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 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES
 
 A CHALLENGE TO 
 ECONOMISTS
 
 A CHALLENGE TO 
 ECONOMISTS 
 
 By 
 J. S. HECHT 
 
 
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 LONDON : 
 
 
 P. S. KING & SON, LTD. 
 
 
 ORCHARD HOUSE, WESTMINSTER 
 
 
 1918 

 
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 \1l.'l^ 
 
 A CHALLENGE TO 
 ECONOMISTS 
 
 o 
 
 §Ix a fight for Right, as in a question of 
 ^Principle, there are no Neutrals. Com- 
 ;y promise. Compromise, that invention of 
 the Victorian Era, 
 
 uj Oh dreadful Age, 
 
 Whence comes our present tragedy, 
 a: And thousands suffer agony 
 
 EC That right mav hold the stage, 
 
 CD 
 
 a: 
 
 hangs like a dark cloud over our present 
 Civilization, 
 
 Through many ages Man has been pro- 
 foundly interested in the question of Wealth, 
 its Production, Exchange, and Distribu- 
 tion, but rarely has the subject been 
 approached with an open mind. The ave- 
 rage man has been led to believe that
 
 6 A CHALLENGE TO ECONOMISTS 
 
 tlie science of economics is too deep for 
 him, and certainly many economic theories 
 are difficult to grasp. Nevertheless the 
 truth is ever simple. 
 
 1. The wealth of the world can be in- 
 creased by man's labour, but as no man 
 can be considered to possess wealth until 
 he has first his bare necessaries of life, the 
 necessaries of all mankind must first be 
 produced, for, economics being an ethical 
 science, man cannot be allowed to starve. 
 
 2. Articles of utility are economically 
 identical with necessaries, as they also 
 enable man to live and produce, and, 
 in saving labour, they save, and thus 
 increase, the supply of necessaries, 
 
 3. The production and handling of neces- 
 saries occupies a large proportion of the 
 world's labour, and, although a lack of 
 them causes all the misery and most of the 
 discontent in this world, their importance 
 appears to be overlooked by economists. 
 
 4. The value of necessaries of life lies 
 in their utility to man, i.e. they enable
 
 A CHALLENGE TO E(X)NOMLSTS 7 
 
 him to live and produce. This vahie is 
 independent of his opinion and inherent in 
 each article and is thus an intrinsic value, 
 for that of food lies in its nutriment, of 
 clothes in their warmth, etc. If x denote 
 the intrinsic value of a man's necessaries 
 of life in a given climate for one day. x 
 is the measure of the value of all neces- 
 saries and articles of utility, or in other 
 words, of all intrinsic values. 
 
 5. The supersession of such articles does 
 not afi'ect their intrinsic value, and their 
 waste must be made good before there 
 can be anv increase in wealth. 
 
 6. The exchange of necessaries does not 
 enrich the world, in fact the cost of trading 
 in them or making them available is actu- 
 ally the destruction of some of them to 
 provide the necessaries of life for all the 
 workers engaged in this trading. 
 
 7. An exchange of necessaries or utili- 
 ties should take place on the basis of in- 
 trinsic value, otherv/ise one party benefits 
 at the expense of the other. If. for in-
 
 8 A CHALLENGE TO ECONOMISTS 
 
 stance, two men produce necessaries of 
 life, the one potatoes and the other arti- 
 chokes, and they wish to exchange, assum- 
 ing that for the same nutriment and weight 
 the same hours of labour are necessary, will 
 not the exchange value be pound for pound ? 
 If not, and 2 lbs. of potatoes were exchanged 
 for 1 lb. of artichokes, the grower of the 
 potatoes will have to work more hours to 
 make up his necessaries. This exchange 
 thus takes place on utility and equal hours 
 of work unless one producer is to benefit at 
 the expense of another. 
 
 8. Let us assume now, however, that 
 artichokes have double the nutriment of 
 potatoes, and that the labour per lb. is 
 equal. Then the artichoke grower need 
 only work half the hours of the potato 
 grower, and if he exchange pound for 
 pound, he will receive only half the nutri- 
 ment and would have to grow some more 
 artichokes or starve. The potato grower, 
 on the other hand, would be able to rest, 
 as he now has a surplus of nutriment.
 
 A CHALLEXGE TO ECONOMISTS 9 
 
 To be equitable the exchange should again 
 take place on utility, i.e.. J lb. of arti- 
 chokes for 1 lb. of potatoes, or half a day's 
 labour for a whole day's labour. If 
 instead of artichokes the man produced 
 a more nourishing potato, the same would 
 hold good, and also if he produced his 
 potatoes in half the time. It is evident 
 that the artichoke grower is better off 
 because he produces a higher intrinsic 
 value per hour ! 
 
 9. There are thus two values : Intrinsic 
 value and Exchange value, and the differ- 
 ence between them is the Demand value, 
 which, when positive, benefits the seller 
 at the expense of the buyer. Thus ex- 
 change value, or price equals intrinsic 
 value plus demand value, or demand 
 value equals exchange value minus in- 
 trinsic value. 
 
