALISM 
 
 One other point must also be noticed before pass- 
 ing to the consideration of that main question. 
 These combinations have sometimes taken or re- 
 ceived credit for their interference to raise the 
 quahty of the goods manufactured. Such credit is 
 entirely gratuitous. So far as a workman can be 
 induced to put his best and most conscientious 
 labour into his handicraft, the quality of his work is 
 improved. But it is clearly evident that this in no 
 way depends upon combination ; all the influence 
 which is possible can be exerted without the combi- 
 nation. Nor do the Trades Unions make it one 
 of their regulations or strong points, whatever the 
 ancient guilds may have done. It is true that they 
 frequently prescribe prices below which their mem- 
 bers should not go ; but that is a very different 
 thing from inculcating conscientious work or pre- 
 scribing qualities. This prescribing prices is, in fact, 
 all that can be meant by their attempts to put on 
 the market only the better classes of goods. The 
 feature is not heard of in the case of those trades 
 in which the workmen cannot control the quality 
 of the article. None the less the duty of paying a 
 good price for it is quite as strenuously maintained. 
 In those instances in which a high quality is made 
 a point of, there is no request for the privilege of 
 making a good article for the money, but of making 
 a good article and receiving a good price. The 
 inference is that the price is the chief object, not the 
 quality. 
 
 The privilege of making an article well worth the 
 money will be readily conceded. But what class of 
 goods, considered with reference to their prices, shall 
 
TRADE COMBINATIONS 205 
 
 be made, it is not in the power of trade combina- 
 tions to decide ; that is purely a question for the 
 consumer, and not for the producer. The producer 
 can only be paid for what the consumer chooses to 
 use. If he makes anything else, he will find that 
 the market is closed to it, and he has wasted his 
 time. So far as a person is a consumer, but no 
 farther, and with regard only to the commodities he 
 consumes, he can choose their quality ; the producer 
 produces for the consumer. If Trades Unions 
 would influence qualities, they must persuade their 
 members to give ungrudging work for their wages 
 (which is not their present policy), and to choose 
 only the better qualities when they buy. What 
 they sell others will choose. Only by these means 
 can Trade Combinations anywhere have influenced 
 qualities. 
 
 On the subject of quality, however, it may con- 
 veniently be noticed here that nothing conduces so 
 much to the general use of the better qualities of 
 goods of all kinds as does ''good trade." Few or 
 none choose inferior qualities because they prefer 
 them. It may be said, without much fear of contra- 
 diction, that the reason for their choice is that the 
 price is all they feel they can afford. And in a 
 period when all are at work, none wasting their 
 strength seeking employment, and money flowing 
 freely from hand to hand, there is much more like- 
 lihood that the additional money received will be 
 expended in the better qualities of goods. Indeed, 
 they are the more economical in the long run, but 
 no man can expend money which he does not 
 possess or control, even though it may be of ad- 
 
206 ECONOMICS AND SOCIALISM 
 
 vantage to him to do so. This contention with 
 regard to better qualities being sold during brisker 
 trade is confirmed by experience. 
 
 Apart, therefore, from the principle of insurance, 
 which is not now an essential feature of Trade Pro- 
 tection Societies, and apart also from the possibility 
 of Societies intimating to their members where re- 
 munerative employment can be had, which is scarcely 
 a feature of these combinations, there remains only 
 to be considered their chief and essential feature, 
 which is their interference between employer and 
 employed with regard to wages and other matters. 
 
 Strictly speaking, a combination being an abstract 
 notion cannot interfere between master and servant, 
 but the final result is as if such a thing were pos- 
 sible. For the combination of a number of men to 
 fix their wages in unison inevitably results in their 
 being represented by one or more individuals. 
 These individuals are, so to speak, the embodiment 
 of the combination. They may themselves be 
 members of the combination and engaged in the 
 same employment, or they may be specially set 
 apart by the other members for the purpose of 
 representing the Union. In any case the professed 
 object is to act in the interest and on behalf of the 
 employed. The idea is that by thus forming them- 
 selves into one mass and acting as though the 
 individuals were not many but one, the members 
 can obtain better wages than if they acted separately. 
 In this way it has become customary for all the 
 workmen of a trade extending over a whole district 
 to have their wages fixed. The officials who em- 
 body the Union frequently deal directly with the 
 
TRADE COMBINATIONS 207 
 
 masters, who in their turn occasionally choose a 
 number of themselves to treat with the mens 
 officials. In other cases the workmen individually 
 treat with the masters,, perhaps because the masters 
 will not recognise the Union. But even in these 
 cases the result is the same. The men do nothing 
 without the sanction of their leaders, and thus 
 become merely the mouthpiece of the Union. 
 
 Naturally the Union does as an individual would, 
 in so far as it endeavours to raise the money wages 
 as high as possible. Of course the workmen 
 imagine that they will, by means of the combination, 
 increase their wages. And there are many others 
 besides the men and their leaders who favour these 
 combinations as tending to better the lot of the 
 workman. Not for a moment would any one doubt 
 the sincerity of their belief. But it is intended to 
 show that it is an entirely mistaken one. The truth 
 is that these combinations cannot better the lot of 
 their members, but can and do make it materially 
 worse. This does not appear ever to have been 
 definitely proved. Several economists have, how- 
 ever, shown their strong suspicion of the truth. 
 Some of them were hindered by initial fallacies from 
 reaching the truth. The mention of names, and 
 the reasons apparently to be assigned for their 
 failure in this respect, must be deferred until the 
 subject itself has been to some extent dealt with. 
 
 Many methods of arriving at the truth are open, 
 but some classification will conduce to clear appre- 
 hension. For this purpose a distinction between 
 fixed and circulating capital, which has often been 
 used by economists, will be useful. It has not been 
 
208 ECONOMICS AND SOCIALISM 
 
 adopted as a primary distinction, because, in the 
 first place, it is impossible to find a clear and at the 
 same time satisfactory line of demarcation ; and in 
 the second place, as might be anticipated from the 
 absence of such a line, nothing really important 
 hangs on the distinction. It will, however, be con- 
 venient, and the reader may fix the line at his own 
 choice. 
 
 The old distinction became almost worthless, for 
 whilst fixed capital was truly described, circulating 
 capital, in the language of Mill for instance, was an 
 expression for money. Such a method inevitably 
 led to confusion. Moreover, there was a difference 
 between the methods of understanding the distinc- 
 tion. For while Smith referred to circulating capital 
 as that passing from hand to hand and not consumed, 
 Ricardo (whose method is here followed) meant by 
 it capital more speedily consumed. There is a 
 difference between wealth which is entirely con- 
 sumed or altered in the using, and wealth which 
 is not so consumed or altered. There are obvious 
 difficulties in allowing much beyond arrangement to 
 depend upon it. But there are certainly differences 
 in degree, and to that extent a useful distinction. 
 Food, for instance, can be consumed but once. Fuel 
 also is consumed in the using. Clothing may be 
 used more than once ; but the raw material used in 
 the making of it can be used but once for the pur- 
 pose, and is truly circulating capital until it reaches 
 the finished state. Moreover, it appears more 
 convenient to speak of even the clothing as circu- 
 lating capital until it actually reaches the consumer. 
 A house, on the other hand, is fixed in every respect ; 
 
TRADE COMBINATIONS 2O9 
 
 yet the material used in its construction is in respect 
 of its use of the nature of circulating capital. Tim- 
 ber may be said to be consumed in the using. It 
 probably only affords benefit after it has been used in 
 the construction or manufacture of some commodity. 
 Yet as timber it exists no longer after once used. 
 
 It thus appears difficult to find a satisfactory line 
 of distinction. It is better to bear in mind that 
 houses, mills, railways, and the like are fixed capital. 
 Food and fuel are circulating capital in the sense in 
 which the term is used by economists. Between the 
 two are various degrees of fixity, and even the most 
 fixed kinds of capital eventually wear out or are con- 
 sumed. 
 
 Consider, then, in the first place the trades engaged 
 in the production of circulating capital. As a type 
 take coal-miners. Their pre-eminence in the matter 
 of gigantic trade combination, in Great Britain at 
 any rate, is notorious. Suppose that there is a great 
 demand for coal, and the price is rising. Everything 
 is favourable to the success of the combination. The 
 leaders know that in such a market they can success- 
 fully demand a higher price for the men's work. As 
 frequently has happened they demand and obtain the 
 addition of a certain percentage to the money wages 
 of all the miners. To many minds, and especially 
 at first sight, it is doubtless difficult to imagine how 
 this can be anything but a benefit to the miners. 
 But the matter must be traced further. It is essential 
 to see where the additional money comes from, and 
 what the result is, before it can be concluded that/ 
 the miners are benefitted. 
 
 No one would venture to say that in such a market 
 
 p 
 
2IO ECONOMICS AND SOCIALISM 
 
 the masters would lose the additional sum paid to the 
 men. It Is contrary to business principles that they 
 should willingly forfeit that sum. They cannot be 
 expected to do so. The result must therefore be 
 that the additional price paid Is added to the 
 commodity. It is true It is not calculated in that 
 way. It is a question of the market The price Is 
 fixed by supply and demand. But the only way the 
 Union can raise the price is by stopping work or 
 threatening to do so. Stopping work is in effect 
 diminishing supply, which, as already pointed out, is 
 a means of raising prices. Moreover, the threat to 
 stop the supply has the same effect, by inducing 
 purchasers to buy out of the regular course what 
 they would have bought later, and by inducing the 
 sellers to hold for the time of stoppage. As a 
 matter of experience it is found that the addition 
 to the miners' wages is at best only about one-third 
 of the additional price paid for the coal. This 
 proportion, however, is not essential for the argu- 
 \ ment. It Is enough that from the nature of things 
 \ the masters will have the additional price paid with 
 some profit on It. 
 
 That Is the first step in the argument : the addi- 
 tional price paid to the miners, together with a profit 
 on it, will be added to the price of the commodity. 
 The next and only other step is, that the miners 
 themselves will pay that additional price, together 
 with a number of further profits on it. It is true 
 they do not require the coal for their own consump- 
 tion, but the mischief Is even greater on that account. 
 They work for money because money will buy wealth. 
 They desire, and, in fact, absolutely need that wealth. 
 
TRADE COMBINATIONS 2X1 
 
 The commercial world will only give it them in 
 return for their labour. That labour is embodied 
 in the coal they have produced. It is passed on 
 with its additional price through a great variety of 
 hands, a profit for the transaction being added every 
 time, until it reaches them again. When it does 
 reach them, they, having only received the percent- 
 age first added to their wages, are not able to pay 
 the profits which, from the absolute necessity of the 
 case, have been added. Their real wages, the wealth 
 for which they worked, is accordingly diminished. 
 
 This result must follow from the nature of things. 
 The master will get for the commodity the amount 
 paid, together with his profit, or he had better give 
 up his business. Every one who deals with the 
 commodity will take care that the commodities he 
 has to sell will recoup him, together with a profit, 
 or he had better not be in the trade. And the 
 original producer can have no wealth except by 
 reason of his productions going the complete circle 
 until they reach him again. 
 
 This point is important to make clear. If while 
 he lives in England, the miner s bread is grown in 
 the United States of America, and the raw material 
 of his clothing produced in Australia, these things 
 can only reach him because those who bought the 
 coal from his employer used it to manufacture some- 
 thing which should be sent out to those distant 
 regions. The people who live in those regions 
 must pay the manufacturers for what they send. 
 And included in the price must be the additional 
 sum added by the threatened strike, otherwise the 
 manufacturers will stop their works. 
 
212 ECONOMICS AND SOCIALISM 
 
 When the raw material leaves those distant 
 regions, it must, as a matter of course, include the 
 additional price paid for what has been essential to 
 its production. That will include the wages of men 
 who must have higher money wages to pay for the 
 higher prices of manufactured goods coming to them, 
 or must take care to go without them and stop the 
 coal being of use at all. To that additional price 
 must be added a profit, or the producers of the raw 
 material will give up their business, and there will 
 be no corn or wool. When these materials reach 
 England, of course the higher price must be paid for 
 them by the manufacturers of cloth and the grinders 
 of corn. This again will be repaid, together with 
 a profit, or no bread or clothes will reach the miner. 
 The manufacturers and millers have also felt the 
 rise in the price of coal, and have something to add 
 to the price of the finished product on that account. 
 In this way, therefore, the miner pays dearly for the 
 addition he made to his money wages by means of 
 the combination. 
 
 For reasons which are sufficiently obvious, coal- 
 miners have been chosen as an instance by means 
 of which to examine the subject. They have a 
 powerful combination in Great Britain ; they are 
 the first producers of raw material ; but other 
 instances might have been adopted. There must 
 be a complete circle, and any one in that circle may 
 do the same thing, though it may appear less easy 
 to trace. 
 
 There are other contentions possible. For 
 instance, it might be contended that, even if manu- 
 facturers and other masters within the circle would 
 
TRADE COMBINATIONS 213 
 
 either insist on being paid the additional outlay with 
 a profit, or would cease to trade, yet they might 
 possibly take that additional outlay from their own 
 men. It would scarcely be an argument which 
 would be offered on humanitarian grounds, and 
 those are the grounds usually offered to support 
 trade combinations. Nor would it tend to induce 
 subscriptions from other trades in case of a strike. 
 It might, however, be urged ; and, as a matter of 
 fact, that proceeding actually occurs. The result of 
 it will be noticed in the next chapter. That result, 
 it may be here stated, is not a favourable argument 
 for trades unionism. 
 
 On the other hand, it must be remembered that 
 many engaged in other trades (for their own pro- 
 tection as they imagine) form similar combinations. 
 It is true their object is protection against the 
 supposed rapacity of the masters. It is not osten- 
 sibly against a combination of other workmen which 
 raises the price of the raw material with which they 
 must work, or of the commodity they must them- 
 selves consume. They never notice that by these 
 latter means their own wages must be reduced or 
 the price of their productions raised. Still less 
 would they realize that in the latter case they must 
 eventually pay that advance with interest and 
 profits. In endeavouring to protect themselves 
 against some real or imaginary danger they are 
 doing themselves injury. Yet that does not pre- 
 vent their increasing the injury which the workmen 
 of the trade first instanced did to themselves. 
 These other trades also combine and raise their 
 prices. The same results follow as were mentioned 
 
2 14 ECONOMICS AND SOCIALISM 
 
 with regard to the miners. Thus, as the circle is 
 traced, the evil is increased, not only by means of 
 the profit which must be taken on the increased 
 price of the first commodity, but also by the 
 additional prices put on by other combinations. 
 
 This cannot, of course, go on indefinitely raising 
 the price of the commodities. The limit must 
 be reached somewhere. And the influence which 
 counteracts that of the combination to raise the 
 prices is found in diminished effective demand. Not 
 that the demand in the sense that word has been 
 used in this book is any less, but the means by 
 which it is made effective are considerably reduced. 
 Throughout the circle of exchange the workmen 
 find themselves unable to purchase the higher priced 
 wealth. By this means the prices are kept within 
 reasonable limits. But it is a still further argument 
 against the combination method. For it simply 
 means that the commodities are kept cheap because 
 the people have not enough to buy them with, and 
 not because they are found in great abundance. 
 And it explains why, as a mere contrivance to raise 
 prices, trade combinations are ultimately power- 
 less. 
 
 With regard to fixed wealth or capital, a slightly 
 different method of argument may be adopted. 
 The workmen engaged in building houses may be 
 taken as a typical instance. The same method 
 might be adopted with regard to those engaged in 
 shipbuilding or erecting more or less permanent 
 engineering works. 
 
 Suppose once more that the demand for houses 
 is good. For it is desired to take the case most 
 
TRADE COMBINATIONS 215 
 
 Strongly against the writer. As in the other 
 instance, the combination demands and obtains an 
 advance of money wages. So far as the contracts > 
 then in hand are concerned, doubtless the masters 
 must suffer the loss. But in making fresh contracts 
 they will certainly make allowance for the current 
 rates of wages and the cost of building other houses 
 will be increased. Now, a person wishing to invest 
 money in houses may either buy those already 
 built or contract for the erection of others. No 
 higher house rents can be obtained for the new ones 
 built at the increased rate than for equally conveni- 
 ent houses built at the old rate. The result is, that 
 all the houses already built have been increased in 
 value by the advance in the workmen's wages. This 
 benefit accrues to the owners of house property, not 
 to journeymen builders. 
 
 Now no one will contend that the workmen 
 should debar themselves from a possible benefit, lest 
 the owners of capital should also be benefitted. 
 But they can hardly suspect that the effort of the 
 combination was really benefitting the capitalist to 
 so much greater an extent than it was benefitting 
 the labourer. The person against whom the com- 
 bination is intended to be directed is the capitalist. 
 And yet here is a very clear instance in which the 
 capitalist has gained by the combination. 
 
 Moreover, the question requires discussion as to 
 whether the workman is benefitted by the advance 
 of wages so obtained. It is true the rents of houses 
 are not raised by the advance itself, so that the 
 workman does not necessarily pay more for his 
 house. Nor would, for instance, freights be in- 
 
2l6 ECONOMICS AND SOCIALISM 
 
 creased by a similar advance in the cost of ship- 
 building. On the other hand, these advances do 
 not increase the amount of money to be expended 
 in house or shipbuilding. And as the cost of this 
 building has been increased, it is evident that fewer 
 houses or ships can be built. The workmen have a 
 little more to spend if the same work continues to 
 be demanded, but it would not be suggested that 
 they would spend it all in house-building. Whether 
 by their spending it they will indirectly produce that 
 result is a question which shall be answered. 
 
 Now, of the money to be invested in house 
 property, it is clear a portion will go to those 
 owners of houses who, having built or bought at the 
 old rate, are able to sell at the new rate. The 
 money to be spent in actual building is thus de- 
 creased in the first place. Moreover, the remainder 
 of the money will not now build as many houses as 
 it would have built at the lower rates. The conse- 
 quence is, that from both causes fewer houses are 
 built. The result of this is, that the people must 
 either live in worse houses or pay higher rents to 
 induce money again to go to the building trade. By 
 this means the owners of the older houses naturally 
 increase their income. For the rents will of necessity 
 be raised all round in a fair proportion. 
 
 Still the workmen have not yet felt the pinch, 
 except so far as the demand has fallen off, and their 
 services are not so much required at the new rate as 
 they were at the old. This may or may not reduce 
 their money wages to what they would have been 
 without the advance; it may possibly bring them 
 below that sum. But the only clear step yet is, that 
 
TRADE COMBINi^llblisEVBRSlT12^7 
 
 the chief gainers have been the owners of thenouses 
 built before the advance. We have seen, however, 
 that rents must rise or the people be worse housed. 
 In the latter case the members of the combination 
 must share the misfortune which, so far as that 
 point is concerned, is all we have to prove. It is 
 true they will obtain more rest, unless they spend 
 the exertion in seeking employment. But rest was 
 not what they desired, or they might have had it 
 without combination. They desired better wages, 
 and, at any rate in respect of houses, their wages 
 are worse. 
 
 If, however, increased rents result, they must be 
 paid by the men themselves and by others. So far 
 as the men themselves are concerned, the benefit of 
 the combination is thereby lost. So far as others 
 are concerned, the result is, that they must have 
 either less of other comforts to compensate for the 
 increased rent, or increased prices for the com- 
 modities they supply. Their receiving less of other 
 comforts is not an argument likely to be used by 
 Trades Unionists. But if the argument be used, 
 an answer is ready. A tendency will be produced 
 (which will be noticed in the next chapter) to come 
 into the favoured trade and share the advantages 
 that trade has obtained over members of other 
 trades. If, on the other hand, the commodities are 
 increased in price, the members of the combination 
 take their injury in that way. The method becomes 
 similar to that referred to with regard to circulating 
 capital. The curse must come home to roost. 
 
 These two instances have been adopted as 
 typical ones. Under one or other of the heads 
 
2l8 ECONOMICS AND SOCIALISM 
 
 every trade must come. If the reader has any 
 doubt as to which of the classes to put a trade in, he 
 may combine the two. With regard to capital in 
 existence, whether it be fixed capital or a consider- 
 able stock of circulating capital, the second method 
 will apply. With that modification the first applies 
 to all cases of circulating capital. 
 
 Incidentally it may be seen that each Trade 
 Combination is an injury to those in other trades. 
 But neglecting that aspect altogether, the combina- 
 tion is an injury to its own members. The gist of 
 the whole matter is: first, that the additional money 
 received will be put on the price of the commodity ; 
 secondly, the commodity must directly or indirectly 
 be sold to those who will eventually supply wealth 
 for the labourers combining, and who in the very 
 nature of things, from causes both justifiable and 
 beyond control, take care to put the additional price 
 on the commodities supplied to those labourers. 
 They must, moreover, have something as profit to 
 induce them to continue the trade. The labourers 
 combining therefore pay away all they get, together 
 with a profit on it. 
 
 It has to be confessed that the operations here 
 set forth are not always easily recognised. It is 
 only possible to examine them by rigorously con- 
 fining the attention to what in the nature of things 
 must be, and closely reasoning the matter out. 
 Economists have not always done this. For in- 
 stance, some have stated that though it might be 
 possible that competition would raise wages, yet 
 that the combination could obtain the advance much 
 more promptly than by waiting for competition to 
 
TRADE COMBINATIONS 219 
 
 give it them. It does not seem to have occurred 
 to those who argued in this way that the masters 
 would not voluntarily submit to absolutely lose 
 what the Union demanded, but would charge more 
 for the commodity. If they had noticed this, they 
 would have probably come to the conclusion that 
 it was not the natural market which occasionally 
 raised the prices to such an abnormal height, 
 causing the Union to ask for a share of such prices. 
 They would have realized that the combination 
 itself had much to do with those abnormal prices. 
 
 For the time being, so far from the masters giving 
 a portion of their gettings to the men, they were 
 actually adding more to their own gettings by 
 means of the combination's interference. No one 
 could blame them for it. They were only adopting 
 the same principles as the Union and following the 
 universal law expressed in the third postulate. The 
 combination had only itself to blame for the results 
 which inevitably followed. Each man labours for 
 the gratification of his desires, but in the compli- 
 cated system of commerce under which we live the 
 labour does not directly produce that gratification. 
 The value of the labour is put into a commodity 
 which is passed on to others. After various 
 changes in form, the value of labour inhering in 
 that commodity will come back. The capital by 
 means of which the world sustains itself is, as it 
 were, a huge cistern for storing up labour. If a 
 number of men combine to interfere with the 
 natural price of their labour, their interference will 
 come back to them with increased disadvantage. 
 
 Nor will it avail them much at the very outset. 
 
220 ECONOMICS AND SOCIALISM 
 
 As is well known, commodities can be increased 
 and kept high in price much more readily and 
 easily than labour possibly can be. Those who 
 have labour to sell must constantly have something 
 for their consumption, and have not generally a 
 large stock of consumable wealth on hand. It is 
 easy to see, therefore, how the prices of the com- 
 modities they require can be immediately raised to 
 meet the increased money wages by which it is 
 imagined the Union has benefitted the lot of the 
 workmen. The same spirit which actuates the 
 workmen influences others. 
 
 One other point which was referred to earlier in 
 the chapter must be dealt with here. It is the 
 notion of some that by means of the additional 
 money wages which the Union secures, some benefit 
 may accrue to others, and by that very means ex- 
 change may be made more brisk. This is part of 
 the very common error that money is wealth. The 
 idea is that the men with their increased wages will 
 go into the various markets : that the money they 
 expend will cause others to spend more ; in short, 
 that the human species will be really better off 
 because the men combining have obtained more 
 money for producing the same amount of wealth. 
 A little thought will convince any one that the 
 reverse is the case. 
 
 It is not money we require, but what money will 
 buy. The money, therefore, is useless except as an 
 indication that its value has been started through 
 the circle of exchanges and will eventually come 
 round to these particular vendors. Now, if by 
 means of the combination the wealth given for that 
 
TRADE COMBINATIONS 221 
 
 money has deliberately been made less, It is clear 
 that the combination cannot be looked upon as a 
 real benefit to those who receive the money of its 
 members. They bring money which represents 
 less than it did before the combination went to 
 work, and pass it off as of the proper value calcu- 
 lated in terms of wealth. 
 
 The arguments used and endeavoured to be 
 classified in this chapter are capable of assuming 
 very many forms, according to the form the error 
 to be replied to may take. The reader may find 
 those forms and many other arguments at his will. 
 There is, so to speak, only one truth, but there are 
 as many ways of reaching and proving it as there 
 are errors and fallacies to be answered ; as many 
 paths by which to come back to it as may be used 
 in wandering away from it. In fact, all this is part 
 of the same truth ; it is but a closer examination of 
 a detail which has been undertaken. The next 
 chapter must go somewhat more to the root of the 
 error, and by examining the foundation on which 
 the whole subject rests, prove still more conclusively 
 the truth of what has already been put forward. 
 
 Throughout this chapter it has been assumed 
 that the market was a rising one, and the attempt 
 to raise wages therefore apparently successful. 
 This, it is conceived, is the most favourable view 
 to take for the combinations. If the attempt is un- 
 successful, few would care to argue the advantage 
 of the combination. If a reduction of money wages 
 ensues in spite of the combination, still fewer would 
 take its part. If wages are kept up in this way 
 above their natural point, the result is the same as 
 
22 2 ECONOMICS AND SOCIALISM 
 
 in the case of their being raised above that point. 
 The additional price must be put on the commodity. 
 It has been seen already that the masters gene- 
 rally take care that they do not lose the higher price. 
 But it must be conceded that they do lose under 
 the combination method, on account of the irregu- 
 larity it causes. The numerous strikes and other 
 causes of loss are not more than compensated for 
 by the increased prices. * For there are certain 
 expenses which must go on, and irregularity of 
 employment is a very great source of loss. There 
 still remains a possible alternative. By the keeping 
 of wages above the competition rate the master 
 may have his profits seriously diminished by a 
 falling market before he can, or at least before he 
 does, give notice to his men for a reduction. This, 
 together with the cost of the necessary lock-out, 
 probably does fall on the master. And that one 
 point remains to be dealt with by another method. 
 But it will be enough to say here that a master who 
 loses in this way will not long go on employing 
 labourers, and less demand will bring less wages. 
 
CHAPTER XIV 
 
 COMPETITION AND CO-OPERATION 
 
 A TRADE combination to raise wages is essentially 
 a contrivance for restricting competition. To the 
 minds of many persons competition is an evil to be 
 as far as possible suppressed. This seems to be the 
 case even with some economists. The reason for 
 it appears to be a confusion between competition 
 and the struggle for existence. This confusion is, 
 without doubt, the reason why some economists 
 have not before now reached the conclusions here 
 put forward. It is imagined that competition and 
 the struggle for existence are one and the same 
 thing, and that restricting competition will diminish 
 the struggle for existence. Mr. George very 
 clearly falls into the error. Professor F. A. 
 Walker has been under the same confusion. Only 
 a mistaken notion as to the nature of competition 
 prevented him from clearly perceiving that free 
 competition was the true and only means of raising 
 wages. 
 
 This was not the case with Professor Jevons. 
 He quite understood that competition was the effort 
 to supply. The reason why he did not realize 
 more certainly what he evidently suspected is to be 
 found elsewhere. On the whole he clearly thought 
 Trade Combinations were an evil. Strikes he 
 
224 ECONOMICS AND SOCIALISM 
 
 certainly considered an injury, whether successful 
 or unsuccessful. But he stopped short of saying 
 that the principle was entirely bad from the begin- 
 ning. He apparently thought that possibly rich 
 people paid some of the additional money obtained 
 by combination, though the workmen must pay the 
 greater portion of it. Whilst he saw that all work- 
 men could not better their wages by combination, 
 yet he seemed to admit that a few might do so. 
 Probably the reason why he stopped short of the 
 whole truth, was that he treated money too much 
 as a commodity instead of a mere circulating 
 measure. Although he quite realized that money 
 was not wealth, he nevertheless probably allowed 
 himself to think that metal money must be had and 
 a benefit must result from getting more of it. This 
 method would favour the trade combinations more 
 than is due to them. For there is no denying that 
 in the matter of money they do frequently, by 
 means of strikes, increase their nominal wages. 
 The result of that has already been seen, but to 
 be fully realized it must be taken in connection 
 with the fact that metal money or other legalised 
 currency is more or less efficient in proportion to 
 the rapidity of its transfer. And further, it must 
 be realized that for many purposes the metal is 
 quite unnecessary if something else in the nature 
 of credit can be made to pass current to a larger 
 or smaller extent. The only qualification is that 
 it shall be current so as to get round without 
 hinderance to the starting place, or wherever it 
 may be wanted to keep industry in full operation. 
 His thus attaching too much importance to money 
 
COMPETITION AND CO-OPERATION 225 
 
 seems to account for Professor Jevons not reaching 
 the full amplitude of the truth. Professor Nassau 
 Senior, who was probably equally impressed with 
 the evil of restrictive trade combinations, perhaps 
 never thought of seeking to what extent he could 
 carry his convictions. 
 
 In the previous chapter the evil of trade combi- 
 nations has been sufficiently pointed out to answer 
 most of the arguments urged on their behalf even 
 by economists. In the present chapter it is pro- 
 posed to show, not only that a combination of all the 
 workmen in a nation would be an evil, and powerless 
 for good, but that the principle is bad, even in the 
 case of a combination of only two workmen. That 
 will strike at the very root idea of the institution, 
 showing that it is an evil in its inception and be- 
 comes worse in proportion to the extent it is followed. 
 
 Having thus stated the subject, it will be well 
 once more to define the inquiry. The principle of 
 which the evil is to be shown is the restriction of 
 competition. The confusion between competition 
 and the struggle for existence has already been 
 referred to, and must be here explained. It is not 
 true, as carelessly thought by many, that the two 
 are the same thing. The truth is that they are the 
 exact contraries, or rather complements of each 
 other. The struggle for existence is the effort to 
 consume — we have called it the demand. Competi- 
 tion is the effort to produce — the supply, as we have 
 expressed It, and consequently the very opposite in 
 Its effect on prices to the struggle for existence. 
 Competition is that by means of which the struggle 
 for existence is successfully met. 
 
 Q 
 
226 ECONOMICS AND SOCIALISM 
 
 When once this has been admitted there seems 
 little to argue about — and admitted clearly it must 
 be. In itself the word competition means any 
 striving between two or more, but as used with 
 regard to human necessities it refers only to their 
 supply. What is the result of increased competition 
 but to reduce prices ? In other words, competition 
 is the effort to give more wealth for less money. It 
 is true that this is done that more money may be 
 had for the proportionately greater supply of wealth. 
 That is to say, the competition is impelled by the 
 struggle for existence. But the competition be- 
 comes an effort to render more wealth than another 
 for the same money. It is thus the means by which 
 human needs and desires are supplied, and clearly 
 the more of it, the more effective it is, the greater 
 the benefit to humanity. A little thought will 
 satisfy any one that the charge against the strong 
 competitor is not that he gets too much for what he 
 gives, but that he gives too much for what he gets. 
 He lowers prices. His offending is that he under- 
 sells his neighbour. He should be prevented from 
 giving too much, and should be encouraged, and 
 even coerced into asking for more, which seems 
 quite superfluous interference. 
 
 The exact nature of competition may, however, 
 with advantage be made even more clear than by 
 saying it is the effort to supply, as distinguished 
 from the effort to demand. Competition, when 
 properly understood, is really co-operation, and full 
 and free competition is the only perfect co-operation 
 attainable. 
 
 Long ago it was shown by Say in France, in 
 
COMPETITION AND CO-OPERATION 227 
 
 dealing with gluts of the market, that what was 
 called over-production was really under-production. 
 Not too much had been produced, but too little had 
 come to market to be exchanged for it. But this 
 has not been clearly brought into the science, and 
 has apparently not been well applied to the con- 
 sideration of labour. In fact, it is a seriously 
 entertained idea that there should be free supply 
 of commodities but not free supply of labour. 
 
 Of the methods of co-operation which are 
 generally understood there are two clearly dis- 
 tinguishable kinds. The first may be called co- 
 operative distribution, in which the consumers join 
 together, paying wages to their shopmen, and thus 
 obtain their retail produce, taking the profits for 
 themselves. The second, and it is submitted the 
 better system of co-operation, may be spoken of 
 as co-operative production. In it the producers get 
 the profits. Speaking generally, this is the only 
 true co-operation. The producers are really those 
 who should get the profits, for encouragement 
 should be to production rather than consumption. 
 Only in a few special instances in which the con- 
 sumers have some office to perform other than 
 consuming wealth is the former a true co-operation. 
 The desire to consume is in itself a sufficient 
 motive. The co-operation of consumers for their 
 own profit is not the distribution of wealth amongst 
 its producers. In such co-operation the members 
 can only be said to co-operate as capitalists and not 
 as labourers. 
 