 10. After man's necessaries and utilities 
 are available, he produces luxuries, the 
 whole exchange value of which can be 
 increased or destroyed by man's own
 
 10 A CHALLENGE TO ECONOMISTS 
 
 opinion or by Demand. In the case of a 
 pure luxury the exchange value equals 
 the demand value. 
 
 11. Although most luxury articles have 
 some intrinsic value, in an exchange of 
 such as have none whatever there is only 
 exchange value to be considered, and it 
 is impossible to say who has benefited 
 except he whose cost of production is least, 
 as both parties may have obtained what 
 they desire, although the articles may 
 be worthless next day. 
 
 12. Nevertheless x is the measure of 
 everything — necessaries and luxuries, of 
 intrinsic value or exchange value — for in 
 an exchange of necessaries for luxuries, 
 the question to be answered is, how much 
 of his necessaries will a man sacrifice in 
 order to obtain a luxury. 
 
 13. For instance, when a potato grower 
 buys a French hat for his wife, he sacrifices 
 much labour for little labour and much 
 intrinsic value for little intrinsic value 
 and loses wealth on the exchange, but is
 
 A CHALLENGE TO E(X^N0MIST8 11 
 
 nevertheless satisfied, notwithstanding the 
 designer of the hat benefits. 
 
 14. The production of all luxury articles 
 depends upon that of necessaries. The 
 world lives on necessaries, it enjoys lux- 
 uries. The value of luxuries to mankind 
 being only relatively measurable is essen- 
 tially different from that of necessaries or 
 utilities. Those who lack necessaries cry 
 for them, and those who have necessaries 
 cry for luxuries, and these latter are the 
 more articulate. 
 
 15. Wealth being measured by value, 
 there must also be two kinds, one dependent 
 on, and the other independent of man's 
 opinion. The former comprises luxuries 
 which minister to oui' pleasure and jDrovide 
 Ijeauty, and can well be called '" Joy 
 wealth," as against Utility wealth. (We 
 say "utility" and not "use" because 
 the latter word is misleading, for we use 
 luxuries.) Intrinsic value is the measure 
 of utility wealth, and demand value that 
 of joy wealth.
 
 12 A CHALLENGE TO ECONOMISTS 
 
 16. Thus value is not measured by 
 labour at all, but in the case of intrinsic 
 value by utility and in that of demand 
 value by man's opinion. Hence the less 
 labour used the better, and the only rela- 
 tion between it and value is found in the 
 fact that continuous production is impos- 
 sible unless the value produced by labour 
 is greater than that consumed bv it. 
 
 17. The definition due to Economists 
 that "Value is governed by the Relation of 
 demand to aggregate costs of production " 
 is as puzzling to the ordinary mind as it 
 is false, for assuming either factor alter- 
 nately constant, in the one case an infinite 
 demand and in the other an infinitely small 
 cost (or is it just the reverse ?) can create 
 an infinite value for a worthless article; 
 yet economics is termed a science. 
 
 18. The world is not richer economic- 
 ally for a masterpiece, in fact it is poorer 
 by the artist's necessaries of life, yet who 
 will not sacrifice any surplus of utility 
 wealth for joy wealth in some form or
 
 A CHALLENGE TO ECONOMISTS 13 
 
 other ? A change of fashion will affect 
 the value of a picture and make it nil, 
 but here there is no waste to be made 
 good before the world's wealth is again 
 increased. Whether the artist paints a 
 masterpiece or a daub is of no economic 
 importance, and there is more economic 
 loss in the destruction of 10 tons of potatoes 
 than there would be in that of the Venus 
 of Milo, although one is replaceable and 
 not the other. 
 
 19. And although those who confuse 
 two utterly distinct values raise their 
 eyebrows, or philosophers shake their 
 heads, it is the production of potatoes which 
 makes possible a Rembrandt a Turner 
 or a Titian; and a painter who starves in 
 his garret to create an everlasting joy for 
 humanity is a truer Economist than any 
 of our sham Socialists. He scorns the 
 law of supply and demand, and dies 
 in poverty because the world is blind to 
 the beauty of his creations. 
 
 20. The economic wealth of the world
 
 14 A CHAI-LENGE TO F.CONOMI8T8 
 
 is thus measured solely by the total in- 
 trinsic value contained therein, as pleasure 
 and beauty have no economic measure. 
 
 21. The Recognition of wealth does not 
 affect its existence and to waste the gifts 
 of nature merely leaves wealth potential 
 instead of actual. 
 
 22. For instance, the world is nowadays 
 richer merely by the food value of bananas, 
 less the necessaries consumed by those 
 concerned in the growing and handling 
 of this fruit, whereas twenty-five years ago 
 the bananas represented potential wealth. 
 
 23. Again, the world is actually poorer 
 for using up its coal, which man cannot 
 reproduce, and would be better off could 
 water be substituted as a motive power. 
 
 24. If the statement of the Economists 
 be correct that all value is due to recogni- 
 tion or demand, at what moment does it 
 appear, and if, on the instant, it cannot 
 after all be due to Labour ! For example, 
 in buying food, at what moment is the 
 value realized, before or after it is cooked ;
 
 A CIL\LLEXGE TO ECONOMISTS 15 
 
 before or after it is eaten ? Wealth being 
 measured by value, if this be due solely 
 to demand, a lunatic crying for a toy creates 
 wealth, whereas he is merely prepared to 
 sacrifice much accumulated wealth in return 
 for little ; or again, the destruction of one 
 article out of two might make the remaining 
 one more than twice as valuable and add 
 to the wealth of the world, whereas there 
 is an economic loss in any intrinsic value 
 destroyed. 
 
 25. The real value of food to a man 
 does not depend upon what he is prepared 
 to exchange for it and, should he be starv- 
 ing, so that one potato will save his life, 
 he may be ready to sacrifice all his posses- 
 sions to obtain it, but has then exchanged 
 much for little labour. The potato will 
 only keep him alive for the few hours 
 equivalent to its real value, when he will 
 be starving again, so that he has to be 
 saved once more, unless he be able to 
 feed himself. Further, the man's life may 
 be of no economic value whatever to the
 
 16 A CHALLENGE TO ECONOMISTS 
 
 nation or the world, for instance, if lie 
 were ninety years old. Again, if one potato 
 be worth £1000 because it saves a starving 
 man, the first mouthful must be equally 
 valuable and also an infinitely small atom 
 passing his lips, so that this would have a 
 finite value, which, as every mathematician 
 knows, is impossible. Yet on such fallacies 
 is founded the jargon of Economists. No 
 wonder economics has not been a popular 
 Science and its true Laws have remained 
 unrecognized by politicians. 
 
 26. Nevertheless the Value-Demand 
 theory is perfectly correct as regards all 
 articles of pure luxury or fashion, although 
 utterly false as regards necessaries of 
 life. While an article in a fashion paper 
 can destroy millions of demand value 
 in hats and dress, nothing can affect the 
 intrinsic value of food, clothes, or utili- 
 ties so long as they exist. That a man is 
 not hungry does not affect the intrinsic 
 value of nourishing food, as either he or 
 the rest of mankind will be hungry again,
 
 A CHALLENGE TO ECONOMLSTS 17 
 
 so that food must be produced, but there 
 is no necessity to produce new clothes 
 just because fashion so demands until the 
 old ones are worn out, 
 
 27. Most articles of luxury have also 
 some utility value, but the two distinct 
 values must be recognized. For instance, 
 in most climates clothing is necessary and 
 a woman's dress has an inherent value, 
 as well as that due to fashion. 
 
 28. The production for export of articles 
 of high exchange value solely, that is 
 luxuries, also benefits a nation, but who 
 can measure the world's gain through the 
 production of a Rolls Royce ? Its high 
 cost of production represents the destruction 
 of much labour or intrinsic value, while 
 the profit made through a high exchange 
 value merely enriches the producer and 
 his workmen, and represents a transfer 
 of wealth. The buyer sacrifices the accu- 
 mulated labour of himself and others — 
 for that is the meaning of mone}"^ — to 
 satisfy his pleasure. The world is richer 
 
 B
 
 18 A CHALLENGE TO ECONOMISTS 
 
 only by joy wealth, which, when fashion 
 changes, disappears entirely. A Ford car 
 has as much intrinsic value as a EoUs 
 Koyce. A diamond has a small intrinsic 
 va lue or utility : its enormous exchange 
 value enriches one nation or man merely 
 at the expense of another, and the world 
 gains beauty against the loss of labour 
 in producing it. Beauty cannot l^e mea- 
 sured economically, and that is true also 
 of all luxuries, whose ubiquity and high 
 exchange value has deluded professional 
 Economists and led them to ignore Necessa- 
 ries and Intrinsic Value. 
 
 29. Oh! Happy Planet wherein we can 
 all get wealthy by exchanging what we do 
 not want for what we do want, and both 
 parties benefit at the same time, so that 
 everybody is happy and all is for the best 
 in the best of all possible worlds. But is 
 one party really better off by an exchange 
 of goods, or does he merely think he is ? 
 Of course, if a man has need of something 
 and cannot produce it himself, he must
 
 A CHALLENGE TO ECONOMISTS 19 
 
 exchange in order to get it, but has he 
 necessarily benefited when he has got it ? 
 
 30. Suppose, for instance, he makes a 
 bad bargain Hke Esau. Jacob benefited 
 because the intrinsic values exchanged 
 were unequal, yet at the moment both 
 parties were satisfied, so that if they can 
 both benefit simultaneously by an exchange 
 or trade, this must be due to the fact that 
 every man is a judge of his own wealth, 
 and to say you are happy is to be happy. 
 