 Besides these systems of co-operation, however, 
 economists have recognised that all division of 
 
2 28 ECONOMICS AND SOCIALISM 
 
 labour is co-operatlon. According to Mill, the 
 credit is due to Mr. Wakefield. Where several are 
 engaged to lift the same weight co-operation is 
 evident. This is simple co-operation. But as an 
 instance of complex co-operation it must also be 
 remembered that the different persons engaged in 
 different processes of manufacturing the same article 
 are co-operating to produce that article. The 
 different persons engaged in producing clothing — 
 from the sheep- farmer or the cotton-grower through 
 all the processes, and including the manufacture of 
 all the tools and machinery required for the different 
 processes, up to the tailor or draper who sells the 
 article — are all co-operating to produce clothing. 
 So it is with food ; so with houses ; so with 
 luxuries ; so with everything required. And the 
 different people engaged in producing food, clothing, 
 houses, and what else, are in one great multitude 
 co-operating to produce a living wage. The point 
 now to make clear is that free competition is en- 
 tirely co-operation, and the only means of attaining 
 perfect co-operation. The following statement is 
 submitted as explaining that expression, and in its 
 turn to be explained and justified. 
 
 The most perfect co-operation of labour is that 
 in which the service rendered will bring to each 
 labourer the results of an equal expenditure (effec- 
 tiveness being considered) of the labour of others. 
 
 That statement will explain and commend itself to 
 most thinking people, but it shall be further made 
 clear. First, it will be remembered that the causes 
 which create the natural inequalities of wages were 
 pointed out. The effect of the scarcity of the quali- 
 
COMPETITION AND CO-OPERATION 229 
 
 fications or inclinations required for certain occupa- 
 tions and grades of employment raised the wages in 
 those cases above the level of other employments. 
 This scarcity diminished the competition for such 
 positions. Now it is clear that these qualifications 
 and inclinations are regarded by those who are will- 
 ing to pay for them as giving greater effectiveness 
 in the matter of wealth production. We have here 
 nothing to do with rent of land nor with interest on 
 capital. These are determined by entirely different 
 considerations. We have now to deal with the 
 rewards of personal efforts exercised with or with- 
 out land or capital ; but if with them, then paid for 
 after rent and interest have been allowed. The 
 rendering of such services is open to the competition 
 of every one capable of them. The amount paid for 
 each one's efforts, therefore, is the value put upon 
 them by the rest of the community having regard to 
 their utility and their scarcity. Their effectiveness 
 is in proportion to the felt want which they supply, 
 which is only another way of expressing the utility 
 and scarcity of the services they render. 
 
 Allowing for this greater effectiveness (in supply- 
 ing a felt want), it is evident that free competition 
 is the only system by which a perfect co-operation 
 can be secured. To hinder free competition must 
 be to raise the prices of some commodities without 
 putting more labour into them. Some find them- 
 selves subject to less competition than before. The 
 result is that others must give more of their labour 
 than the results will produce an equivalent for. On 
 the other hand it is very clear that, competition 
 being free, the co-operation referred to will take 
 
230 ECONOMICS AND SOCIALISM 
 
 place. It is evident that as soon as one labourer 
 finds that he is not getting as much as he could get 
 in another employment he will be inclined to change 
 his occupation. The most unskilled, and conse- 
 quently the lowest class, will most readily be able 
 to change. 
 
 To further explain this co-operation imagine two 
 men engaged in the simplest method of co-operation 
 — lifting and carrying (one at each end) a flag-stone. 
 That is evidently co-operation just as much as the 
 two hands of one man co-operate. And quite as 
 clearly is it competition — a real competition. Let 
 one of them allow his end of the flag-stone to go 
 down, even to a limited extent, and his toes (not his 
 companion's) will be in considerable danger. 
 
 Now suppose two men getting their living by 
 an occupation in which both their services are 
 required, but in different processes, the resulting 
 product being for the consumption of the two and 
 not for exchange. That would be true co-operation 
 as well as a competition. Each must compete with 
 the other, so that he be not behind in his part of the 
 operation. A very expressive vulgarism is that he 
 must keep his end up. And yet it is co-operation, 
 for they are working for the same object. This is 
 the method in which the two find they can most 
 advantageously work in order to effect the object 
 they have in view. Let it be supposed that one of 
 them has to perform a much more difficult part of 
 the process than the other, and therefore contributes 
 much more to the ultimate result. It is only fair 
 that the rewards be properly apportioned between 
 them. The proceeds are accordingly divided in 
 
COMPETITION AND CO-OPERATION 23 I 
 
 proportion to the efforts put forth and the effective 
 work contributed. It is still co-operation, and even 
 the one receiving least receives more than he would 
 have done working alone. It is competition only 
 in the same sense as before. 
 
 Put any number of men into these processes, an 
 equal number in each. They are still all co-operat- 
 ing ; the people in the same process are co-operating 
 with each other as well as with their companions in 
 the other process. The co-operation is most perfect, 
 and this even though each has results proportionate 
 to his share In the effort to produce. Now let it 
 be supposed that each set consists of three men. 
 There may be any number of sets, and they are still 
 all co-operating. Extend the three to four, or hve^ 
 or a thousand, according to the extent to which it 
 is found labour can be profitably divided. They 
 still co-operate by competition. 
 
 The illustration may be varied. Suppose that 
 instead of the first two individuals with the flag- 
 stone being one at each end, the flag-stone had been 
 a very large one, and they had only required one 
 end of it raising. Suppose further that by some 
 means a test of the effectiveness of their applied 
 strength had been possible, and they were paid in 
 proportion to the lifting power they each used. It 
 would still have been competition each to lift the 
 greater weight. And yet it would be the most 
 perfect co-operation. The varying payment would 
 be the only just payment. For not only must the 
 result be considered, but probably the stronger man 
 requires the more subsistence to make up for the 
 additional physical waste. Carry this principle out 
 
232 ECONOMICS AND SOCIALISM 
 
 to its Utmost extent ; spread It over the utmost 
 variety of occupations, and it will hold good. 
 
 Let it also be clearly understood that this reason- 
 ing is direct and not by analogy. Reference was 
 first made to two processes by way of assisting the 
 mind to grasp the point more clearly. The number 
 was gradually increased to show that it held good 
 throughout. The illustration of the flagstone is 
 used by way of assisting the mind to grasp the point 
 by means of a visible and tangible model. The 
 essential principle is the same, and must be kept 
 so, as in the case of a working model. In this the 
 argument differs from an argument by analogy. 
 
 Competition in actual life may be spoken of as 
 direct and indirect. Each labourer competes di- 
 rectly with the labourers in his own trade and posi- 
 tion, although clearly he is co-operating to produce 
 the same stock of commodities. This would be 
 direct competition and simple co-operation. Indi- 
 rectly he competes with all other labourers. Some 
 are able and willing to turn their hands to other 
 occupations than those they are engaged in. Some 
 will be likely to come into his trade if necessary. 
 This indirect competition corresponds to complex 
 co-operation. The same applies to capital. The 
 freely changing capital (which is labourers' mainte- 
 nance) is that which can be applied to the employ- 
 ment which most requires capital. 
 
 Now all indirect competition is evidently co- 
 operation. No man can desire (if he thinks at all) 
 to see stopped the production of what he requires. 
 All the people producing that are helping to cause, 
 not merely demand for his labour, but a supply of 
 
COMPETITION AND CO-OPERATION 233 
 
 waofes for him. Further it was seen that all those 
 engaged in the same process were co-operating. 
 And they were co-operating perfectly if the other 
 processes were being kept up by a sufficient number 
 to make complete sets. 
 
 So that there is a co-operation even amongst 
 those who compete directly with each other. The 
 only qualification required to make it perfect is that 
 the wages shall be equal to those which are obtained 
 by the same effectiveness of industry in another 
 employment. At that point only is perfect co- 
 operation. Amongst those competing directly with 
 each other for wages in the same employment, if the 
 wages fall below that point, it may be said there is 
 a competition which is not a co-operation. There 
 is in such a case a competition, not only to supply 
 wealth, but for the opportunity of supplying it. 
 There is a struggle for the privilege of working 
 which ought not to exist. On the other hand, if the 
 wages rise above the point referred to, then it is 
 clear the persons engaged in that occupation are not 
 fairly co-operating with those in other employments. 
 They are getting more than their proper share of 
 the proceeds, and perfect co-operation is interfered 
 with. 
 
 Now if by any means the wages in one trade rise 
 above those in another, after allowing for variations 
 in effectiveness, it is evident that a tendency will set 
 in for men to leave the worst paid trade, and go to 
 the better paid one. If a change is impossible by 
 the then present members, the same result will be 
 effected by those who have to choose which of the 
 two trades they will enter. 
 
234 ECONOMICS AND SOCIALISM 
 
 It thus appears that if each occupation is left to 
 itself the exact number will constantly tend to be 
 found in it which may be required for the purpose 
 of carrying it on in unison with other occupations. 
 The smallest variation below that number will tend 
 to raise the price of labour in that occupation which 
 will be at once corrected by an inflow from those 
 who would have worked in other occupations. Any 
 excess will tend to lower the wages and prevent 
 others coming to them, if not to drive some out of 
 the trade. This result, however, it is evident can 
 only be attained by free competition. 
 
 It is clear that, setting aside special circumstances, 
 every man will choose that employment in which he 
 can obtain the best wages. These will be indicated 
 to him by the price test. Money, though not real 
 wages, will show the relative wages in the different 
 employments. But if the price gauge be artificially 
 altered, it will be no true test. 
 
 It should also be borne in mind that the co- 
 operation of various occupations includes, not only 
 that of the different trades, but also that of the 
 different grades of persons in the same trade or 
 process. To work effectively workmen require to 
 be properly organized. To this end it is desirable 
 that the proper number of persons be raised to posi- 
 tions of command and responsibility. Qualifications 
 for various posts differ. According as the requisite 
 qualities are commonly or rarely found, the wages 
 will be comparatively low or high. But there is no 
 absolute barrier between one position and another. 
 As any position becomes undermanned or over- 
 manned, the variation will make itself known by a 
 
COMPETITION AND CO-OPERATION 235 
 
 rise or fall In the wages as compared with other 
 positions. This rise or fall will have its effect on 
 the persons already in or seeking to enter that em- 
 ployment. But every position as well as every 
 trade is subject to the same law of competition. 
 Whatever a man's position he will find that his 
 wages must be limited by comparison with what 
 other equally qualified men can earn in that em- 
 ployment. 
 
 Let the action of trade combinations be now ex- 
 amined in the light of what has already been seen. 
 A number of persons carrying on one kind of work 
 required in the production of a certain article com- 
 bine to demand higher wages. They refuse to carry 
 on their work unless they are given those higher 
 wages. There are three possibilities with regard to 
 the number of people already in that employment. 
 They may be the number exactly required for per- 
 fect co-operation, or above or below that number. 
 The supposition for convenience will be that at 
 present they are the exact number required. If 
 they are fewer than are required, it will be seen in 
 the higher prices already. This will intensify the 
 effect which it will be pointed out follows the inter- 
 ference. If they are more than are required (as 
 may in fact result from interference) the interference 
 will be delusive. The members of the combination 
 will Imagine they can secure In the trade what they 
 can only obtain by getting out of It. They will all 
 continue to struggle where they are not wanted, in- 
 stead of allowing prices to send some where they 
 are more required. This, however, is an anticipa- 
 tion, and will be more clear as we prpft ^. — ^ 
 
 /^^ CFTHE ^ 
 
 (university 
 
236 ECONOMICS AND SOCIALISM 
 
 The combination again may consist of two or 
 more persons. If the combination is so small as 
 not to materially affect the work accomplished, no 
 result comes of it except to the men combining. 
 To them the result is that the two or more have 
 persuaded each other to forego the measure of satis- 
 faction of their desires, which was possible. They 
 have not suffered the work, but they might have 
 accomplished that, acting singly had they so wished. 
 That was not their object in combining. The 
 object was that by one inducing another not to 
 work others would be compelled to give them more 
 for their labour. In the event, however, others 
 have chosen to do without their labour, and they 
 obtain rest when they desired work and wages. 
 
 If, on the other hand, the combination is large 
 enough to hinder the work so materially as to influ- 
 ence prices, the result must be carefully sought. 
 On a sufficiently firm interference by the combina- 
 tion there are but two chances : first, that the work 
 shall stand, and secondly, that the men shall have 
 more money given to them for it. 
 
 If their work stands it is evident that others 
 needing their productions must do without them. If 
 their efforts are only a step towards the complete 
 production (that is in all cases except actual supply 
 of the finished product to the very consumer), then 
 the efforts of those who follow them will be stopped. 
 And as the efforts of those who precede are only 
 useful as leading up to the point at which the efforts 
 of those now combining begin, their efforts also 
 become useless. Thus the whole supply of that 
 portion or kind of wages is stopped. In the case of 
 
COMPETITION AND CO-OPERATION 237 
 
 those who actually supply the consumer, it is only 
 necessary that their own efforts cease, and the same 
 result will be accomplished. 
 
 Now if this method were to be applied to all 
 kinds of commodities which go to make up the 
 living wage, then the living is completely stopped, 
 and life ends. That, in other words, has been 
 pointed out often enough. But it has been thought 
 the people stopping might possibly benefit them- 
 selves at the expense of others. While their work 
 stands, however, they can of course have no wages ; 
 so that they cannot be considered to have benefited 
 themselves so far. If the result of the stoppage is 
 to give them more wages, it will come under the 
 next point. 
 
 Suppose, therefore, on the other hand, that the 
 work does not stand but the higher money wages 
 are given. Every worker as an individual had 
 previously found the best place he could for himself, 
 that is, the place at which price told him he was 
 most wanted. Now, however, a section of workers 
 by threatening to stop altogether have obtained for 
 themselves a better relative share of the total pro- 
 ductions. What can happen but that some of the 
 others will go to that section as quickly as they 
 can, to get some of that share ? The result of 
 that proceeding is that, whereas they were co- 
 operating, now they are merely competing for a 
 place. They leave the work in which they were 
 engaged, supplementing that of the men combining, 
 and come for a place in the now improved trade. 
 It would be very unjust to try to prevent their 
 doing so, for it would compel them to accept less 
 
238 ECONOMICS AND SOCIALISM 
 
 than their equal share. And yet there can be but 
 one consequence, namely, that less shall be pro- 
 duced for the men who combined. The men who 
 were producing it have come to their trade. 
 
 There is still an argument for the combination 
 left to those who care to use it The abstraction 
 from other trades of some of those engaged in them 
 will leave more work to be done by those left in 
 them. Indeed, the work has been increased whilst 
 the people to do it have been reduced. This is 
 certainly true if the same standard of living for the 
 combining trade is to be kept up. As the propor- 
 tion taken by the combining trade is larger, both by 
 the original action of the combination in altering 
 the rate of payment and by the additional numbers 
 in it, those remaining in other trades must materi- 
 ally increase their efforts, or they must accept a 
 materially reduced wage. Possibly in such a case 
 they may do both if the conditions are already 
 much against them. 
 
 Now it may be argued that in this way the 
 combination will avoid having to submit to a re- 
 duction of wages. Doubtless to some extent it is 
 the case. But there must be a sufficient reason for 
 this, and nothing but absolute necessity will induce 
 it. Those who must submit to the most adverse 
 conditions or starve will doubtless struggle on and 
 get what little they can. But those who are 
 stronger and in better circumstances will not 
 submit to work harder and accept less wages. 
 They will simply give up their business. If they 
 must work at all, they will crowd into the now 
 over full combining trade. Having by their skill 
 
COMPETITION AND CO-OPERATION 239 
 
 and physical or mental strength sustained a higher 
 and more difficult position, they probably find them- 
 selves easily able to displace others. In any case 
 they add to the number who have left Indirect 
 competition and direct co-operation and have come 
 to directly compete. 
 
 With the exception then of crushing more the 
 starving wretches who cannot help themselves, 
 there is as yet no way visible of keeping up the 
 other processes. This would leave us at the point 
 it Is desired to pass, namely, that the trade com- 
 bination can only raise wages at the expense of 
 other trades. It is true it is now shown that so far 
 as the supposed increase obtained by the combi- 
 nation is taken from other occupations or grades 
 of employment, it is from the weakest. The 
 point must be carried beyond this. Even these 
 cannot increase their efforts to an unlimited extent. 
 Besides which the tendency already noticed to enter 
 the combining trade is all the more intensified. So 
 that we are once more brought to the same point. 
 The action of the combination brings some out of 
 direct co-operation to direct competition. In other 
 words, there is but one conclusion, which is that less 
 wages will be produced for the combining trade and 
 more people will have to share in it. The com- 
 bination has brought others to struggle against its 
 members in the same trade for the wages it will 
 afford. And it has caused those now coming in to 
 leave the work they were doing which was most 
 required to make a uniform whole. That work 
 is less efficiently done ; there is consequently less 
 demand for the work of those who combined, and 
 
240 ECONOMICS AND SOCIALISM 
 
 more persons share what the demand brings with 
 it of wages. 
 
 To enable the mind the better to grasp the point 
 it may again be illustrated by means of the flag- 
 stone. Imagine it, however, so large that a number 
 of men are engaged at different portions of it. It 
 may be taken to represent the standard of living. 
 The flag-stone must be raised uniformly. In the 
 case to be illustrated the production must be of 
 those things which will find purchasers, and this no 
 combination can control. Now the price test in- 
 duces each man, whether master or workman, to go 
 to the point where he can do the best for himself. 
 That is where his strength is most needed. One 
 section threatens to let the flag-stone go down unless 
 the price test is modified for their benefit. The 
 gauge is tampered with to satisfy them. Inevitably 
 more lifters will come there to share the better 
 conditions. Just as inevitably the flag-stone will be 
 lowered all round whilst about that point a number 
 of men cluster and struggle for a place to get hold 
 in the hope of getting some wages for it. The 
 more the process goes on the more will the flag- stone 
 be lowered. In proportion to the strength of re- 
 strictive trade combinations (rings, trusts, and trades 
 unions) will the standard of living be lowered. The 
 members of the combination itself will suffer. Only 
 a quantity of other commodities will be produced 
 proportionate to the commodities produced by 
 them. 
 
 It must clearly be borne in mind that a trade 
 combination can only include those in the same 
 department of production. If by any means other 
 
COMPETITION AND CO-OPERATION 24I 
 
 departments can be brought into combination, the 
 more are included the more is the object defeated. 
 The additional money obtained by combination 
 must come out of one department or another of the 
 production or from the consumer. The consumer 
 protects himself by comparatively ceasing to demand 
 — the truth is that his means are limited and he 
 could not demand more if he would. Another 
 department of production therefore must suffer. 
 Trade combinations imagine the masters in their 
 own trade must forfeit the price. Suppose they do. 
 What occurs ? Some of them would naturally be 
 making only just a little more than some of the 
 men. A man does not suddenly increase his earn- 
 ings to an unlimited extent by becoming a master, or 
 there would soon be more masters. On the increase 
 of wages those who were earning least find they 
 would be better off amongst those in the Union 
 rather than amongst the masters against whom the 
 combination was fighting. They therefore leave 
 being masters and join the other class, struggling 
 with them for the same wages, instead of competing 
 with the masters for the labour of the other class. 
 So that, even if it were true that the additional 
 money wages must come out of the pockets of the 
 masters, the conclusion is the same in the end. In 
 an indirect way this driving of masters out of business 
 does occur. It prevents men of small capital from 
 undertaking business on their own account, and 
 leaves the whole matter in the hands of great firms 
 and Companies. 
 
 From these considerations it will be apparent 
 how a man can better his class by getting out of it. 
 
 R 
 
242 ECONOMICS AND SOCIALISM 
 
 It will readily be perceived that the man who leaves 
 one class of labourers and becomes a master 
 labourer in producing the same commodity ceases 
 to compete against the men he was amongst and 
 begins to compete against the masters for men of 
 the class he has just left. 
 
 From what has been said it will also be seen that 
 there is no solidarity of interest amongst the weekly 
 wage earners. There is only the interest which 
 they have in common with all wage earners to the 
 very highest — that wealth should be abundant. 
 
 It also appears that the evils attributed to com- 
 petition are the result of stopping competition. 
 This causes some to compete more than they should 
 because others, under unwise influences, compete 
 less than they ought. The natural remedy is more 
 free competition — competition encouraged and not 
 discouraged. 
 
 It will be seen that the gist of this method, like 
 that of the last chapter, consists of two steps. In 
 both cases the combination is taken at its strongest 
 point. Every advantage is given to it in the argu- 
 ment. And so far as it is a combination to interfere 
 with or hinder competition, in other words, to raise 
 money wages, it is shown to be an unmitigated evil. 
 In the previous chapter price was regarded. The 
 two steps were that the additional price of the 
 labour was added to the commodity, and that the 
 added price with various profits must be paid by 
 the members of the combination, who thus lost more 
 than they gained. A counteracting influence to that 
 was, however, noticed in the fact that not having 
 the additional money to pay with, they did not. 
 
COMPETITION AND CO-OPERATION 243 
 
 Strictly speaking, pay more for the commodities, but 
 were unable to buy them at all. Thus their real 
 wages were diminished. 
 
 In the present chapter wealth production only is 
 considered. It is noticed that the whole process 
 under a system of division of labour and exchange 
 is one of co-operation. What is required to be 
 done is indicated by the rise and fall of the prices 
 offered for the doing of it. These indicate the 
 utility of any service to those who demand it. It is 
 seen that this alone will produce a perfect co-opera- 
 tion in which every one finds the place at which his 
 services are most required. The inequalities are 
 natural and inevitable. 
 
 Now, supposing that by the combination of a 
 certain number a better rate than free competition 
 allows is obtained by that number, the evil is two- 
 fold. The production of wealth is hindered. In 
 truth this is because of several tendencies. Pro- 
 bably the members of the combination do less. For 
 even though they may not be inclined to work less 
 at the increased prices, the demand is less on 
 account of the higher price. But the tendency 
 on which emphasis has been laid is that others 
 will cease their own efforts and come to the work 
 for which a better price is now paid. Herein also 
 lies the other evil. For while their work is undone 
 they are struggling with the others for the now 
 smaller total of production. 
 
 If there was an unlimited supply of money, of 
 which no one could hinder the circulation, the com- 
 bination might possibly not injure their members ; 
 but in such a case the additional money could be of 
 
244 ECONOMICS AND SOCIALISM 
 
 no additional benefit. All the money which circu- 
 lates must measure wealth or services, otherwise it 
 will not circulate. To hinder the natural exchange 
 of labour and the production and exchange of wealth 
 is to hinder the money circulating and to reduce real 
 wages. 
 
 Again, if those who, by the combination, find 
 themselves having to give a larger share to the 
 members of the combination would consent to go 
 on, regardless of the diminishing of their share 
 of wealth, the combination might better the con- 
 dition of its members at the expense of others. 
 But would any one venture to suggest the pro- 
 bability of such a proceeding. It is against reason 
 and all experience. For those who have possession 
 of some secret it is indeed possible to raise their 
 wages to a monopoly price. They may raise them 
 to such a price that the market will decline to take 
 their productions rather than pay a higher price. 
 But such a result is because the secret operates as 
 an addition to the ability and skill of the persons 
 possessing it, and is not attainable by others. If the 
 skill IS attainable by others this influence cannot be 
 felt. 
 
 Thus, a combination finds itself met by a tendency 
 it cannot control. The employer will not willingly 
 continue his work and submit to a forced increase of 
 wages out of his pocket. Other workmen will not 
 continue to accept a less share of the total produc- 
 tions because the combination have resolved to take 
 a larger one. If this were possible, a few might, by 
 combination, reduce the remainder to the condition 
 of slavery under them. But the facts are otherwise. 
 
COMPETITION AND CO-OPERATION 245 
 
 The advantages of free trade in labour are thus 
 amply demonstrated. And a restriction is an evil, 
 whether imposed from without or voluntarily sub- 
 mitted to. Professor Fawcett imagined that strikes 
 were an inevitable feature of the modern system of 
 free sale of labour. He concluded that they were 
 inseparable from free contracts. Strikes of indi- 
 viduals may be inevitable ; but that was hardly his 
 meaning. A strike by one at a time would do 
 little harm. It is the principle of combination 
 by which workmen injure themselves. And it has 
 been all along insisted that they do injure them- 
 selves. Experience shows that to contend that 
 they injure other workmen is not an argument 
 which counts for much. It must be brought home 
 to them that they injure themselves. One man may 
 decline to work if he prefers the ease to the labour. 
 He may persuade another to take a holiday with 
 him, for the pleasure of his company. But if he 
 imagines he will raise his real wages by inducing 
 one or any number to join him in declining to work 
 whilst the same trade is open to all ; or if he 
 imagines he will be in a stronger position to- 
 morrow by declining to work to-day, he is mis- 
 taken. 
 
 These considerations will have an important bear- 
 ing on those of the duties of government with 
 regard to the production of wealth. 
 
CHAPTER XV 
 
 POLITICS 
 
 The science of economics has often been spoken 
 of and for a long time exclusively so as political 
 economy. The expression doubtless arose partly 
 from the history of its study. For in its earliest 
 days what has now grown into a Science of Eco- 
 nomics was involved in the study of methods of 
 government, and particularly in the mode of raising 
 taxes. The expression is not altogether inapposite. 
 What domestic economy is to the household, the 
 art which corresponds to political economy is to 
 the nation. The science in each case has reference 
 to the feeding, clothing and housing of the family 
 or nation. Yet it is very possible, and, indeed, 
 convenient, to assign a special province to each of 
 the two studies, politics and economics. It is with 
 economics that the present inquiry is concerned. 
 But as with other sciences, there is a point at which 
 the two touch each other, and it is important to deal 
 with that point. Briefly expressed, it is a question 
 of what the science would indicate a government 
 has to do with the providing of a supply of wealth 
 to the nation over which it rules. 
 
 The more purely political questions will find no 
 place here. These would include, for instance, 
 questions of sovereignty, constitution and franchise ; 
 
 246 
 
POLITICS 247 
 
 of who may be spoken of as the supreme power in 
 a state ; who should manage the affairs of the 
 nation ; whether all should have equal rights in that 
 management, or whether some should have more 
 than others; if the latter principle should be adopted, 
 who should have precedence ; whether it should be 
 decided by sex, merit, wealth or birth. The same 
 remark applies to the form in which the visible 
 authority should shape itself; whether the nation or 
 sovereign power in the nation should decide each 
 question by a separate expression of its will ; or 
 whether the authority should be delegated to one 
 or more persons or chambers ; and, in case the 
 sovereign power recognised as possessing the fran- 
 chise chooses to delegate the authority given by 
 the franchise, how the persons to whom the authority 
 is delegated shall be determined ; whether by birth 
 or by election. 
 
 These are questions of pure politics. The rela- 
 tions existing between the nation in question and 
 other nations are also pure politics, except so far as 
 the raising and expenditure of money may be con- 
 cerned. Many questions with which governments 
 have to do are rather questions of law than of 
 either politics or economics. 
 
 Even some things in which the payment of money 
 is involved are strictly questions of politics. For 
 instance, the advisability or otherwise of paying 
 members of a representative legislative assembly 
 for their services is a question which does not come 
 within the scope of what is here meant by economics. 
 It may be stated, without discussion, that whatever 
 might be the result of a full consideration of the 
 
248 ECONOMICS AND SOCIALISM 
 
 subject, it is perfectly certain that no such payments 
 should be made for the express purpose of enabling 
 men to set up pretended class interests which true 
 economics prove not to exist, and the setting up of 
 which tends to national poverty. 
 
 The right of taxation has already been treated of 
 as belonging to government, and the subject of the 
 imposition of taxes has been dealt with at sufficient 
 length. The expenditure of the taxes thus imposed 
 will not be specially treated of in this investigation. 
 
 Two political subjects having special relation to 
 the department of economics will be dealt with 
 in the present chapter — government debts and 
 government interference with the production and 
 distribution of wealth. In a succeeding chapter 
 the subject of coinage and money currency so far 
 as it is or can be affected by governments, will be 
 under consideration. 
 
 From time to time, governments have found and 
 still find occasions on which they have deemed it 
 necessary or advisable to expend money which has 
 not been raised by means of immediate taxation, 
 but obtained by way of loan. The contention has 
 been that the expenditure was for the benefit of 
 subsequent generations and not for the time then 
 present. Now it may at once be conceded that it 
 is advisable that taxation should, as far as possible, 
 continue constant from year to year. It is not 
 desirable that it should greatly vary up and down 
 in succeeding years. For this purpose it might be 
 contended with considerable show of reason that 
 governments should occasionally have balances in 
 hand and sometimes be temporarily in debt. Such 
 
POLITICS 249 
 
 a plan accords with the methods usually adopted by 
 business men for their own purposes in their dealings 
 with bankers. 
 
 The system of government loans now under dis- 
 cussion is, however, very different from that just 
 indicated. The loans remain outstanding for many 
 years, and come to be regarded as perpetual insti- 
 tutions. For the present purpose they may be 
 regarded as divisible into two classes. In the one 
 case the loan is expended for purposes which require 
 that the wealth and services obtained by it should 
 be immediately dissipated. It is not expected to 
 produce revenue. Of this class are loans for expen- 
 diture in wars and military expeditions. In the 
 other case the loan is used for the erecting of perma- 
 nent works, which it is hoped will pay interest on 
 the expenditure. Of this class are loans for the 
 preparation and opening of railways. It will be 
 convenient to deal with the two classes separately. 
 
 With regard to the first class, the money borrowed 
 must of necessity be paid for one or more of three 
 things — the stock already accumulated of war material 
 and supplies for maintenance of those who are to 
 carry on the war ; the supply of further material and 
 maintenance ; and the wages of those who actually 
 carry on the campaign. These three heads will 
 include all the expenditure which can be incurred 
 in this class of enterprise for which borrowing may 
 take place : the stock previously prepared, the 
 further quantity supplied before the conclusion of 
 the enterprise (and not afterwards), and the wages 
 paid for work before that conclusion. So far as 
 this material and labour is supplied by the nation 
 
250 ECONOMICS AND SOCIALISM 
 
 itself, for whom the borrowing takes place, it is 
 obvious that there is no justification whatever for 
 borrowing. The work is all done and the com- 
 modities are all supplied by the nation before the 
 conclusion of the enterprise for which the borrowing 
 takes place. To leave the nation with a debt to 
 pay afterwards, is nothing less than iniquitous if the 
 enterprise has been undertaken after a sufficiently 
 long warning ; or if it has continued for a sufficiently 
 long time to enable the government to adjust its 
 finances and impose the taxation. And this latter 
 qualification must be understood to refer only to 
 urgency of expense. If there has been time 
 to impose the taxes, it is no excuse that it might 
 have caused discontent. To imagine that the 
 nation cannot bear the expense is obviously con- 
 trary to actual facts. The material has been 
 supplied. The work has been done. The nation 
 has done all this. To pretend that it must after- 
 wards be paid for is merely a pretence. It may 
 readily be seen that there was no excuse for the 
 nation borrowing money from some of its number 
 to pay for what in truth it actually prepared and did 
 for itself 
 
 What really takes place in such a case of borrow- 
 ing is that at once all prices of property rise. The 
 prices of war material rise out of proportion to 
 other species of capital, tut that is a matter which 
 cannot be foreseen, and may be neglected here. 
 The investment in that kind of capital might bring 
 profit or might cause loss to the person investing. 
 The unusual profit cannot therefore be discussed 
 as a matter to be remedied. The general rise of 
 
— *« OP THE ^^y^ 
 
 ttkivehsitt) 
 
 POLITICS V^UF^fjj^^^^/^ I 
 
 prices is another matter. If, as the war or other 
 enterprise proceeded, the taxes for carrying it on 
 were annually collected, the whole matter would 
 adjust itself. 
 
 Let the incidence of taxation be what it may, the 
 work must be done : so far as the mass of the 
 nation are concerned, it must be paid for : so far as 
 all who actually supply the material and carry on 
 the campaign are concerned, it is paid for. The 
 additional prices caused by the unusual expenditure 
 may raise money wages. For that very reason they 
 will raise the cost of preparing the capital which 
 must be prepared. That will raise the price of 
 similar capital already prepared. But the same 
 unusual expenditure and raising of prices must also 
 raise the price of the land. It is necessary to the 
 production of the wealth, not only that which is 
 bought by the government, but also that which all 
 those who are receiving these higher prices must 
 have. 
 
 On whichever of the three elements taxation falls, 
 it falls on something of which the price is already 
 advanced, and on something, therefore, which is pre- 
 pared to meet it without real loss. The method of 
 taxation would be liable to the same examination 
 as to the justice of its incidence as at other times. 
 But the extraordinary taxation could only fall in 
 the same way as the ordinary amount. As the 
 ordinary taxation is more or less justly carried out, 
 so that would be. 
 
 The borrowing, however, introduces another 
 element. Instead of paying its way, the govern- 
 ment goes into debt to some of its subjects. This 
 
252 ECONOMICS AND SOCIALISM 
 
 can only be to those who already possess property, 
 either in the way of money or of something on 
 which they can obtain money. At once the money 
 is paid away. Prices are raised just as much as if 
 the money had been obtained by taxation. Those 
 who need land or capital must pay for it as if the 
 government were not preparing a legacy of debt. 
 Those who labour must have wealth for consump- 
 tion as at other times. Their wages are somewhat 
 higher on account of the greater demand for 
 labour, but the price of their subsistence is also 
 increased. Since so many are withdrawn from 
 ordinary wealth production for the special service of 
 the time, more work devolves upon them to raise 
 mere subsistence. They cannot obtain wages dis- 
 proportionately high or even perhaps proportionately 
 as high as usual. Their great need of wealth com- 
 pels them to offer their labour at such prices as they 
 can obtain. The additional price at least goes in 
 higher prices of commodities. But meantime, those 
 who could lend money get themselves installed as 
 creditors of the government to be paid at some 
 time when this special period is over, and out of 
 the wealth to be then prepared. 
 
 It is pretended that these wars are undertaken for 
 succeeding generations. It is open to argument 
 whether the owners of property are not the people 
 who have most interest in such wars and other 
 special efforts. But let that be disregarded. A 
 great undertaking has been accomplished by a 
 nation. After allowing its people to undergo the 
 privation of the effort, it compels them to undergo 
 further privation to set themselves free from the 
 
POLITICS 253 
 
 claims of a class who happened to be possessed of 
 property ; clearly this ought not to be. It must not 
 be forgotten that the property increased in price to 
 the profit of its owners, whilst they managed also to 
 get themselves credited with that profit for future 
 redemption. 
 
 This applies to borrowing in the nation itself. 
 Strictly the question is what amount of actual wealth 
 produced and labour exerted was taken from the 
 nation. But in the absence of any interference with 
 the currency, the probability is that money borrowed 
 outside the nation will again leave the nation for 
 goods ; so that the borrowing community will really 
 have obtained its loan in such a case from another 
 nation. In that case there would be a real loan 
 from nation to nation of labour and effort. The 
 preceding remarks would not, therefore, apply to 
 the case. But it need hardly be said that a nation 
 should not continue in debt in this way longer than 
 was absolutely necessary after the conclusion of its 
 special enterprise. After that there would be labour 
 enough at liberty to repay the loan. 
 
 With regard to the other class somewhat different 
 considerations apply. There is left, not merely a 
 successful triumph and repelling of foes, or lesson 
 of humiliation ; a tangible, profit-bearing piece of 
 capital now belongs to the nation. So far as the 
 loan has been obtained outside the nation, it appears 
 correct to conclude that the borrowing nation has 
 really borrowed useful capital, by the aid of which 
 it will be able to pay interest on the loan and the 
 more successfully to produce wealth for repayment. 
 Not that the obtaining of money from elsewhere is 
 
254 ECONOMICS AND SOCIALISM 
 
 in itself the advantage. The prices are none the 
 better for being raised all round. But the higher 
 prices will tend to bring actual wealth from other 
 countries, and will thereby save the borrowing 
 nation from having to perform all the labour re- 
 quired for the special undertaking. Whilst that is 
 on hand they will be provided with wealth from 
 elsewhere, and will repay the loan after it is com- 
 pleted. A very amusing thing has, however, often 
 occurred, in that nations or peoples have borrowed 
 money from elsewhere, and then have set up, or at 
 any rate maintained, a wall of protective tariffs to 
 keep out the wealth, for the bringing in of which 
 the borrowing was alone useful. 
 
 So far as the money borrowed within the nation 
 for this second class is concerned, and to the extent 
 to which the wealth which it represents is also pro- 
 duced within the realm, the same considerations 
 apply as to borrowing for an unproductive under- 
 taking. All the wealth has been prepared and the 
 services rendered by the nation. There is nothing 
 absolutely to require that it should not have been 
 entirely paid for as the work proceeded. In fact, it 
 is paid for. But from Peter the government borrows 
 to pay Paul, who, in his turn, repays Peter for the use 
 of the capital and commodities which he lends or 
 sells to Paul. Of course Peter and Paul here are 
 classes of persons. 
 
 There is probably not the same rise of prices in 
 this case as in that of a war. But more is made of 
 the need of borrowing than is necessary, even where 
 something remains as the result of the expenditure. 
 
 The whole proceeding, that is, of governments 
 
POLITICS 255 
 
 borrowing from those from whom they might obtain 
 the amount by taxation, arises from the way in 
 which those who are responsible for government 
 allow their eyes to be blinded by money. They do 
 not see that wealth is that by which alone the nation 
 can be sustained and an enterprise carried on. 
 They do not realize that money was there before 
 they borrowed, and will be there afterwards : that 
 they have merely altered the mode of its circulation. 
 They fail to understand that the wealth by which 
 the nation has been sustained and the enterprise 
 carried out has all been produced at the close of the 
 enterprise, and they might as well have had it by 
 taxation as by the pretence of a loan. 
 
 But in the present case some allowance may be 
 made. In the case of a war every right feeling 
 would seem to indicate that all the nation should 
 bear their share at once and carry it to a conclusion. 
 Nothing will be left at the end of it by which it can 
 be said the following generation is bettered. The 
 country will probably be poorer, because the nation's 
 energies have been diverted from the production of 
 capital and devoted to fighting. In the case of a 
 railway, however, for instance, the succeeding 
 generation will be really the better. Its labours 
 will be lightened by the use of that piece of capital. 
 There is something real and useful as the result 
 of such an undertaking as that. The men of the 
 present generation may therefore without injustice 
 make a claim. The succeeding generation will 
 enjoy real benefit from their labours. There is no 
 particular reason why the revenue to be obtained 
 from the capital they have prepared should merely 
 
256 ECONOMICS AND SOCIALISM 
 
 go to reduce the taxation of the next generation. 
 To the extent of the capital actually left as the 
 result of their labours, the government may, without 
 injustice, resolve to borrow. Those who at this 
 time are engaged in additional labour or possess 
 capital may accordingly, if they so choose, save up 
 the benefit of that labour by making themselves 
 creditors of the government. Thus as old men 
 they may enjoy the benefit or ease, whilst the next 
 generation maintain them, in consideration of the 
 work they did in preparing a useful piece of capital 
 when they were younger. This is a mode of 
 expressing the result. Some may of course be old 
 even at this time, who nevertheless prefer to have 
 a share in this undertaking. They do not need all 
 their subsistence, and have a desire to leave some- 
 thing of a fortune to their own children or others. 
 
 By thus justifying governments in borrowing for 
 works of permanent utility, it must not be concluded 
 that there is any intention to commend the under- 
 taking of all such enterprises on the part of govern- 
 ments. With regard to some works there seems 
 no way but that governments should undertake 
 them. This applies to sea walls and similar under- 
 takings ; including roads, bridges, and all per- 
 manently beneficial works, which produce no 
 revenue directly. It is true that roads and 
 bridges are not strictly works from which it is 
 impossible to collect a revenue. It is none the 
 less expedient that such things should be paid for 
 by government out of taxation. They can be used 
 by the people without any present personal service 
 by government servants. This is a very different 
 
POLITICS 257 
 
 thing from a government undertaking to carry the 
 subjects of the realm on railways free of charge. 
 That implies the providing of carriage room, 
 haulage power, and personal conduct of and atten- 
 tion to trains. It is one thing to give people a road 
 to walk or even to drive along : it is another thing 
 to carry them. 
 
 Even the very providing and working of such 
 things as railways, though on the same method as 
 in the case of private enterprise, requires careful 
 consideration. In the case of works which are im- 
 portant to the nation, but which can produce no 
 revenue by the ordinary methods, there is no in- 
 ducement to individual enterprise. Yet the works 
 may on all hands be conceded to be of great im- 
 portance to the community. The great difficulty is in 
 collecting the revenue from those who must benefit. 
 In such cases the nation or community should, with- 
 out doubt, undertake the work and obtain the cost 
 from the taxes. A sea wall may preserve the land 
 from which taxes must be drawn. And, of course, 
 for that very reason, even if for no other, the land 
 should bear the taxes — not, as generally occurs, some 
 persons who have nothing to do with it and obtain 
 no benefit from it. The same might be said of roads 
 and bridges which also make land more valuable. 
 
 But the case of a railway which is capable of 
 producing a revenue is altogether different. If that 
 is needed individuals will be ready to provide it and 
 reap the benefit of it. There is no special reason 
 why a government should interfere in such a matter. 
 In providing gas, electric light, water or tramways, 
 for a place there is a special reason why the govern- 
 
 s 
 
258 ECONOMICS AND SOCIALISM 
 
 ment of that town or district should undertake the 
 matter itself. It Is essential that the undertakers of 
 such a work should have a monopoly granted to 
 them. And it may be laid down as a general rule 
 that any government should Itself undertake what 
 can only otherwise be accomplished by the granting 
 of a monopoly. A monopolist will naturally take 
 care to have the best possible profit. Allowance 
 must be made for the generally admitted fact that 
 governments cannot carry on industrial undertakings 
 as cheaply as private enterprise. There is still, 
 however, a balance in favour of an undertaking 
 reasonably carried on for the benefit of the com- 
 munity under the control of public representatives, 
 over a similar undertaking carried on by a monop- 
 olist for his profit. 
 
 In the case of a railway, however, there is no 
 need whatever for a monopoly beyond that conceded 
 to all individuals of owning land subject to taxation. 
 If after one body of persons have constructed a 
 railway, another body should desire to construct 
 another between the same two places, the govern- 
 ment should offer no impediment whatever. Not 
 only will the public be better served by the rivalry 
 of the two companies, but a fresh district is sure to 
 be traversed by the new railway to the benefit of 
 that district. Even if the new railway should be 
 proposed to be run parallel and near to the other, 
 the government would have no objection if indi- 
 viduals think they see need for it and are willing to 
 undertake it. That would seldom occur. For their 
 own Interests the new undertakers would endeavour 
 to find as much new ground as possible. 
 
roLiTics 259 
 
 Some have thought that governments would save 
 waste by avoiding competition. But perhaps enough 
 has been said in defence of competition in the pre- 
 ceding chapter. If two railway companies can both 
 make profit by running in competition and practic- 
 ally parallel to each other it is evident there is need 
 for them both. It must not be forgotten that more 
 work is not necessarily accomplished by setting up 
 one undertaking to take the position of two. And 
 it is infinitely better that a man should be kept at 
 his best by the remembrance that his neighbour is 
 probably also doing his best. Each of them serves 
 himself and the community better for this conscious- 
 ness, even though they have so well shown their 
 ability as to become high railway company officials. 
 
 It is sometimes argued that governments should 
 construct railways for the purpose of opening up 
 districts. Now it can hardly be denied that there 
 are occasions when, for its own purposes, a govern- 
 ment may expediently construct light railways. A 
 newly-subdued district, the government of which is 
 perhaps difficult, furnishes a possible instance. But 
 if a district is ready to be opened up, if its produc- 
 tions are needed, and it is capable of profitable use, 
 individuals will be alive to the opportunity. There 
 is very great danger of governments being influenced 
 by those who are more anxious to have money 
 expended in a railway than to use the railway when 
 it is constructed. Railways are or should be made 
 for inhabitants. Inhabitants do not exist for rail- 
 ways. When the inhabitants have arrived or begin 
 to arrive they will discover their own needs. Until 
 they arrive the government can usually better employ 
 
26o ECONOMICS AND SOCIALISM 
 
 itself about its own concerns, than by diverting 
 people from the work of making their present dis- 
 trict flourish to opening up districts which to all 
 appearance are not yet wanted. It is useless for a 
 nation to scatter itself all over its territory if it finds 
 a portion of the district more profitable for its use. 
 It is a matter for the people themselves to decide 
 upon. 
 
 The next subject which it was proposed to deal 
 with is that of government interference with wealth 
 production. The assistance a government may ex- 
 pediently give to production has already been 
 sufficiently noticed in dealing with roads and bridges 
 and with the supply of water, etc., in towns. For 
 it must be borne in mind that government generally 
 is here spoken of without making any special dis- 
 tinction between imperial and local authorities. 
 
 There is, however, a very great difference between 
 assistance and interference. It is one thing to supply 
 what is on all hands agreed to be generally useful : 
 it is quite another to hinder, or to prescribe minute 
 regulations for individuals in the management of 
 their business. There are two or three distinct 
 grounds on which a government may claim to inter- 
 fere in such management. The first of such grounds 
 which will be here noticed is that of security to the 
 life, health, and limbs of the persons employed. 
 Now it need hardly be pointed out that a govern- 
 ment must carry out its interference by means of 
 officials. They not only require to be paid, but are 
 not necessarily more perfect in their views as to the 
 best means of securing safety than some of the 
 remainder of the nation. They may, without doubt, 
 
POLITICS 261 
 
 make a special study of the subject. But so also 
 may those who are actually engaged in the employ- 
 ments referred to. 
 
 With regard to the safety of life and limb there 
 is a very obvious mode of saving much vexatious 
 interference, and also a great portion of the expense 
 of the inspection. If a person properly goes on the 
 premises of another, and if by reason of the negli- 
 gence of that other or his servants, injury is done 
 to the visitor by any machinery or other contrivance, 
 the person on whose prem.ises the injury has been 
 done is by a reasonable law liable to pay damages 
 for the injury. Now if, in the same way, the oc- 
 cupier of the premises were liable to his servants 
 for a similar negligence, it would afford abundant 
 security that his best endeavours would be used to 
 avoid any such accident. In England an exception 
 has been made by the judges operating harshly in 
 this respect upon servants, but it seems likely to be 
 remedied by the legislature. When this has been 
 accomplished there can be no need for any great 
 amount of inspection. Such inspection as may be 
 continued may take more the form of approving 
 and certifying that certain arrangements are as good 
 as can possibly be suggested than of absolute inter- 
 ference. This would throw upon the occupier of 
 the premises the onus of continuing any arrange- 
 ments he may prefer. It would thus prevent (what 
 it is said has already been found to be a disadvan- 
 tage) the ordering of arrangements which were 
 probably no less dangerous than the arrangements 
 the employers themselves preferred. 
 
 With regard to unhealthy employments, it is obvi- 
 
262 ECONOMICS AND SOCIALISM 
 
 ous that some occupations must remain unhealthy. 
 Governments can, without doubt, render assistance 
 by ascertaining the best means of minimizing the 
 evil. They may, even without giving any good 
 cause of complaint, rigorously enforce such regula- 
 tions as are undoubtedly beneficial. Even in this 
 case, however, there is a limit which wise govern- 
 ments will take care not to exceed in their inter- 
 ference. And the abolition of the poverty which 
 arises from bad economic institutions would tend to 
 avoid the ill health, for it often results as much 
 from irregular and badly-timed work and inferior 
 living as from the occupations themselves. 
 
 The second ground on which governments may 
 claim to interfere with the production and distribu- 
 tion of wealth refers only to persons who may be 
 said to be limited, with regard to their liberty, by 
 age or sex. The principle of interference, not only 
 with the conditions, but even with the hours of 
 employment of women and young persons, has been 
 fully admitted in England and elsewhere. This 
 principle, of course, needs to be rightly applied, but 
 with the principle itself no attempt will here be 
 made to find fault. Nor is it at all likely that in 
 its application it will be abused. 
 
 There is a very clear ground for admitting an 
 interference with the labour of women and young 
 persons still under the control of their parents — a 
 ground which does not apply to adult males. That 
 ground is the limitation of their liberty just referred 
 to. Already, and from the necessity of the case, 
 their liberty is incomplete. The interference of 
 government becomes an interference to protect them, 
 
POLITICS 263 
 
 not against the freedom to contract with their em- 
 ployers, but against the influence which might be 
 exerted upon them by those to whom their Kberty 
 is more or less subjugated. They cannot enter into 
 an entirely free contract for their own benefit. 
 Their earnings are not their own. This is clearly 
 so in the case of young persons. And in the case 
 of women the influence of the father or husband is 
 a sufficient reason for the interference of the govern- 
 ment. The government interferes, not to restrain 
 their natural liberty, but to increase it. By their 
 position it is limited. It may be spoken of as sub- 
 ject already to a minus sign, and the government 
 further limits it by a minus sign which in the double 
 minus becomes plus. 
 
 Finally, however, there is another ground on 
 which governments have claimed to interfere with 
 wealth production. At any rate, there is another 
 case. The ground is not so clear. The case is 
 that of limiting the hours during which adult males 
 may carry on their employments. To describe this 
 as mere wanton interference with individual liberty 
 would doubtless cause resentment. And yet no 
 other valid ground can be suggested. The truth is 
 that the interference is undertaken at the instance of 
 combinations, who imagine that they can better their 
 conditions by hindering the production of wealth. 
 A person starting from the idea that he can benefit 
 himself by persuading another not to labour or pro- 
 duce wealth, will naturally desire to persuade as 
 many as possible to the same effect. Having done 
 his utmost in persuading them that they also will 
 be benefited by the combination to work less, the 
 
264 ECONOMICS AND SOCIALISM 
 
 transition is very natural from persuasion to coercion. 
 Those who will not be induced by persuasion to 
 labour less must be restrained by legal restriction. 
 
 Now if there were any truth in the idea that one 
 man could benefit himself by hindering another from 
 working, then there might be some ground for a 
 legally imposed time limit. As the truth happens 
 to be, however, that he cannot thus benefit himself, 
 the whole ground for the restriction is abolished. 
 No man will perform labour except for what he 
 regards as a sufficient reason. It is equally certain 
 that he will not unduly prolong his labours, except 
 to gratify a desire which influences him more than 
 the desire for ease or pleasure. It would therefore 
 be a hardship upon him to interfere with that lawful 
 gratification of desire. And seeing that the hard- 
 ship is not called for by any benefit it can possibly 
 confer upon others, the restriction must perforce be 
 described as mere wanton and vexatious interference 
 with liberty. It is admitted that this follows from 
 the demonstrations given in the previous chapter 
 and apparently now for the first time given, but it 
 is none the less true for that. 
 
CHAPTER XVI 
 
 COST OF PRODUCTION 
 
 The laws which influence prices in the market were 
 considered in a previous chapter. We are now in a 
 position to observe to some extent the ulterior 
 influences on the prices of wealth. The market is 
 the central feature of the science. In it the demand 
 and supply with which the science has to deal are 
 balanced. In this sense the market extends to all 
 the places and transactions which come within the 
 sphere of buying and selling ; whatever may be the 
 subject of the transaction, whether land, labour, or 
 commodities. Howsoever the place may be usually 
 known where the buying and selling takes place, 
 whether as market, exchange, shop, auction room, 
 warehouse, or office, the same general laws apply to 
 the prices of the transactions which take place. But 
 outside the market there are other influences affec- 
 ting and being affected by it. 
 
 Some little mention was made of the method 
 adopted by Adam Smith, and elaborated by Ricardo, 
 of referring values to the labour included in their 
 production. These values were spoken of by them 
 as the natural values to which the market values 
 constantly tended to approximate. Now this method 
 has all the subtlety which is necessary to sustain 
 almost unlimited error. There is some truth under- 
 
 265 
 
266 ECONOMICS AND SOCIALISM 
 
 lying it. Commodities which require much more 
 labour in their production than others are likely to 
 realize more when they reach the market, or very 
 soon cease (absolutely or comparatively) to be pro- 
 duced. But it is not for that reason true that differ- 
 ences of value are owing to the different amounts of 
 labour which have been required to produce commo- 
 dities. A brilliant artist full of a grand inspiration 
 will sometimes create more value in a few days than 
 even he himself could at other times create in as 
 many weeks or months of much more tedious effort ; 
 while most people could not create that value in 
 years of more toilsome labour. 
 
 It would be monstrous to pretend that if no more 
 labour has been necessary for the production of one 
 commodity than another, it is no more valuable. 
 Even the most abandoned Socialist, who contended 
 that all the labour of every individual should be con- 
 fiscated to the State, would not pretend that a better 
 painted and more artistic picture, for instance, was 
 not more valuable because it had not taken more 
 painting. Even though the nation laid violent 
 hands on every picture painted, it would even then 
 know that some of its pictures were more valuable 
 than others. And no one would think of fixing on 
 the most valuable by asking which had required the 
 most labour. If it be answered that there is a 
 difference in qualities of labour, and that also must 
 be considered, then the method is at once abandoned 
 in favour of some other method of ascertaining 
 values. For it is not merely the intensity of labour 
 which causes a difference in the value of its product. 
 There is beyond that a difference which can only be 
 
COST OF PRODUCTION 267 
 
 valued as other differences are — in the market. It 
 may not be a perfect method of valuation. It may 
 be that the tastes of those who determine the value 
 are not at all what some would desire. But it is the 
 only method available to us. Value can only be 
 fixed by reference to the desires of those who must 
 enjoy it. 
 
 If ulterior causes were admitted in this matter of 
 value, it might not be altogether absurd to speak of 
 the value of any commodity as the maintenance of 
 the labourers necessary to produce it. This is really 
 what Ricardo's natural value means. But a natural 
 value conceived of in that way is not only impossible 
 to be ascertained, but absolutely untrue. It is beyond 
 dispute that labourers' maintenance operates as an 
 ulterior cause in the creation of values. For com- 
 modities which are desired and cannot be had with- 
 out labour must of necessity have value. Labourers 
 require maintenance. They will not undergo fatigue 
 to satisfy the desires of another without something 
 which will give them maintenance. But their main- 
 tenance is not the measure of value of their labour. 
 Ricardo admitted that when he spoke of a market 
 price differing from the natural price. If it were so, 
 there could be no measuring the value at all. For 
 maintenance is so very varied that there could be 
 no perfect settlement as to what maintenance really 
 consisted of. That is the first uncertainty about 
 taking ulterior causes as bases of argument. The 
 labourer requires subsistence, but that is a varying 
 quantity, and is not then the value of his labour. 
 That also varies in quantity, intensity, and quality. 
 
 Again, even supposing that labour were all equally 
 
 tDTNlVEHSITT 
 
268 ECONOMICS AND SOCIALISM 
 
 efficient, there are other things to be considered In 
 ascertaining the value of a commodity besides the 
 labour contained In it. Ricardo endeavoured to 
 reduce values to differences of labour by bringing 
 into the value of commodities, not only all the labour 
 directly applied to them, but also labour required 
 for the production of the capital necessary for its 
 assistance. Thus the value of commodities carried 
 by sea Included the labour required for the building 
 of the ship. That is interesting as a reflection, but 
 it is not the proper means of ascertaining the value 
 of the commodity, even if It were a possible means. 
 A number of contingencies may enter into the ques- 
 tion even of cost of ship hire. The main object of 
 the ship's journey may be something else, and the 
 owner can afford to accept a lower freight for that 
 reason. Or the ship may have been built under 
 other conditions from those now obtaining ; so that 
 its owner is In a better or worse position to require 
 payment to recoup him for his outlay. If improve- 
 ments have been effected in ship-building, the fact 
 that his ship was built under the inferior system will 
 not give him a higher freight for his commodities ; 
 or make It or them more valuable. If by any means 
 ships have become more scarce, he will not accept less 
 because he obtained his for less money, nor will the 
 ship be itself less valuable. A still better illustra- 
 tion may be found in the case of the produce of the 
 earth. The value of corn does not vary exactly with 
 the labour required to bring it to market. The 
 season has much to do with It. A bad harvest will 
 make corn dear without any additional labour, just 
 as a good harvest will make it cheap. 
 
COST OF PRODUCTION 269 
 
 So that, even though cost of production were 
 entirely the determining cause of value, it would 
 be inaccurate to refer it all to differences of labour. 
 The natural value of Smith and Ricardo was not 
 the true natural value. The method was entirely 
 bad. The natural value is the market value. By 
 no other means can value be ascertained than by 
 bringing the object to market, or comparing it with 
 what is in the market. That this is the natural 
 value a very little consideration will show. There 
 may be ulterior causes, but all the ulterior causes 
 would have to be considered ; and what Smith and 
 Ricardo have taken as the determining causes are 
 only some of them. There is no warrant for any 
 one to take his own ideas of ulterior causes, and 
 then to say that although facts indicate one value, 
 yet that another value is the natural one. Once 
 again let it be observed what determines value, so 
 that it may be seen what is in truth the natural value. 
 
 The first question to ask in determining the 
 value of any commodity is this. Is it wanted ? If 
 not, it has no value. If nobody cares to have it, it 
 is worth nothing, no matter how much labour has 
 been expended in its production. That is the de- 
 mand. Now, the method which speaks of natural 
 value as determined by differences of labour, en- 
 tirely ignores the fact that the demand must be 
 considered. This was indeed the great fault of the 
 method. There could be no wonder at economists 
 imagining they found a natural value distinct from 
 the market value when they neglected such an im- 
 portant factor. 
 
 The next thing to consider in determining the 
 
270 ECONOMICS AND SOCIALISM 
 
 value of a commodity is not what it cost to produce, 
 but how much is available to supply the demand. 
 It may be very valuable, although originally ob- 
 tained at little cost, if it possesses rarity and beauty 
 or other desirability. And it may have cost a great 
 deal to obtain, and be worth very little after all, for 
 another abundant supply may be available. This 
 is the natural value — the real value, and not some 
 ideal set up as a natural value. 
 
 Now these are the very considerations which 
 were noticed as determining the market value, 
 namely, demand and supply. Not only is market 
 value the only ascertainable value, it is the true and 
 only real and natural value. It is where the de- 
 mand and supply meet that the value is determined. 
 The subject and its complement must be brought 
 together in the market for the most part. To only 
 a small extent do people in a high state of civiliza- 
 tion supply their own wants without buying or 
 selling. It is in supplying these wants that the 
 value is fixed. That behind and away from the 
 immediate point of connection which determines 
 the value there are causes to be considered in their 
 proper relation does not admit of dispute. But 
 they must be kept in their place. And the causes 
 behind each must have due weight. 
 
 In speaking of ulterior causes of value, it is neces- 
 sary not only to consider what influences supply, but 
 also what influences demand. Now, more than one 
 influence may affect the demand. Demand will 
 naturally rise with increase of population. The 
 same result will, however, be brought about by the 
 opening of connection with new markets ; that is. 
 
COST OF PRODUCTION 27 1 
 
 with markets In populations which have previously- 
 existed as peoples, but not as purchasers of the 
 commodities in question. Further than that, the 
 same population may be induced to consume much 
 more of a commodity if it become more accessible 
 to them by reason of its reduced price. For human 
 beings can greatly increase their consumption of 
 wealth if sufficient variety be offered. As men- 
 tioned at the outset, they do not stop at the supply 
 of mere food and water. It is true that their 
 demand, to be effective in influencing the market, 
 must be accompanied by a supply of other com- 
 modities in exchange. This is true with regard to 
 both increased population, new markets, and in- 
 crease of demand in the same population. But this 
 simply points to another influence at work affecting 
 the demand. Anything which enables the same 
 population to produce more wealth will tend to 
 increase their demand for the commodities of 
 others, provided that their own wealth is not the 
 same in kind. If they have abundance, they will 
 consume more wealth. As they will prefer variety, 
 they are likely to be all the better customers for the 
 commodities of others. All these are influences out- 
 side the market operating to Increase the demand, 
 and consequently to raise prices in the market. 
 Whatever tends In a contrary direction will have a 
 contrary effect — a diminished population, the loss 
 of markets, the making of the commodities In ques- 
 tion more difficult of purchase, and the smaller 
 productions of possible customers. These Influ- 
 ences operating outside the market will tend to 
 reduce demand and lower prices. 
 
272 ECONOMICS AND SOCIALISM 
 
 But, on the other hand, there are Influences 
 affecting the supply. It was remarked that the 
 price In the market of commodities would ultimately 
 tend towards the cost of bringing them to market. 
 This may be spoken of as the cost of production. 
 But the price In the market Is not Immediately 
 referable to the cost of production. It may be 
 higher or lower according to the circumstances of 
 the case. It is fixed by the state of supply and 
 demand. Other influences at work may affect the 
 prices, but only by affecting supply or demand. 
 Competition to supply may lower prices by increas- 
 ing supply. Trade combinations and protective 
 tariffs may raise prices by diminishing supply. 
 Artificial contrivances must act on supply. A 
 strike diminishes supply. So also do the steadier 
 influences which form so large a feature in the 
 operation of trade combinations. Such Is the fix- 
 ing of rates of wages below which members of such 
 combinations are expected not to accept work at 
 all. Such also are the various contrivances for 
 keeping up prices by adhering to old methods of 
 work, and even of preventing the importation of 
 work done In other towns. The insisting on ap- 
 prenticeships Is probably no great cause of dimin- 
 ishing supply, especially seeing that, in proportion 
 as a trade Is difficult to get into, there will be com- 
 petition for places In it. It is not the contrivances 
 for keeping new applicants out, but the real difficulty 
 of learning a trade which influences the supply of 
 men to It. 
 
 So far as trade combinations operate at all, they 
 do it by influencing supply. And the same applies 
 
COST OF PRODUCTION 273 
 
 to all Other artificial contrivances. The demand, 
 which depends on the consumption of wealth by- 
 others and the supply of wealth In exchange for it, 
 can only be Increased by the supply of more wealth. 
 And that can only be done by encouraging natural 
 competition to supply. 
 
 But although no Influence can affect values except 
 by acting upon supply and demand, it is neverthe- 
 less true that cost of production of commodities has 
 a great effect upon prices in the market. It is 
 perhaps not sufficiently accurate and expressive to 
 say that the market price constantly tends to cost of 
 production. Cost of production, strictly speaking, 
 can only be said to be the actual cost to the master 
 labourer who sells the commodity. On that he 
 must put his profit. For by the profit he is paid 
 for his labour in carrying on the business. In the 
 case of undertakings, the profits of which are paid 
 to the capitalists who originally supplied the capital 
 (or those who now hold their shares), any additional 
 profits go to them and not to those who have 
 managed the undertaking. But for the present 
 purpose no difference is made by this fact. The 
 excess over cost of production goes to pay the 
 proprietor of the undertaking whatever form that 
 proprietor may assume. And if on the other hand 
 the commodities fail to realize the cost, that pro- 
 prietor must bear the loss. The supply in the 
 market is influenced by the existence and amount 
 of that profit. If the profit be abnormally high, it 
 will have the effect of bringing others into the busi- 
 ness to compete against those already in it. Thus 
 by the increased supply the prices will be lowered. 
 
2 74 ECONOMICS AND SOCIALISM 
 
 If there is no profit, but a loss, or even an ex- 
 ceptionally low profit, the tendency will be that 
 others will avoid the trade ; and some will even 
 leave it at the earliest opportunity. By that means 
 supply will be diminished and prices raised. 
 
 Only in this way can cost of production influence 
 the market. The price is not determined by the 
 cost of production. In a sense the cost of pro- 
 duction is determined by the price. For the cost to 
 the consumer may without impropriety be called 
 the cost of production, although it includes the 
 producers' own profits. And those profits are 
 capable of modification to meet the market whether 
 the modification means increase or decrease. But 
 on the other hand, the cost of production to the 
 seller does influence the price by affecting the 
 supply. In a word, cost of production is one of 
 the influences outside the market which affect price ; 
 as was noticed with regard to the influences operat- 
 ting upon demand. Cost of production operates 
 upon supply. 
 
 Now all the influences which act upon prices 
 through supply, may be said to do so by affecting 
 cost of production. This at any rate applies to the 
 ordinary industries, in which the relations of em- 
 ployer and employed obtain, and in which raw 
 material or rent of land is an element to be 
 considered. So that these influences affect the 
 market through an ulterior cause which is itself 
 outside the market. Cost of production is outside 
 the market : these influences are outside that cost. 
 To speak of value as though it were merely the 
 cost of the labour required to produce an article is 
 
COST OF PRODUCTION 2 75 
 
 to neglect some steps in the reasoning. At each of 
 these steps other factors must be taken into account. 
 To make this clear, let it be considered what are 
 the elements which go to make up or affect cost of 
 production. 
 