 " Thrice happy they, the wise contented poor, 
 From loss of Wealth and dread of Death secure, 
 They tempt no deserts and no griefs they find; 
 Peace rules the day when Reason rules the Mind." 
 
 31. Yet if Wealth be not merely 
 Contentment of the mind, it must be possible 
 to measure the value of our possessions, 
 as has been shown in paragraphs 4 and 12. 
 
 32. We have seen that there are two 
 classes of wealth — utilities and luxuries, 
 and also two values, intrinsic value and 
 exchange value. Whereas utilities or 
 necessaries have both intrinsic value and
 
 ECONOMISTS 
 
 luxuries have only 
 ?li varies with Man's 
 icrease in this cannot 
 does an increase in 
 but only a nation or an 
 the expense of another. For 
 an increase in exchange value can occur 
 without any increase in goods, whereas 
 an increase in intrinsic value indicates in- 
 creased production, 
 
 33. It has been shown that all exchange 
 of utilities based upon equal intrinsic 
 value leaves both parties equally well off, 
 and that any deviation therefrom benefits 
 one party at the expense of the other. In 
 an exchange of luxuries, the bargain cannot 
 be weighed, as its foundation is merely Man's 
 opinion, which can destroy untold value in 
 one day. Except happiness be considered 
 economic wealth, both parties can never 
 benefit by an exchange, but only by 
 Production, and he benefits most whose 
 cost of production is least. 
 
 34. A nation's cost of production, apart
 
 A CHALLENGE TO ECONOMISTS 21 
 
 from the loss of irreplaceable raw material, 
 is the supply of necessaries to, all its 
 inhabitants (and not the total of wages 
 paid and the price paid for material, as 
 both these may remain entirely in the 
 country), whence it benefits most by 
 the production of articles of highest value 
 per worker. Industries can, therefore, be 
 considered as divided into two categories, 
 Unskilled, which produce merely the neces- 
 saries of the workers and those dependent 
 upon them ; and Skilled, in varying degree, 
 which produce a surplus value or wealth. 
 By skill is meant not merely manual skill, 
 but the use of brains or of any faculty of 
 man attuned to a greater production or 
 efi&ciency, which benefits mankind. 
 
 35. Just as the " skilledness" of indus- 
 tries or their national value is infinitely 
 variable, so there is an infinite variety in 
 the relation of the intrinsic and exchange 
 value as regards their results. 
 
 36. It is nevertheless evident that the 
 exchange value of the goods produced
 
 22 A CHALLENGE TO ECONOMLSTS 
 
 per day, whether necessaries or hixuries, 
 must exceed that of the necessaries con- 
 sumed by the workers and those dependent 
 upon them. 
 
 37. No man can be permanently engaged 
 in productive labour which does not yield 
 him a living wage, for otherwise he would 
 starve. 
 
 38. Owing to a certain proportion only 
 of the population being engaged in pro- 
 duction, a man cannot retain for himself 
 the whole value produced by his labour, 
 for the producers have to supply all the 
 wants, both necessaries and luxuries, of 
 the rest of the community. If their 
 number be as 1 to 4, the producer can only 
 retain for himself one fifth of his daily 
 output. 
 
 39. The share of the value produced by 
 a man's labour, which his relationship to 
 the rest of the community entitles him to 
 retain, must at least equal the value of 
 his daily necessaries of life or his employ- 
 ment could not continue permanently,
 
 A CHALLENGE TO ECONOMISTS 23 
 
 and the total price of his necessaries must 
 not exceed his daily wage. 
 
 40. It is a fundamental fact that the 
 most unskilled labourer must receive 
 daily for the above share a number of tokens 
 equalling the total price of his necessaries, 
 thus deciding the Value of Money, the 
 Living Wage, the Value of all Necessaries 
 (which lies in their utility), the Value 
 of Labour-Saving iVrticles (the saving in 
 labour being equivalent to the production 
 of necessaries), and also the Exchange Value 
 of Luxuries, 
 
 41 . If the share to which a man is entitled 
 increases, the relation between his wages 
 and the total price of his necessaries will 
 improve. 
 
 42. His share will be increased by a higher 
 ratio of producers to non- producers, as 
 well as by a greater output per man. 
 
 43. A skilled worker produces a greater 
 daily value than an unskilled one, although 
 the cost of his necessaries is the same, so 
 that he is therebv entitled to a larger share
 
 24 A CHALLENGE TO ECONOMISTS 
 
 of his surplus production and a higher wage. 
 
 44. For a man, working for himself, 
 after producing his daily necessaries, can 
 exchange his surplus, and the greater his 
 skill the larger quantity or better quality 
 he can offer. He will receive therefore a 
 greater excess beyond his daily necessaries, 
 and if not, he would lose on the exchange 
 and produce something else. Wages are 
 payment for man's output, and, ignoring 
 any profit for an employer, who may make 
 a loss, it is the value produced w^hich decides 
 the maximum wage payable, and the higher 
 wage of a skilled worker. 
 