 We may begin with the cost of labour, as well as 
 at any other point. Let the cost be taken in money, 
 and the efficiency of the money as a purchaser of 
 wealth be disregarded. Even then, the person who 
 employs the labour has to consider not only the 
 money cost but the efficiency. A high-priced 
 labourer may be cheap when the cost of his actually 
 exerted labour is calculated. This is because of his 
 greater effectiveness as a labourer. A low-priced 
 labourer may be dear, when the benefit he has 
 conferred is considered. 
 
 So that here at once is an element which itself 
 varies in something besides the mere cost of labour 
 per unit of time. But even more than that is true 
 with regard to labour. There may be those who 
 are paid by results. Their labour is paid for at a 
 uniform rate per unit of work done. And still a 
 difference may occur. For if their work be done 
 irregularly and not steadily as required, their labour 
 will become more costly. In most cases other men 
 must be paid to attend to other matters in connec- 
 tion with their work. The wajjes of these others 
 probably must go on as fixed charges. In almost 
 all cases there are many fixed charges, which must 
 go on, whether the men work or not. Now if by 
 strikes and stoppages of one kind or another the 
 work is irregularly done ; and if occasionally a period 
 of loss is suffered through the men not being at 
 
276 ECONOMICS AND SOCIALISM 
 
 work at all ; their labour becomes more costly than 
 if they maintained a steady unfluctuating supply at 
 the same prices. Even when there is no actual 
 stoppage, if by a combination the market prices are 
 affected through diminished supply or threatened 
 strikes, the trade will become irregular. Additional 
 cost will for that reason have to be borne in the 
 way of fixed charges. The labour accordingly 
 becomes more costly. 
 
 But labour is not the only element which enters 
 into cost of production. In most instances tools, 
 machinery, or fixed plant will be necessary. The 
 cost of that so far, at any rate, as depreciation and 
 interest on original expenditure are concerned, must 
 be taken into account. Ricardo would have referred 
 all this to the labour of preparing the capital. But 
 that is another step backwards and must not be 
 taken in here. There would be other factors to 
 take into account aq^ain. That labour has been 
 merged in the capital and must no longer be spoken 
 of as labour. Capital enters as a distinct element in 
 the production now under examination. The pay- 
 ment for its use as such is the element of cost 
 now to be reo^arded. It is not the orio^inal cost of 
 production of the capital but the price actually now 
 paid for it. That again must be considered capable 
 of modification, with regard to interest on the 
 total, in proportion to the greater or less quantity 
 of capital seeking employment. 
 
 Here then is another quite different element of 
 the cost of production, varying by laws of its own ; 
 and capable of material reduction or otherwise, by 
 influences which might have a very different effect 
 
COST OF PRODUCTION 277 
 
 upon Other elements of cost. It is true as already 
 mentioned, that sometimes interest on capital is 
 paid out of profits which are ascertained by differ- 
 ences between actual cost of production and selling 
 price. But in those cases, the managers who carry 
 on the undertaking, instead of taking its additional 
 profits, are paid fixed salaries which must be treated 
 as part of cost of production. In the ordinary 
 instances the interest is regarded as fixed charges, 
 and the employers find the payment for their 
 services in the profits. 
 
 Another element of this cost of production must 
 be taken into account. Land is an essential in 
 practically all wealth production. Raw material is 
 drawn from the earth. But manufactures and trade 
 cannot go on without land on which to place mills, 
 factories, workshops, warehouses, shops, etc. And 
 this latter land if smaller in area is not less costly. 
 This is because of the value given to it by situation. 
 
 There has been much confusion as to the influence 
 of rent on prices. Even Adam Smith said that rent 
 entered into the composition of the price of com- 
 modities in a different way from wages and profit. 
 *' High or low wages and profit," said he, "are the 
 causes of high or low price, high or low rent is the 
 effect of it." This will readily be seen to be errone- 
 ous in view of what has already been pointed out. 
 It was a survival of the teaching of the Physiocrats. 
 It neglects to note that price depends on demand as 
 well as supply. High or low profit and wages 
 depend on price as much as rent does. Rent 
 therefore enters into the cost of production just in 
 the same way as the other elements of cost. But 
 
278 ECONOMICS AND SOCIALISM 
 
 rent may also vary, according to the Institutions of a 
 country and other causes. When a person may 
 hold land untaxed, there Is great danger that he will 
 retain It unused until he receives a higher price 
 or better terms than he would be willing to accept 
 under taxation ; that Is, if on monopolising It he had 
 to pay taxes upon It, whether he used it or not. 
 This Is even beyond the natural Increase of rent, 
 arising from the greater necessity for the use of 
 land ; which is the main cause, and affects the price 
 of land through demand. There are other causes 
 influencing rent of land, such as the comparative 
 prohibition against Importing commodities from 
 elsewhere ; which Is the practical effect of protective 
 tariffs. 
 
 One more Item must be mentioned as enterlnof 
 Into cost of production, namely taxation. This 
 might, and ought to be, merged in the previous Item 
 — rent, and thus an Item of cost saved. But as It Is 
 not, It must be regarded as an additional influence 
 affecting prices by way of supply through cost of 
 production. This also Is subject to variation. 
 Taxes may be high or low. The government may 
 be economical or otherwise. The cost of unneces- 
 sary interference with its subjects must be paid In the 
 taxes. A National debt is also a costly burden to 
 maintain. And this is an item of cost of production 
 which might easily be saved. The spurious might 
 easily be made real by the Imposition of taxes and 
 the payment of the debt. For In all probability it 
 would not be spent on present pleasures, but rather 
 invested In real capital for which the nation would 
 be the better. 
 
COST OF PRODUCTION 279 
 
 These appear to be the items which affect cost of 
 production, with some considerations concerning 
 them. Cost of production is what influences prices, 
 by affecting the supply side of the balance. Some 
 few things are brought to market by producers who 
 have little cost besides their own maintenance to 
 consider. In those cases, supply and demand are 
 not influenced so much by ulterior causes. The 
 commodities in question, are, so to speak, always in 
 the market, if indeed it ought not to be expressed 
 that the labour comes to the commodity market 
 directly. 
 
 The question is sometimes discussed whether 
 high or low prices are desirable. All sound 
 economists hold that commodities should be cheap. 
 But there is danger in so expressing it. Everything 
 depends on the cause of the cheapness. For as 
 will shortly be noticed, there is a cheapness which is 
 undesirable. This occurs when the cheapness is 
 through Insufflcient effective demand brought about 
 by an artificial dearness. And yet it is safer to say 
 that all commodities should be cheap, than that all 
 commodities should be dear. Many hold that goods 
 should be dear. Some of them perhaps notice that 
 in times of good trade, prices have been high, and 
 they have a confused notion that it is the high prices 
 which cause the good trade. Whereas the truth is, 
 that the good trade causes the high prices. Low 
 prices are the Inducement to good trade, and high 
 prices tend to slacken the pace of exchange. Others 
 desire dear goods because they imagine that if high 
 prices are paid for goods, high prices must have 
 been paid for their production. They apparently 
 
28o ECONOMICS AND SOCIALISM 
 
 imagine that if the goods can be made dear in any 
 way, the wages must of necessity be raised — which 
 is the most hopeless confusion of cause and effect. 
 Some other confusions are also made to do duty as 
 arguments in this direction. 
 
 Others again naturally desiring that their own 
 productions should be high priced, and that the 
 productions they must buy should be low in price, 
 do not realize exactly how it is desirable to them 
 this should be caused. They therefore think, that 
 if by combination affecting supply, they can cause 
 high prices of their goods they will benefit them- 
 selves. Whereas it is only when the high prices 
 are caused by an increased demand for those pro- 
 ductions that they are benefited. On the other 
 hand, they find cause for rejoicing in the fact that 
 goods imported from elsewhere are cheap ; even 
 when that cheapness is the result of their own 
 poverty, and inability to effectively demand the 
 commodities. They should rejoice only when the 
 cheapness is the result of low cost of production. 
 
 Perhaps it is better not even to say that commod- 
 ities should be cheap, though certainly not to con- 
 tend that they should be dear. In either case it is 
 necessary to observe the cause of the high or low 
 price. The one thing which is certain is that wealth 
 should be abundant. For this purpose, all that can 
 be said to be desirable is that cost of production 
 should be kept low. There is no objection to prices 
 being high if they are the result of a large effective 
 demand from customers who have abundant wealth 
 to offer in return. And there is an objection to 
 prices being low if it is because some economic evil 
 
COST OF PRODUCTION 28 1 
 
 has been hindering trade and production. For this 
 means that, while the persons affected by it have 
 been making their own goods dearer, they have 
 been unable to find employment, and are conse- 
 quently too poor to buy the productions of others. 
 But still more, and for that very reason there are 
 great objections to goods being purposely made 
 dear by their producers. That is hindering trade 
 in them and causing poverty. High prices from 
 scarcity of wealth are not beneficial. 
 
 Of those who have given arguments against 
 cheapness Mr. Henry George stands out promi- 
 nently. His ideas though, as will be seen, not 
 correct are nevertheless sufficiently clear to merit 
 examination. Amongst the remedies currently 
 advocated which he considers inefficient to remove 
 poverty are : greater economy in government, diffu- 
 sion of education and improved habits of industry 
 and thrift, and co-operation. These have the one 
 feature in common that they add to the productive 
 power of labour. And the cheapening of commo- 
 dities, he imagines, but adds to rent. On the other 
 hand, whilst he includes combinations of workmen 
 as one of his inefficient remedies, he nevertheless 
 says that " they can advance wages, and this not at 
 the expense of workmen, as is sometimes said, nor 
 yet at the expense of capital as is generally believed, 
 but ultimately at the expense of rent." The same 
 fallacy is apparent throughout. It is the notion that 
 to cheapen productions will simply result in the 
 payment of the balance in the way of more rent ; to 
 make them dearer will prevent the payment of 
 rent. 
 
282 ECONOMICS AND SOCIALISM 
 
 The error may easily be answered by regarding 
 the holders of land at a rent either individually or 
 collectively. Suppose an individual taking a farm 
 or other land. The adjoining land is unoccupied. 
 But this farmer pays a rent for his somewhat better 
 land. By some improvement in machinery he 
 materially reduces his hours of labour. The land- 
 lord can get no more rent for that if the adjoining 
 land remains unoccupied. Or by other means he 
 discovers that he can materially increase his produc- 
 tion ; he will not on that account pay more for rent, 
 if the other land continues without a tenant. Even 
 though he may find a family growing up around 
 him, if he can find employment and support for 
 them on his own farm, he need pay no more rent 
 while the other land awaits occupation. All this is 
 supposing that he might, if necessity arose, use that 
 land to similar effect. What would compel him to 
 pay more rent would be that the productions of his 
 present land were so scanty that he must take more 
 land for his sons to labour upon. Or the same 
 effect might be produced by some other person 
 coming to take the adjoining land. If the other 
 land would produce a rent, and if his own was 
 still as much better than the other as it had ever 
 been, he must now pay more. Rent is the excess 
 produce over that of the worst land that must be 
 cultivated. Now this is directly contrary to Mr. 
 George's argument ; it indicates that rent as a propor- 
 tionate share is reduced by cheapness and plenty, and 
 is increased by scarcity. The greater the scarcity, 
 the worse land must be cultivated ; the greater the 
 plenty, the better land it is that is alone required. 
 
COST OF PRODUCTION 283 
 
 The same result follows If the community be 
 considered. As was seen in the chapter on rent, 
 the greater the abundance the smaller the relative 
 share of rent. Mr. George's idea Is that since men's 
 desires increase as they are satisfied, rent must con- 
 tinually encroach on the rewards of capital and 
 labour. But surely it must not be said that rent has 
 swallowed up a man's wages when, having reached 
 a certain standard of comfort, he desires and is 
 willing to pay for more land on which to enjoy a 
 better living ? That itself is indication enough that 
 he is receiving better wages. Rent may increase a 
 little, as was seen, but It cannot be said to have 
 increased at the expense of wages when wages have 
 increased still more. It is a question of proportion- 
 ate shares. And in the matter of relative or pro- 
 portionate shares rent is reduced by cheapness and 
 plenty. Combinations of workmen do not benefit 
 themselves at the expense of rent by making wealth 
 more scarce. 
 
 Mr. George, like others, has neglected to take 
 note of the fact that men produce In order that they 
 may consume. He imagines that better machinery, 
 and all the contrivances for increasing and cheapen- 
 ing the supply of wealth will but Increase rent ; that 
 habits of sobriety and thrift will not make a man 
 better off, but increase his rent ; that to save a man 
 from paying taxes will increase his rent. And all 
 this, forsooth. Is because men desire more as their 
 desires are fulfilled. Not only does he neglect the 
 fact that, if they spend it they enjoy it, and not 
 the landlord, but also that if they save it, it is for 
 themselves and not for the owner of the soil. He 
 
284 ECONOMICS AND SOCIALISM 
 
 thinks that to say that men will be better for In- 
 creased industry and thrift is like asserting that 
 every one of a number of competitors might win a 
 race — which is nonsense. It Is not a question of 
 one arriving first, but of all having abundance of 
 wealth. Confusing wealth with money might give 
 his results. So far as money is concerned, it is quite 
 true that it Is useless to imagine all can have more 
 of it, for it cannot be much increased. People 
 would be no better if It could. But this simply 
 disproves Mr. George's own argument for dearness. 
 So far, however, as wealth is concerned that can be 
 Increased. All may have more by increased Indus- 
 try and thrift making the wealth cheaper. It Is not 
 true, as Mr. George says, that '*If one Individual 
 worked more hours than the average he will Increase 
 his wages, but the wages of all cannot be increased 
 in this way." The wages of all can be increased by 
 more work, if they prefer to have more wages and 
 not to be content with what they have. This, of 
 course, refers to real wages ; money wages are a 
 matter of indifference. 
 
 To put the matter briefly: cheapness which Is not 
 the result of artificial dearness is good for the nation 
 in affording satisfaction to desires and avoiding 
 poverty. It is also good (when It is the result of 
 low cost of production) In inducing plentiful exchange 
 for the productions of other districts and communi- 
 ties. To the poor it is especially beneficial. It 
 permits them to consume their own productions, or 
 the productions of others taken In exchange for 
 them, and by that means to raise the price of their 
 own labour. With regard to those who have been 
 
COST OF PRODUCTION 285 
 
 producing wasteful luxuries, and rendering frivo- 
 lous services to the few rich, the cheapness enables 
 their labour to be employed in the supply of neces- 
 saries, and even luxuries, to the many. 
 
 This cheapness, and the consideration of con- 
 sumers rather than of producers has frequently been 
 advocated on the ground that all are consumers, but 
 not all are producers. This, however, is scarcely a 
 sufficient argument ; the true argument is, that con- 
 sumers in the nature of things are considered first. 
 Production is only required for consumption. Every 
 man who produces does so because he is a consumer. 
 Moreover, those who fondly imagine that they alone 
 are producers, and that to raise prices benefits pro- 
 ducers rather than consumers, forget that no one en- 
 joys any produce except on account of his real or sup- 
 posed services In production. The landlord and the 
 capitalist receive their rent and interest for their 
 share in production, and not otherwise. To make 
 commodities dear is to raise the latter shares also ; 
 indeed, these shares particularly ; for they are just 
 the shares which increase relatively by scarcity and 
 decrease by abundance. The reward of labour is 
 constantly increased by greater abundance. For the 
 labourer himself consumes the greater abundance, 
 while land and capital do not themselves consume 
 at all. 
 
 Now it is quite true that men cannot cause good 
 seasons and plentiful harvests, nor can a government 
 or anything of that nature cause improvements in 
 machinery and other means of abundant and cheap 
 production ; but they can avoid waste. A good 
 business man will take care, as he daily inspects his 
 
286 ECONOMICS AND SOCIALISM 
 
 premises, to remedy any cause of waste. Amongst 
 the causes of waste in any country are taxes im- 
 properly imposed or wastefully expended. A 
 National Debt is a constant cause and indication of 
 waste. Institutions of all kinds which hinder men 
 competing to supply wealth are causes of waste. 
 Trade depressions and men spending their efforts in 
 seeking employment are fruitful sources of waste. 
 Efforts spent in anxiously seeking work are quite as 
 irksome as actually performing useful labour if more 
 than that is not true. Whatever, therefore, tends to 
 cause irregularity and difficulty of finding remunera- 
 tive employment causes waste of national effort. 
 
 It has been generally thought that trade depres- 
 sions, with all their waste of effort, which are a 
 marked feature of modern commerce, were irreme- 
 diable evils. Professor Jevons endeavoured to 
 find a connection between them and sun spots. 
 Good and bad harvests affect trade, and sun spots 
 may affect harvests. It has been noticed that trade 
 rises and falls in periods of ten years. But none of 
 these things, even if admitted, prove that trade de- 
 pressions must exist in the nature of things. It is 
 very easy to see how trade depressions may be 
 either caused or avoided. If after a period of de- 
 pression, and consequently low prices, it should 
 happen that the low prices induce greater demand, 
 and exchange becomes more frequent, prices are 
 likely to rise. Now if when prices begin to show 
 siens of advancement, some combination or other 
 demands something more than the market rate for 
 labour or wealth, then prices will rise more sud- 
 denly. At once the higher prices will tend to 
 
COST OF PRODUC^^.,_ „^ 
 
 ■S^UFORNjA: 
 
 Stagnate the trade. After a period of feverish 
 speculation induced by the higher prices, a crisis 
 is reached, a collapse ensues, and prices again fall 
 rapidly. Then follows another period of depression. 
 If, on the other hand, when prices began to rise they 
 had been left alone, competition would soon have 
 brought them to their normal level without any 
 falling off of demand. For as the demand afforded 
 higher or lower prices, the supply would have 
 accommodated Itself to those prices. But a com- 
 bination of any sort attempting to set at defiance 
 and disregard the condition of supply and demand 
 must hinder exchange ; exchange Is forbidden ex- 
 cept at prices which the market will not afford. 
 This does not apply merely to labour combinations. 
 It applies to attempts by governments to regulate 
 prices by tariffs or other means. It also applies to 
 the holding of land above its present market price, 
 which taxation properly applied would tend to avoid. 
 But the action of trade combinations has the same 
 effect. The settlement of wages by whole districts 
 at once, instead of by each individual for himself, 
 must cause irregularity. It can only at best be 
 described as similar to the use of octagonal wheels 
 Instead of circular ones for railway engines and 
 trains. 
 
 Besides the even supply which free and un- 
 hindered competition would give in these respects, 
 it is Important for the attainment of perfectly 
 smooth working of trade that the money standard 
 should be Invariable. That point must, however, 
 be dealt with in the following chapter. 
 
CHAPTER XVII 
 
 COINAGE AND CURRENCY 
 
 The nature of money was discussed in a former 
 chapter. The question to what extent the present 
 monetary arrangements were perfect, was, however, 
 left for further notice. The measure of value fur- 
 nished by money in connection with the production 
 and distribution of wealth is capable of being 
 affected by artificial arrangements. But for that 
 fact money would scarcely require any notice beyond 
 that already given to it. 
 
 Reference was made at the close of the preceding 
 chapter to the causes of variations in value and 
 irregularities of employment. Not only for the 
 purpose of avoiding these evils, but also for other 
 reasons, it is desirable that values should continue 
 constant ; and that the standard by which values 
 are measured should not vary. A buyer of pro- 
 perty of any kind ought not to be in danger of 
 suffering loss by a general fall of prices. Nor 
 should there be any inducement for persons to buy 
 land or wealth, which they neither require for their 
 own purposes nor intend to distribute in the way of 
 their trade. It is undesirable that speculation should 
 be brought about by the existence of any cause, to 
 hope for a general rise of prices. This speculation 
 is one of the causes of trade depression. It is 
 
 233 
 
COINAGE AND CURRENCY 289 
 
 moreover, Incompatible with perfect justice that 
 values should rise so as to become a source of gain 
 to some with outeffort. That, by consequence, is a 
 source of loss to others. The latter suffer on ac- 
 count of the change of the standard by which they 
 made their contracts. 
 
 Money as a medium of exchange need not be 
 discussed at great length in this chapter. Its use as 
 a measure of value is what will occupy the more 
 attention. So far as the monetary substances are 
 concerned, a very few words will suffice, especially, 
 at any rate, when money is regarded as a medium 
 of exchange. The monetary substances of savage 
 nations need not be discussed at all. Amongst 
 civilized peoples, by general consent, the precious 
 metals, gold and silver, have established themselves 
 as desirable monetary substances. They have the 
 qualities necessary for adoption as such. They are 
 generally esteemed for their Inherent qualities. 
 And they are scarce, so that they possess high 
 intrinsic value. They are, moreover, easily divisible 
 for the purpose of measuring large or small values. 
 For they may be melted without injury, and may 
 be separated into smaller quantities and reunited if 
 desired without loss of value. This is not the case 
 with precious stones, for instance. The metals are 
 capable of being perfectly tested as to their purity. 
 As they are indestructible, and only a small quantity 
 is obtained yearly compared with the previous stock 
 of them, the quantity available does not greatly 
 vary from year to year. Indeed, it is probable that 
 no more is got than the increased demand requires. 
 This tends to give stability of value. 
 
 u 
 
290 ECONOMICS AND SOCIALISM 
 
 As a medium of exchange, money should be port- 
 able, divisible, and easy to recognise. These quali- 
 ties are possessed by the precious metals in a high 
 degree; the portability and divisibility depending 
 on the value and homogenity previously referred to. 
 Nor are they more costly, as has been imagined, than 
 paper bearing authenticating marks. It is true they 
 are more costly to obtain in the first instance. But 
 once obtained, there is no more waste in their use 
 than there would be in using paper for the same 
 number of transactions. There is some waste by 
 constant wear ; yet when the number of times a coin 
 is handled Is considered, it will readily be seen that 
 a paper bearing that denomination and handled as 
 frequently would soon be worn away. More waste 
 would occur than in the case of the metal. In the 
 case of larger sums, it need hardly be said that 
 paper is the more convenient medium. 
 
 As a measure of value the chief quality desired is 
 stability, and this also seems capable of attainment 
 by the use of the precious metals (with paper for 
 larger sums) more perfectly than by other means. 
 But it cannot be too clearly understood that the 
 stability of value is required in the standard itself, 
 and not in the metal which is used as the medium 
 of exchange. To make this clear, it is important 
 to fully understand what is meant by a standard 
 of value. 
 
 As a first step, it may be well to make clear what 
 is the standard which obtains in transactions be- 
 tween persons of different nations. It was pointed 
 out that (with the exception of countries producing 
 the metals) nations traded with the metals as money, 
 
COINAGE AND CURRENCY 29! 
 
 and not as commodities. Traders accept them to 
 be used as money, and not for consumption in the 
 arts. In fact, for the most part they trade by means 
 only of paper referring to them (or rather to the 
 standard of one nation), which is obviously money, 
 and not a commodity. 
 
 In discussing the standard of value in inter- 
 national transactions, it will be well to suppose two 
 nations each having the value of a given weight of 
 gold fixed in its standard. At a certain price per 
 unit of weight there is in each of those nations 
 free coinage into the currency of the country. This 
 arrangement is not an essential one, but it will help 
 the present explanation. The coins will vary in name 
 and weight, and the units of weight will vary. But 
 in every case a proportion can be found between the 
 units of weight. From that result a proportion can 
 also be found between the weight of metal in the 
 coin of the one nation and that of the coin of the 
 other. Now the value of the weight of metal thus 
 ascertained by the relation to the standards of the 
 two countries is the international standard. 
 
 But it is essential to observe that the standard is 
 not the gold itself. The mind must abstract the 
 idea of a measure, that measure being the value of 
 a weight of gold. The gold itself is not wanted. 
 But it denotes money to each of the traders. They 
 would not think of accepting the gold for its own 
 sake in return for their wealth. But money visibly 
 represented is something which they can pass on 
 in return for whatever else they desire. And this 
 money they fiind in gold of a certain fineness and 
 weight. The standard with them, although they 
 
292 ECONOMICS AND SOCIALISM 
 
 have doubtless never taken the trouble to consider 
 the fact, is the value of a unit of weight of that 
 metal. It is not the metal, but the abstract notion 
 of the value of a weight of that metal. In their 
 own minds it assumes the form of pounds sterling, 
 francs, marks, dollars, etc., according to their 
 nationality. But as they deal with another nation, 
 they reduce pounds to francs, or marks, or dollars, 
 or as the case may be. The bankers and brokers 
 then settle their accounts for them in their own 
 currency. 
 
 It is quite true that persons occupying representa- 
 tive positions in these various nations imagine gold 
 is the standard, and it is the gold they want. They 
 even think that the benefit of the foreign trade is to 
 amass a stock of gold. But that is merely because 
 of their own imperfect powers of mental abstraction. 
 What the traders require is money which they can 
 pass on, and not the gold itself. Reliable paper 
 would be equally useful as money for most purposes. 
 Even the money, whether it assume the form of 
 metal or paper, they only require for what it will 
 buy. Though that again it is unnecessary for them 
 to realize until they take some position which re- 
 quires a knowledge of economics. 
 
 It w^ll now perhaps be more possible to grasp 
 the nature of a national monetary standard. The 
 case of England may be taken as furnishing a very 
 good instance. It is said to have a gold standard, 
 and is held up as the most perfect instance of a gold 
 standard country. Its money is usually expressed 
 in pounds, shilHngs, and pence. The pound sterling, 
 as the monetary pound is called, is the chief unit of 
 
COINAGE AND CURRENCY 293 
 
 the Standard. The other monetary units used are 
 fractions of it. Now the question arises, and must 
 be answered, what is a pound ? Economists have 
 been accustomed to regard a pound as simply a 
 certain weight of gold coined at the mint. They 
 have spoken of price as value in gold. Money was 
 simply gold and silver, varying in value with the 
 cost of mining, and all prices w^ere values in metal ; 
 as though the metal itself, and for its own sake, was 
 of the value it represented as money. A little 
 mental effort will serve to dissipate this notion. 
 
 The notion has its origin very much like that of 
 natural value as mentioned In the previous chapter. 
 It is an imperfect attempt to arrive at the nature of 
 an object existing only in mental contemplation. 
 Just as they failed to realize the nature of the 
 abstract notion called value, so they failed to realize 
 the nature of the abstract standard of value which 
 money furnishes. They saw the medium. In its 
 commonest form it was a weight of metal. They 
 concluded that price was value in that metal. They 
 only imperfectly realized the nature of money as 
 something to be passed on. Still less did they 
 realize that the metal was only money reduced to a 
 tangible form, or that value was only a measure of 
 mental desire. The abstract idea expressed in the 
 phrase *' measure of value " or " standard of value " 
 was not separated by them from the notion of the 
 visible medium. 
 
 A pound has been conceived to be a piece of 
 coined gold weighing not less than 122^ grains. 
 Now, It so happens that there is another name for 
 that piece of coined metal. It is called a sovereign. 
 
294 ECONOMICS AND SOCIALISM 
 
 It is the metal coin which is referred to when that 
 word is used. But it is not the coin which is re- 
 ferred to when the word pound is used. When that 
 word is used, the measure of vahie is referred to. 
 In the case of a shilHng or penny there is no separ- 
 ate expression. The same word does duty for both 
 the metal coin and the measure of value. But in 
 the case of a pound, what is meant is not the coin 
 known as a sovereign, but the abstract notion of a 
 quantity of money. The money itself is an abstract 
 notion when it is referred to as a measure of value. 
 It is a mental measure. It may be represented by 
 a sovereign or by twenty shillings, or by anything 
 which is regarded as equally valuable, such as a 
 cheque. This, then, is the standard of value divided 
 for ordinary purposes into shillings and pence. 
 
 A little further attention to the matter will show 
 that it is erroneous to speak of the English standard 
 as a gold standard. The international standard be- 
 fore referred to might, perhaps, without impropriety, 
 be referred to as a gold standard. It is not the 
 weight of gold which forms the standard in either 
 mind, but the pound, dollar, etc., as a measure of 
 value. Yet the weight of gold is the means of 
 comparing the two measures, and its value thus 
 becomes, in a not unreasonable sense, at any rate, 
 the standard of value ; though a strictly gold stand- 
 ard would be one which definitely referred to a 
 known weight of gold. But the English standard 
 is not a gold standard in either of these senses. 
 The Englishman who has to make a bargain simply 
 thinks of the price in pounds, shillings, and pence. 
 The price may be paid to him in one of several 
 
COINAGE AND CURRENCY 295 
 
 ways. He is compelled to accept, in payment of 
 debts, silver up to £2 and Bank of England notes 
 up to any amount, as well as gold. The medium 
 may, in fact, assume the form of cheque, bill of ex- 
 change, bank notes, or metal. The standard is a 
 mental measure which he knows as a pound, and 
 the money will probably soon assume the form of an 
 entry of credit in some book or other. 
 
 Even the total quantity of money in the country 
 can be increased or decreased, and prices accordingly 
 affected, without any change in the quantity of gold. 
 When a panic occurs, and there is great demand for 
 money, it is not for gold, but for Bank of England 
 notes. And yet the standard of English money has 
 been called a gold standard. The truth is that 
 England has, like other countries, an abstract stand- 
 ard of value represented by a medium composite in 
 its nature, and comprising paper, gold, silver and 
 bronze. Of paper. Bank of England notes are 
 legal tender to any amount at any place except the 
 Bank itself. Theoretically, they are always convert- 
 ible. If there were any real attempt to get them 
 all converted, they would be found to be inconvert- 
 ible paper. But the Bank's credit is such that its 
 notes are freely accepted even in other countries. 
 Gold is legal tender when coined, but not otherwise 
 — in spite of the phrase ''gold standard." Silver and 
 bronze coins are legal tender to limited amounts. 
 This is the composite nature of the currency on 
 which the standard is based. But the currency is 
 one thing, the standard is another. The standard 
 has for its chief unit the pound. The medium may 
 assume a variety of forms. 
 
296 ECONOMICS AND SOCIALISM 
 
 At the outset, therefore, if the subject is to be 
 understood, it must be realized that money is in the 
 first place an object desired, because of its useful- 
 ness in the purchase of other desirable objects. It 
 is essential to get hold of that idea, and to keep it 
 distinct in the mind from the notion of the forms 
 which money may take. Then it must be realized 
 that money furnishes a standard by which the value 
 of other objects is measured. That standard must 
 be kept clear in the mind from the medium which 
 represents the money. It is not the gold, or silver, 
 or paper which is desired, or which forms the stand- 
 ard, but the money which they represent. The 
 money is counted by Englishmen as pounds, by 
 Americans as dollars, by other nationalities under 
 other names. It furnishes, rather than is, the 
 standard. And, finally, it must be fully grasped 
 that the money which is desired for its purchasing 
 power, and which also furnishes the standard, may 
 assume various forms as the medium of exchange. 
 No one or more of those forms is the standard. 
 The money which affords the standard is an object 
 which may assume those visible forms as a medium, 
 but which has an abstract and invisible existence as 
 a standard, and which, even as a medium, may 
 assume the abstract andJnvisible form of credit. 
 
 This is what the money of an advanced commun- 
 ity becomes, although it originally grew from the use 
 of some object as a common medium of exchange. 
 It is not altogether improper to say that the money 
 is the standard reckoned, for instance, in pounds, 
 shillings, and pence. But it is quite incorrect to say 
 that the gold or medium is the standard. That is 
 
COINAGE AND CURRENCY 297 
 
 but the visible representative of the money which 
 furnishes the standard, and which itself exists in 
 calculation only. It is well enough in ordinary 
 language to speak of the form it assumes as money. 
 To properly understand the subject, however, the 
 notions must be abstracted. Money must be re- 
 garded as the foundation notion (being itself a pur- 
 chasing object), forming by its value a standard of 
 value, and in its various visible or invisible forms 
 being also a medium of exchange. Those forms are 
 not the standard. All that is meant by England 
 having a gold standard is that the price of gold is 
 fixed at the mint, and there is unlimited free coinage 
 of gold into sovereigns of a certain weight, each of 
 which sovereigns, when coined, represents a pound 
 sterling. But it is by no means the only form of 
 money used in the country. 
 
 Now that an effort has been made to make clear 
 what is meant by the standard of value, it may be 
 well again to remark that what is desirable is that 
 the standard should not vary ; not that the price of 
 the medium should be invariable. It should be no 
 concern of the nation whether gold or silver fluctu- 
 ates in price or not, but only that the pound should 
 bear a constant value. This is important, so as to 
 avoid a general rise and fall of prices. The price 
 of a particular commodity may, without injury, rise 
 or fall with its scarcity or abundance. Indeed, it is 
 desirable that it should do so, even if it be gold or 
 silver. But the standard of value should not fluctu- 
 ate. 
 
 Now if the precious metals were used as money 
 simply by weight, it is not likely that the standard 
 
298 ECONOMICS AND SOCIALISM 
 
 -V^^ould vary as much as it constantly does under the 
 systems of coinage now obtaining. Large gettlngs 
 of gold would Increase the supply and diminish the 
 value, whilst a demand greater than supply would 
 have a contrary effect. The same would apply with 
 regard to silver. But there would at any rate be the 
 advantage of the law of substitution If both were 
 subject to the full operation of the laws of supply 
 and demand. And that Is not the case at present. 
 Moreover, if no coinage were undertaken and the 
 metals were weighed, any fall in their value would 
 be likely to increase their use as commodities. The 
 additional demand would tend to raise the value 
 again, and thus, by balancing the effect of the 
 supply, keep the standard constant. 
 
 Very different, however, are the present results. 
 Gold is in many countries fixed In price, — that is, in 
 money value, — and is subject to unlimited free coin- 
 age. The result is, that if a large influx of gold 
 occurs, instead of the value of gold falling, the 
 standard of value falls. The money value of the 
 gold is fixed by an artificial arrangement, so that it 
 cannot fall as it ought by the increased supply. 
 The most convenient means of selling it is to have 
 it coined. The consequence Is that a great quantity 
 of gold coin is brought into the currency for which 
 there is no real demand, but of which there is 
 plentiful supply. - This increases the stock of money 
 in proportion to the demand, and that in one of Its 
 important forms. The value of money consequently 
 falls. This is the case not only in the sense in 
 which the expression ** value of money " is under- 
 stood amongst money brokers, a value in use for a 
 
COINAGE AND CURRENCY 299 
 
 time, but also with regard to the national standard 
 of value. Prices rise not because of the ordinary 
 influence of supply and demand, but because the 
 standard Is lowered. It Is as though men began 
 to call six Inches a foot, with the consequence that 
 men of six feet became giants of twelve feet. In 
 the case of the money standard this Is a great evil. 
 And there is a further evil when the standard goes 
 back to Its old condition. 
 
 How this evil is to be avoided is a question 
 demanding consideration and settlement. It Is 
 obviously desirable that the metal used as the 
 medium of exchange should be coined. By that 
 means Its purity and weight is authenticated. Its 
 genuineness and value as money Is thus guaranteed ; 
 just as paper money is authenticated by the marks 
 it bears. There Is no better arrangement than that 
 the government of any country should undertake 
 the coinage. By its coinage It can at any rate 
 indicate what It will accept In payment of taxes 
 without any undue Interference. That in itself 
 would be enough to establish a currency. Nor is 
 it a hardship that all others should be forbidden 
 to coin money. F'or to permit such coinage would 
 probably open the door to abuses. But why a 
 government should coin money In unlimited quanti- 
 ties without payment of the cost there seems no 
 valid reason whatever. Yet it Is done the civilized 
 world over. And this appears to furnish the cause 
 of the evil previously mentioned. 
 
 Suppose that Instead of the free coinage now 
 obtaining, the government were to make a charge 
 which would cover all the cost of the mint opera- 
 
300 ECONOMICS AND SOCIALISM 
 
 tions and the loss by wear of the metal used. 
 Coins somewhat worn, but genuine and only worn, 
 it would accept at their full nominal value in pay- 
 ment of taxes. The attention may still be confined 
 to gold coins. At first sight it may appear that the 
 only change from the present system of fixing the 
 value of gold would be that the mint price would 
 be fixed somewhat lower. Gold would apparently 
 bear that constant value, and would not be subject 
 to the influences of supply and demand. Some- 
 thing beyond this will have to be mentioned. But 
 even with such a fixed price important results 
 would follow from the adoption of the more natural 
 system. In the first place, it would not be so profit- 
 able in case- of exporting gold to export the coins 
 as to export uncoined bar gold. Coined gold 
 would now be more expensive than uncoined. 
 The metal coined might be relied upon to stay 
 in the country. Those who understand Gresham's 
 law will readily see how it would be met by this 
 arrangement. 
 
 In the second place, however, more important 
 results would follow on the other hand : that is, 
 with regard to the amount of metal coined and put 
 into the currency. Whilst it is undesirable that the 
 cost of coinage should be wasted by the coined 
 metal being sent out of the country, it is equally 
 undesirable that metal should be put into the 
 currency for which there is no demand. That is 
 what depreciates the currency and lowers the 
 standard of value. Some means must be found 
 for securing that the metal coined shall be the 
 amount required, and not more. 
 
COINAGE AND CURRENCY 3OI 
 
 The great use of metal money is for payment 
 of weekly wages of workmen. But naturally this 
 money is paid to tradesmen and others. It thus 
 finds its way back to banks, and is again used for 
 a similar circulation. Besides which there are 
 purposes for which metal money is needed, even 
 by those who are accustomed to make the greater 
 part of their payments with paper. So far as 
 money is required for these purposes, those who 
 require it will be willing to pay for the use of it. 
 Their payment for its use will reasonably include 
 something for the gold having been coined, as well 
 as for its having been mined. 
 
 The point to be made clear is that such a charge 
 for coining would not only ensure that the coined 
 money should not easily leave the currency, but 
 also that it would furnish means of keeping out of 
 the currency the gold not required in it. It must 
 not be left to any one person or body of persons 
 to decide whether the coin is required or not. Yet 
 some means should be found for preventing more 
 being coined than is required. Before that question 
 is proceeded with, however, it is advisable to show 
 that no difficulty would arise in finding the ratio of 
 the English standard to the standards of other 
 countries. 
 
 It must be borne in mind that whilst an ounce of 
 coined gold would still be worth /^^ ijs, io\d.y the 
 mint would pay only say £2> ^ S^- ^^^ the ounce, and 
 that in coin. The remainder would be retained for 
 cost of the country's coinage and currency. This 
 would, of course, not be a depreciation of the cur- 
 rency. The sovereign would contain the same 
 
302 ECONOMICS AND SOCIALISM 
 
 amount of gold as before. The pound would, on 
 the contrary, have to be considered as worth more 
 francs, dollars, etc., than under the present arrange- 
 ment. Whilst under that arrangement an ounce 
 of gold will produce (roughly) j(^2>s ^^ ^^^^ mint, it 
 would then produce only ^3f. So that the pound 
 would become somewhat more valuable as com- 
 pared with the standards of other countries. As 
 metal, so far as the mint was concerned, gold would 
 be worth only ^3 1 5^. an ounce for import or ex- 
 port. But as English money, when so coined, it 
 would be worth ^3 17^. lo^^^. Other nations, 
 however, would compare their coins with English 
 sovereigns at the rate for uncoined gold. It would 
 be only as gold that they could take it for their 
 own currency, even though coined. The cost of 
 coinage must be wasted if they took it away and 
 melted it. On the other hand, nothing could make 
 their coins worth more at the English mint than 
 £0 ^5^' ^^ ounce, the price at which it could be 
 turned into English money, except what would 
 have a similar influence on any gold. 
 
 That there would be a loss on taking the money 
 representing £^ lys. lo^d. and melting it to 
 ;^3 155. is the very object desired in order to 
 prevent that proceeding. It should be paid to 
 government or to persons in the realm, and its full 
 value as coin thus secured. Even if it were taken 
 abroad, as might occur in small quantities, it 
 should, and generally would, be kept as English 
 coin. The charge for coining would thus cause no 
 difficulty in fixing the ratio of the standard with 
 that of other countries. It would be simply de- 
 termined by the price at which gold entered the 
 
COINAGE AND CURRENCY 303 
 
 mint — not at which it emerged. If coined metal 
 had, through special circumstances, to leave the 
 nation in considerable quantities, the loss of the 
 cost of coining would be sustained by the nation 
 as now ; but through the rate of exchange, and not 
 through the government. It need hardly be said 
 that 2s. io^-<:i^. an ounce is an altogether hypothetical 
 amount, assumed for argument's sake, as the cost of 
 coining and loss by wear, and is probably somewhat 
 too high a rate. 
 
 The discussion of the export of coined gold in 
 quantities will serve as an introduction to the other 
 question which must be discussed. An important 
 result of charging for coinage would be that gold 
 would begin to have a market value. Indeed, that 
 is in one aspect the object to be secured by the 
 charge and by the other arrangements to be men- 
 tioned. At present it has no such value in the 
 so-called gold-using countries, although silver has 
 a market value. The value of gold is artificially 
 fixed at a certain price. The erroneous idea ob- 
 tains that gold is the standard, and fixing the price 
 of gold is fixing the standard. All movements of 
 gold have to be influenced by discount rates acting 
 on rates of exchange, and not by market value. 
 The marvellously complex movements are beauti- 
 fully balanced by the natural laws of supply and 
 demand. But there Is still wanting the freedom of 
 movement which a more natural system would 
 offer. And once again be it said, the standard is 
 consequently liable to unnecessary variations. 
 
 It may readily be seen that if a charge were 
 made for coining, the market price of gold would 
 vary. The mint would only give ^^3 15^. for 
 
304 ECONOMICS AND SOCIALISM 
 
 an ounce of gold, although It would require 
 ;^3 17^. lo^d. of the gold when coined to make 
 up an ounce. The remaining grains of gold would 
 be retained for coinage. But if gold were In de- 
 mand, a little more than ;^3 15^. would be given, 
 although it must be parted with to the mint at that 
 price. Banks, for instance, would do this when 
 their customers required metal money, and the 
 customers would pay for It In their commission and 
 Interest. It Is no new thing that the market price 
 of gold should exceed the mint price. Though it 
 must be confessed that the causes which have 
 sometimes operated in that way have not been 
 desirable ones. The mischief has been in the 
 causes, however, and not in the fact. 
 
 Now suppose that by continued good trade In- 
 ternally there had been great demand for gold 
 money, and almost the whole of the stock of 
 metal had been coined and spread over the country ; 
 and suppose that by some means a great demand 
 for gold were to arise for export purposes. It is 
 not impossible that the price of gold would actually 
 reach a little over ;/'3 17^. 10^^. an ounce. It 
 might then be worth while to export coin. If such 
 interest were offered for money elsewhere, that it 
 was profitable to Invest money there Instead of at 
 home, those who had money would send It. The 
 rate of exchange might get very high against this 
 country, and yet no attempt would be made to 
 lower it by sending bills of exchange back. The 
 money could be so much better used in the other 
 country. When the rate of exchange was so high 
 that It was profitable to send bar gold, it would be 
 
COINAGE AND CURRENCY 305 
 
 sent. But if the bar gold was nearly exhausted, 
 and there was still money to be sent, the exchange 
 would get still higher, and coined gold would be 
 bought if the process continued. This would 
 happen even though it was at such a price that 
 coin worth for internal circulation ^3 17^. lo^d, 
 had actually to be bought and sent away to be 
 melted at £2> '^S^- The difference would be found 
 in the better investment of the money. 
 
 Between the two rates mentioned there might 
 be great variation. The market price might, as 
 already mentioned, even go above the higher rate. 
 It would depend on the inducement. In that 
 direction, however, the amount indicated is a large 
 advance on ;^3 155-., the normal rate. But some 
 advance on ^3 155-. might easily be caused by the 
 exigencies of internal circulation. Even if there 
 were no internal demand beyond that supplied by 
 the metal already coined, the same results might 
 follow. There might still be such a demand 
 for gold, either for export or for the arts, that 
 £2> 15^- would be exceeded to a greater or less 
 extent. 
 
 We next turn to the still more difficult question 
 of the possibility of a fall below /^^ 15^., and of 
 keeping out of the currency of the country any 
 superabundant supply of gold. It has already 
 been fully shown that gold might rise above ;^3 15^. 
 if the supposed charge were made for coining. 
 While above that price there can be no doubt what- 
 ever that the gold would not be coined if it were 
 not required as money. That would imply positive 
 and immediate loss. But, apart from its being re- 
 
 X 
 
306 ECONOMICS AND SOCIALISM 
 
 quired for coinage, it could only rise above that 
 price by a demand for export or the arts. Could 
 it, without inconvenience or injury, be made to fall 
 below that price, so as to still further induce a 
 demand for export or the arts ? If not required as 
 money, could it be prevented from going into the 
 currency ? That is the ultimate object to be 
 reached. 
 
 It is but reasonable to suppose that If other 
 nations retained free coinage the surplus gold would 
 find its way into their currencies. Their prices 
 would consequently get so high that exports to 
 them would greatly increase. These exports would 
 be paid for in gold when the rate of exchange was 
 so much against them that it would afford the cost 
 of conveying the metal. If money remained more 
 plentiful in proportion to demand here than with 
 them, the exchange would not get so high. But 
 while the increased exports continued there would 
 be likely to be causes operating to raise the ex- 
 change against them. The volume of trade and 
 increased production of wealth would, in the first 
 place, find employment for more coin for internal 
 circulation. Besides which it would be likely to 
 cause more demand for metal for use as a com- 
 modity in the way of ornaments, and for other pur- 
 poses. But, on the other hand, such a condition 
 of affairs would be likely to enable the nation thus 
 more rapidly producing wealth either to lend money 
 to the other nation on more or less permanent loans, 
 or otherwise to invest with them. This money 
 being sent in paper would tend to turn the ex- 
 change more in favour of the free coinage nation. 
 
COINAGE AND CURRENCY 3O7 
 
 The effect of this lowering of the exchange would 
 be to proportionately reduce the amount of gold 
 transmitted. But the gold would only be retained 
 by the nation getting into debt. The ultimate con- 
 sequence of that would be a continual export of 
 gold or commodities in succeeding years by way of 
 interest on that debt. We have, however, to find 
 arrangements under which any considerable import 
 of gold to the nation not having free coinage would 
 of necessity be because the gold was required. 
 This is the point to keep ever in view. 
 
 But suppose that the other nations protect them- 
 selves in like manner against the superabundant 
 supply of gold. An outlet must now be found for 
 it if it is not to find its way into the currency. The 
 importer of bullion may make different uses of it 
 according to his business. For it must be supposed 
 that he may turn to any business so as to make 
 profitable use of his bullion. In other words, 
 any person or body of persons must be supposed 
 capable of importing the metal. In applying the 
 argument to countries where gold mines exist, im- 
 portation must be regarded as including mining 
 operations. Moreover, to obtain conclusive argu- 
 ments, a time must be taken at which all the gold 
 at present in the country is required in the coinage, 
 and is actually coined. It will not be sufficiently 
 conclusive to take a period when the gold has 
 already stagnated in the bank vaults, and might, for 
 all useful purposes, as well have been left in the 
 mine. The nation must be supposed to be busily 
 at work, and using as money all the gold which has 
 not been taken into the arts. But a further flood 
 
308 ECONOMICS AND SOCIALISM 
 
 comes, which cannot be taken into the currency 
 without affectinof and lowerinor the standard. If 
 that can be avoided in such conditions, it can be 
 avoided under all circumstances and at all times. 
 
 The most difficult man to deal with for the 
 present purpose is the man who imports gold and 
 exports other commodities, paying in metal the 
 wages of workmen employed in manufacturing those 
 other commodities. He does not at present exist. 
 The two trades are carried on separately. But, 
 as already stated, he must be supposed capable of 
 coming into existence if it is profitable to combine 
 the trades of two distinct classes of persons. He 
 finds gold so abundant and easy to be obtained that 
 he can now pay for his export commodities very 
 easily. He therefore rapidly imports gold and 
 exports commodities in return. A similar result 
 would follow from the opening of a mine within the 
 country and the payment of wages to workmen for 
 mining. The standard is in great danger of being 
 lowered by this great supply of gold. What is 
 to prevent it ? The abundance of money actually 
 being paid, and the very satisfactory condition of 
 trade, will create an increased demand for the gold 
 as a commodity. But that cannot yet be relied 
 upon to avert the danger of the lowering of the 
 standard, which w^ould raise all prices, and cause 
 trade depression and poverty. 
 
 Now this flood of gold must reach the banks, and 
 particularly the Bank of England. England must 
 be still considered the instance taken for argument's 
 sake. Even supposing that the importer takes his 
 gold to the mint, and pays it away as gold coin, it 
 
COINAGE AND CURRENCY 309 
 
 must pass through the hands of the tradesmen into 
 the banks. If it does not, it will do no great harm. 
 If every man keeps a few extra sovereigns in his 
 pocket, the result will be just as if he had hung them 
 on his watchguard as ornaments. It is the money 
 which circulates which must alone be regarded as 
 money, and as capable of affecting the standard. 
 Probably, however, the importer would take his 
 uncoined gold to the Bank of England, and thus 
 save himself trouble. The additional gold, there- 
 fore, must now be sought in the banks. It may 
 have affected the standard slightly before it reaches 
 that point. But the influence can only have been 
 slight so far, even though the importer had the gold 
 coined. Now, however, arises the difficulty. 
 
 With the Bank vaults full of gold, and the dis- 
 count rate consequently low, there is every induce- 
 ment to merchants to buy goods with their bills of 
 exchange. This is where the mischief begins. It 
 goes steadily at first, and gradually increases its rate 
 until the time of the panic and collapse. Even the 
 bar gold, which will generally be found in the Bank 
 of England, has its influence, as well as the coined 
 metal. The bars may at any time be coined if 
 wanted. It is true that the low discount rate tends 
 to the export of the gold. But we are supposing 
 the other nations protecting themselves like this 
 nation, and already well supplied. Unless that bar 
 gold can be got below £2, 15^. an ounce, and thus 
 turned into another channel, the danger cannot be 
 avoided. The bar gold will probably be either 
 with the Bank of England or with the mint, except 
 so far as it has not yet left the hands of the im- 
 
3IO ECONOMICS AND SOCIALISM 
 
 porter. The importer may have some in hand, but 
 those who have bought gold as a commodity will 
 require it as such. The remainder is coined. 
 
 The Bank of England must not be supposed to 
 be bound to take the gold at £2> ^S^- ^^ ounce, and 
 give coined gold or its own notes for the bars. As 
 soon, therefore, as the Bank found they had so 
 much gold on hand that it was not being employed 
 profitably, they would naturally decline to give 
 money for the gold. They might take it on deposit 
 at some rate, but they would pay no interest for it. 
 And the importer might as well accept a little less 
 if he could get the gold into some form which would 
 pay him interest. 
 
 At the mint, however, the gold is still taken at 
 £2) iS'^' ^^ ounce. Money is given for it. Very 
 true it is metal money, but it will buy commodities 
 which the bullion dealer wishes to export. The 
 importer is, therefore, still putting gold into the 
 currency and affecting the standard. For the trade 
 still continues, and he can use the money for his 
 purchases. 
 
 Meantime, however, the mint is accumulating 
 gold. It gains a little on every ounce of gold it 
 coins. When the light coins come in after a period 
 of wear, they are melted again into bars. All this 
 gold is ready to be re-Issued. But since gold con- 
 tinues to come in so fast, and since the banks have 
 already more than they have use for, no one will 
 take the gold at its full price. It is useless for the 
 mint to offer it at less than £2) ^S^- ^^ ounce for 
 other purposes if the purchasers might at once have 
 it coined and obtain the full £2, 15^. That would 
 
COINAGE AND CURRENCY 3 I I 
 
 be nothing more nor less than issuing /^;^ lys, loj^. 
 in money for a less sum than that. There could 
 be no clearer case of depreciating the currency. 
 But the mint has the gold, and if it goes on coining, 
 it will accumulate a great stock of gold for which 
 it has no use. There is nothing arbitrary in declin- 
 ing to coin more until it is rid of its present stock. 
 Here, then, is the means of reducing the price of 
 gold below the mint price, which was seen to be 
 necessary to keep the standard invariable. And it 
 is secured automatically. It follows from an arrange- 
 ment which is self- working. 
 
 There can be no hardship or injustice in this 
 proceeding, nor can the nation complain that it is 
 robbed of its money. The ratio of the national 
 standard was fixed by a reference to ^3 15^-. an 
 ounce for gold. That price the Government would 
 give as long as ever there was need for the money. 
 As soon, however, as its own stock of gold indicated 
 that there was no further need or use for the money, 
 it would cease coining until there was again demand. 
 Meantime, the additional gold imported or other- 
 wise obtained must be sold in the open market. It 
 thus becomes subject to the ordinary laws of supply 
 and demand, and is carried off into the arts. It is 
 used as a commodity, and the benefits of its desir- 
 able qualities obtained by those who will buy it. 
 The price is regulated in such a way as to secure 
 purchasers. If more is wanted in the currency, it 
 can at any time be had. As soon as any one will 
 take an ounce of coined gold at the price which as 
 money it will produce for them, they may have it 
 The mint only refuses to part with it at less than 
 
3^2 ECONOMICS AND SOCIALISM 
 
 it actually represents as money. When an equal 
 sum of any other form of money Is offered the 
 coined gold may be had. This would, in practice, 
 be done through the Bank of England. But while 
 there was gold money lying idle in the banks, there 
 would be no demand for such money, and no further 
 stock would be coined. 
 
 The same method might be applied to silver 
 without any danger of depreciating the currency. 
 A ratio to gold would be fixed, and that ratio would 
 be maintained in all the silver coins issued. But 
 the silver coins would only be issued when there 
 was need for them as currency. That would be 
 established in the same way as already mentioned 
 with regard to gold. Both silver and gold would 
 then have their market prices. In the currency 
 they would bear fixed ratios, and the demand for 
 them would settle exactly the amount put into the 
 currency. But in the market each would have its 
 own value as a commodity. 
 
 The mention of silver leads to another subject 
 which must now be grappled with. The difficulty 
 which arises from a rate of exchange varying 
 greatly and continuing to move in one direction 
 was briefly mentioned. It will be seen that the 
 rate of exchange is influenced by two great causes. 
 One of these is the temporary cause which de- 
 termines to which of the two countries in question 
 metal must be sent. The exchange is against the 
 place which must send it. Strictly, this cause 
 includes several causes. The apparent indebtedness 
 may arise in several ways as previously stated. 
 Paper may have been sent by way of loan, interest 
 
COINAGE AND CURRENCY 313 
 
 on loan, gift or payment for commodities ; but the 
 supply of paper indicates that metal money must be 
 sent. This is the merchants' side of the matter, 
 though their influence may be and is greatly modi- 
 fied by that of the money brokers who have most 
 to do with the exchanore. 
 
 The other great cause is the depreciation of the 
 standard of one of the countries. If for any reason 
 it becomes possible to obtain the money of one of 
 the countries much more easily than before, it may 
 be expressed as a depreciation of the standard of 
 that country. If, at the same time, the standard of 
 the other country is not depreciated or only to a less 
 extent, the money of the first country becomes worth 
 less proportionately than that of the other. The 
 latter country will therefore decline to send its 
 money except for more of that of the other country. 
 Thus by the issue of inconvertible paper (that is, 
 of paper which cannot be exchanged for metal) 
 it may happen that more of the currency of any 
 country will be given for gold than the gold when 
 coined will represent. Those, therefore, who have 
 gold in other countries, will decline to part with it 
 except for more of the inconvertible paper currency 
 than bears its nominal value. Between the country 
 which can have gold for its currency at any moment 
 and the country which must give more of its 
 currency to obtain that gold, it will naturally happen 
 that exchange will be affected. The rate of ex- 
 change will be raised against the place which, if it 
 must send gold, must pay more for it. The ex- 
 change is calculated by the respective standards. 
 Even if it is to receive gold, that gold will buy more 
 
314 ECONOMICS AND SOCIALISM 
 
 of Its currency than it would of that of the other 
 country. In fact, although by the weights of gold 
 one ratio is fixed, yet by the actual values of the 
 two standards another ratio is fixed. And this is 
 found in the rate of exchange. 
 
 The same result as from the Issue of inconvertible 
 paper will follow from the unlimited free coinage of 
 a metal which becomes superabundant. As was 
 seen in the case of a flood of gold, it is possible to 
 depreciate the value of a currency by coining a 
 flood of silver. And if silver finds a market price 
 in one country below its mint price, while in the 
 other country it is freely coined, the exchange will 
 be turned against the latter country. That country 
 has, in fact, lowered its standard by taking unlimited 
 quantities of silver Into its currency. In the other 
 country the silver has not been taken in. It can be 
 had at much less than the price it would have to 
 maintain in order to keep the same ratio when sent 
 to the silver-using country. Thus India has per- 
 mitted every man to bring silver for free coinage 
 into rupees. When the silver could be obtained 
 cheaper elsewhere, it has simply occurred that the 
 rupees have become less valuable in proportion to 
 the other currencies. This ratio entering into the 
 rate of exchange has raised that rate against India. 
 This second great cause of variation is not a merely 
 temporary one which can and will be removed by 
 the Importation of metal. The only remedy for 
 it is to cease admitting as currency that which has 
 depreciated the standard. 
 
 The theory known as Bimetallism suggests that 
 when one nation has depreciated its standard by 
 
COINAGE AND CURRENCY 315 
 
 admitting unlimited quantities of metal, the method 
 to adopt is for other nations to depreciate the value 
 of their currency also. This is proposed to be done 
 by allowing the free and unlimited coinage of silver 
 as well as of gold. But as already seen, even the 
 admission of unlimited quantities of gold is an evil 
 in itself. It may sometimes cause great mischief. 
 To admit also unlimited quantities of silver would 
 be to increase the mischief. The fault is with 
 the country which allows its standard to be de- 
 preciated by taking in all the metal presented. But 
 that country must also suffer the misfortune in its 
 increased prices. And the evil should be removed 
 by it. Each nation may defend itself against 
 the evil. And no nation can be worse for find- 
 ing that it can buy more cheaply the currency 
 of another nation. It is the nation which finds its 
 own money less valuable as compared with other 
 nations which is the sufferer. There is a hindrance 
 to trade, but the nation with the depreciated 
 standard suffers most as a nation. 
 
 The question may not unreasonably be asked 
 what the result of the system here advocated would 
 be if the cause of gold stagnating in the banks were 
 some interference with trade and not an influx of 
 gold. For instance, a very large combination of 
 the workmen employed in one of the great staple 
 industries of a country might, by a strike of a few 
 months, very greatly hinder trade. Comparatively 
 speaking, such a thing would stop the national 
 industry. A great amount of money previously in 
 circulation would get laid aside in the vaults of 
 banks. For other trades also must stop, and the 
 
3l6 ECONOMICS AND SOCIALISM 
 
 circulating medium would drain itself into great 
 pools of metal. It need hardly be said that the 
 event could not happen without hardship and loss, 
 whatever might be the currency arrangements. It 
 is impossible to prepare for such contingencies. It 
 can never be foretold how long a strike will con- 
 tinue, or that there will be any stoppage at all. 
 This uncertainty and fluctuation applies to all inter- 
 ferences with the natural course of supply and 
 demand. In a slightly different way a similar result 
 would follow from the imposition of a protective 
 tariff. Indeed, all improper taxation has a similar 
 effect to a greater or less extent. 
 
 It is impossible that perfect monetary arrange- 
 ments can prevent all economic evils. But the 
 better the system of currency, the better the results, 
 even in face of other evils. No injury could result 
 from keeping metal out of the currency when a large 
 stock has already accumulated in the banks. For 
 that stock might as well, for present practical pur- 
 poses, have been lost in a shipwreck. It could not 
 directly influence prices or answer any useful pur- 
 pose whilst lying there. It might lower the dis- 
 count rate to some extent. But it is not desirable 
 that the discount rate should be lowered merely 
 in order that prices should be raised. That is but 
 to make wealth more difficult of access. And it is 
 one of the ways of causing collapse of trade. If the 
 discount rate is low with regard to money while 
 interest on capital is high, it is evident that some 
 economic evil is at work. A low rate of interest on 
 real capital arising from the abundance of wealth is 
 good. A low rate of interest on mere money whilst 
 
COINAGE AND CURRENCY 317 
 
 interest on real wealth continues high is bad. 
 There cannot be too much wealth. But there can 
 be too much money. For when balanced against 
 wealth, money represents the scarcity and famine 
 side of the scale. 
 
 The m.oney already In the currency must of course 
 stay for a time. The evils of strikes cannot be de- 
 stroyed In a day. But there is no reason for taking 
 more into the currency. The result of keeping 
 it out is that it goes to the other countries. Their 
 prices are raised by it. And trade tends to revive 
 for the strike district by those raised prices. So far 
 as the strike district is concerned, prices may tend 
 to be lowered. The strikers may not like this, but 
 it is better for even them to be brought as quickly 
 as possible to a reasonable frame of mind. More- 
 over, it will make wealth more accessible to them, 
 which is the great object of the study of economics. 
 Indeed, so far as the whole district or country is 
 concerned, the lowering of prices will have the effect 
 of enabling them to obtain wealth and get to work 
 again as quickly as possible. For it must be re- 
 membered [that the strike or other interference has 
 for its effect the lowering of the standard. By 
 artificially raising prices the standard is lowered, and 
 the lowering of the prices by a good monetary 
 system is only bringing the standard back to Its true 
 position. 
 
 With free competition the government would not 
 for long have to keep metal out of the currency. 
 The arts would soon take what metal was not 
 required for money. But whilst they stopped coin- 
 ing, how would the rates of exchans^e be fixed ? The 
 
3l8 ECONOMICS AND SOCIALISM 
 
 case of other nations allowing free and unlimited 
 coinage has been sufficiently noticed. But suppose 
 that other nations adopted the same system, and 
 there were various hindrances to competition. The 
 market price of gold might get below the mint price 
 in all those places. It might, and probably would, 
 however, vary in the different countries. And that 
 would have its influence on exportation. The rate 
 of exchange based on the nominal ratio between the 
 standards would accordingly be fixed practically as 
 now : that is, by the demand for bills created by the 
 ordinary international transactions modified by the 
 movements of metal. This already occurs, but the 
 metal can only be moved between the gold-using 
 countries by the rate of exchange, and not by the 
 true market value. 
 
 In concluding this subject, a passing reference 
 may be made to the Bank Charter Act, passed in 
 England in 1844. Its object was to limit the issue 
 of bank notes, though it need hardly be said that it 
 was impossible, by an Act of Parliament, to hinder 
 the substitution of other forms of paper money. It 
 may be stated briefly that the Act was passed under 
 a misapprehension of the cause of the evils it was 
 intended to remedy. So far as the Bank of England 
 is concerned it has practically no effect except in 
 panics. At those times, after it has done as much 
 injury as it is thought advisable to permit, it is 
 suspended. Failing the entire repeal of the Act, it 
 seems very desirable to avoid the evil generally 
 wrought, before its suspension is asked for, by per- 
 manently suspending it on the same terms as it is 
 on those occasions temporarily suspended. 
 
f OF The ^ 
 
 otniversitt) 
 
 COINAGE AND CURRENClf^.^p^j^j^j^/^^yQ 
 
 The mischief lies in the superabundant supply of 
 the money which must be accepted as such, not of 
 that which all are at liberty to accept or refuse. 
 Moreover, the latter being paper and for larger sums, 
 reaches generally only those capable of judging of 
 its merits or otherwise. The former passes into 
 the hands of the mass of the people in payment of 
 wages, and in that way also becomes the basis of 
 the currency. 
 
 The portion of the subject attempted to be dealt 
 with in this chapter requires, it need hardly be 
 pointed out, much more elaboration than can be 
 afforded in this book. Either the charge for coin- 
 ing or the refusal to coin except when there was a 
 demand for the metal money might be adopted 
 separately. There are other aspects in which the 
 arguments might be put, and other ways of treating 
 the subject with the same result. But it is sufficient 
 to have indicated a system of coinage at once natu- 
 ral, self-working, and capable of operating with 
 smoothness and elasticity. By this means a perfect 
 balance is constantly kept, and the standard of value 
 is maintained invariable. On such a basis the crea- 
 tion of paper money might safely be left quite free, 
 and all danger of shocks or financial panics would 
 be averted. 
 
CHAPTER XVIII 
 
 COLLECTION OF RESULTS 
 
 It Is of Importance that the results of any scientific 
 inquiry be as far as possible gathered together. 
 Only by this means can It be seen whether or not 
 any system runs through the Inquiry, and its results. 
 This method will show whether the results harmonize 
 with each other. The focussing of the light will 
 exhibit more clearly the practical outcome of the 
 study of the subject, besides showing the connection 
 of the several parts. For nature is one and the 
 same. If we would study any specific subject, we 
 must examine each portion separately ; but we must 
 never forget that the whole is one subject. And 
 that one subject Is part of a larger subject. And 
 the larger subject is again a portion of the one truth 
 of nature. 
 
 An endeavour has been made to keep the science 
 as clear and distinct as possible from other sciences, 
 and at the same time to show Its bearing on other 
 portions of truth. This method differs from that 
 which neglects the surrounding truth as much as it 
 does from that which confuses other subjects with 
 the subject under consideration. 
 
 Passing the chronological introduction, it will be 
 remembered that the first point to be noticed was 
 man's need for wealth. This is the whole subject. 
 