 45. Therefore, assuming no alteration in 
 the worker's fraction of the wealth incre- 
 ment, the average wage of the worker rises 
 proportionately with an increase in skilled 
 industries and the relation between wages 
 and the prices of necessaries is thereby 
 improved. 
 
 46. These arguments are true also of 
 those engaged in non-productive, although 
 useful or necessary occupations and their
 
 A CHALLENGE TO ECONOMISTS 25 
 
 remuneration should be decided by their 
 skill relatively to that of those engaged in 
 productive industries. 
 
 47. And just because skilled industries 
 are the best, they are most subject to com- 
 petition, for in an unskilled industry pro- 
 ducino; onlv the bare necessaries of life 
 there can be no undercutting by another 
 nation, save bv the starvation of its workers, 
 unless it have a lower standard of living. 
 
 48. The most civilized nation will export 
 only the products of skilled industries or 
 exchange the labour of as few of its members 
 as possible. That is the measure of its 
 material " Kultur." the Hun variety of 
 which combines with the development of 
 its own the undermining of the skilled 
 industries of others and the theft of their 
 raw material. 
 
 49. Thus in an exchange between two 
 nations which benefits but the one whose 
 cost of production for a given value is 
 least, and from paragraph 34 it is evident 
 that, apart from any destruction of irre-
 
 26 A CHALLENGE TO ECONOMISTS 
 
 placeable raw material, we have only to 
 consider the living wage. Any excess or 
 Wealth wage is the share of the workers, 
 who lose through being compelled to descend 
 into a less well paid industry, as they must, 
 for were a better one available, ]jabour 
 would alreadv have been attracted thereto. 
 
 50. The value of an industry to a 
 nation does not depend upon the profits 
 of the employers, but on the profit per 
 worker after allowing for all necessaries 
 of life. For instance, an industry which 
 requires 50 skilled men's labour at a 
 wage of £3 10s. ^d. per week each, to produce 
 goods of a certain value, is practically twice 
 as beneficial to the country as one which 
 uses the labour of 100 unskilled men at 
 £1 10s. ^d. per week each, to produce the 
 same value in the same time, assuming the 
 material value the same, although the profit 
 to the manufacturer in the former industry 
 is less than in the latter. 
 
 51. No nation should do the unskilled 
 work of another unless it is content to occupy
 
 A CHALLENGE TO ECONOMISTS 27 
 
 a lower position, and accept a lower stan- 
 dard of living. 
 
 52. And in accepting the theories of 
 Karl Marx, Stanley Jevons, etc., a nation 
 commits economic suicide. The law of 
 supply and demand is an assumption that 
 man lives on luxuries, a denial of intrinsic 
 value and the utility of brains, and the 
 usurpation of knowledge by ignorance, for 
 unskilled labour can never permanently 
 control the world, in which the average 
 wealth would be more without it. 
 
 53. Further, there is no virtue in labour 
 as such, for it may equally well be destruc- 
 tive as productive. The only Labour in 
 the world worthy of respect is that which 
 produces daily a greater value than it 
 destroys, that is more than the necessaries 
 of life of the workers and those dependent 
 upon them. Therefore only some labour 
 produces wealth and its measure is its 
 relation to labour's own daily necessaries. 
 This is clear of necessaries, utilities, and 
 labour-saving commodities, all of which
 
 28 A CHALLENGE TO ECONOMISTS 
 
 have intrinsic value, but it is also true of 
 luxuries although their exchange value 
 may not be permanent, as shown in para- 
 graph 10. 
 
 54. In addition to industries employing 
 unskilled labour those which are engaged 
 in mining our irreplaceable raw^ material, 
 such as Coal, or using up raw material to 
 produce slightly manufactured goods, such 
 as Iron Bars, also require no protection, 
 as any wise nation is ready to accept raw 
 or semi- raw material. If our exports of 
 such material ceased altogether and we only 
 mined what we needed ourselves to produce 
 highly finished articles, we should be con- 
 serving the nation's wealth instead of 
 squandering it, and have more labour 
 available for skilled productive industries. 
 
 55. As it is impossible under Free Trade 
 to establish a highly skilled industry in 
 the face of unlimited foreign competition, 
 the effect of this policy is to drive labour 
 into less skilled industries so that IT 
 stands revealed as actually Protection for
 
 A CHALLENGE TO ECONOMISTS 29 
 
 unskilled industries, and the Swpport of 
 the exporter of the nation's natural wealth 
 for his personal lienefit. Thus low wages 
 are indeed inseparable from Free Trade, 
 and the lower prices can afford no compen- 
 sation to the workers, for an improvement 
 in the relation between wages and prices 
 is most readily obtained by the develop- 
 ment of those very industries which are 
 hampered by that Policy. 
 
 56. The national cost of production 
 being merely the destruction of labour 
 and irreplaceable raw material, protective 
 duties cannot affect it. The first result of 
 Protection is to cause a rise in prices, the 
 effect of which, or in fact of any artificial 
 advance in prices or wages, without a 
 corresponding increase in production, is to 
 depreciate the value of money. If, how- 
 ever, the wealth distribution remain the 
 same, wages must increase proportionately 
 and no one would be better or worse 
 off. 
 
 57. The benefit of Protection does not
 
 30 A CHALLENGE TO ECONOMISTS 
 
 lie in the revenue produced, but in tlie 
 stimulation of Production, particularly such 
 as results in the greatest wealth per worker, 
 i.e. Industries employing highest average 
 of skill or brains, and in this way not 
 merely may the depreciation in the value 
 of money be made good, but, as shown in 
 paragraphs 37-45, the relation of wages 
 and prices actually improved. 
 
 58. And as all economic wealth is due 
 to production, every one is dependent upon, 
 and the servant of, the Producer. Yet the 
 British Empire is controlled by Middlemen, 
 for whom it has still to be claimed that, 
 amassing personal wealth at the expense 
 of both producer and consumer, they are 
 actuated by more altruistic motives. 
 
 59. And the Middlemen far more than 
 the Producers can hold up the rest of the 
 community to ransom, for in a democratic 
 state, if equality of reward for equal service 
 value be recognized, the Producer cannot 
 retain for himself the wealth he creates. 
 Wages must ultimately depend upon the
 
 A CHALLENGE TO ECONOMISTS 31 
 
 value produced, and that portion beyond 
 the living wage represents a share of the 
 wealth increment for the workers, which 
 is greater the better the industry, and on 
 the whole Middlemen do not pay high wages. 
 Local and national taxation are also levied 
 on the Producers, who provide all state 
 revenues, nolens volens. The State can 
 only exist on its share of the balance of 
 production over consumption, which is 
 the measure of its prosperity and only 
 "paid over in the form of Money. 
 
 60. It has been shown that the wealth- 
 producing industries are most subject to 
 competition, so that through Free Trade a 
 nation's best industry may be destroyed. 
 
 61. It is true that a nation should devote 
 itself to those industries for which it is 
 best suited, but these are the skilled indus- 
 tries producing the greatest wealth incre- 
 ment per worker, which the development 
 of its inhabitants has made suitable. The 
 industries for which a nation is naturally 
 suited may be of low value, and Switzerland
 
 32 A CHALLENGE TO ECONOMISTS 
 
 is an example of the development of 
 unnatural industries. 
 
 62, And no Nation can be sure of being 
 pre-eminent in such a "' best " industry 
 or any high value- producing one ; conse- 
 quently self-preservation, which includes 
 economic development, necessitates Pro- 
 tection for a nation's best industries. 
 
 63. Thus the Right of Existence of small 
 nationalities is inseparably connected with 
 the Protection of their industries and 
 equally incompatible with Internationalism, 
 Bolshevism, and universal Free Trade, 
 which are practically synonymous. 
 
 6-i. It is clear therefore that the Protec- 
 tion of industries, or the prevention of tres- 
 pass on economic production, is not merely 
 an essential principle of good government, 
 so long as Nations have a separate existence, 
 but it widens the distribution of wealth by 
 reserving to a nation its most wealth-pro- 
 ducing industries, which alone permit of the 
 highest wages being paid to the workers. 
 
 65. Cheap prices benefit the consumers,
 
 A CHALLENGE TO ECONOMISTS 33 
 
 but tliey are themselves largely Producers 
 or dependent upon them, and as high wages 
 can only be paid where prices permit it, 
 the consumers are robbing themselves or 
 their fellow- workers of the Wealth due to 
 Production by buying the products of 
 lower-waged labour. It is true that the 
 individual buyer of a cheaper Foreign-made 
 article benefits at the expense of the Nation, 
 but Economics no more deals with such a 
 wealth increase than trade consists in 
 robbery or the exchange of nothing for 
 something. It is always the Middleman 
 who benefits at the expense of both Pro- 
 ducer and Consumer, and only in industries 
 yielding no wealth wage does a cheaper 
 foreign price benefit the nation. 
 
 66. The vital question is always the 
 relation between wages and prices, which 
 can best be improved by an increase in 
 the value produced per worker, whereas 
 by the exchange of the products of less 
 skilled for those of more skilled industries, 
 wealth- producing labour or alternatively 
 
 c
 
 34 A CHALLENGE TO ECONOMISTS 
 
 leisure is lost at each transaction. The 
 wages paid in excess of the Living Wage 
 represents the worker's share of the wealth 
 he helps to produce and he loses by being 
 forced into a less skilled industry. 
 
 67. The size of an industry is no measure 
 of its national importance, and the balance 
 of exports over imports is no more indication 
 of a nation's prosperity than the balance 
 of an account between two traders is 
 proof that the debtor has got the worst 
 of a bargain. Only if the national cost 
 of production of the article to be exported 
 is less than would be that of the imported 
 article, does the nation benefit by export 
 and the exchange. 
 