 320 
 
COLLECTION OF RESULTS 32 1 
 
 Value and exchange, land, labour and capital, rent, 
 wages, and interest, money and discount are all 
 portions of it. It is seldom they are treated in such 
 a way as to show the connection, but it is well that 
 they should be so treated. It is, however, well also 
 to avoid dragging into the inquiry a discussion of 
 the proper foods, drinks, clothing, and pleasures 
 required for healthy living. Nor can the economist 
 determine by his study whether it is good or evil 
 that certain persons should choose to enjoy their 
 wealth in this way or the other. He will take care 
 to suggest such conditions as, when applied to actual 
 life, will prevent any person or persons injuring 
 others by hindering their obtaining the wealth 
 they require. But that is all he will have to concern 
 himself with. The one object constantly kept in 
 view throughout this inquiry is that every man, 
 woman, and child should be supplied as required 
 with an abundance of wealth. Some have low ideals 
 of life. But no good can come of keeping them in 
 poverty and starvation as a means of raising their 
 standard of comfort or their notions of enjoyment. 
 The present business is to show how the needs as 
 they exhibit themselves can be met until perhaps a 
 better ideal of life can be taught. There can be 
 no doubt that want is a poor uplifter of the human 
 race in general. 
 
 Man's power to labour is taken for granted. And 
 this power to labour is clearly sufficient to supply 
 his needs if his employment can be regular. More- 
 over, if all take their fair share of the labour, it will 
 not be irksome or over-difficult. It must be borne 
 in mind, however, that labour includes all human 
 
322 ECONOMICS AND SOCIALISM 
 
 effort directed to useful occupations. Mere physical 
 labour, differing in relative degree only from that 
 called mental, is not alone labour. It is In truth the 
 most common, and in advanced civilization the least 
 important, although it is useful in its place. The 
 tendency of advancing civilization is ever to trans- 
 form physical labour into skilled and mental labour, 
 leaving the mechanical work to machines. Care is 
 to be taken also to keep wealth clearly distinguished 
 from that which is not wealth in the sense of this 
 science. Particularly must it be kept distinct from 
 human skill, labour, land, and money. Capital, it 
 will be remembered, is wealth regarded as an element 
 of production. 
 
 So much may be considered to have consisted of 
 mere preliminary analysis of the subject. What 
 men should consume, and how they should attain 
 the skill necessary for producing it, are no part of 
 the subject. It is enough to know what the essen- 
 tials for production are, and that, in fact, they exist. 
 As noticed, they consist of land, labour, and pre- 
 viously prepared wealth known as capital. But as 
 soon as wealth is brought to market, however wide 
 the market may be considered to be, the science of 
 economics finds place. Indeed, it was seen in due 
 course that the science must also concern Itself with 
 the influences which Interfere with or encourage the 
 production and distribution of wealth. The laws 
 regulating value and price are proper portions of 
 the Inquiry, and take a prominent place In It. On 
 this point It will be remembered that greater utility 
 or Increased scarcity, producing greater values and 
 hlo-her 'prices, consequently tends to Induce supply. 
 
COLLECTION OF RESULTS 323 
 
 Whilst less utility or decrease in scarcity reduces 
 values, lowers prices, and tends to reduce the supply. 
 There could be no more perfect arrangement than 
 this, no matter how great the wisdom devoted to its 
 invention. Utility, it will be borne in mind, is ascer- 
 tained by the expression of desire. 
 
 These are the natural laws of the market. They 
 govern the value and price of wealth, land, and 
 labour. But wealth may be produced as required. 
 It will, at the same time, be constantly in course of 
 consumption. So that supply and demand rule its 
 price entirely. Speaking generally, the laws of the 
 market govern its price altogether. Land, however, 
 cannot be increased, and its price depends ultimately 
 on the demand for its use as wealth producer and 
 otherwise. But on that subject more must be said. 
 Labour, ultimately, depends in price, to a great 
 extent, on the supply of wealth. Opposite in this 
 respect from land, it increases in value as the supply 
 of wealth increases. This will be seen to harmonize 
 with the fact that increased labour produces increased 
 wealth for the labourer. 
 
 It was stated that under the influence of these 
 natural laws the process of exchange and distribution 
 of products would go on until each had his desires 
 so far satisfied that he preferred to be content with 
 that measure of satisfaction rather than to work 
 more. It was noted, however, that the natural pro- 
 cess was interfered with to the injury of mankind. 
 Governments have endeavoured to prevent the 
 people over which they ruled from trading with 
 other nations. Sometimes they have tried to stop 
 the exporting of wealth, and sometimes to prohibit 
 
324 ECONOMICS AND SOCIALISM 
 
 the importing of it. Both methods appear to be in 
 disregard of the fact that the people would not wish 
 to carry on the trade with foreigners but for their 
 own benefit. The foreigners are as useful to them 
 as they to the foreigners. In every exchange each 
 party gains and neither loses. Each gains what 
 is more useful to him than what he parts with. In 
 this interference with free trade we find the first 
 hindrance to the supply of the human needs and 
 desires which are the subject of the inquiry. 
 
 Not much attention has been given directly to 
 setting forth the advantages of free trade in com- 
 modities. Those advantages have been conclusively 
 demonstrated over and over again. Mr. Henry 
 George's able treatment of the subject may be re- 
 ferred to as a recent instance. But the same con- 
 clusions also followed indirectly from the arguments 
 here offered on the subject generally. The most 
 subtle form of the protectionist error is that of List, 
 which advocates tariffs as a means of establishing 
 new industries. The more obvious objections to 
 this idea are two. First, it gives to the persons 
 who may be in power as rulers the right to choose 
 the employments of the nation instead of leaving it 
 to the people themselves to choose their own employ- 
 ments under the inducement of the rewards offered. 
 Secondly, it accomplishes this by keeping from others 
 the objects of their desire, so as to compel them to 
 offer more to keep persons employed at an other- 
 wise unprofitable employment. The error thus 
 started, however, works itself out like other errors 
 to its fullest possible extent, producing high tariffs 
 all round, and causing great injury. 
 
COLLECTION OF RESULTS 325 
 
 Following the subject of exchange and distribu- 
 tion of wealth, we notice the division of wealth 
 amongst its producers. The share of the owners 
 of land is noticed first. A law is observable with 
 regard to this share amongst persons free to con- 
 tract for their own benefit. In view of the ine- 
 qualities of the value in use of land, the rent will 
 amount to the excess value of the land over the 
 worst which is worth using. In the absence of im- 
 proved powers of production, the proportionate share 
 known as rent rises as worse land must be used. 
 There is in such a case more land above the margin 
 of cultivation, and there is nothing to compensate 
 for the additional cost of producing on worse land. 
 The share of capital and labour taken together is 
 found at the margin of cultivation, and as that falls 
 their relative share falls in proportion to that of 
 rent. Every fresh supply of worse land which the 
 needs of the people require adds to the amount 
 which rent takes of the whole. Though care must 
 be taken to remember that these are relative shares. 
 Improvements in the efficiency of capital and labour 
 may at the same time add still more to the shares 
 of interest and wages. It is only when worse land 
 must be taken because of the unsupplied needs of 
 the people, and when no means of improving pro- 
 duction are found to balance that necessity for using 
 worse land, that rent encroaches. If the increased 
 demand arises from an already better-supplied con- 
 dition of the people, and from their capacity to 
 produce and consume more, the rent rises at the 
 same time as interest and wages. That is to say, 
 the actual shares all increase. This also harmonises 
 
o 
 
 26 ECONOMICS AND SOCIALISM 
 
 with the fact that Increased production is on all 
 hands desirable, though the relative or proportionate 
 share of rent will decrease under such circumstances. 
 In other words, whilst increasing, it will not increase 
 so much as the other shares. 
 
 The consideration of the share devoted to pay- 
 ment for use of capital bears out the same conclu- 
 sions. That share consists of the portion of the 
 benefit it confers, which from its greater or less 
 scarcity labourers will be willing to pay for its use. 
 It is evident that the greater the amount of useful 
 capital there may be in existence, the greater the 
 benefit it will confer. But beyond this it is also 
 true that this greater supply of useful capital, whilst 
 it may from its Increased quantity produce a larger 
 actual share for its owners, will nevertheless produce 
 a smaller relative share for them. This also may 
 be expressed in other words. The share of capital 
 may increase with its increased quantity and the 
 greater benefit it confers, but the increase of benefit 
 to labourers will be still greater on account of the 
 abundant supply of the capital. In proportion to its 
 abundance capital will take a smaller share of the 
 benefits it confers. It must also be noticed that, 
 whilst land tends to be more fully occupied, and to 
 become scarce in the progress and increase of popu- 
 lation of a people, capital In the natural course of 
 events becomes more plentiful. This increase of 
 capital appears capable of more than counterbalanc- 
 ing for productive purposes the decrease in supply 
 of land relatively to demand. The increase of 
 benefit from the greater abundance of capital is in 
 addition to the constantly improving knowledge of 
 
COLLECTION OF RESULTS 327 
 
 mankind. That improving knowledge continually 
 points out better means of increasing the products 
 of the earth by the application of capital and 
 labour. 
 
 Another hindrance has, however, to be noticed 
 to the full enjoyment of the benefits of increasing 
 capital. This is found in the monopoly by some 
 persons of land which they hold without using. 
 The permission granted and secured thus to hold 
 land without taxation, and the imposition of taxes 
 only when the land is used, stands much in the way 
 of the land being made as productive as is possible. 
 The holder of this untaxed land can in many cases 
 impose his own terms on persons desirous of culti- 
 vating or otherwise making use of the land. He 
 frequently requires as part of his terms the handing 
 over to him of capital and improvements put upon 
 the land. This has the effect of preventing the 
 improvements being made, or the capital being 
 created. 
 
 The imposition of taxes by governments has, 
 however, to be noticed. The discussion of this 
 subject leads to the conclusion that a just and 
 natural system of taxation must be based on the 
 value of the land monopolised by each person. 
 That the land must be monopolised for the produc- 
 tion of the wealth is beyond dispute. But govern- 
 ments are territorial. And the obviously proper 
 method of taxation is that in which the taxation is 
 calculated on the value of the monopoly held by 
 each individual of the territory ruled oven This 
 would accomplish two objects at the same time. In 
 the first place, it would equalise the inequalities 
 
o 
 
 28 ECONOMICS AND SOCIALISM 
 
 arising from differences of quality of the land held. 
 In the second place, it would prevent men holding 
 land they did not use. 
 
 Another result may, however, be noticed. It was 
 mentioned that land ultimately depended only on 
 demand for its price. As the supply could not be 
 increased by human effort, human need alone was 
 the creator of its value. In the market supply and 
 demand ruled its price, but outside the market (un- 
 like the case of wealth) there could be no additional 
 supply of it. The taxation of land would meet this 
 difficulty. The government's need for taxes, by 
 compelling every one who held land to pay taxes 
 on it, would induce a supply to the market of land 
 which otherwise would not have been forthcoming. 
 Not only by the rise of price in the market through 
 increased demand would supply be induced, and the 
 price again brought to its normal condition — that, 
 indeed, would not always induce a supply ; but by 
 the demand for taxes the supply would be enforced 
 just as man's inevitable demand for wealth ensured a 
 supply of labour, or of other wealth to exchange for 
 it. This again is fully consistent with, and helpful 
 to, the great object of providing a constant supply 
 of wealth to all the nation and the race. Professor 
 Sidgwick has expressed fear lest the adoption of the 
 policy known as laissez-faire or non-interference by 
 government should have evil effects. A particular 
 possibility referred to by him is that a man might 
 choose to keep his land unused. But the imposition 
 of taxes is nowhere regarded as contrary to the 
 doctrine of non-interference. And if a proper 
 method of taxation is adopted, no man is likely to 
 
COLLECTION OF RESULTS 329 
 
 do much harm in the direction indicated. Nor can 
 this be called with any truth confiscation in the sense 
 in which that word is used. Confiscation would 
 imply that if a man did not choose to pay taxes on 
 a sufficiently high value, he must give up the land 
 on payment for the capital he had put upon it. 
 That is not advocated, though it might possibly 
 be a matter for discussion if the land were being 
 occupied for the first time. Even then it is open to 
 doubt, in view of every one's possible loss by the 
 capital he puts upon land. But, as here suggested, 
 he would, on disturbance, be paid his value of the 
 land as well as a good price for his capital upon 
 it. 
 
 The further discussion of interest on capital need 
 not be noticed again here. The results have just 
 been referred to, and their harmony with the other 
 results commented upon. The causes of the ine- 
 qualities of wages may also be dismissed without 
 much further observation. It will be recollected 
 that those inequalities which must arise by the in- 
 fluence of supply and demand are the natural result 
 of the greater satisfaction of desire which some offer 
 than others. In other words, they are inequalities 
 of reward obtained for like inequalities in the supply 
 of wealth or other object of human desire. 
 
 Another evil interference with the supply of 
 wealth has, however, to be noticed. Mr. Henry 
 George, whilst fully realizing the advantage of free 
 trade in commodities, and whilst also pointing out 
 the proper method of taxation, becomes after that 
 inconsistent. It is quite true that protective tariffs 
 are an evil, and a cause of poverty. It is also 
 
330 ECONOMICS AND SOCIALISM 
 
 true that to permit a man to monopolise land, free 
 from taxation so long as he takes care not to use it, 
 is another evil and a further cause of poverty. But 
 why is it an evil ? How does it cause poverty ? 
 Clearly by hindering the production of wealth. 
 Any other cause which has the same effect will 
 be a similar evil, and in like manner be a source 
 of poverty and want. Even though it be added 
 that the untaxed monopoly of land enables the 
 landowner to take also a laree share of what is 
 produced, it must furthermore be said that the same 
 poverty may be produced by hindering production 
 in the first instance. Now this effect is brought 
 about by the action of combinations of workmen 
 to raise prices by in one-way or another limiting 
 supply. Strikes are one of the methods adopted. 
 The workmen simultaneously decline to supply 
 labour [and create wealth except for higher prices. 
 Frequently they attain their object so far as 
 higher money wages are concerned. It was shown, 
 however, in the discussion which occupied two 
 chapters, that they did not benefit themselves as 
 to real wages by this method. The result was 
 rather the contrary, while others also suffered. 
 
 To meet this method and to reverse its effects, 
 masters adopt the policy of insisting on a simul- 
 taneous reduction of the money wages of their 
 workmen. The resistance to this becomes a 
 further hindrance to the supply of wealth. In 
 the same way also the fixing of a standard price 
 below which the workmen are expected by the 
 combination not to work has the same effect. 
 Other methods also are adopted for the same 
 
COLLECTION OF RESULTS 33 1 
 
 purpose, and with the same results. The evil of 
 this interference is found in its hindering the 
 supply of wealth both directly and by its indirect 
 effects. It is one of the causes of the disorgani- 
 zation of trade — that is, of exchange and distribu- 
 tion. It should be mentioned that before discussing 
 the action of these combinations it was shown that 
 wages were not, as had been thought, merely the 
 amount required for subsistence, nor were they 
 limited by any fixed wages fund, but increased 
 with the increased application of labour. This 
 again is a further confirmation of the previous 
 results. 
 
 The relations of governments to wealth supply 
 were discussed. It was seen that their creating 
 debts by means of which the taxes of succeeding 
 generations were expended in payment of interest 
 for which no benefit was conferred on those genera- 
 tions was an unwarranted and unnecessary evil. 
 When nothing remained of a useful character as 
 the result of the expenditure, there could be no 
 reason for borrowing. Even in cases of the 
 creation of capital which remained for the use of 
 further generations, it was pointed out that fre- 
 quently the supply should be left to private en- 
 terprise. That would be sufficient to induce it, it 
 the demand really existed. If it did not exist, the 
 expenditure was wasted. It was further observed 
 that all unnecessary interference with wealth supply 
 should be avoided by governments. Only the 
 minimum of interference is consistent with the 
 most abundant supply of wealth. 
 
 The influences affecting prices and the supply of 
 
332 ECONOMICS AND SOCIALISM 
 
 wealth were discussed with special reference to the 
 cost of production. It was pointed out that high 
 or low prices could not be commended or con- 
 demned without reference to their causes. High 
 prices arising from abundant supply and demand, 
 and a consequently fuller and ampler national life, 
 could not be regarded as an evil. That would be 
 altogether inconsistent with the object in view. 
 If an abundance of wealth is supplied and con- 
 sumed, and if for that reason labour requires high 
 rewards to induce its application, the economist 
 has no occasion to be dissatisfied. But high prices 
 arising from scarcity and need were referred to as 
 an evil. It was shown that the cost of produc- 
 tion should be kept as low as possible. All ir- 
 regularity of employment, for instance, was spoken 
 of as waste of the national resources. Amongst 
 the causes of this waste may be mentioned all in- 
 terference by governments to determine what kinds 
 of wealth shall be produced by a nation. All im- 
 proper taxation may be included, the most econo- 
 mical being that previously mentioned. In truth, 
 everything which hinders wealth production adds 
 to cost, and is an evil. Only when further cost 
 arises from the already abundant supply of wealth, 
 increased effectiveness of demand, and diminished 
 compulsion to labour, can it be considered that in- 
 creased cost is not an evil. 
 
 A further cause of irregularity and loss as well 
 as of injustice was found in the imperfect systems 
 of coinage and currency obtaining in civilized com- 
 munities. Briefly expressed, the error consists In 
 artificially fixing the price of a monetary substance 
 
COLLECTION OF RESULTS 333 
 
 under the impression that it is the standard. The 
 standard was, however, shown to be a mental mea- 
 sure known as value, and not a visible substance, 
 or a weight of such substance. The means sug- 
 gested for remedying the evil were such as would 
 keep the standard constant, by ensuring that only 
 as much money as was needed should be coined. 
 At the same time, and to help in that purpose, it 
 was shown to be desirable that the monetary sub- 
 stance should be made to find a true market value. 
 
 So far as paper money is concerned perfect free- 
 dom should be left. That does not affect the 
 currency so long as it continues freely convertible. 
 What affects the currency is the metal money which 
 must be had for various purposes, and of which a 
 superabundant supply is occasionally found. It 
 gets into the currency, and cannot be so readily 
 annihilated as paper money and credit. This in- 
 duces the creation of paper money which would 
 not otherwise exist. The result of the lowering 
 of the standard which generally follows from 
 these imperfect arrangements is to raise prices, 
 and make wealth more difficult of access. Besides 
 which it produces the collapses of credit, which 
 cause trade depressions. These also have the same 
 influence in hindering the production of wealth. 
 
 The whole subject is thus rapidly, but completely 
 surveyed. It will have been noticed how persis- 
 tently the supply of wealth has been kept in view 
 in collecting these results. That is the object to 
 be aimed at. Man's need for wealth was the 
 subject, and the supply must be constantly brought 
 to balance it. But while that is the one object, it 
 
334 ECONOMICS AND SOCIALISM 
 
 will be seen that there Is also one law running 
 throughout the whole of the results. From be- 
 ginning to end the importance of permitting the 
 free play of supply and demand perpetually dis- 
 covers itself. In the market and out of it, supply 
 exists for the purpose of balancing demand. What- 
 ever hinders its doing so freely and to the fullest 
 extent is seen to be an evil. This is the case when 
 the particular point is examined as well as in view 
 of the larger aspect of the inquiry. Unrestricted 
 competition is the one means — the only perfect 
 means — of supplying the needs of the race. And 
 the hindrance to competition may arise from the 
 action not only of the government, but of some 
 other organization. It is not enough for govern- 
 ments to abstain from interference if other insti- 
 tutions have the same effect. There must be free 
 trade in all the objects with which the science has 
 to deal. The arrangements must be such as to 
 encourage and secure free trade in wealth, the 
 object desired, free trade in land from which it 
 must be drawn, free trade in labour by which it 
 must be produced, and free trade in money by 
 means of which it must be measured and ex- 
 changed. 
 
 This latter expression does not mean that there 
 must be free coinage of all the monetary substances 
 which any one may bring. It means that if any 
 artificial means be taken to afford a supply of mone- 
 tary substance the arrangements must be such as 
 to secure the full influence of supply and demand. 
 This influence should operate not only on the 
 price of that monetary substance, but also on that 
 
COLLECTION OF RESULTS 335 
 
 of money in all Its forms. The notion that every 
 one may issue money at his will is quite correct, 
 as far as that money bears only the power to 
 circulate which his own credit can give. It is a 
 very different thing when he is permitted to create 
 money which others must perforce accept as money. 
 But the object to be secured in this matter, as in 
 others, is that money shall be subject to the in- 
 fluences of both supply and demand. The theories 
 hitherto accepted have placed it only under the 
 influence of supply, with the result that a demand 
 was created which did not naturally exist. By 
 this means the money has been circulated, the 
 standard depreciated, and collapse and depression 
 have followed. 
 
 The one law is that the influences of supply and 
 demand should be permitted to have free play in 
 all respects. Whilst the object to be secured is 
 kept always in view, — that is to say, the supply of 
 abundance of wealth to all, — this law runs through 
 the whole, and constantly crops out as the inquiry 
 proceeds. In the market, and out of it, the same 
 considerations apply. Prices are affected only 
 through the influence of supply or demand. Arti- 
 ficial arrangements must act through these natural 
 influences, or they fail to have any effect. Unfor- 
 tunately for the advocacy of artificial arrangements, 
 they can only act on supply. If the object in view 
 be once realized, it becomes obviously impossible 
 that artificial contrivances can effect it as well as 
 allowing the natural supply to meet the expressed 
 demand. The very statement that any govern- 
 ment or combination can decide what prices shall 
 
 ytlNIVERsiTT 
 ^^AUFORNlA* 
 
33^ ECONOMICS AND SOCIALISM 
 
 be better than those who need the object to be 
 purchased is absurd on the face of it. Surely 
 every man knows his own requirements better than 
 any one can settle them for him. And if he can 
 better satisfy them in one way than another, he 
 should be permitted to do so. If one can supply 
 his demands better than another, that one should 
 not be hindered. If high prices indicate a need for 
 more men in any grade of employment, the price 
 should be allowed to induce the requisite supply. 
 Possible aspirants to the position should be en- 
 couraged and not prevented from entering it. 
 What is the use of money, the measure of desire, 
 if some government, combination, board of con- 
 ciliation, or other unnatural contrivance is to fix 
 the prices for a whole country or district ? 
 
 The perfect application of the law just noticed 
 as appearing in every department of the inquiry 
 is the natural, the only natural system. Where art 
 was necessary to be noticed, endeavour was made 
 to approximate as nearly as possible to nature. 
 Nature is always more perfect than art. Art is 
 perfect in proportion as it follows and imitates 
 nature. This is not the first time that a natural 
 system has been advocated. The first economists 
 were called Physiocrats, because they advocated a 
 natural system. Bastiat, again, has done so since 
 their day. And the answer has been, forsooth, that 
 matters were not perfect, and therefore a natural 
 system was not the best system possible. We 
 repudiate with scorn the insinuation that a natural 
 system has prevailed these many centuries. Only 
 in the newly opened countries has such a system 
 
COLLECTION OF RESULTS 337 
 
 obtained. The results all have noticed, but they 
 usually gave wrong explanations of the observed 
 facts. With the inventions of civilization, and an 
 equally natural system of using them, mankind 
 might ere this have enjoyed the beginning of a 
 millennium. We are told that free competition has 
 failed to produce the benefits claimed for it in the 
 present century. The reason is but too obvious. 
 It has never been tried. On all hands are contri- 
 vances for restricting competition. And unre- 
 stricted competition is then judged and condemned 
 for the results of its absence. One by one the 
 departments of the subject have been examined. 
 In each separate instance the benefits of a natural 
 system were clearly noticeable side by side with, or 
 by inference from, the evils of artificial interference. 
 Another point to be borne in mind is that 
 throughout the examination of the subject perfect 
 justice has. always been placed in the foreground. 
 It cannot be too clearly insisted, that justice is 
 reached by the exact balancing of rights. To give 
 more than justice is to do injustice by giving less 
 to the other side of the balance. In answer to this 
 the cry is raised by the tamperers that they see in- 
 justice and wish to stop it. But they take the very 
 means to increase it. They see the effects. They 
 cannot understand, or never look for, the cause. 
 And they proceed to do exactly that which magni- 
 fies the effects. An effect must be altered by 
 modifying the cause. Frequently it occurs that to 
 regard only the effects is to entirely fail to influence 
 them for want of reaching the moving cause. The 
 way to steer a coach is to look to the reins, not tO' 
 
 z 
 
33^ ECONOMICS AND SOCIALISM 
 
 handle the wheels. The evil to be remedied in the 
 matter of wealth supply is that the poor have too 
 little, not that the rich have too much. Yet to 
 remedy this evil the plan is on all hands adopted 
 of reducing the supply or hindering it until a certain 
 preconceived notion of utter unimportance has been 
 realized. 
 
 Others say that justice must be subservient to 
 expediency. The disgraceful argument is put forth 
 as if true expediency could be founded on injustice. 
 But the fact is, the expediency referred to is the 
 notion with reo^ard to the fitness of things of those 
 who hold the doctrine. Some contend that all 
 should be equal not in rights, privileges, and oppor- 
 tunities merely, but in all respects. Unfortunately 
 for them, facts are against them. By the providen- 
 tial plan, inscrutable or clear, men and women are 
 unequal in capacities and powers for both enjoyment 
 and labour, as they are in stature and strength. 
 To many, including the present writer, there seems 
 infinite beauty and usefulness in this design. For 
 the capacities and powers vary not only in quantity 
 and degree, but in quality and kind. And in this 
 fact of variety, pervaded as it is by harmony, is 
 found the inconceivable grandeur and beauty of the 
 infinite universe. Whatever views may be held on 
 this point, however, it is certain that men are and 
 ever will be unequal and various in themselves. It 
 would be as easy to ensure that all should be of the 
 same height as that they should be equal in other 
 respects. The value of their efforts must vary. 
 Why one or many should pay to another more than 
 that other's efforts are worth to him or them is past 
 
COLLECTION OF RESULTS 339 
 
 comprehension. It certainly is not justice. Nor 
 is it expediency, in view of the different posi- 
 tions which must be filled in a perfectly organized 
 community. The truest equality is the natural 
 equality. 
 
 But it is hard for human beings to realize that 
 matters can be well managed without their inter- 
 ference. The system here suggested will be 
 declined by many because too simple. The phi- 
 lanthropist often declines natural remedies because 
 they leave so little scope for his efforts. Men love 
 power. Ambitious mortals aspire to rule, and 
 manage all things according to their notions. If 
 the human race could have influenced the earth's 
 course in its orbit, they would before this have pre- 
 sumed to steer in another direction. The experi- 
 ment might have been interesting, but in all pro- 
 bability the results would have been disastrous. 
 
 And yet the earth pursues her course in perfect 
 safety under the influence of two natural forces. 
 All that is required for a similar perfection in the 
 matter of wealth supply is that the two natural 
 forces with which the science of economics has to 
 do be allowed a similar freedom of action. Where 
 artificial arrangements must be made, let them 
 follow the justice of nature. The demand exists, 
 and ever must exist. Men struggle for wealth 
 because it is essential to existence. Let them also 
 compete to supply it, and take care that nothing 
 hinders competition or exempts any from it. In 
 this way the supply and demand would be perfectly 
 balanced. 
 
 Natural justice will secure this competition. All 
 
340 ECONOMICS AND SOCIALISM 
 
 must have wealth. Those who are without It must 
 compete with their labour to supply the needs of 
 others for services. Their need for wealth prevents 
 their shirking their share of labour. Those to 
 whom they sell their services must also compete 
 with their compeers to supply the wealth that all 
 must have. This Is the competition of labourers, 
 both masters and servants. The owners of capital, 
 too, must compete if they would have their capital 
 used. Without its being used, it will not only pro- 
 duce no income, but it will generally deteriorate in 
 usefulness and value. If it is to be of service to its 
 owners, they must use it or lend it to others. In 
 either case they must compete. For the borrowers 
 of wealth, like the purchasers of it, naturally satisfy 
 their desires as easily as they can. And the greater 
 the competition by owners of capital, the more will 
 be the service rendered for the same reward. 
 
 The owners of land, too, must use it or have It 
 used if it is to produce wealth. At first it seems 
 unfortunate that land is capable of being monopo- 
 lised and held idle without loss to the owner. In 
 view of its necessity to wealth production, it appears 
 inevitable that poverty must result because some 
 can avoid competition by laying hold of the land. 
 But a further fact must be considered in the neces- 
 sity for taxation. The consideration indicates inde- 
 pendently that taxes should be based on the value 
 of the land. A fund created by demand alone is 
 available to the community as justly its own. The 
 equitable and natural method of taxation ensures 
 that the land produces wealth because wealth must 
 be paid for the requirements of the community. 
 
COLLECTION OF RESULTS 34 1 
 
 This very need causes a supply of land, a compe- 
 tition to have it used. 
 
 And now the whole circle is complete. Let 
 but the demand at any point rise, and the supply 
 will increase to meet it. If the landowner finds 
 himself master of the situation because the demand 
 has increased, that very demand will prevent his 
 holding the land idle by creating a greater need 
 for taxation. If the capitalist finds he can raise 
 his interest, the labourer will create more capital 
 to compete with him. As the labourer finds him- 
 self better supplied he will demand the more : if 
 he demands without supplying, he will soon dis- 
 cover that prices rise against him, and then he must 
 bring his supply to the proper ratio. Even if the 
 community unduly increase its taxes, it will find the 
 source of its taxation so decreased in value that it is 
 likely to get poorer by asking for more. There is 
 absolutely no need whatever for trade depressions 
 or poverty, as that term is understood. Sickness u^ 
 and old age must come, but even for those who must \ | 
 bear these burdens it is possible to be well provided, f ■: 
 Some trades cannot be carried on in severe weather. | 
 But even In those trades provision might easily be| 
 made, or other employment readily found, were It? 
 not for artificial hindrances to competition. The I 
 unemployed need not exist. Want of employment, J 
 in the ordinary sense, is an unnecessary evil, and Its I 
 creation a foolish and iniquitous proceeding. 
 
 It is true that all times would not be equally busy. ' 
 The earth does not move with such regularity as I 
 that. Its orbit is not a perfect circle. The velocity 
 of Its revolution is not perfectly constant. But no 
 
342 ECONOMICS AND SOCIALISM 
 
 disaster occurs. When one of the controlling forces 
 is slightly increased, the other also increases, and 
 the perfect balance is restored. The nearer ap- 
 proach to the sun, and consequent greater attrac- 
 tion, is balanced by accelerated motion. The same 
 might occur with regard to supply and demand. 
 There is but one further qualification required. 
 Supply and demand are balanced by means of 
 money. Money must remain constant in value for 
 perfectly smooth and regular operations. But that 
 condition is secured in exactly the same way. The 
 arrangements must put the substance used under 
 the influence of both supply and demand. The 
 recurrence of periods of bad trade at intervals of ten 
 years, and their identification with sun spots, should 
 drop out of discussion. Trade should be good, and 
 perhaps better, but never bad. 
 
 It is a common thinof for those who advocate 
 encouragements to trade and disapprove of inter- 
 ference with it to be denounced as friends of the 
 capitalist. The cry against them is that good trade 
 with them means capitalists' profits. Now if the 
 mass of the people are to be kept in poverty and 
 semi-starvation, and some to die outright from want, 
 lest a few of the more energetic should make for- 
 tunes, then the science had better be left alone. All 
 the books previously written on it should be burnt 
 by the common hangman, and future study of the 
 subject forbidden. But it would be w^ell also to 
 forbid talking and writing on the subject without 
 study. The human beast should be written down 
 once for all as an ill-disposed brute who deserved 
 all his misfortunes and more. Good trade does not 
 
COLLECTION OF RESULTS 343 
 
 benefit capitalists only. Nor does it benefit only 
 master labourers, who are the people really meant 
 by those who thus talk of capitalists. Its benefits 
 are perfectly greneral. And whilst it affords oppor- 
 tunity for a greater number to provide themselves 
 competencies, it does not tend to the great in- 
 equalities of fortune which obtain under restricted 
 competition. It is the hindering of wealth produc- 
 tion which results in overgrown fortunes and waste- 
 ful luxury side by side with want and starvation. 
 
 Nor is it correct, as some have imagined, that 
 hindrances to competition in one respect or by one 
 class can be balanced by restricting competition in 
 another. There can be no balancing of errors in 
 this matter. All the errors are on the same side. 
 Demand remains untouched by all the contrivances 
 yet invented, except so far as it is influenced by 
 supply. And all the artificial influences on supply 
 are to restrict it. Professor F. A. Walker found 
 good in trade combinations because in his view they 
 increased competition. But the fact is, they diminish 
 it. He imagined that without these combinations 
 the workmen would not be sufficiently alive to their 
 own interests. But the combinations, when they 
 attempt to raise wages, do it by requiring or en- 
 couraging their members to abstain from working 
 except at a higher price than that offered. The 
 price offered may be one which, for their satisfac- 
 tion, they would be willing to accept in preference 
 to stopping altogether. But they are persuaded 
 that to stop their competition will enable all to get 
 better wages. All the contrivances of which 
 Socialism is the extreme form of expression re- 
 
344 ECONOMICS AND SOCIALISM 
 
 quire the individual to obey the will and seek the 
 benefit of the community. They are not recom- 
 mended to him as a means of benefitinof the com- 
 munity, but of benefiting himself by declining to 
 compete with others. Whatever competition means, 
 such a hindrance is absurd. 
 
 The demand for wealth is the one side of the 
 balance. Its supply is the other side, and all the 
 errors consist in hindering that supply. The hin- 
 drances cannot balance each other. The abolition of 
 any one of them is a step towards the desired end. 
 Nothing has here been said, or will be said, against 
 trade combinations so far as they act as friendly 
 societies or encourage their members to get the best 
 wages they can. Wherever they can get the best 
 wages, that is the place where they are most needed. 
 By all means they should be informed of it, and be 
 encouraged to go to it. The mischief is that they 
 are gathered into a combination not to work except 
 at certain specified prices. And a sentiment has 
 grown up that it is an injury to their fellows if they 
 do not refrain from working, and thus leave more 
 work for others. 
 
 One would think that the great thing to be de- 
 sired by every man was not wealth, but work ; not 
 satisfaction, but want. The secret, however, is that 
 they have confused wealth and money together, and 
 are hankering after money when they require wealth. 
 This has been the cause of all the errors. It is 
 seen in the desire expressed for the imposition of 
 taxes to keep wealth out of the country, so that 
 higher prices may be had. And the higher prices 
 Avhich would, in fact, keep a nation out of the 
 
COLLECTION OF RESULTS 345 
 
 markets are desired as a means of increasing trade. 
 So far as it is not the result of interested influence, 
 the same error is seen in the arguments against the 
 proper principle of taxation. The fear is that it 
 will reduce the value of land. Now the wealth of a 
 country is not greater because of its greater value 
 in exchange. Value is the combination of utility 
 and limitation of supply. Scarcity is one of its 
 elements, and it is obviously absurd to increase 
 scarcity by way of making a country richer. A 
 nation becomes more wealthy by increasing the 
 sum of its utilities — by satisfying the demand, not 
 diminishing the supply. The same error is seen in 
 combinations of workmen not to produce wealth by 
 adding to utilities, but to raise values by increasing 
 scarcity. And the error is very clearly seen in the 
 cry for more money, which is the chief request 
 generally made on the currency question. Indeed, 
 it is very remarkable how the craving seems always 
 for something which is simply the reverse of what 
 would render benefit. Socialism certainly finds the 
 strength of its influence in the economic disease of 
 the community. But it is the cry of pain and the 
 expression of desire for what will increase the dis- 
 ease, and not the description of a remedy. 
 
 One other fact may be mentioned as proved by 
 the examination of the subject, and for the present 
 it may be regarded in its purely selfish aspect For 
 the mass of the nation or of the human race there 
 can be no class interests and no national interests 
 antagonistic to the interests of the race. The wel- 
 fare of each is the most perfect welfare of all. And 
 the welfare of each is best secured by conditions 
 
34^ ECONOMICS AND SOCIALISM 
 
 which leave him and all others to satisfy their 
 desires in the way they deem best. One nation 
 cannot be made rich by seeking the poverty of 
 another. It is better for both nations to allow the 
 individuals of both to s^row as rich as free exchanofe 
 can make them. On the other hand, no nation need 
 be poor because another nation has bad economic 
 institutions. It might be that trade with the other 
 nation would be beneficial did they not prevent it 
 by tariffs. But high tariffs, by raising prices, usually 
 allow free trade nations to undersell the people pro- 
 tected even in their own country and in spite of the 
 tariff. And certainly free trade gives an advantage 
 in the open markets. Besides which, every country 
 up to the present might, if necessary, find enough 
 subsistence for the nation inhabiting it. The hin- 
 drance is that some are kept by restriction of com- 
 petition from the employment where they would be 
 most useful. 
 
 Nor can the mass of the nation benefit them- 
 selves by separating themselves into a class of poor 
 people. They had better leave every individual 
 amongst them who is able to do so to grow rich, 
 and thus to enter the classes where he can render 
 service to themselves by competing against the 
 members of those classes. Even the few who form 
 the classes cannot benefit themselves in the ao^orre- 
 gate quantity of wealth by hindering its production. 
 They can only keep the mass of the nation more 
 nearly in a condition of subjection and slavery. And 
 if they desire that, there can be no better plan of 
 obtaining it than by means of Socialism. For that 
 of necessity must rest on the personal subjection of 
 
COLLECTION OF RESULTS 347 
 
 the Individual to the community as represented by 
 the government. The government In its turn must 
 in actual exercise consist of visible persons. 
 
 For the well-being of the nation, however, a truth 
 expressed In some words of Adam Smith's may 
 well be applied In this connection. But the words 
 of the great Scotchman who Is so prominent a 
 figure in the science must be extended In their 
 application. They must be regarded as Including 
 not only statesmen, but all leaders of men. They 
 must apply not only to a man's capital, but to all his 
 means of wealth production, to his method of con- 
 ducting his business, the hours of his labour, and the 
 amount he shall accept as recompense for it. He 
 says : — 
 
 *' The statesman who should attempt to direct 
 private people in what manner they should employ 
 their capitals would not only load himself with a 
 most unnecessary attention, but assume an authority 
 which would safely be trusted, not only to no single 
 person, but to no council or senate whatever, and 
 which would nowhere be so dangerous as In the 
 hands of a man who had folly and presumption 
 enough to fancy himself fit to exercise It." 
 
CHAPTER XIX. 
 
 APPLICATION. 
 
 The examination of the subject is complete, and 
 the results have been collected. They remain to be 
 applied. The science has little to suggest in the 
 way of an art of government. The most perfect 
 conditions for satisfying human needs are indicated 
 to be the full and free play of supply and demand. 
 In so far as a government must actively interfere in 
 the matter of the production and distribution of 
 wealth it will be as regards taxation and currency. 
 In those two departments the science indicates that 
 art must imitate nature. The same influence of 
 supply and demand must, as far as possible, be 
 secured in those departments as in others. Un- 
 restricted competition is that to which the science 
 points as the most perfect condition. As much as 
 possible of nature and as little as possible of art is 
 the truest art of government for ensuring a wealthy 
 nation. Any active interference beyond that just 
 indicated must be justified by some other considera- 
 tions. For it cannot be justified by the truths ot 
 economics or the necessity for a supply of wealth. 
 Free and unrestricted competition is the only means 
 of increasing wages, raising the standard of comfort, 
 avoiding trade depressions, and diminishing national 
 
 348 
 
(xtniversity) 
 applicationX.. QALiVonH\ft^^9 
 
 poverty. Whatever restricts or hinders that com- 
 petition will be injurious to the extent of the restric- 
 tion or hindrance. Any political conditions which 
 cause poverty will have that effect simply because 
 they prevent free competition. What those who 
 wish to benefit their fellows may do for them, and 
 even what help the state may render, is matter for a 
 different inquiry. But there is one thing they can- 
 not do without causing injury, and from which the 
 state must by all means refrain. They must not 
 interfere with competition, or hinder the cheapest 
 and most abundant supply of wealth. 
 
 The application of the science to the art of 
 government is soon accomplished. Even with re- 
 gard to borrowing and finance generally, all that is 
 necessary is to apply the same rules to a nation as 
 would be applied to an individual. Borrowing for 
 the purchase or preparation of capital which will be 
 an aid to wealth production and a source of revenue 
 is justifiable. But borrowing for immediate con- 
 sumption Is only justifiable in those cases In which 
 it might be warranted in the case of an individual. 
 That could only be a case of a temporary loan. 
 And a nation, like an Individual, becomes richer by 
 paying off its debts. 
 
 But besides the application of the science to the 
 art of government another application must be 
 made. If the conclusions are true, they should 
 explain all the facts with which the science has to 
 do. Trade depressions are entirely matters for 
 explanation by this means. Poverty, so far as it Is 
 the result of the conditions of society, and not of 
 the Idleness, extravagance or vice of the individual, 
 
350 ECONOMICS AND SOCIALISM 
 
 must also be explained, or the science Is still not 
 understood. That the conclusions are true the 
 writer has not the slightest doubt. If some detail 
 has not been properly filled in, he will still hold to 
 the main conclusions. Those who dispute them 
 must find the errors and flaws in the reasoning as 
 he has done with regard to the doctrines he has 
 attempted to refute. He is prepared to maintain 
 those conclusions, and undertakes to find and point 
 out errors in the reasoning on which any opposing 
 conclusions can be based. And the theories here 
 set out are put forth as sufficient to explain all the 
 problems of trade depression and poverty if but the 
 facts of the case be known. 
 
 It is unnecessary to do more than take Instances 
 to which the conclusions may be applied. Other 
 instances may be taken at will, and the science can 
 only be expected to explain economic problems. 
 Drunkenness, vice, crime, and Idleness open out 
 other inquiries, though good economic conditions 
 are capable of a general uplifting. 
 
 Probably no better instance could be found for 
 examination than the economic history of England 
 during the nineteenth century. The eighteenth 
 century saw great improvements in the machinery 
 by which natural forces were made to assist man- 
 kind in wealth production. Their adoption resulted 
 in the rise and growth of the factory system. In 
 connection with that system there can be no deny- 
 ing that much cruelty was practised In the early 
 part of the present century. Children and young 
 persons particularly were the victims of this cruelty. 
 It was no necessary concomitant of the better 
 
APPLICATION 351 
 
 means of production that women and children 
 should be driven to greater toil. Still less was it 
 essential that they should, by means of the lash and 
 otherwise, be treated as slaves. But, with the con- 
 fusion of cause and effect which has distinguished 
 the notions of so many well-meaning reformers, the 
 factory system has been blamed for the evils by 
 which it was accompanied. The invention of 
 labour-saving appliances has been made responsible 
 for the toilsome bondag-e of the weaker labourers. 
 Freedom of competition has been spoken of as 
 accountable for the white slavery which social re- 
 formers with no great love for political economy 
 themselves strenuously maintain to have been actual 
 slavery. 
 
 It is needless to say that slavery is not an insti- 
 tution approved of by the economist. It is the 
 very opposite to unrestricted competition, and is 
 more in accordance with the policy of restriction. 
 With regard to the boys and girls who were the 
 victims of the oppression now under discussion, it 
 has already been shown that state interference 
 would have been justifiable without clashing with 
 true economics. But the ironical fact is that the 
 cruelty was first made possible by the community, 
 and was not the work of individuals as opposed to 
 the community. The children were at first taken 
 from the workhouses. On them the greatest cruelty 
 seems to have been practised. But even after that 
 was forbidden, and other poor children were taken 
 in their places, free competition was not the bane. 
 Competition by persons who are not free cannot be 
 called free competition. There was no injurious 
 
352 ECONOMICS AND SOCIALISM 
 
 over-production arising from free contract when the 
 producers had to be driven to and from their labours, 
 and kept hard at work by chains and beating. 
 Even if it be argued that the poverty of the 
 parents drove them to permit their children to be 
 thus ill-treated, it still remains untrue that comoeti- 
 tion caused that poverty. What did cause the 
 poverty must be pointed out. 
 
 The beginning of the century now drawing to its 
 close found England at war with France. The 
 fighting was done entirely abroad. Napoleon's 
 threatened invasion never took place. But the 
 wealth had to be produced at home. A great num- 
 ber of men were withdrawn from wealth production 
 for fighting purposes. Large sums of money were 
 being sent abroad to carry on the campaign. The 
 importation of provisions was hindered by the war. 
 Corn had to be o^rowm on v/orse and worse land. 
 Prices were high, and it was the high prices which 
 caused the manufacturers to ask for the children 
 whom they received from the workhouses. None 
 of this could be laid at the door of free competi- 
 tion. The high prices, not the low prices w^hich 
 competition causes, were the evil. The truth was 
 that the wretched children were carrying on a great 
 Continental war. They were at least producing the 
 wealth for it, and it was England's wealth which 
 enabled her to hold out in that struggle. The 
 hollow mockery of the pretended borrowing has 
 been noticed. The wealth was being produced in 
 the factories, and by means of it the war proceeded. 
 The choice was between this wealth production and 
 starvation. Even surrender would have meant 
 
APPLICATION 353 
 
 despotism after the war became one of mere con- 
 quest. 
 
 Meantime, however, economic conditions were 
 not perfect. It was enough that such a war had to 
 be carried on. And only by means of competition 
 could it have been accomplished so well. But 
 economic science was badly understood, and still 
 more badly acted upon. To avoid starvation worse 
 land must be cultivated and the share of rent con- 
 sequently increased. The landowners flourished 
 at the expense of the country. The famine prices 
 gave also large profits to those who had capital. 
 The nation was too heavily laden to create fresh 
 capital to compete with it. The government bor- 
 rowed from moneyed people, sent the money out 
 to raise prices still more, and left the nation in 
 debt for having defended the country — for the 
 benefit chiefly of landed and propertied people. If 
 it could be thought that they realized what they did, 
 no words could be too strong, even in such a book 
 as this, to express horror and disgust at the pro- 
 ceeding. 
 
 In the first place, therefore, the misfortunes of the 
 nation arose, not from competition to supply, but 
 from exceptionally great need and imperfect compe- 
 tition. But the war came to an end. Even before 
 it actually concluded the landlords were in fear for 
 their rents. The political power was in their hands. 
 The importation of corn must reduce the poverty of 
 the masses, and lower the rents of the landed aris- 
 tocracy and gentry. Corn must therefore be kept 
 out of the country. The first of the economic evils 
 which has clearly emerged above others during the 
 
 A A 
 
354 ECONOMICS AND SOCIALISM 
 
 century Is found in this interference with free trade 
 in commodities. At the very beginning of the cen- 
 tury several evils applied. In addition to the war 
 and the expenditure of borrowed money there was 
 the absence of a proper system of taxation. The 
 system adopted permitted the landowners to escape 
 their share of the extraordinary effort, and even to 
 gain by it. Inconvertible paper money was issued, 
 which was another evil. And trade combinations 
 were only less injurious ^because other evils were 
 greater. 
 
 The corn laws, which form the most important 
 part of the protection of the time, then became dis- 
 tinguishable as the chief evil. They were not the 
 only evil, but they stood out prominently. Perhaps 
 England could have produced all the corn necessary 
 for the maintenance of the nation. But the mis- 
 chief of interfering with competition is not that it 
 absolutely stops production. The wealth might be 
 produced if the persons capable of producing it 
 could be persuaded that they should go on with it, 
 regardless of the profits or absence of profits. But 
 the strong men decline this, and naturally take the 
 best places they can get. It is useless to preach 
 that they ought to be more enterprising. Men are 
 enterprising for rew^ard. And the way to make 
 them enterprising is to allow such free play as will 
 secure them such a reward as is likely to induce 
 their efforts. Failing that, they will fall back on an 
 easier if less ambitious mode of obtaining a liveli- 
 hood. If by that means others are driven out of 
 employment and suffer poverty, it is not the fault of 
 those who might have employed them had an ade- 
 
APPLICATION 355 
 
 quate reward been possible. It is the fault of the 
 restriction which hindered them choosing what 
 would naturally have been a more profitable employ- 
 ment. In such a case the weaker ones who are 
 Incompetent to take the position the strong have 
 declined to take can but stare at each other in blank 
 despair. Their cry should be addressed not to the 
 strong to give them work, but to the organisation 
 establishing the restriction to set competition free. 
 
 This evil continued until the middle of the cen- 
 tury. Other evils also remained. An unjust poor 
 law still survived. Trade combinations were not 
 powerless for mischief But the greatest curse of 
 the period was the hindrance to free trade in com- 
 modities. 
 
 After this another evil came to the front. The 
 system of taxation still left much to be desired. 
 But free trade in commodities alone was a great 
 boon gained. The greater supply of wealth should 
 have induced a further demand amongst the mass 
 of the nation. The poverty resulting from the re- 
 striction of competition should have been followed 
 by a great demand for those kinds of capital which 
 were beneficial to the commonest class of labourers. 
 Better houses and clothing should have been in 
 great demand. The interest on such capital of the 
 kinds necessary for this purpose as had already 
 been prepared should have been very high. Its 
 price should have so increased as to induce a supply 
 of further capital, with a great demand for labour 
 and an increase of wages. The increased amount 
 of money required for wages should have caused 
 the discount rate to rise comparatively very high, 
 
35^ ECONOMICS AND SOCIALISM 
 
 corresponding in this respect with the increased 
 interest on capital. This would have caused the 
 manufacturers and other employers of labour to 
 have increased their stock of ready money, and 
 would also have given a stimulus to the saving of 
 wage-earners in the narrower sense. 
 
 Instead of this, however, it so happened that 
 there were such discoveries of gold in Australia and 
 California that the quantity available was greatly 
 increased. As this was all admitted into the 
 currency, the discount rate generally remained 
 comparatively low. The manufacturers and others, 
 therefore, to whom greater profits had now become 
 possible, found that they could so easily obtain 
 money for their wages that they invested their 
 surplus profits in other ways. So far as there was 
 a demand for capital as opposed to land the price 
 would accordingly be affected. But, with the dis- 
 count rate low, incomes from other kinds of 
 property than money tended to become low in 
 proportion to value. Or rather the value tended to 
 become high in proportion to income, on account 
 of the greater quantity of money available for the 
 purpose of purchasing. The result was that prices 
 of property rose. Land particularly greatly ad- 
 vanced in price from the middle of the century to a 
 little after 1870. Prices rose all round, and much 
 of what should have gone in increased wealth went 
 in increased prices. By these effects owners of 
 property, and particularly of land, were the chief 
 gainers. What the wage-payers should have de- 
 voted to the fund out of which they individually 
 must pay their wages went to buy property. In- 
 
APPLICATION 357 
 
 Stead of wealth being kept low in price by a con- 
 tinual supply to meet the demand, property greatly 
 advanced in price by the depreciation of the 
 standard. This Is an Instance of the effects of the 
 bad system of currency which was noticed. 
 
 It has been contended that there was no con- 
 siderable depreciation of gold during this period. 
 By this Is meant that the standard was not greatly 
 lowered, for this accords with the ideas as to what 
 the standard is, of those who put forth the conten- 
 tion. But there can be no denying that land 
 greatly increased in value during the period. Yet 
 most land should rather have fallen in value during 
 that time. Wealth also, instead of bearing about 
 the same ratio to money as in say 1850, should 
 have become much more abundant and cheap. If^ 
 in view of all this, however, prices of wealth were 
 somewhat higher, and the value of land greatly in- 
 creased, it could only be that the standard had de- 
 preciated. Professor Jevons showed that it did so. 
 
 There was, however, an end to the operation of 
 tliat cause of poverty. And then another evil came 
 to the front. It was not by any means new to 
 experience. It had existed for hundreds of years, 
 even in the form assumed In recent times. And 
 the ancient guilds were, In some aspects, nearly 
 related to it. But it now for the first time came 
 quite to the front. The laws forbidding trade 
 combinations to raise prices by causing scarcity had 
 been repealed. No argument will be offered 
 against the wisdom of that repeal. The very 
 existence of those laws appeared to the minds of 
 workmen to prove that the combinations were a 
 
358 ECONOMICS AND SOCIALISM 
 
 help to them as against their political superiors who 
 made the laws. The reason why the combinations 
 should not exist was not that they hindered the 
 masses labouring for the satisfaction of the classes. 
 The evil was that they injured the masses them- 
 selves. This is still the argument, and the proper 
 policy is not to make laws against the combinations, 
 but to show the members their futility. While, 
 however, the laws against combination had been 
 repealed, the injury to the combiners had not been 
 realized. 
 
 Political power had passed into the hands of the 
 masses to a much greater extent than previously. 
 They had to some extent emerged from poverty. 
 But ignorance still remained. For a long time they 
 had been oppressed by the classes above them. 
 After that they had been oppressed by events for 
 which no one was responsible. For though the 
 system of coinage was not good, it had not been 
 wilfully made bad. And no human oppressor could 
 be blamed for the discovery of great quantities of 
 gold. 
 
 But now the masses began to oppress themselves. 
 In their ignorance of economic causes and effects, 
 and thinking to benefit themselves, they combined 
 as never before to raise their money wages. 
 Shortly after 1870, when prices had reached their 
 highest point, the coal-miners especially made them- 
 selves prominent in this respect. The demand for 
 coal for manufacturing and other purposes enabled 
 them to obtain these higher prices. The addition 
 was simultaneously made to the money wages of 
 the miners of all districts. The price of coal ad- 
 
APPLICATION 359 
 
 vanced to an unprecedented extent. The strikes 
 and high prices produced a coal famine, which was 
 a source of suffering to many. But for the time the 
 miners seemed to obtain great advantages by the 
 combination. Even those not in the combination, 
 but connected with them in colHery work, obtained 
 higher prices. Very quickly, however, the inevi- 
 table result was produced. Trade fell off. Poverty 
 and depression were felt on all hands. The miners 
 fully shared the economic misfortunes of the 
 country. 
 
 But the trades union sentiment continued to 
 grow. It had as a recommendation that its direct 
 aim was to help those who were certainly the 
 poorer classes. In an age of benevolent intentions 
 that was enough to obtain support for it, regardless 
 of the question to what extent the method adopted 
 would accomplish the aim. With the increased 
 political power of the masses, few cared to attack 
 their cherished institutions. On all hands were 
 those who, with the best possible motive, were 
 willing to support them, even in face of opposition. 
 Still more was it likely that they would help them 
 forward in view of the popularity of the institu- 
 tions. But a good motive could not cure a bad 
 method. 
 
 The trade depression continued, at any rate, 
 comparatively speaking, until about 1888. By that 
 time money had become very plentiful. The 
 Government found they could reduce the interest on 
 the national debt. This was a benefit not so much 
 in itself as in the effect it had on loanable capital 
 and money generally. Money became easier to 
 
360 ECONOMICS AND SOCIALISM 
 
 borrow. For a time, at least, there was compara- 
 tively abundant creation of capital. Besides this, 
 the Government also decided to spend some 
 millions on the improvement of the navy. The 
 effect of this was to create a demand for the labour 
 and material objects required for the purpose. No 
 doubt the mass of the nation would have been more 
 greatly benefited by the production of food, cloth- 
 ing, and houses for their own consumption. But 
 the demand for labour and the higher prices ac- 
 corded with the sentiments of the time. The 
 higher prices induced speculation, besides leading 
 the people to think that now they were getting 
 better wages, and might work. Their working 
 naturally produced to some extent the better real 
 wages for them. 
 
 But the trade which was not altogether healthy 
 (that is to say, it was partly speculative) was quickly 
 hindered again. The coal-miners, who are remark- 
 ably cohesive and responsive to the will of the 
 combination as expressed by that of its leaders, 
 obtained large additions to their money wages. 
 This was not all, however. With constantly increas- 
 ing political power, and conditions still being bettered 
 by improvements in the methods of production, the 
 feeling in favour of combinations of workmen had 
 grown apace. They might combine, and wealth 
 still continue to be produced. In a sense they 
 could afford the waste. On all hands, and in trades 
 never before combined, trades unions were estab- 
 lished. The artificial raising of prices naturally 
 caused a falling off of demand. The fact that less 
 wealth was produced affected the demand for one 
 
APPLICATION 361 
 
 kind through the supply of another. The pros- 
 perity decHned as quickly as it had arisen. Coal 
 was a staple commodity, necessary not only for 
 export, but also for the manufactures of the country. 
 It fell in price to such an extent that a succession 
 of contests was induced by the attempts of masters 
 to obtain some reduction of the prices previously 
 added. In 1892 a great lock-out took place in the 
 Northumberland and Durham coalfield. Only 
 after a long struggle and a great hindrance of 
 wealth production was that settled. In 1893 a still 
 more considerable stoppage occurred in the more 
 midland counties, known as the JFederatlon District. 
 The numbers affected by It were still larger, and It 
 continued for sixteen weeks, before a settlement 
 was arrived at by means of government conciliation. 
 After so protracted a stoppage of supply, it was 
 only to be expected that for a short time at least 
 the old prices could be given, although 40 per cent, 
 above those of 1888. The settlement was, in fact, 
 made on that basis as a temporary settlement : with 
 an arrangement for the establishment of a Board of 
 Conciliation to further consider the question. 
 
 The disorganisation of trade was such that in 
 some districts the miners themselves appear to have 
 suffered as much in the following year from the want 
 of work and wages, as during the actual stoppage. 
 The general depression was naturally more keenly 
 felt afterwards than at the time. The reduction of 
 10 per cent, from the money wages of the miners 
 did little to Induce further demand. This reduc- 
 tion was in 1894. In that year, Scotland was the 
 scene of a further struggle between coal - owners 
 
o 
 
 62 ECONOMICS AND SOCIALISM 
 
 and miners. The depression and poverty brought 
 about by these various interferences with trade, 
 dating back to 1888, still continue at the time of 
 writing. But the fixing of wages by combination 
 instead of by competition, which is the root of the 
 evil, apparently remains unquestioned. 
 
 No one seems to consider that combinations 
 should cease to come between, and attempt to fix 
 prices for, buyers and sellers of labour. The utmost 
 that seems to be thought is that those who repre- 
 sent these combinations should be wise and 
 moderate in their demands. Indeed, the spirit of 
 interference between buyers and sellers of labour is 
 causing the growth of the sentiment in favour of 
 interfering between buyers and sellers of commo- 
 dities. The advantages of free trade are being 
 questioned, and protection advocated by a larger 
 number than at one time would have been thought 
 possible in England. It need hardly be said that 
 as long as prosperity depends on the capacity and 
 prudence of an individual or board of individuals 
 to fix prices, and manage the business of others, 
 trade depression and poverty will continue to exist. 
 
 Such, roughly, Is the explanation of the economic 
 history of England from the beginning of the nine- 
 teenth century to about the middle of the last 
 decade. On one point England is ahead of other 
 nations : that is in respect of free trade in commodi- 
 ties. But much remains to be done before the 
 economic conditions are perfect. The first thing 
 to be secured is free trade in labour. Improper 
 taxation is an evil, but its amount can be estimated 
 and allowed for. The loss of a strike is beyond 
 
APPLICATION ^6 
 
 O^O 
 
 calculation beforehand. Besides which there might 
 be considerable cause of complaint if the govern- 
 ment were to commence the reform of taxation at 
 a time of depression resulting from other causes. 
 For at such a time the prices could not easily so 
 adjust themselves as to prevent absolute loss to 
 those who, under the new system, must bear the 
 burden of taxation. 
 
 As soon, however, as the nation has to some 
 extent put itself to work steadily, a proper system 
 of taxation ought in justice to be adopted. It will 
 become all the more necessary, and on the other 
 hand it can be applied without distress and loss by 
 disorganisation. The measure should, for several 
 reasons, be an imperial one, and not, as sometimes 
 advocated, merely a power to local authorities to 
 tax land in aid of local rates. 
 
 A better system of coinage might, perhaps without 
 injury, be adopted immediately. But in justice to 
 the holders of stocks of uncoined gold, and perhaps 
 to avoid increasing the very evil to be remedied, 
 some revival of prosperity might be awaited, rather 
 than commence a new system at a time when there 
 is so great a surplus of metal money as at present. 
 On no account should bimetallism be adopted. As 
 for' the increased use of silver, that is not required 
 for monetary purposes. It should be secured by a 
 revival of prosperity, and the more extensive use 
 of silver as a commodity. Nor is there any need 
 to make any arrangements with other nations. 
 Though of course a full discussion between the 
 ablest financiers of all the civilized nations can do 
 no injury, and should produce goo^^iiVe Tjb^^V^^ 
 
 •aNIVERsiTT 
 
3^4 ECONOMICS AND SOCIALISM 
 
 The application of the conclusions previously set 
 out to the conditions of other nations cannot here 
 be undertaken at any great length. Nor does the 
 writer pretend to be in possession of all the facts 
 necessary for such an application. A few of the 
 more obvious facts and their explanations may, how- 
 ever, be referred to. 
 
 The United States of America furnish a very 
 good instance of the evil of interference with free 
 trade in commodities. Few countries in recent 
 years have carried out protectionist doctrines to 
 such an extent. With such a country, and so able 
 a nation, nothing but bad economic institutions could 
 have produced anything like general poverty. But 
 protection is not the only evil. The country is so 
 much more like a continent — a rich continent — than 
 a country, and its population proportionately so 
 small, that free trade between the different states 
 would in itself be sufficient to supply abundance 
 of wealth for all the needs of the nation. But the 
 taxation of Imports has produced so great a revenue 
 that the money has been squandered, merely to get 
 rid of It. The system of taxation has permitted 
 land to be held unused, or at high rents. Protec- 
 tion has allowed the formation of great rings and 
 trusts. The workmen, Instead of establishing con- 
 cerns of their own to compete with the great 
 capitalists, have made matters worse by spending 
 their money in combinations on a tremendous scale, 
 to still further hinder competition. In addition to 
 all these evils, the owners of silver mines have been 
 favoured at the expense of the nation by the 
 purchase of a great quantity of silver not wanted 
 
APPLICATION ^,6 
 
 for money purposes. It has practically been Intro- 
 duction into the currency. It is quite enough to 
 produce poverty even in such a nation and such a 
 country. 
 
 Australia and New Zealand are perhaps the great 
 home of trade combinations. The hindrance to free 
 trade in labour has for the most part been accom- 
 panied by the cognate hindrance to free trade in 
 commodities. The natural outcome of all this is 
 socialism. That also is not wanting. New Zea- 
 land some time ago adopted Mr. George's system 
 of taxation. Some good was, v/ithout doubt, accom- 
 plished by it, but one reform is not sufficient when 
 several different evils exist, requiring different 
 remedies. The adoption of a good system of taxa- 
 tion will not abolish poverty if the competition 
 of labourers is at the same time restricted or 
 hindered. The mischief of socialism in New 
 Zealand is enough to counterbalance the benefits 
 of land taxation. The trade depressions and 
 poverty, with the accompanying great financial 
 disasters of Australia, find ample explanation in its 
 trades unionism. In addition, however, protection, 
 and reckless borrowing for works which govern- 
 ment should not even have undertaken, have helped 
 to the same result. 
 
 India has greatly suffered from the exactions of 
 native princes in the past, and England's occupation 
 has made litde Improvement in this respect. The 
 borrowing of the government is an instance of 
 further evil. Perhaps, above all, the depreciation of 
 the currency, — not by debasing the coinage with 
 light metal, but by admitting free coinage of the 
 
366 ECONOMICS AND SOCIALISM 
 
 abundant supplies of silver, — has caused additional 
 mischief. 
 
 In France and other European countries protec- 
 tion is the chief evil. The interference with free 
 trade in commodities is general throughout Europe. 
 Where, as in Russia, there is want of political free- 
 dom^ this can hardly be laid upon the people them- 
 selves. But even Russia might be greatly benefited 
 by a greater freedom of trade. In Germany and, 
 indeed, in most other countries on the continent of 
 Europe, socialism has a large following. Nor are 
 trade combinations absent or lacking in influence in 
 most of them. It may be stated generally that the 
 very existence of a Socialist party, or group, or 
 of a party calling itself a labour party, Is sufficient 
 indication of the existence of restrictions and eco- 
 nomic evils. 
 
 The subject need not be further pursued. It is 
 enough to have taken a few instances for the appli- 
 cation of the theories put forward for the explana- 
 tion of economic evils. These evils include all trade 
 depressions, and poverty resulting from such trade 
 depressions. Wherever there are men desiring em- 
 ployment, and unable to find it, a student of the 
 science of political economy should be able to 
 explain the reason. If a nation suffers poverty 
 because the people are disinclined for work when It 
 is offered to them, no further explanation is required. 
 The rise and fall of nations is hardly a matter for 
 discussion here. But bad economic institutions have, 
 in most cases, much to do with the downfall of em- 
 pires. The study of this question cannot be unin- 
 teresting to those who will pursue it. 
 
APPLICATION 367 
 
 It may be expedient, In view of the foregoing 
 application of results, to make some remarks on the 
 subject of the dynamics of the science. It is difficult 
 to reconcile, or even understand, the meanings 
 attached to the word dynamics by those who have 
 used it in this connection. Possibly Professor 
 Jevons meant by the statics of the science those 
 influences which related only to the market, and 
 which he discussed by reference to a single point 
 of time. By dynamics he would then mean the 
 ulterior influences outside the market, which have 
 been referred to in the chapter on cost of produc- 
 tion. 
 