 68. The elimination of waste can only 
 be obtained by Co-operation among all 
 Producers, both employers and employed, 
 who are also the principal consumers, and 
 their prosperity is bound up with that of 
 the State ; whereas the Middleman, although 
 necessary, benefits at the expense of the 
 community, and should be strictly controlled.
 
 A CHALLENGE TO ECONOMISTS 35 
 
 69. Those who produce the nation's 
 wealth should control its economic destiny, 
 not those whose interest may lie in stimu- 
 lating the production of otJier nations in 
 preference to their own. 
 
 70. The wealth of the world being due 
 to an excess of production over consump- 
 tion, there cannot be economically such a 
 thing as over-production, yet we have the 
 Economists and Politicians raising the 
 bogey of unemployment and advocating a 
 greater consumption to produce wealth. 
 That in practice there is often some over- 
 production is due to lack of Co-operation 
 among Producers ; and, whereas the" Wealth 
 Dealers," i.e. Middlemen, are allowed to 
 combine, it is considered wrong for the 
 "Wealth-Makers" or Producers to do so, 
 although it has never yet been demonstrated 
 that their morality, intelligence or patriot- 
 ism are less. 
 
 71. The same Economists who ask us 
 to believe that a valueless article is valuable 
 because some one wants it, and a valuable
 
 36 A CHALLENGE TO ECONOMLSTS 
 
 article valueless because no one wants it, 
 so that we might spend an infinite amount 
 of labour yet produce no value, tell us 
 that consumption increases wealth, whereas 
 we know that the contrary is true. These 
 delusions arise from ignorance of the laws 
 of production, and a confusion of indivi- 
 dual with national wealth, and of luxuries 
 with necessaries although the latter are 
 economically of far greater importance. 
 
 72. A " division of labour," to which 
 Economists attach so much importance in 
 order to obtain more efficient production, 
 only reduces the cost of production to a cer- 
 tain point, as is indicated by the diagram 
 (see next page), which point, partly owing 
 to the greater cost of trading operations, is 
 soon reached in practice, and in every case 
 the total cost of j^roduction corresponding 
 to a greater consumption, must increase 
 or we should be getting something for no- 
 thing, and Perpetual Motion would indeed 
 be attainable. The method of production 
 must suit the quantity, and the reduction
 
 A CHALLEXGE TO ECONOMISTS 37 
 
 in cost is due to the better method and 
 not to the output ; for if the total cost could 
 be reduced, the better method should have 
 been adopted for the smaller output ! 
 An electric supply station affords the 
 clearest example, and consumers have not 
 as yet been asked to waste current, although 
 it may pay an individual to do so. . 
 
 i\ 
 
 inimum 
 
 Cost. 
 
 ^ — Out- put. -> 
 
 73. It is the greater and quicker produc- 
 tion of necessaries which renders possible 
 a larger production of luxuries and thus 
 increases their availability, but all consump- 
 
 ;ii).^>')57
 
 38 A CHALLENGE TO ECONOMISTS 
 
 tion destroys wealth and increases man's 
 hours of labour. 
 
 74. The wasteful habits engrained in our 
 countrymen are due to the teaching of false 
 economic principles. It is not the cost 
 of waste to an individual that matters, but 
 the cost to the nation of replacing it, that 
 is, longer working hours for the producers, 
 for a waste of necessaries must almost always 
 be made good by them. 
 
 75. There is thus no question of over- 
 production or unemployment, but wrong 
 production. There is always danger of 
 this evil in a luxury trade, which is subject 
 to changes of fashion, but still more so in 
 an unskilled or low value producing indus- 
 try, because the uncivilized nations with a 
 lower standard of living enter the market 
 and can always undersell a higher civiliza- 
 tion. 
 
 76. Thus it is again clear that a nation's 
 economic state is decided by its develop- 
 ment of skilled industries and that the 
 most unskilled should be left to nations
 
 A CHALLENGE TO ECONOxAIISTS 39 
 
 with the lowest standard of living. Part 
 of the Lancashire cotton industry to-day 
 is a disgrace to our civilization. What 
 Indians can do let them do. 
 
 77. An increase in the wealth available 
 for distribution and an improvement in 
 the relation between wages and prices 
 depends, apart from the development of 
 skilled or high value producing industries, 
 upon an increase in the number of producers 
 as compared with non- producers, and the 
 conversion of a middleman into a producer 
 is evidently equivalent to two new producers. 
 
 78. The earliest Social Reformers, seeing 
 wealth accumulated by a certain class, 
 jumped to the conclusion that Free Trade, 
 by breaking up a Monopoly, would benefit 
 the nation. They considered the producer 
 to be the individual employer instead of 
 the mass of workers, and overlooked the 
 possibility of a greater wealth production 
 with a better distribution by higher wages 
 or profit sharing and more equitable 
 taxation.
 