 Mr. Georofe means somethlnQf different. All these 
 influences he would Include as the statics. They 
 are the laws relating to the production and distribu- 
 tion. His problem is not the market, but poverty. 
 He supposes a tendency to poverty. He seeks the 
 impelling force which moves nations in that direc- 
 tion. He finds it in land monopoly. He thereupon 
 gets the impression that progress must bring 
 poverty ; more wealth produced must Increase rent ; 
 increased productive powers must reduce wages ; all 
 must cause poverty, because of land monopolisation. 
 The dynamics of the science with him are the history 
 of nations and Institutions. This is erroneous. The 
 science has to do with the supply of wealth. The 
 rise and growth of institutions which hinder that 
 supply are matters of economic history, not of 
 economic science. The science, as such, points the 
 institutions out once for all as injurious and unjust. 
 The Increase and improvement of methods and 
 powers of production and distribution are matters 
 
368 ECONOMICS AND SOCIALISM 
 
 of industrial history. Economic science only points 
 out the conditions essential for making these im- 
 provements an unmixed blessing. The discovery 
 and spread of the theories of the science are matters 
 of the history of economics. 
 
 The science itself has nothing to do with long 
 periods. Its dynamics relate to weeks, months, or 
 at most a few years. Could but the truths of the 
 science be flashed in a moment through the minds 
 of all the people in this country, want of employ- 
 ment might cease, and the unemployed be at work 
 in two or three weeks. Excepting the invalid, idle, 
 and dissolute, that in itself would ensure the feeding 
 of the nation. Such is the condition of supply. A 
 few months would suffice to decently clothe all the 
 people. The application of the science would in a 
 year or two afford a respectable house for every 
 family. But it would take a much longer time to 
 give every family an active desire for a respectable 
 house, decent clothing, and wholesome food. Their 
 tastes would require more time to train than to 
 supply. And, unfortunately, the truths of the 
 science will not be flashed in a moment. Their 
 teaching alone will take years or decades, rather 
 than even months. 
 
 Strictly speaking, the inquiry ends here. With 
 economic science the following chapter deals in a 
 manner by no means necessary to its study. The 
 doctrines have been stated, demonstrated, collected, 
 and applied. Nothing remains to be done with 
 regard to it. But to some it may not be uninterest- 
 ing to give further consideration to the philosophy 
 underlying the individualism here advocated, as 
 
APPLICATION 369 
 
 Opposed to the socialism which lies at the extreme 
 pole from it. It may be, also, that without waste of 
 time the ethical aspect of the conclusions of the 
 science may be regarded from a somewhat more 
 altruistic point of view. 
 
 B B 
 
CHAPTER XX 
 
 ETHICS AND PHILOSOPHY 
 
 Few sciences have been more attacked in the name 
 of religion and morality than has the science of 
 economics. Most sciences have had to fight their 
 way through misunderstanding and bigotry. It was 
 hardly to be expected that this science could escape 
 the same: fate as others, for it has all along attacked 
 established institutions and preconceived ideas. 
 Moreover, with most ambitious men it is not pleasant 
 to learn that they can do nothing better than seek 
 out the natural path and follow that. Very many 
 have ideas of paternalism in government by which 
 they imagine they can set right all that is wrong, 
 and put humanity into a groove of their own choos- 
 ing. It is difficult for them to realize that the sum 
 of human affairs is too large an undertaking for one 
 man or a few to manage, or that every human being 
 has a will of his own which must be allowed to have, 
 at any rate, some free play. Most well-disposed 
 persons have accordingly shown their good inten- 
 tions by endeavouring to organize society on a 
 model of their own. They have been told that the 
 best thing they could do was to leave matters alone, 
 and let every one do the best he could do for him- 
 self But they have, figuratively speaking, lifted up 
 their hands in pious horror at the hard-hearted in- 
 
ETHICS AND PHILOSOPHY 37! 
 
 difference of the scientist and philosopher, as though 
 he were an absolutely and wilfully cruel monster. 
 The science has been called, with a touch of con- 
 tempt, the dismal science, — not so much, perhaps, 
 because it had to do with sordid gain, though that 
 is one reason offered, but because it offered no 
 brilliant schemes for taking from every man the 
 trouble of lookinof after his own affairs, and eave 
 no specific for making every man good in spite of 
 himself. 
 
 On no ground, however, can the economist sub- 
 mit to have his science termed dismal. It does not, 
 it is true, deal with the higher aspirations of the 
 human soul. But it deals with what must ever be 
 the foundation on which human welfare is built up. 
 For when want and starvation are found beside 
 abundance and luxury, injury is done to the highest 
 interests of both rich and poor. To economic 
 science alone can humanity look for direction as to 
 how to avoid this undesirable condition, and no one 
 need be ashamed even to grovel in the earth with a 
 view to discovering what is the truth on this sub- 
 ject. As for its having no encouragement to offer 
 to men burning to put matters right by their inter- 
 ference, perhaps a few words on the subject may not 
 be inappropriate here. 
 
 A scientist need not plead guilty to heartlessness 
 because he feels it his duty to insist on the accept- 
 ance of the unvarnished truth. The economist can 
 only ascertain and announce the truth. Whether 
 the world smiles or frowns on him, he can do no 
 better service. Nor can he in any better way show 
 his love for humanity. Yet because he has an- 
 
372 ECONOMICS AND SOCIALISM 
 
 nounced that free competition was the best method 
 of meeting the struggle for existence, which, as long 
 as the human race lasts, must ever continue, he has 
 been denounced as soulless. It is true that free 
 competition has not previously been offered exactly 
 in the form here presented. But so far as the 
 science has gone, that has always been its verdict ; 
 and the humanitarian world has generally received 
 it coldly or not at all. Some have given credit 
 to the Manchester school of free traders for their 
 efforts for the repeal of the Corn Laws, but they do 
 not include Cobden and his helpers amongst the 
 social reformers of the century. That honour is 
 reserved for a number of men who, with more or 
 less pretence to scientific method (and the less the 
 better), have taught ethics often regardless of 
 philosophy. 
 
 The substantial contribution of the free traders to 
 England's happiness has, however, at any rate, been 
 felt if it has not been fully recognised. On the 
 other hand, men with schemes of government from 
 Plato onwards have received a sympathetic hearing. 
 Their ideas, coming as they did from poetic minds, 
 were enforced with great literary ability, and this 
 added in no inconsiderable degree to their success. 
 Whilst the analytic minds, who, following Aristotle, 
 could accept nothing without proof, often failed to 
 clothe their thoughts in language capable of attracting 
 attention. Nor can it be hoped that this deficiency 
 has been or will be remedied. Added to which it 
 must be remembered that to follow an argument 
 closely requires more mental exertion than many 
 are willing to give. 
 
ETHICS AND PHILOSOPHY 373 
 
 For many years now there has been growing up 
 a doctrine that Christianity and economic science are 
 opposed to each other. The science is said to be 
 too selfish. And socialism is held up as that which 
 alone can accord with Christianity. The exact 
 scheme of socialism which is to be adopted has not 
 been agreed upon by its various advocates. That, 
 however, is a matter of no importance. Political 
 economy is not a scheme. It is « science. It seeks, 
 states, and proves the truth. And whatever scheme 
 may be offered, if it does not accord with the truth, 
 it had better be rejected. Moreover, if the science 
 has been properly interpreted, it points out the 
 truth. And if Christianity does not agree with it, 
 then Christianity is a lie. It is proposed, how- 
 ever, to show that no discrepancy exists between 
 the two, and that neither in its origin nor in its 
 doctrines has socialism anything to connect it with 
 Christianity. 
 
 Apparently the only claim that socialism has to 
 ally itself with Christianity is that it announces itself 
 to be a scheme for promoting a universal brother- 
 hood, and the due care of the weaker members of 
 society. As an ethical ideal, no word can be raised 
 against this object. But before accepting this 
 scheme in its various forms at its own valuation, 
 we must carefully look into its credentials, and see 
 whether it offers what it professes to offer. The 
 success of Christianity rests upon something more 
 than its lofty ethical principles. The philosophy of 
 Jesus Christ was as perfect as His morality was 
 sublime, or His rule in the world to-day would not 
 have been what it is. Now at this point Christianity 
 
374 ECONOMICS AND SOCIALISM 
 
 and Socialism part company. To whatever extent 
 the professed principles of Socialism may agree 
 with those of Christianity, the moment the principles 
 begin to be applied to human conditions, the two 
 doctrines will be found to be diametrically opposed 
 to each other. 
 
 Exactly what is meant by socialism, even its 
 advocates do not appear ever to have explained. 
 The word is used in a variety of senses, indicating 
 that socialism is some scheme for improving the 
 lot of humanity, more nearly equalising the distribu- 
 tion of wealth, or for uplifting the toiling millions. 
 Now this, as a matter of intention and motive, is 
 what very many persons would lay claim to. The 
 number would include most candidates for public 
 service, especially where the toiling millions have 
 votes. The present author would even humbly 
 desire to be enrolled under the list of Socialists of 
 that description. But if socialism has no more 
 definite meaning than this, It has no meaning at all 
 worth consideration. The history of the expression 
 Socialism, and of the theories to which it is attached, 
 may afford some clue to its meaning. The word 
 apparently started with Owen, an able money-maker 
 full of schemes for uplifting those around him. But 
 the idea expressed by it obtains its strength from 
 more sources than one. Utopian schemes have not 
 been confined to Sir Thomas More ; St. Simon and 
 Fourier had notions which J. S. Mill considered 
 worthy of a place in connection with the science of 
 economics. Communism in one form or another 
 has had many advocates. But the community of 
 goods which passes by the name of Socialism finds 
 
ETHICS AND PHILOSOPHY 375 
 
 its chief economist in Marx. The foundation of his 
 doctrine is Ricardo's error that wages are the 
 amount essential for subsistence. From this the 
 argument proceeds to speak of the exploiting of 
 labour by capitalists who take the balance after 
 paying subsistence wages. If the labourers were 
 proprietary slaves, there would be some ground for 
 this idea ; but as the labourers who have the ability 
 and character are free to become themselves exploit- 
 ers, and to compete against the others, the notion is 
 absurd. And in its place the wages of subsistence 
 fallacy, on which the whole is based, was examined 
 and disposed of. This error is the economic foun- 
 dation or buttress of socialism. 
 
 Another source of the strength of the error is the 
 philosophy of Auguste Comte. John Stuart Mill 
 came under Comte's influence, and became more and 
 more a Socialist as he grew older. He even defends 
 Communism. It is doubtless quite true that a great 
 number of professed Socialists have never heard of 
 Comte ; but that does not prove that the Socialism 
 of the latter end of the nineteenth century exists 
 independently of him. The truth appears to be 
 this : Ricardo's error has developed into the social- 
 ism of Marx. Comte, by his writings, has influenced 
 those who form what one may call the intellectual 
 and literary section of the Socialists. At the same 
 time, but quite independently of these influences, 
 there has been growing up the ever-increasing influ- 
 ence of trade combinations. 
 
 The unconscious connection of socialism and 
 trade combinations has already been referred to. 
 They have, at any rate, this in common, that they 
 
Zl^ ECONOMICS AND SOCIALISM 
 
 make no pretence to respect individual liberty ; the 
 individual is ruthlessly sacrificed upon the altar of 
 the community, whether the community be the 
 members of a particular trade or of a whole nation, 
 or whether it be, as with Comte, even more than 
 that. Here, then, appears to be the origin of the 
 socialism of the present time. It is to be found in 
 the confluence of the course of those three distinct 
 movements with some minor ones. The error of 
 trade combination has been pointed out, and need 
 not be further referred to. Ricardo's error, on 
 which Marx built, has also been sufficiently noticed. 
 Comte remains to be dealt with. 
 
 Now the prominent idea of Comte's teaching was 
 the organization of society. With him society was 
 an organism — not merely analogous to one. It 
 was actually organic. The individual was but the 
 organ of society. A single moment's thought 
 should be enough to show the absurdity of such an 
 idea. An organism has and uses its various organs 
 for the good of the whole. Those organs are con- 
 trolled by one mind and will ; they are definite and 
 fixed in number and position. If one is lost, another 
 cannot take its place. With regard to some organs, 
 their loss means loss of life altogether. Society is 
 quite different. The individual acts for the satis- 
 faction of his own desires, obeys his own mind and 
 will, as far as he possibly can, and never thinks of 
 putting the will of another before his own if he can 
 avoid it. Moreover, there is free play to pass from 
 one so-called function of society to another if the 
 individual so desires. 
 
 It may readily be conceded that there is an 
 
ETHICS AND PHILOSOPHY 377 
 
 analogy between the organization of a living being 
 and that of society. The analogy is found in the 
 mutual assistance that the members of society 
 render to each other. But it is not an analogy from 
 which, in itself, any true conclusions can be drawn. 
 We have only to take one step backwards in each 
 case to find that on the very point on which we 
 require similitude it is lacking. Asked why the 
 members of society act after the manner of the 
 organs of a living creature, the answer is. Because 
 such actions best meet the desires of those members. 
 Not the desires of society as a whole, but the 
 desires of its members, cause the organization. In 
 the other case, not the will of the organs, but that of 
 the creature, determines their action. The organs 
 have no will. This motive is the essential point, 
 and if the motives are not the same, the analogy 
 entirely fails for our present purpose. 
 
 Here, then, is the nature and signification of social- 
 ism. It sets itself in antithesis to individualism. It 
 professes to seek the welfare of society, leaving 
 to individualism the task of finding the true wel- 
 fare of the persons composing society. Not a word 
 further need be said to point out which is the correct 
 method, or to satisfy the reader that Individualism 
 can afford to be indifferent to the doctrine of Social- 
 ism. It will be remembered that the present inquiry 
 commenced with an indication of the problem as that 
 of finding how each individual could best be supplied 
 with the wealth which was stated to be essential, 
 and which was the object of the inquiry. Beyond 
 that, and showing that the science had a sphere of 
 its own, that no other science gave any indication 
 
37^ ECONOMICS AND SOCIALISM 
 
 that economists should endeavour to limit the welfare 
 of individuals, it was unnecessary to go. 
 
 Socialism, on the other hand, is based on a theory 
 diametrically opposed to the truth. Not only does 
 it seek the welfare of society as opposed to the 
 welfare of its members : it proceeds on the assump- 
 tion that wealth production would be increased by 
 taking away the incentive to its production. The 
 whole theory depends on the notion that men work 
 not to satisfy their own desires, but those of the 
 community or society.. The doctrine implies that 
 if, instead of men being paid directly the market 
 value of their efforts, they were required to give all 
 their efforts to a common fund for the benefit of all, 
 they would increase their efforts, and the nation 
 would be richer. With such an error at the root of 
 this teaching, true conclusions are impossible. And 
 all this follows from Comte's philosophy. Socialism 
 has its great support as a philosophic system in 
 Comte's teaching. 
 
 How little socialism has in common with Christi- 
 anity it will readily be seen. In the first place, 
 Comte did not profess himself a Christian. He had 
 something approaching contempt for the slaves of 
 God. He wished to set up a worship of humanity 
 with its temples, and a priesthood — the priesthood 
 having a temporal power, only differing from those 
 of past history in being, if possible, more despotic. 
 The religion itself would have been greatly improved 
 by an honest avowal of atheism. In the second 
 place, his whole organization of society was quite 
 unlike anything ever suggested by Christ or His 
 apostles. To arrange as he did the whole of society 
 
ETHICS AND PHILOSOPk^^^^y^^NiA^^.^^ 
 
 into Its various trades and professions, fixing — in the 
 case of the priests at any rate — exactly the ages and 
 salaries of the various grades, was certainly a 
 pleasant amusement for a child. Most lads with a 
 love of construction and ambitious ideas have men- 
 tally organized a colony or arranged a city in their 
 younger days ; but for a grown man of ability to 
 imagine society can be brought into regimental 
 array in that way is almost incredible. Further- 
 more, the positions assigned are in many cases 
 hereditary, which is a system of slavery at least 
 equal to that of the ancients. 
 
 That any professed Christian can ally himself 
 with teaching of this kind can only be explained by 
 concluding that he has not given sufficient considera- 
 tion to the subject. So far from Christ wishing 
 to organize society, it was the very thing He would 
 not do. When the populace would have made Him 
 king, He escaped from them. His kingdom was 
 within, He told the Pharisees. So far from His 
 putting society before the individual, it is to Him 
 that mankind owes its appreciation of the individual 
 and its knowledge of his worth. It was the one 
 lost sheep, and not the ninety and nine, which 
 received His sympathy. Moreover, He would not 
 even give laws with regard to specific instances. 
 He stated principles, and infused a true spirit into 
 His disciples : and these were to be the guides of 
 His followers in all ages. Subject to this, they were 
 left each entirely to himself. This the apostles 
 fully carried out in their writings. Nothing could 
 be more truly in accordance with the spirit of 
 individual liberty whilst teaching the highest and 
 
380 FXONOMICS AND SOCIALISM 
 
 noblest brotherhood and charity. The communism 
 of the early apostles is quite beside the question. 
 It was for a definite purpose, the accomplishment 
 of which was the foremost desire of each one of 
 them. 
 
 Most of those into whose hands this book is 
 likely to fall will readily concede that the true 
 progress of humanity is towards Christianity. Now 
 if socialism, as it is taught, means anything at all, 
 that true progress is away from socialism and to- 
 wards individualism. 
 
 The history of law as interpreted by philosophers 
 points to a constantly progressing change, which 
 we are told is a progress from status to contract. 
 In the early stages of civilization persons occupy 
 positions with regard to their personal relationship 
 to others which are not the result of their choosing 
 or agreement, but of their birth and circumstances. 
 Their progress is to a condition in which each is 
 free to make his own bargains with the rest of 
 mankind, and to choose the best position he can 
 obtain for himself. In the former case we may 
 unmistakably see socialism in the only form pos- 
 sible to human beings. Property is held in 
 common. The rule is a rule of persons. In the 
 latter case individualism has asserted that all human 
 beings should be equal in respect of their oppor- 
 tunities. The student of ethics may trace the 
 same progress from socialism to individualism in 
 the history of moral and religious teaching. In the 
 early ages of society there are laws and regulations 
 fixed for every detail. Mankind is bound round by 
 rules and maxims, not without their object when 
 
ETHICS AND PHILOSOPHY 38 I 
 
 framed, and occasionally of a beneficial nature, but 
 out of which any nation must inevitably grow. In 
 the later times, in morals as in laws, the principles 
 underlying those laws and maxims which have 
 proved themselves fit to survive are adopted as 
 showing the desirable course. Human beings are 
 set to move freely with these as their guide. This 
 is but another instance of the progress of human 
 beings from socialism to individualism. 
 
 It is true that socialism marks a stage removed 
 from that of absolute savagery and fierce bestiality. 
 In the latter case we may possibly have the entire 
 absence of law or guidance. But it is a stage in the 
 history of the species with which we are practically, 
 and one might safely say entirely, unacquainted. 
 We can conceive the possibility of it, but there is 
 no good instance open to our examination. Our 
 earliest knowledge of human institutions presents 
 us with an organization in which, at least, there 
 is the cohesion of tribesmen to each other. How- 
 ever savage they may occasionally be even amongst 
 themselves, and whatever may be their code of 
 right and wrong as regards others, they have at 
 least the organization of a horde of savages. More- 
 over, in such cases there is usually a strong man 
 amongst them, whom, under various names, they 
 treat as chief and leader, and whose word is law. 
 The progress of which we know anything is from 
 this state to that in which not one nor many persons 
 can decide the conduct of the whole, but in which 
 principles of abstract right and justice are applied 
 to the relations of each to one or all of the others. 
 Briefly expressed, we may say that we can conceive 
 
382 ECONOMICS AND SOCIALISM 
 
 that mankind first passes from the absence of rule 
 and order to a rule of persons. We know that the 
 race progresses from a rule of persons to a rule 
 of principles. 
 
 Now the one central figure which marks the 
 division of all we know of the origin and past 
 history of our species from what we can forecast 
 of its future destiny and progress is that of Jesus 
 Christ. To Him and His teaching we owe the 
 gradual abolition of the inequality of persons which 
 made slavery possible. To Him more than to 
 any one else we must ascribe the establishment of 
 the authority of ethical principles as distinct from 
 the persons placed in power. The philosophers of 
 Greece are not to be forgotten, nor have they been 
 forgotten by the writer in making this statement. 
 In Jesus Christ there was something which inspired 
 love, and banished the hatred engendered by the 
 warring of tribes. Moreover, He not only laid 
 down a code of ethics which was the hiorhest the 
 world has known : He taught that it was something 
 under the outside action which must be chanfjed, 
 thus laying His finger on the springs of human 
 action. He looked to human motive. From that 
 point alone the action of the whole must be in- 
 fluenced. He taught that the internal desire was 
 the cause of the external action. Out of the human 
 heart proceeded human conduct. This is where He 
 surpassed the philosophers of Greece. And this is 
 the secret of His greater success in the conquest of 
 mankind. 
 
 Socialism essentially belongs to the period which 
 has been spoken of as that of the rule of persons. 
 
ETHICS AND PHILOSOPHY 383 
 
 Unless men are to be free, some must rule others. 
 So much restraint as is necessary for the protection 
 of others has already been conceded ; but socialism 
 goes further, and seeks to control the individual. 
 Where that process will stop, or what its total sum 
 of interference will amount to, cannot be predicted : 
 nor is it a matter, of concern. The essential feature 
 is that if there is any control beyond what strict 
 justice requires, the amount of it must be settled by 
 persons and not by principles. Principles can only 
 seek justice. It matters not that the persons de- 
 ciding are the majority. The majority has no more 
 right to despotism or to interfere with a man's 
 true liberty than a single monarch has. The 
 principles of justice are not to be submerged, even 
 to gratify the majority. Besides which, even the 
 majority is not always wise. 
 
 Moreover, the majority may profess to rule. But 
 the majority has not a common interest or will, 
 any more than the whole community has. To both 
 there is a common interest that ^justice should be 
 done. Beyond that there is no other interest. As 
 for the common will, that is inevitably the will of 
 one or a few. Men cannot think in unison. At 
 best the majority requires to have its visible re- 
 presentatives. They, in effect, become the rulers 
 whose thoughts guide those of others, or at least 
 prescribe conduct for them. This is the essence of 
 socialism. And if society could be organized anew 
 to please these- schemers, it must be on the model 
 of the persons in power at the time. The national 
 well-being would be in proportion to their wisdom 
 and disinterestedness. If both were perfect and 
 
3^4 ECONOMICS AND SOCIALISM 
 
 their knowledge infinite, the nation might be per- 
 fectly governed. Failing that, it could not. 
 
 All this, however, belongs to past ages. The 
 community of property so dear to the hearts of 
 Socialists is well known to the student of early in- 
 stitutions. The fixed and unalterable position of 
 persons belongs to the same era. The minute regu- 
 lation of the details of daily life is all characteristic 
 of the dark days long since gone. In religion, in 
 politics, in law, and in economics this is what we 
 have struggled through and left behind. Now we 
 are asked to go back to it. We are not told so 
 plainly, but that is a trivial feature. The fact 
 remains, nevertheless ; and it would be a blessing 
 to mankind if the advocates of Socialism would 
 tell us definitely (providing they are able to see it 
 so plainly) that they wish us to go back to the 
 days of slavery. It is better to face the whole 
 truth. But there is this, at any rate, in a name : 
 that by means of a new name it is very possible 
 to more or less effectually disguise an old acquaint- 
 ance. 
 
 The human race will not, however, return, though 
 its progress may be hindered. For nearly half a 
 century the pendulum has swung backwards, but 
 the forward course will assuredly be resumed in 
 some place, and at some time — probably not a very 
 distant time. Free competition will be accepted 
 eventually by the world as the truest and most 
 efficient method of supplying the wants of man- 
 kind. The only questions to be determined are 
 when and where. On the latter depends the deter- 
 mination of the nation which shall next lead the van 
 
ETHICS AND PHILOSOPHY 385 
 
 of human affairs, scattering the blessings of pros- 
 perity and commerce over its own people and the 
 remainder of the world. On the former depends 
 the answer to the question of how long the poor 
 shall groan under a load of preventable distress and 
 suffering, whilst the rich deteriorate through sheer 
 super- abundance of goods. The one is a question 
 of patriotism, the other of philanthropy. 
 
 After all, unrestricted competition is not so selfish 
 a policy as many imagine. If it were selfish, it 
 would be the best policy, as has already been 
 shown. Moreover, the production of wealth is not 
 the department in which altruism is required for 
 human welfare. It is sufficient and much better 
 that it be exercised in the matter of the consump- 
 tion of wealth. Doubtless there are some who are 
 able and specially competent in the matter of wealth 
 production, and who can obtain for themselves a 
 large share of wealth, who are nevertheless quite 
 selfish with it. But it is useless to try to prevent 
 their obtaining the wealth, except by allowing as 
 far as possible the free play of the individual ability 
 of others. These latter, in competing with them, 
 benefit the rest. The policy of restriction and con- 
 trol results only in hindering those of second-rate 
 ability from competing with those of the first-rate, 
 and bringing them to compete with those of the 
 third-rate. There can be but one result : namely, to 
 separate by a constantly widening gulf the upper 
 and lower classes. In that process the poorest are 
 crushed to the very dust. Besides all this, many 
 efficient wealth-producers are liberal givers. To 
 constantly denounce and endeavour to injure them 
 
 c c 
 
386 ECONOMICS AND SOCIALISM 
 
 is a sure method of alienating the sympathies they 
 may possess. 
 
 The doctrine of restriction, whether appHed to 
 governments or combinations, is of all things that 
 which should lay no claim to unselfishness. Only 
 by free commerce with each other can all the nations 
 of earth become as one. The principle of protec- 
 tion by hostile tariffs, by which nations shut them- 
 selves up from each other, is as inconsistent with 
 world-wide amity and friendship, or even with 
 peace, as it is with good economics. This applies 
 whether the principle of protection is in its extreme 
 form or the modified form of List. Nations have no 
 separate interests. The welfare of each is bound 
 up in the welfare of all. The same applies to 
 different classes in the same nation. The advocacy 
 of seeking out distinct trade interests, and the 
 setting up of barriers to protect them, in furtherance 
 of the brotherhood of man, is, to say the least, 
 unique. No good can come to those who have to 
 carry on the wealth-producing work of a nation, or 
 of the world, by setting up walls of division between 
 different sections or classes of workers. Philoso- 
 phically and ethically it is alike unsound. 
 
 More than all this, however, is true. Every 
 reader must by this time have observed that the 
 whole process of wealth production and distribution 
 is a question of the balancing and weighing of two 
 sides. The object of the whole is to balance 
 certain essential desires possessed by the human 
 race. But under the modern system of production 
 and commerce, few produce what they require for 
 themselves. Every one produces for others, and 
 
ETHICS AND PHILOSOPHY 387 
 
 receives money as a measure of his share in pro- 
 duction and consumption of wealth. The result 
 is that each has the service he renders in this 
 matter valued by the remainder of mankind, the 
 persons to whom the service has ultimately been 
 rendered. 
 
 It may be true that some have considerable 
 capacity for getting their services valued more 
 highly than their true utility, and that the benefits 
 rendered by others are considerably under-valued. 
 But even this statement can only be accepted on the 
 showing of an individual who may be no wiser than 
 the collective aggregate of those who, in fact, fix 
 the valuation. At any rate, they can express their 
 own desires better than he can express those desires 
 for them. If the desires are not wholesome and 
 beneficial, it is a matter for regret. But it is not 
 within the power of even a sage to compel men to 
 give up their desires and accept for their benefit the 
 satisfaction of his desires. 
 
 If, on the other hand, it is not the badly chosen 
 desires, but the ignorance of the people as to the 
 true value of the services rendered, which enables a 
 man to get himself overvalued, it is always open to 
 any one to prove that to be the case by offering the 
 same service at a lower rate. It is very certain that 
 such a method of valuation is much more nearly 
 perfect than could be the valuation of any one 
 person or senate. The people themselves can 
 better choose those things and pleasures which 
 minister to the satisfaction of their desires, than any 
 one could choose for them. Even though his know- 
 ledge of human nature, giving him skill to discern 
 
SSS ECONOMICS AND SOCIALISM 
 
 character and ability, and his personal disinterested- 
 ness should be alike perfect, the sage's best efforts 
 could but be to find out their choice. That does 
 not need a government or senate. It is done natur- 
 ally by means of money. To place the nation at 
 the disposal of such a government would be foolish, 
 if it were possible. 
 
 If, then, mankind pays each man, as nearly as it 
 can judge, according to the service he renders, it 
 follows that, with equality of opportunity, he who 
 receives most renders most service. He who 
 receives least, in such conditions, does least service ; 
 so that the strong competitors, who get much, must 
 have done much service to the weaker ones, and the 
 weaker competitors, who get less, have done less 
 service to the stronger ones. In other words, the 
 true condition of mankind, as pointed out by eco- 
 nomics, is one in which the strong labour for the 
 weak, the weak giving such help as they can to the 
 strong. It might fairly be suggested, providing the 
 matter came within the present subject, that the 
 burden of the altogether incapable should be put 
 upon the strong, as it must be under the taxation 
 which has been advocated. The result of such a 
 plan must be that, in the endeavour to carry that 
 burden, by absolutely giving what those incapable 
 ones need, the strong must be constantly urged to a 
 greater endeavour. The benefit of that endeavour 
 will go to the weaker ones (who are not altogether 
 incapable) in return for their help towards the 
 support of the weakest. Such a method is a 
 constantly impelling motive to the exertion of the 
 strong, and that by the gratification of their own 
 
ETHICS AND PHILOSOPHY 389 
 
 desires — a perpetual self- working arrangement for 
 the strong to help the weak. 
 
 Moreover, it has sometimes been suggested that 
 the perfection of distribution of work and wages 
 would be that each should work according to his 
 ability, and receive according to his needs, which is 
 exactly what is meant by free competition. Each 
 man's needs express themselves in his desires. In 
 every well-balanced mind nature has proportioned 
 desires to capacity. All other minds must strive 
 to correct their want of balance. Under the best 
 system, therefore, since needs are by nature propor- 
 tioned to capacity, the wages supplying those needs 
 will be proportioned to the work accomplished by 
 that capacity, which, as already remarked, is free 
 competition. 
 
 Surely if any science is to be called dismal, it is 
 quite time the appellation should be shifted from 
 that of economics, and put upon some other science. 
 No suggestion is made, however, as to what science 
 should receive it, or that any science or true know- 
 ledge can be dismal. 
 
 In speaking in this way, it is not, of course, meant 
 that these results are properly attained under the 
 system in vogue in the nineteenth century. Where- 
 in that system is wrong, it has been to some extent 
 pointed out. The science of. economics is not, how- 
 ever, responsible for that, but rather the nostrums 
 which affect to treat the science as dismal and heart- 
 less. 
 
 Nor is it forgotten that many men possess them- 
 selves of considerable wealth by mere speculation. 
 But the possibility of speculation is, by the adoption 
 
 D D 
 
390 ECONOMICS" AND SOCIALISM 
 
 of a truly natural system, reduced to the barest 
 minimum. This would be seen in seeking and lay- 
 ing down the means of keeping value perfectly con- 
 stant. It is the departure from a truly natural 
 system which permits of the evils of speculation. 
 
 The system pointed out by economic science as the 
 most beneficial for mankind is not only truly natural, 
 but absolutely just. In every portion of the inquiry 
 the natural system has been assiduously sought. 
 What has been meant by a natural system has been 
 that which was in accordance with perfect liberty to 
 all ; but, at the same time, that which was, as far as 
 could be ascertained, perfectly just and equal be- 
 tween opposing interests. Justice, in fact, is equal- 
 ity ; but it is a natural equality. An attempted 
 equality which is not free and natural is a false 
 equality. No person should be deprived of his 
 liberty any more than of his limbs, provided that he 
 accord to others rights equal to his own. Beyond 
 this truest liberty and equality, human beings are so 
 constituted, their interests are so bound up together, 
 that each one, even in seeking his own interest (if 
 he does it consistently with the foundation principles 
 of liberty and equality), will find that he is at the 
 same time practising real fraternity. Beyond this, if 
 but consistently with it, he may still go, and find his 
 own happiness in a Christian charity which is Divine. 
 And this accords with the true science of wealth. 
 
 UNIVERSITT 
 
 Butler & Tanner, The Selwood Printing- Works, Fronie, and London. 
 

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