 40 A CHALLENGE TO ECONOMISTS 
 
 79. Fifty years ago, when we were practi- 
 cally the only industrial nation, with no 
 competition in the then skilled industries, 
 Free Trade was undoubtedly beneficial, 
 as we could only import the raw material 
 for our industries, which, at that date, 
 represented the highest intrinsic value per 
 worker ? It is evident, therefore, that 
 Protection for high value producing indus- 
 tries, w^hich is the only rational form, 
 would have been equivalent to Free Trade 
 at that period. 
 
 80. Our Economists, seeing that in effect 
 the importation of foreign produce or raw 
 material in exchange for manufactured 
 articles did help our manufacturers, were 
 seized with the inspiration that wealth was 
 due to trade, and to maintain this were 
 obliged to invent the fantastic theory that 
 all value was due to demand (see paragraphs 
 1 7, 24, 25, and 26). 
 
 81. Individual wealth mav be due to 
 trade, and also national wealth, at the 
 expense of another nation — perchance at
 
 A CHALLEXGE TO ECOXOMISTS 41 
 
 our expense (see paragraphs 48. 49, ZO, 
 51, 66) — Init only an increase in world 
 wealth, which is solely due to production, 
 to the balance of production over consump- 
 tion, can improve the condition of all 
 Mankind. 
 
 82. Trading operations appear to produce 
 wealth, just as Labour does, but they also 
 only do so if the economy, or value produced 
 through them, exceeds the value destroyed, 
 i.e. cost of trading. 
 
 83. A practical limit to the saving obtained 
 through a division of labour is soon reached, 
 as shown in paragraph 72, and is recognized 
 by all Scientists, for if not, no small nation 
 could compete with a large one, and all 
 trading operations are part of the cost of 
 joroduction, although they may, and fre- 
 quently do, enrich one party at the expense 
 of another without effecting any economy 
 whatever. 
 
 84. It is evident also that were two 
 nations both producing similar articles of 
 high value per worker, under similar condi-
 
 42 A CHALLENGE TO ECONOMISTS 
 
 tions, a division of labour would not benefit 
 Mankind, but, with a one-sided Free Trade, 
 permit another nation to enlarge its output 
 at our expense and thus increase our own 
 costs of production. 
 
 85. So long, therefore, as nations have 
 a separate existence and their inhabitants 
 are not prepared to emigrate or leave the:r 
 land waste, the division of labour should 
 fall short of disturbing valuable industries. 
 
 86. The absurd conclusions of our Econo- 
 mists arise from a confusion of the Individual 
 with the National cost, of Individual with 
 National wealth, of Productive with Un- 
 productive labour, of the Production with 
 the Distribution of wealth, from a Denial 
 of Intrinsic Value and failure to recognize 
 the Economic Importance of Necessaries, 
 whence the belief that all Value is due to 
 Demand. 
 
 87. On these fallacies (and the present 
 money value of a year's bare necessaries of 
 life for the population of the United 
 Kingdom exceeds the sum of £1,000,000,000)
 
 A CHALLENGE TO ECONOMISTS 43 
 
 rests the whole structure of Free Trade. 
 
 88. The practical disadvantages of Free 
 Trade are obvious to many and are due to 
 fundamentally false assumptions, and not 
 to discrepancies between theory and prac- 
 tice, as its unscientific disciples and the 
 deluded working classes still believe. 
 
 89. A Nation can no more be dissociated 
 from its Country than a Family from its 
 Home. The Entity of a nation consists 
 of a Country and its People. The Wealth 
 of a nation lies in the Land and People. 
 A Nation which exported all its people 
 would cease to exist. A Nation which 
 exported all its natural resources would 
 starve, yet that is the meaning of Free 
 Exports and Free Trade. 
 
 90. The title Free Trade suggests Liberty. 
 In reality it means Licence. While every 
 man (and every nation) should be free to 
 develop and use the gifts of nature to their 
 best advantage, i.e. Produce, both for the 
 benefit of himself and his fellow-men. 
 Liberty to steal what he cannot replace of
 
 44 A CHALLENGE TO ECONOMLSTS 
 
 a nation's resources, to compel a man by- 
 Need to hand over in an exchange more 
 than the true value, or to exchange the 
 Labour of many of his fellows for a less 
 number of another nation, is incompatible 
 with the elementary principles of civili- 
 zation and good government. 
 
 91. Economics, although defined as a 
 Science, is termed alternatively Political 
 Economy, and the attempt to connect 
 Politics with Science is an indication of 
 the state of mind of its Teachers and of 
 the Wisdom of their pupils, whereas the 
 true meaning of Economics being Govern- 
 ment, a knowledge of its real principles 
 must be essential to every Statesman. 
 
 p. S Klnj & Son, Liml'ed, Printer?, Orchard House, Westminster,' S.W.
 
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